Sambasivam Bhaskaran Vs Assessment Unit (Madras High Court)
Madras HC: ₹84 Lakh Section 69 Addition Largely Represented Housing Loan — Ex Parte Assessment Set Aside on ₹5 Lakh Deposit
Summary: The Madras High Court set aside the assessment order dated 08.01.2026 arising from proceedings under Sections 144 read with 144B for Assessment Year 2024-25, primarily on the ground of breach of principles of natural justice. The petitioner asserted that he became aware of the proceedings only in April 2026 when contacted by the Income-Tax Department regarding non-payment of penalty. He contended that the substantial liability included ₹84 lakhs treated as unexplained investment under Section 69 of the Income-tax Act, 1961, which actually represented a home loan.
The Revenue pointed out that the petitioner had been provided multiple opportunities and had failed to respond to notices issued under Sections 143(2) and 142(1) as well as the show cause notice. The Court therefore held that the petitioner could not be absolved of responsibility for his non-compliance.
However, the Court noted that the aggregate tax demand flowed largely from the ₹84 lakh Section 69 addition. The petitioner asserted that the amount related to a home loan and produced documents showing a loan of ₹66,34,950/- from Axis Bank, Pallavaram Branch, Chennai. Considering this aspect, the Court held that the interest of justice warranted providing the petitioner an opportunity, subject to terms.
Accordingly, subject to the petitioner remitting ₹5 lakhs towards the tax demand within six weeks from receipt of the order, the Court set aside the assessment order and remanded the matter to the Assessing Officer for reconsideration. The petitioner is to be given a reasonable opportunity to reply to the show cause notice and participate in a video conference hearing, if requested. The fresh assessment order is to be issued within six months from the date of remittance of ₹5 lakhs.
The Madras High Court set aside an ex parte assessment under Sections 144 read with 144B for AY 2024-25, where a substantial demand arose from ₹84 lakh treated as unexplained investment under Section 69. The assessee contended that he was unaware of the assessment proceedings and came to know about them only in April 2026 when the Income-tax Department contacted him regarding the unpaid penalty. He claimed that the ₹84 lakh addition actually related to a home loan.
The Revenue pointed out that the assessee had been afforded multiple opportunities and had failed to respond to notices under Sections 143(2), 142(1) and the show-cause notice. The Court therefore held that the assessee could not be absolved of responsibility for his non-compliance.
However, the Court found it significant that the demand arose largely from the ₹84 lakh Section 69 addition, whereas the assessee produced documents showing that ₹66,34,950 represented a home loan obtained from Axis Bank, Pallavaram Branch, Chennai. Considering this documentary evidence, the Court held that the interest of justice required another opportunity to explain the transaction.
Accordingly, subject to the assessee depositing ₹5 lakh towards the tax demand within six weeks, the assessment order was set aside and the matter remanded to the AO for reconsideration. The assessee must be given reasonable opportunity to reply to the show-cause notice and a video-conference hearing, if requested. The fresh assessment is to be completed within six months from the date of ₹5 lakh remittance.
Key takeaway: Even though failure to respond to repeated income-tax notices was attributable to the assessee, the High Court considered remand appropriate where a major Section 69 unexplained-investment addition was prima facie supported by documents showing a genuine bank housing loan, subject to a ₹5 lakh pre-deposit.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Assessment order dated 08.01.2026 is challenged in this writ petition primarily on the ground of breach of principles of natural justice.
2. The petitioner asserts that he became aware of proceedings being initiated against him only in April, 2026 when he received a phone call from the Income-Tax Department informing him that the penalty imposed on him has not been paid. Learned counsel for the petitioner submits that the petitioner could not respond to the notices preceding the assessment order because he was unaware of proceedings. He also submits that the assessment order imposes substantial liability in relation to an alleged unexplained investment of Rs.84 lakhs. He points out that this is a home loan availed of by the petitioner. Therefore, learned counsel seeks an opportunity to submit relevant documents before the assessing officer. On instructions, he submits that the petitioner agrees to remit a sum of Rs.5 lakhs towards the tax demand under the impugned assessment order as a condition for remand.
3. Dr.C.P.Priya, learned senior standing counsel, appears on behalf of the respondents. Referring to the assessment order, she points out that multiple opportunities were provided to the petitioner and that the petitioner failed to respond to any of the notices.
4. On perusal of the impugned order, it is noticeable that the assessment order was preceded by notices under Section 143(2) and Section 142(1) and a show cause notice. The petitioner failed to reply to any of these notices. Therefore, the petitioner cannot be absolved of responsibility. It is, however, noticeable that the aggregate tax demand flows largely from a sum of Rs.84 lakhs, which was treated as unexplained investment under Section 69 of the I-T Act. The petitioner asserts that this is on account of a home loan availed of to the extent of Rs.66,34,950/- from Axis Bank, Pallavaram Branch, Chennai. The petitioner has filed documents in relation to said home loan. Considering this aspect, the interest of justice warrants the provision of an opportunity to the petitioner, albeit by putting the petitioner on terms.
5. For reasons aforesaid, subject to the remittance of a sum of Rs.5 lakhs by the petitioner towards tax demand under the assessment order within six weeks from the date of receipt of a copy of this order, the impugned assessment order is set aside and the matter is remanded to the assessing officer for reconsideration. After providing a reasonable opportunity to the petitioner to reply to the show cause notice and to participate in a video conference hearing, if so requested, a fresh assessment order shall be issued within six months from the date of remittance of a sum of Rs.5 lakhs.
6. The writ petition is disposed of on the above terms. Consequently, connected miscellaneous petitions are closed. No costs.
