CIT(A) can not enhance assessment unless assessee had a reasonable opportunity of showing cause – ITAT

Commissioner Appeals cannot not enhance assessment unless the assessee had a reasonable opportunity of showing cause against such enhancement – ITAT

ABCAUS Case Law Citation:
ABCAUS 2614 (2018) (11) ITAT

Important Case Laws Cited/relied upon:
Gedore Tools Pvt. Ltd. Vs. CIT 238 ITR 268
Spandana Foundation Vs. ADIT [2013] 36 taxmann.com370
Naresh Sunderlal Chug Vs. ITO
Singhania Alu Foil Containers Manufacturing Company

The case of the appellant assessee was selected for scrutiny and notice u/s. 143(2) of the Income Tax Act, 1961 (the Act) was issued.

The AO, on examination of the P&L account, observed that the assessee had claimed commission on sales. The assessee was asked to furnish party wise details of commission paid and TDS made thereon. The AO further observed that TDS was duly deducted on such payments. However, The AO was not satisfied with the details of quantum of sale, on which corresponding commission was claimed by the assessee.

Accordingly, the assessee was asked to furnish sales wise details of payment of commission and in the absence of the same, relying upon his own decision in the immediately preceding year, 5% of commission was disallowed and added back to the total income of the assessee.

Against the AO’s order, the assessee appealed before the CIT(A), who vide his impugned order enhanced the addition by making disallowance of the entire amount of commission paid.

Before the Tribunal, the assessee submitted that CIT(A) had illegally assumed jurisdiction to make addition / disallowance by doubting the genuineness of the commission paid by the assessee particularly when the AO had not made any addition / disallowance on account of commission paid.

The assessee further submitted that the AO had made the addition based on the assessment in the immediately preceding year which was deleted by the CIT(A) later.

It was further contended that the addition / disallowance made by the CIT(A) without issuing any specific notice to the assessee was unsustainable.

The Tribunal observed that by the time the AO had passed the assessment order, the appellate order for immediately preceding year was not passed by the CIT(A) whereby he had deleted the disallowance.

The Tribunal observed that The CIT(A) had deleted the disallowance made by the A.O. for the immediately preceding year but at the same time he had made addition /disallowance for the current year.

The Tribunal further noted that prior to doing so, the CIT(A) had not issued notice to the assessee requiring it to show cause as to why it’s income, as determined by the A.O., may not be enhanced.

The Tribunal opined that as per sub section (2) of section 251, the Commissioner Appeals cannot not enhance an assessment unless the appellant has had a reasonable opportunity of showing cause against such enhancement.

The Tribunal held that the action of the CIT(A), making enhancement of income as determined by the A.O was illegal. The Tribunal quashed the order of the CIT(A) on legal ground as well as on merit.

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