2020 (12) TMI 560 - AT - Income Tax

Tribunal limits assessment scope, cites Natural Justice violation.

Alpha National Trading Co. Versus PCIT-10, Kolkata

The tribunal modified the Ld. Pr. CIT's order and directed the Assessing Officer not to consider the additional issues for fresh assessment, emphasizing ... Revision u/s 263 - advance taken by the assessee's employee Shri Angad Singh which was shown in the balance sheet as liability in place of asset - Genuineness and reasonableness of the payments made to Shri Angad Singh is required to be verified from the angles of section 37(1) and Section 40(b) read with Section 40A(2) - HELD THAT:- Additional issues for which also Ld. Pr. CIT has given direction to AO for fresh assessment was neither a subject matter of the SCN nor an opportunity was given by the Ld. Pr. CIT before passing the impugned order. CIT, DR after perusal of the order sheet of Ld. Pr. CIT has fairly conceded the fact that there was no mention about Ld. Pr. CIT asking any question to assessee regarding these additional issues to assessee as stated (reproduced supra) in para 4.2 of the impugned order. Therefore, (these additional issuesshould not be given effect to by the AO while carrying out fresh assessment as directed by Ld. Pr. CIT, because these additional issues were not confronted by the Ld. Pr. CIT to the assessee before passing the impugned order, so these additional issues are fragile for violation of Natural Justice and so bad in law as held by Hon'ble Supreme Court in Amitab Bachan [2016 (5) TMI 493 - SUPREME COURT] - Therefore, we modify the order of Ld. Pr. CIT and direct the AO not to give effect to the additional issues as directed by ld. Pr. CIT in his impugned order. The order of the Ld. Pr. CIT stands modified to that extend as discussed. And the AO to give effect to the order of Ld. Pr. CIT on the issue which was dealt by him in SCN in accordance to law after hearing the assessee. Issues:Appeal against order of Ld. Pr. CIT-10, Kolkata dated 20/23.03.2018 for 2013-14 passed u/s. 263 of the Income Tax Act, 1961.Violation of Natural Justice by Ld. Pr. CIT in directing fresh assessment on additional issues not mentioned in the show cause notice.Analysis:The appeal was filed by the assessee against the order of Ld. Pr. CIT-10, Kolkata dated 20/23.03.2018 under section 263 of the Income Tax Act, 1961. The Ld. Pr. CIT had issued a show cause notice dated 12.01.2018 raising an issue regarding the understatement of investment of Rs. 12 lakhs by the assessee in respect of an employee named Shri Angad Singh. The assessee responded to the notice denying the understatement and attributing it to an inadvertent mistake in the balance sheet. However, the Ld. Pr. CIT, in setting aside the assessment order, directed fresh assessment not only on the mentioned issue but also on additional issues related to payments made to Shri Angad Singh and various expenses claimed in the profit and loss account. The Ld. Pr. CIT's direction on these additional issues was challenged by the assessee, citing a violation of Natural Justice as the additional issues were not part of the show cause notice, depriving the assessee of a fair opportunity to respond.The Ld. AR argued that the Ld. Pr. CIT's direction on the additional issues, beyond the scope of the show cause notice, was legally untenable and violated principles of Natural Justice. The Ld. CIT DR opposed this argument but admitted that no opportunity of hearing was granted to the assessee on the additional issues during the revisional proceedings. The Ld. Pr. CIT had initially raised a single issue in the show cause notice regarding the understatement of investment by the assessee, but later expanded the scope to include additional issues without providing the assessee with an opportunity to respond. This lack of opportunity to be heard on the additional issues was a clear violation of the principles of Natural Justice.The ITAT Kolkata observed that the additional issues directed by the Ld. Pr. CIT for fresh assessment were not part of the show cause notice and the assessee was not given a chance to address these issues before the impugned order was passed. Therefore, the tribunal modified the Ld. Pr. CIT's order and directed the Assessing Officer not to consider the additional issues for fresh assessment. The tribunal emphasized the importance of adhering to Natural Justice principles and ensuring that parties are given a fair opportunity to present their case. The appeal of the assessee was partly allowed based on these grounds.