Show Cause Notice under Income Tax Act 1961
Purpose of Show Cause Notice
To provides for a pre-dispute consultation with the taxpayer through issue of specific show cause notices and a limited number of hearings before before issuing a tax demand notice.
In all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show cause notice. [INSTRUCTION NO.20/2015 [F.NO.225/269/2015-ITA-II], DATED 29-12-2015]
Show Cause Notice issued after limitation period are Invalid
Law of limitation is generally regarded as procedural and its object is not to create any right but to prescribe periods within which legal proceedings be instituted for enforcement of rights which exist under substantive law. On expiry of the period of limitation, the right to sue comes to an end and if a particular right of action had become time barred under the earlier statute of limitation the right is not revived by the provision of the latest statute. Hon’ble Supreme Court in the case of Thirumalai Chemicals Ltd. v. Union of India [2011] 6 SCC 739 (Para 23, 26, 29 to 32)
Non Issue of Show Cause Notice can be fatal
Delhi High Court in the case of Maruti Suzuki India Ltd. v.Addl. CIT, TPO [2010] W.P. (C) 6876 OF 2008, he has opined that non-issue of proper show-cause notice can be fatal to the proceedings under the Income-tax Act, 1961
Service of Show Cause Notice : Must
In Biecco Lawrie Ltd. v. State of West Bengal AIR 2009 SCW 5779, Supreme Court, inter alia, observed as under :—
‘One of the essential ingredients of fair hearing is that a person should be served with a proper notice, i.e., a person has a right to notice. Notice should be clear and precise so as to give the other party adequate information of the case he has to meet and make an effective defence. Denial of notice and opportunity to respond result in making the administrative decision as vitiated. The adequacy of notice is a relative term and must be decided with reference to each case. But generally a notice to be adequate must contain the following :
(a) time, place and nature of hearing;
(b) legal authority under which hearing is to be held;
(c) statement of specific charges which a person has to meet.’
Grounds of Show Cause Notice :Need to be clear, cogent, specific and unambiguous.
Uma Nath Pandey v. State of UP AIR 2009 SC 2375, Supreme Court, inter alia, observed as under :
‘Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him’.
Show Cause Notice to the Dead person is nullity
There is settled position that any proceeding initiated against a dead person is a nullity.
One important distinction between a case where the proceedings are initiated against a person, who is alive, but continued after his death and a case of proceedings initiated against a dead person himself. If the proceedings had been initiated against a person, who was alive, and they were continued after his death after putting his legal heirs on notice, those proceedings, under certain circumstances, may be saved. [HIGH COURT OF MADRAS, Commissioner of Income-tax -VIII, Chennai,v. M. Hemanathan,TAX CASE APPEAL NO. 199 OF 2016]
Compounding of Offence at the stage of show-cause notice Not Allowed
whether offences relating to undisclosed foreign bank accounts/assets could be compounded ?
i) Such cases can be compounded only after filing the Prosecution complaints) and shall not be compounded at the stage of show-cause notice and/or without filing the complaint in the court.
ii) The cases in which the assessee has not admitted the foreign bank account(s)/assets and/or has not co-operated with the Department in the assessment, penalty & recovery proceedings shall not be compounded.
iii) The cases in which the assessee has admitted accounts/assets either fully (all accounts with which he is associated) or partially (only a few accounts out of all accounts with which he is associated), paid taxes and penalty and co-operated with the Department may be considered for compounding as per the guidelines dated 23-12-2014, only after filing the complaints.
[LETTER [F.NO.285/90/2013 IT(INV.V)/212], DATED 4-9-2015]