MRS ZARAH IQBAL vs. ASSESSMENT UNIT

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WP/17465/2026HC KarnatakaKAHC01038061202616 June 2026Bench: B M SHYAM PRASAD7 pages
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What did the High Court hold?

The High Court held that the Assessment Order dated March 24, 2026, is quashed and the proceedings are restored for re-adjudication. The Court found that the Assessing Officer's conclusion was based on a procedural error. Relying on the Apex Court's decision in Commissioner of Income-tax V/s Orissa Corpn, (P.) Ltd., the Court opined that the Revenue ought to have issued notices under Section 131 of the IT Act to the family members who made remittances to ascertain their creditworthiness and source of income, which was not done. The judgment directs the Authorities to enable the petitioner to produce documents and conclude proceedings in light of the Court's observations. The issue of whether the source of funds received by the assessee, having been disclosed, needs verification before addition, as held in Orissa Corporation, was implicitly addressed by the finding of procedural error.

What were the facts?

The petitioner, Mrs. Zarah Iqbal, a resident of Dubai, has filed a writ petition challenging an Assessment Order dated March 24, 2026, for Assessment Year 2024-25. The assessment was concluded on the premise that the petitioner had not disclosed the nature and source of certain remittances, leading to the amount being treated as unexplained income under Section 69A of the Income Tax Act, 1961. The petitioner sought a remand for fresh adjudication. The Assessing Officer's conclusion was based on the petitioner's failure to furnish IT returns of her family members, from whom remittances were made, and the undisclosed source of the remitting parties.

What were the issues?

1. Whether the Assessment Order dated March 24, 2026, passed by the First Respondent for Assessment Year 2024-25 is liable to be quashed and the matter remanded for fresh adjudication? (Question of law and mixed fact and law, concerning Section 69A of the IT Act). Assessee's Contention: The assessment order is based on an erroneous presumption. The Revenue failed to issue a notice under Section 131 of the IT Act to examine the source of income and creditworthiness of the creditors (family members). The petitioner had disclosed the relationship with the creditors, and any inability to furnish details of the family members' income was due to ongoing conflict in the Middle East. Relied on: Commissioner of Income-tax V/s Orissa Corpn, (P.) Ltd. Revenue's Contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 69A,Section 131

AI-generated summary — verify with the full judgment below

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HC-KAR NC: 2026:KHC:29249 WP No. 17465 of 2026

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16TH DAY OF JUNE, 2026 BEFORE THE HON'BLE MR. JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 17465 OF 2026 (T-IT) BETWEEN:

MRS ZARAH IQBAL D/O. MR. IQBAL HOTHUR, AGED 39 YEARS, R/AT. NO. 153, HOTHUR TOWER, AMARJYOTHI LAYOUT, DOMMALURU, BANGALORE-560071 631, HADAEQ SHEIKH MOHAMMED BIN RASHID, PRESENTLY R/AT. VILLA 329, PO BOX-1, DUBAI, UNITED ARAB EMIRATES.

REP. BY GPA HOLDER MR. IQBAL HOTHUR S/O. LATE HUSSAIN PEERAN, AGED 70 YEARS, R/AT. NO.153, HOTHUR TOWER, AMARJYOTHI LAYOUT, DOMMALURU, BANGALORE-560071

…PETITIONER (BY SRI. M. V. SESHACHALA, SENIOR ADVOCATE FOR SRI. NAGHARISH G.S.., ADVOCATE)

Digitally signed by VANAMALA N Location: HIGH COURT OF KARNATAKA

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HC-KAR NC: 2026:KHC:29249 WP No. 17465 of 2026

AND:

1.

ASSESSMENT UNIT FACELESS ASSESSMENT CENTRE NORTH BLOCK, NEW DELHI-110001 REP. BY ASSESSING OFFICER

2.

NATIONAL FACELESS ASSESSMENT CENTRE, NO.412-413, IST FLOOR, OPP. METRO PILLAR NO. 793 DWARKA MOR, NEW DELHI-110059. REP. BY ASSESSING OFFICER

3.

DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, INFANTRY ROAD, OPP. FIRE STATION, SANJAY GANDHI NAGAR, BELLARY-583104.

4.

PRL. COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, SEDAM ROAD, KALABURGI-583104.

…RESPONDENTS (BY SRI. M. THIRUMALESH, ADVOCATE)

THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT OF CERTIORARI TO QUASH THE ASSESSMENT ORDER DATED NO.ITBA/AST/S/143(3)/2025-24.03.2026 BEARING 26/1087801858(1) ANNEXURE-G PASSED BY FIRST RESPONDENT FOR ASSESSMENT YEAR 2024-25 AND REMAND THE MATTER FOR FRESH

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HC-KAR NC: 2026:KHC:29249 WP No. 17465 of 2026

ADJUDICATION; ISSUE A WRIT OR DECLARATION THAT THE SOURCE OF FUNDS RECEIVED BY THE ASSESSEE HAVING BEEN DISCLOSED HAS TO BE VERIFIED BY THE FIRST RESPONDENT BEFORE MAKING AN ADDITION AS HELD BY THE APEX COURT IN ORISSA CORPORATION (SUPRA).

THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD

ORAL ORDER

The petitioner, a resident of Dubai, United Arab Emirates, has called in question the Assessment Order dated 24.03.2026 [Annexure - G] which relates to the assessment year 2024-25. The petitioner seeks remand for fresh adjudication. The assessment proceedings are concluded in the premise that the petitioner has not disclosed the nature and source of remittances of certain amounts and therefore such amount must be treated as an "unexplained income" under Section 69A of the Income Tax Act, 1961 [for short, 'IT Act'].

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HC-KAR NC: 2026:KHC:29249 WP No. 17465 of 2026

2.

Mr. M. V. Seshachala, the learned Senior counsel for the petitioner, submits that the conclusion is based on a presumption which is erroneous in law, and the learned Senior counsel canvasses, relying upon the decision of the Apex Court in Commissioner of Income-tax V/s Orissa Corpn, (P.) Ltd.1, that the Revenue had to examine the petitioner’s source of income and the creditworthiness of the creditors after issuance of notice under Section 131 of the IT Act, but in this case, the Revenue has not issued such notice.

3.

Mr. M. V. Seshachala argues that the petitioner has disclosed the relationship with the creditors [her family members]. When queried on the family members’ source of income, the learned Senior Counsel submits that the petitioner's representative could not furnish the details because of ongoing

1 [1986] 25 Taxman 80F (SC).

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HC-KAR NC: 2026:KHC:29249 WP No. 17465 of 2026

conflict in the Middle East. Mr. M. Thirumalesh, a learned Senior Standing counsel for the respondents who is called upon to accept notice, is heard for the disposal of the petition.

4.

The Assessing Officer has referred to the remittances by the petitioner’s family members and the amount lying in her account, and the Assessing Officer has concluded the proceedings holding that the petitioner's income is an undisclosed income in two premises viz., firstly, when called upon to furnish the IT returns of her family members to ascertain the bank accounts from which remittances have been made, the petitioner has not furnished documents; secondly, the source of the party making remittances received in the hands of the Assessee remains undisclosed.

5.

The petitioner's request for interference with a decision on remand is considered examining whether the assessment must be with a notice under

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HC-KAR NC: 2026:KHC:29249 WP No. 17465 of 2026

Section 131 of the IT Act to those who have made remittances to the petitioner's account to file their ITR and also with liberty to the petitioner to furnish her family members’ ITR. The Apex Court in Commissioner of Income-tax V/s Orissa Corpn, (P.) Ltd. [supra] has observed thus.

In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further.

This Court opines that the fact that no notice is issued as is required in the light of the Apex Court's

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HC-KAR NC: 2026:KHC:29249 WP No. 17465 of 2026

observation demonstrates error in procedure justifying interference with the impugned assessment order with a remand. In the light of the afore, the following: ORDER [a] The petition is allowed and the impugned Assessment Order dated 24.03.2026 [Annexure - G] is quashed restoring the proceedings for re- adjudication.

[b] The Authorities shall make necessary enablement in the Portal to extend an opportunity to the petitioner to produce documents and conclude proceedings in the light of this Court's observations as aforesaid.

Sd/- (B M SHYAM PRASAD) JUDGE RB

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