For better tax administration and tax payer relations:

[C.A. DEV KUMAR KOTHARI]

SCN from AO to assessee asking about intended additions and disallowances to meet the principal of natural justice.

Important  letter to be submitted to The A.O. after last hearing or on conclusion of hearing.

Scrutiny assessment- requisition:

As per practice prevalent, the Assessing Officers gives a written requisition requiring assessee to furnish details, evidences and to produce witnesses etc, as may be required in a particular case. The A.O. also issue notices to other concerned parties to appear before him to produce evidences and to explain transactions which his assessee had with them. The requisition issued with notice or otherwise is usually contain standard issues on which enquiry is to be made and also some specific points concerning the assessee which the A.O. may consider proper to make enquiry, based on information available to him in his records.

After pursuing the details and evidences filed and material gathered on other enquiry, the A.O. can issue further or additional requisition. Some times certain details or explanations are asked for by writing in the order sheet or verbally.

Scope of submission can be restricted to  requisitions:

Naturally the assessee or his counsel can restrict his submissions to the extent of requirement under law and documents requisitioned. Thus, he can submit relevant   documents which are to be submitted along with the return or before or after filing of return as per specific provision applicable in his case. For example, with the return  (or after filing on line return) one may submit the audited accounts, tax audit report, cost audit report and any other applicable forms or certificate applicable in his case. After submission of these documents, the assessee need not to furnish any other documents, unless the A.O. require them.

In response to the requisition the assessee can very well restrict his submissions to the extent asked for by the A.O. The assessee need not to furnish other details or evidences or to produce witnesses which the A.O. has not asked for.

Additions and disallowances should not go beyond requisition:

To follow the principal of natural justice, the A.O. should not make any addition or disallowance without making any enquiry from the assessee or without giving an opportunity to the assessee to explain or show cause why any addition or disallowance should not be made. As a healthy practice the A.O. can issue a SCN on the following lines:

To the Assessee,

After perusal of the return of income, documents submitted by you voluntarily as well as in response to requisitions issued by this office and also other evidences gathered by this office which were shown to you/ your representatives I am considering to make the following additions and/ or disallowances:

        A. Share capital contributed by M/s. Shareholder P. Ltd Rs. five lakh as the said party did not respond to the notice issued to them to produce their books of account, bank statement and other evidences to examine source of capital contributed by them.

       B. Deductions as employees PF contributions which were deposited after due date(including grace period) to be disallowed u/s  36 (1) (va) read with S. 2 (24) (x) for the month of June 2006  and September 2006.

You are given a further opportunity to represent your case and explain why the above additions/ disallowances should not be made. The case is fixed for hearing on ….

Additions and disallowances without enquiry/ requisition:

Instances have come in which the A.O. made several additions and disallowances without asking the assessee  any explanation or evidence. Without  a requisition or direction to produce evidence, how assessee can furnish them. The assessee cannot dream what the A.O. has in his mind. Therefore, the A.O. should issue requisition and or SCN  about the intended additions and disallowances. However, in practice no such SCN are issued. Many additions and disallowance are made without making any enquiry form the assessee.

To protect himself from such additions and disallowances, the assessee can furnish a letter after the last hearing stating that all requisitioned items have been explained with necessary details and evidences. For example in the example given above ( in which the A.O. issues SCN)  the assessee can furnish letter on the following lines:

Assessee's letter after last hearing:

To   

( use specially designed  and saved letter head for correspondence with

I.T.Department giving correct address as per PAN records, PAN and , TAN).

The A.O.

Dear Sir,

                                             A.Y. 2007-08

We are thankful to you for providing opportunity to furnish our submissions on the items intended for addition or disallowances. We furnish below our explanations:

As per our records, the address of M/s Shareholders P. Ltd has changed as follows:

M/s. Shareholders P. Ltd……..    India.

We are enclosing copy of their share application, return of allotment filed by us with ROC, and latest annual return in which the said shareholder is shown as a shareholder.  They are still continuing as one of our shareholder holding inter alia all the shares which were allotted during the previous year now under your consideration. The said shareholder is a body corporate having a corporate name, address, CIN , PAN and perpetual succession etc. The share application money was received by way of account payee cheque and is collected through banking channels in regular course. Copy of our bank statement is also enclosed  which shows funds received from them through banking channels. Their cheque no.  was credited in our account by way of high value clearing on…..  the entry is highlighted for your convenience. 

In case you still require presence of the shareholder, we request you to kindly send them notice at their new address.

Regarding  PF contribution of employees we submit that S. 2 (24)(x) is not attracted since a deduction by book entry does not amount to 'any sum received' , furthermore the amount of deduction was credited to a separate account  on the day of deduction itself, the said account is  entitled as ' employees PF deductions', therefore requirement of S. 36 (1) (va) are satisfied as it is required that the amout should be credited to the respective account of employees before due date. In any case the amount has been deposited within the previous year, the P.F. authorities have accepted delayed payment, and we have paid statutory interest to them for the period of delay. Therefore, 'due date' for depositing the contribution, stands extended till the date of deposit made by us.  Therefore, any addition or disallowance is not called for. We rely on the following judgments:

    xxx

We submit that with this letter we have complied with all your requisitions, explained all aspects which you enquired through written requisition and /or verbally during hearing, we also  produced necessary evidences as required by you. We have been informed by our A/R that any matter is not pending for explanation or filing of evidence on our part. In case you need any new or further information or evidence, kindly inform us and provide us opportunity of hearing to explain the same before framing the assessment order.

Thanking you,

Yours faithfully,

 

Assessee

 

In case of new additions or disallowances:

In case the A.O. make any addition or disallowance on a new issued about which he did not make any enquire from the assessee, the assessee can take a plea on that ground also because this will amount to denial of principal of natural justice. The assessee is not expected to explain any thing or produce any evidence which is not required under specific legal provision and which is not otherwise asked for by the A.O. Unless the A.O. asks an explanation, the assessee cannot furnish the same. Therefore, the appellate authority can delete the addition or disallowance  made on any such new issues on the ground that the A.O. did not ask any explanation from the assessee and without asking explanation and providing reasonable opportunity addition or disallowance cannot be made as principal of natural justice is vitiated.

On such matters ground on the following lines can be taken:

1.   For that learned A.O. has made the following additions / disallowances without asking any explanation from the assessee and without providing any opportunity to explain the case of assessee as to allowabilty of the claim:  

A…

B…

Thus the learned A.O. has not followed the principal of natural justice ad therefore the order of the A.O. on above issues is not sustainable and the addition/ disallowances deserve to be deleted on that ground alone.

2.   Without prejudice to the ground no. 1 above learned A.O. was wrong and unjustified in making the following  additions and disallowances:

A……

B……