HC Dismisses Writs Challenging Section 263 Notices on Demonetisation Deposits:

HC Dismisses Writs Challenging Section 263 Notices on Demonetisation Deposits The petitioners, involved in the business of gold and silver ornaments, filed writ petitions challenging show-cause notices issued under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT), Valsad. These notices questioned the scrutiny assessments conducted for A.Y. 2017–18, particularly regarding cash deposits made during the demonetization period. The assessment orders had been passed under Section 143(3) after inquiries and additions by the Assessing Officer. The PCIT instead issued notices alleging failure of the AO to verify the source and nature of the cash deposits and cited non-compliance. Issue Raised: Whether the show-cause notices issued under Section 263 of the Income Tax Act could be challenged directly before the High Court under Article 226, bypassing the statutory remedy available to the petitioners. HC's Order: The Hon'ble High Court rejected the writ petitions, stating that show-cause notices under Section 263 are not suitable for judicial intervention before a decision is made. The Court referred to the Supreme Court’s ruling in Piyara Lal v. PCIT (2017) and the High Court’s judgment in Hemalatha Rajan v. DCIT (2024), reaffirming that objections must be raised first with the authority issuing the notice. The High Court also pointed out that the PCIT’s action was backed by initial findings of non-compliance with verification procedures required by CBDT SOPs on demonetization cash scrutiny. The Court further distinguished earlier High Court decisions as not relevant to pre-decisional show-cause notices. As a result, the Court lifted the interim relief, dismissed the writs, and instructed the petitioners to submit their objections to the PCIT within four weeks. To Read Judgment, Download PDF Given Below