Addition more than amount proposed via notice is unsustainable

ITO Vs Mohammedarif Ibrahimbhai Shaikh (ITAT Ahmedabad)

Held that non-issuance of proper show cause can be fatal to the proceeding under the Income Tax Act. AO clearly failed in issuing the appropriate show-cause notice thereby clearly vitiated the principle of natural justice

Facts- The assessee is engaged in the business of trading in and export of Animals (Live Stock) in the name of I K International, a proprietorship concern. The assessee purchased livestock from traders to whom payment was made by A/c payee cheque. Assessee maintains a register which keeps the detail of the number of sheep and the detail of the party from whom these are purchased. The broker in turn charges commission from farmers, who intend to sell their livestock. Sometimes when it becomes impossible to get the required quantity of livestock to be exported from the surrounding farmers are purchased directly from the trader’s payments whereof were made through an A/c payee crossed cheque. The appellant further maintains a ledger of such broker in his books for the purpose of identification of the person through whom livestock is purchased. Under each such ledger, the assessee maintains a sub-ledger of all shepherds from whom the livestock is purchased in the form of a register of total sheep purchased through such broker; the party-wise breakup of the person from whom the same is purchased is also maintained.

During the course of assessment, AO issued notice proposing addition of INR 1.25 Crores u/s 40A(3). Whereas, in the assessment order, AO had made addition of INR 4.265 Crores.

Conclusion- That the show-cause issued by the Ld. AO though proposing disallowance of Rs.1.24 crores, the addition was ultimately made to the tune of Rs.4.265 crores violating of the principle of natural justice. The judgement passed by the Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd vs. Addl. CIT reported in, TPO (2010) W.P. (C ) 6876 of 2008 has been duly taken care of by the Ld. CIT(A) in concluding that non-issuance of proper show cause can be fatal to the proceeding under the Income Tax Act. The Ld. AO clearly failed in issuing the appropriate show-cause notice thereby clearly vitiated the principle of natural justice by making addition of Rs.4.625 crores against the proposed addition of Rs.1.25 without showing reason as to how the same figure went up to Rs.4.625 crores as has rightly been agitated by the assessee before him. In our considered opinion such finding is found to be justified for the reason cited therein.

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