The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench consisting of Pramod M Jagtap, Vice President, and Madhumita Roy, Judicial Member held that non-issue of proper show-cause notice can be fatal to the proceedings under the Income-tax Act.
The assessee, Mohammedarif Ibrahimbhai Shaikh 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. The assessee maintains a register that keeps the detail of the number of sheep and the detail of the party from whom these are purchased. The broker in turn charges a 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. All the books and the ledger copies were duly submitted before the Assessing Officer (AO). The matter on merit after perusal of the remand report furnished by the AO and the reply filed by the assessee against the same, the Commissioner of Income Tax (CIT) came to the finding that the show-cause issued by the AO though proposing disallowance of Rs.1.24 crores, the addition was ultimately made to the tune of Rs.4.265.
The Tribunal observed that “Non-issuance of proper show cause can be fatal to the proceeding under the Income Tax Act. The AO clearly failed in issuing the appropriate show-cause notice thereby clearly vitiated the principle of natural justice by making the 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.”
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