Facts of the Case

The petitioner, CLH Gaseous Fuel Applications Pvt. Ltd., challenged the assessment order dated 22.04.2021 passed under the Faceless Assessment Scheme, 2019 for Assessment Year 2018–19.

The Assessing Officer (AO) made substantial additions amounting to ₹16.83 crore under Section 68 of the Income Tax Act, 1961 in respect of:

  • Share capital
  • Share premium
  • Unsecured loans

Further, disallowances were made under:

  • Section 36(1)(va) read with Section 2(24)(x) (prior period expenses)

Consequently, the total taxable income was determined at ₹18.67 crore and a demand of ₹16.91 crore was raised under Section 156 of the Act.

Issues Involved

  1. Whether the assessment order passed without issuing a proper show-cause notice violates principles of natural justice.
  2. Whether compliance with notices under Sections 142(1) and 143(2) substitutes the requirement of a specific show-cause notice as per CBDT Instruction No. 20/2015.
  3. Whether additions under Section 68 can be sustained without granting adequate opportunity to the assessee.

Petitioner’s Arguments

  • The Assessing Officer failed to follow CBDT Instruction No. 20/2015 dated 29.12.2015, which mandates issuance of a specific show-cause notice before making additions or disallowances.
  • No opportunity was granted to respond to proposed additions, thereby violating principles of natural justice.
  • Mere issuance of questionnaires or notices under Sections 142(1) and 143(2) does not fulfill the statutory requirement of a show-cause notice.

 Respondent’s Arguments

  • The Revenue contended that:
    • Notices under Section 143(2) and multiple questionnaires under Section 142(1) were issued.
    • The petitioner had responded to these notices.
  • It was argued that these steps substantially complied with the requirement of giving an opportunity of being heard.

Court’s Findings

  • The Court observed that:
    • Notices under Section 142(1) are meant for gathering information, not for proposing additions.
    • CBDT Instruction No. 20/2015 explicitly requires:
      • Issuance of a show-cause notice
      • Disclosure of reasons for proposed additions
      • Opportunity to respond before final assessment
  • The Court held that:
    • No specific show-cause notice was issued prior to making additions.
    • This constituted a clear violation of principles of natural justice.
    • In absence of a counter-affidavit, the petitioner’s assertions were accepted as correct.

Court Order / Final Decision

  • The Delhi High Court set aside the impugned assessment order dated 22.04.2021.
  • Liberty was granted to the Assessing Officer to:
    • Re-initiate proceedings in accordance with law
    • Issue proper show-cause notice
    • Provide opportunity of hearing and personal representation

The writ petition was disposed of accordingly.

 Important Clarification

  • Compliance with procedural notices (Sections 142(1)/143(2)) does not substitute mandatory issuance of a show-cause notice.
  • CBDT Instruction No. 20/2015 is binding and reinforces natural justice requirements in tax assessments.
  • Any addition without prior opportunity to respond is liable to be quashed.

 Sections Involved

  • Section 68 – Unexplained Cash Credits
  • Section 36(1)(va) read with Section 2(24)(x) – Employee Contribution
  • Section 142(1) – Inquiry before Assessment
  • Section 143(2) – Scrutiny Notice
  • Section 156 – Notice of Demand
  • CBDT Instruction No. 20/2015 (29.12.2015)

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS25042023CW52722021_223733.pdf

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