Facts of the Case

The petitioner, DJ Surfactants, challenged the assessment order dated 13.03.2021 passed under Section 143(3) of the Income Tax Act, 1961. A show cause notice along with a draft assessment order was issued on 01.03.2021 requiring response by 08.03.2021.

The petitioner sought additional time and subsequently filed a reply on 12.03.2021 along with supporting material explaining the genuineness of unsecured loans and also requested a personal hearing. However, the Assessing Officer (AO) passed the impugned order on 13.03.2021 without considering the reply or granting a hearing.

An addition of ₹9.56 crores was made under Section 68 concerning alleged unexplained unsecured loans for Assessment Year 2018–19.

Issues Involved

  1. Whether passing an assessment order without considering the assessee’s reply violates principles of natural justice.
  2. Whether failure to grant a personal hearing invalidates the assessment proceedings.
  3. Whether addition under Section 68 can be sustained without examining submitted evidence.

Petitioner’s Argument

  • The petitioner contended that the impugned order was passed in violation of principles of natural justice.
  • It was argued that the reply dated 12.03.2021 explaining the unsecured loans was ignored.
  • The petitioner emphasized that a request for personal hearing was made but not granted.
  • The addition under Section 68 was unjustified as supporting documents establishing genuineness were already submitted.

Respondent’s Arguments

  • The Revenue argued that the addition was justified due to discrepancies between the audit report and balance sheet regarding unsecured loans.
  • It was submitted that there was non-compliance within the stipulated time.
  • However, in its counter-affidavit, the Revenue fairly conceded that the matter could be remanded to the AO for reconsideration of the petitioner’s reply.

Court Findings / Order

  • The Delhi High Court held that the AO failed to consider the petitioner’s reply and supporting material.
  • The Court observed a clear breach of principles of natural justice.
  • The impugned assessment order dated 13.03.2021 was set aside.
  • The matter was remanded to the Assessing Officer for fresh adjudication after considering the reply dated 12.03.2021.
  • The AO was directed to:
    • Provide a personal hearing,
    • Communicate hearing details via registered email,
    • Pass a reasoned (speaking) order.

Important Clarification by Court

  • Even in faceless assessment proceedings, adherence to natural justice is mandatory.
  • Opportunity of hearing and consideration of reply cannot be bypassed.
  • Procedural lapses render the assessment order unsustainable.

Sections Involved

  • Section 143(3), Income Tax Act, 1961
  • Section 68, Income Tax Act, 1961
  • Principles of Natural Justice (Audi Alteram Partem)

 Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:1788-DB/TWS02062021CW48142021_152440.pdf


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