Case summary, Income Tax

The validity of additions made without issuing a show-cause notice

Case: Shri Shankar Gupta vs. Income Tax officer, Ward-6-4, Jaipur ITAT

Outcome: Assessee


  • The Assessing Officer asked the Assessee to reconcile the difference inter alia the difference between the value of imported goods and payments made for purchases. He also found out that the Assessee has shown debit notes owing to receipt of defective goods from supplier party from China. The Assessee also produced the debit notes issued by him along with corresponding credit notes issued by the suppliers and claimed that the said amount of import/purchase is debited to the profit and loss account after adjusting the debit notes issued by the Assessee in respect of the defective goods and corresponding credit notes issued by the supplier.
  • The Assessing Officer was not satisfied with the explanation and made an addition after allowing 30% as expenditure on sales. The Commissioner of Income Tax (Appeals) was not satisfied with the explanation of the Assessee and not only confirmed the addition made by the Assessing Officer but also enhanced the addition on this account by disallowing 30% expenditure allowed by the Assessing Officer.

Key Points

  • It is pertinent to note that requirement of issuing show cause notice is must prior to the enhancement of the assessment as envisaged in Section 251(2) of the Act for each and every enhancement and it does not depend on the overall outcome of the total income of the Assessee in pursuant to the order of the Commissioner of Income Tax (Appeals).
  • It was surmised that when the Commissioner of Income Tax (Appeals) proposed to enhance the income of the Assessee, he shall issue a necessary show-cause notice to the Assessee and grant the Assessee adequate opportunity to rebut the same, as per the prescribed mandate of sub-section (2) of section 251 of the Income-tax Act.

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