What If Income Tax Proceedings Adopted the GST Adjudication Model? A Thought Experiment for Tax Professionals

Introduction

Anyone who has worked closely with GST compliance will recognise a familiar pattern: a show cause notice arrives with a pointed question, the reply opens the door to a follow-up query, which then generates requests for reconciliations, supporting invoices, bank confirmations, and yet more documentation. Before long, what began as a focused adjudication proceeding starts to feel remarkably like a comprehensive audit of the entire business.

This naturally invites an imaginative question: what if Income Tax adjudication proceedings were conducted along similar lines? This article explores exactly that — not as a critique of scrutiny or verification, both of which serve legitimate purposes, but purely as a thought experiment that illuminates certain structural differences between the two regimes. The exercise also draws attention to a conceptual boundary that deserves greater attention: the line separating adjudication from audit.

Seven Hypothetical Scenarios

The following seven situations are entirely imaginary. They are constructed to illustrate what Income Tax proceedings might look like if they were modelled on the verification-heavy, document-intensive approach that GST-registered persons and their consultants regularly encounter.

Scenario 1: TDS Mismatch Leading to 30% Expenditure Disallowance

An Assessing Officer cross-references the expenses reflected in the assessee's Profit & Loss Account against the TDS returns on record. Certain expenses are identified where TDS was not deducted.

Imaginary Notice: "Please explain why 30% of the expenditure in question should not be disallowed under the provisions of the Income Tax Act, 1961."

Following the assessee's initial response, a further request is raised seeking:

  • Transaction-wise agreements with the relevant parties
  • Copies of all invoices supporting the expenditure
  • Complete payment records and mode of payment details
  • Justification for why TDS was not applicable on each transaction

Imaginary Logic Flow:

Expense Recorded → TDS Return Mismatch → Notice Issued → Supporting Documents Demanded → Disallowance Considered

The assessee, having already addressed the core question, now finds themselves reconstructing the documentary trail for every single transaction flagged in the TDS reconciliation.

Scenario 2: Proportionate Disallowance Against Exempt Income

The assessee earns agricultural income or receives a share of profit from a partnership firm — both categories being exempt from Income Tax. The officer notes that common business expenditure has been claimed.

Imaginary Notice: "You have earned income that is exempt from tax. Please explain why proportionate expenditure should not be reversed and disallowed."

The follow-up request requires:

  • Expense-head-wise working demonstrating that no portion of any claimed expenditure relates to the exempt income
  • Methodology adopted for allocation, if applicable
  • Ledger extracts supporting the computation

Imaginary Logic Flow:

Exempt Income Earned → Common Expenses Identified → Nexus Presumed → Proportionate Reversal Sought

The assessee is now required to prove a negative — that expenditure incurred in the normal course of business bears no connection whatsoever to income that arrived independently.

Scenario 3: Purchases Questioned Where Supplier Cannot Be Located

During verification, the officer finds that a supplier from whom purchases were made cannot be traced at the declared business address.

Imaginary Notice: "The supplier concerned is not found at the stated premises. Please explain why all purchases made from this party should not be disallowed in their entirety."

The assessee submits invoices and proof of payment. A further round of queries follows, demanding:

  • Goods transport documents and lorry receipts
  • Delivery challans and proof of physical receipt of goods
  • Inward register entries corresponding to each purchase
  • Stock records evidencing the goods entering inventory
  • Written confirmation from the supplier