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2021 (6) TMI 823 - HC - Income TaxValidity of assessment - whether a show cause notice has to be issued prior to finalisation of assessments under the Act? - Petitioner had relied upon an Instruction issued by the Central Board of Direct Taxes (CBDT) bearing No.20 of 2015 dated 29.12.2015 dealing with the subjects 'Scrutiny assessments – some important issues and scope of scrutiny in cases selected though Computer Aided Scrutiny Selection (CASS)' - HELD THAT:- In this case, admittedly, two pre-assessment notices have been issued leading to some exchange of communications inter se the parties. However, no show cause notice crystallizing the issues dealt with in the assessment orders have been crystallised as such and put to the petitioner for rebuttal, prior to completion of proceedings. CBDT has fairly concluded that principles of natural justice which are enshrined in the procedure for assessment mandate the issuance of a show cause notice prior to finalisation of an order of assessment. The Board refers to Instruction No.3 of 2018 dated 20.08.2018, specifically para 6(vi) thereof relating to AY 2016-17 and the 'E-proceeding' facility available during 2018-19, specifically para (iv)d thereof as well as Circular Number 27 of 2019 dated 26.09.2019 that also reiterate the importance of adherence to the principles of natural justice in the finalisation of proceedings. In view of the confirmation by the CBDT, an important issue stands settled. Though the Income Tax Act does not anywhere contemplate issuance of a show cause notice prior to finalisation of scrutiny assessments, as a matter of procedure and good office, the Assessing Authority is expected to crystalise the issues arising from the return of income filed by an assessee, the questionnaires issued under Section 142(1) and notices under Section 143(2) and responses thereto, issue a show cause notice setting out the issues, solicit the response of the assessee and pass orders only thereafter, after hearing the assessee concerned. Writ Petitions are allowed. The orders of assessment in this case shall be treated as show cause notices and the petitioner shall file replies to the same within a period of six (6) weeks from today.
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