A Section 148A order cannot rely on grounds beyond those stated in the show-cause notice.

The petitioner filed his return for A.Y. 2020–21 declaring income of Rs. 43,31,600; it was processed under Section 143(1) of the Income-tax Act, 1961.

In March 2026, the Assessing Officer issued a notice under Section 148A(1), based on CBDT INSIGHT Portal information alleging high-value transactions of Rs. 3,87,87,00,000.

The petitioner replied that the transactions related to IPO funding provided by ECL Finance Limited and submitted supporting documents; he later explained that Rs. 1,70,00,000 in margin money had come through banking channels.

The Assessing Officer’s order under Section 148A and consequential notice under Section 148 accepted the IPO-funding explanation but relied on concerns about the source of the margin money and a proposed disallowance under Section 40(a)(ia)—issues not raised in the original show-cause notice.

Whether the order under Section 148A and consequential notice under Section 148 were liable to be quashed because the order relied on issues beyond the scope of the show-cause notice.

Whether the petitioner was denied an opportunity to respond to the newly raised issues concerning the margin money and proposed disallowance under Section 40(a)(ia).

Section 148A of the Income-tax Act, 1961 requires the Assessing Officer, before deciding whether to issue a notice under Section 148, to follow the prescribed show-cause process and consider the assessee’s response.

An order under Section 148A cannot be based on new issues beyond the scope of the show-cause notice without giving the assessee an opportunity to address them; doing so violates the principles of natural justice.

The Court also referred to Section 40(a)(ia) as the provision under which a proposed disallowance relating to interest on the unsecured loan had been raised.

No judicial precedents were cited.

The show-cause notice concerned alleged unexplained high-value transactions of Rs. 3,87,87,00,000, while the petitioner’s replies explained those transactions as IPO funding from ECL Finance Limited.

In the final order, the Assessing Officer shifted focus to the Rs. 1,70,00,000 margin money, its alleged source from JH Handloom, and a proposed Section 40(a)(ia) disallowance—matters not put to the petitioner in the original notice.

Because the petitioner had no opportunity to respond to those matters before the order was made, the Court held that the order exceeded the notice’s scope and breached natural justice.

It reserved liberty to the Revenue to issue a fresh show-cause notice concerning the margin money and proposed disallowance under Section 40(a)(ia), if otherwise permissible by law.