Assessment Invalidated Due to Absence of Mandatory Show Cause Notice in Scrutiny Proceedings: ITAT Bangalore
The principles of natural justice serve as the bedrock of tax jurisprudence in India. A fundamental aspect of these principles is the right of the assessee to be heard before any adverse inference is drawn against them. Recently, the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, in the case of ITO Vs Shubhankar Estates Pvt. Ltd., reinforced this doctrine. The Tribunal held that an assessment order passed without issuing a specific Show Cause Notice (SCN) regarding proposed additions is legally unsustainable, particularly when such action violates binding CBDT instructions.
Factual Matrix of the Case
The dispute arose from the assessment year 2016-17. The assessee, a private limited company, filed its return of income declaring a total income of Rs. 5,11,930. The case was subsequently selected for "Complete Scrutiny" under the Computer Aided Scrutiny Selection (CASS) mechanism. Consequently, statutory notices under Section 143(2) and Section 142(1) of the Income Tax Act 1961 were issued, to which the assessee responded by submitting the requisite details via the e-proceedings facility.
During the scrutiny proceedings, the Assessing Officer (AO) scrutinized the share capital raised by the assessee. The company had issued 1,41,500 shares at a premium, collecting a total investment of over Rs. 3.31 Crores. The assessee provided comprehensive documentation, including:
- Income Tax Returns of the investors.
- Audited financial statements for multiple years.
- Bank statements demonstrating the flow of funds.