It is not open for CIT(A) to introduce a new source of income. ITAT deleted addition made section 69A changing the section 68. and the assessment has to be confined to those items of income which were the subject of matter of original assessment
In a recent judgment, ITAT has held that it is not open for CIT(A) to introduce a new source of income. ITAT deleted addition made section 69A by changing the section 68
ABCAUS Case Law Citation:
ABCAUS 3864 (2024) (02) ITAT
Important Case Laws relied upon by parties:
Toffee Agricultural Farms (P) Ltd. (2022) 141 taxmann.com 429
Brahmiah(y) vs. ITO (2015) 229 Taxman 558
Hari Mohan Sharma vs. ACIT (1999) 110 taxmann.com 119
CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891(SC)
CIT vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC)
Roshan Motors vs. ITO (2015) 64 taxmann.com 381
Smt. Sneh Lata v. CIT (1966) 61 ITR 139
CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC)
CIT vs. Nirbheram Daluram (1997) 224 ITR 610 (SC)
Jute Corporation of India Ltd. vs. CIT (1991) 187 ITR 688 (SC)
CIT vs Union Tyres (1999) 240 ITR 556
CIT vs. Sadari Lal & Co. (2002) 120 taxmann.com 595
In the instant case, the assessee had challenged the order passed by the CIT(A) in treated the addition u/s 68 of the Income Tax Act, 1961 (the Act) by the Assessing Officer (AO) as addition made u/s 69A of the Act.
The case of the assessee was that change of section for the purpose of confirming addition was not in accordance with law. The CIT(A) is not legally competent to do so and if the CIT(A) wished to change the section from 68 to 69A for the impugned addition, he should have issued notice of enhancement which he had not done.
It was submitted that confirmation of the impugned addition by the CIT(A) under different section of the Act is not sustainable. He placed reliance on number of judgements.
The Revenue contended that the trail of money was clearly established. The source of money had not changed. What had been changed by the CIT(A) was the correct section 69A under which the addition is to be made legally which was wrongly made by the AO u/s 68 of the Act.
The Revenue relied upon the decision of Hon’ble Allahabad High Court in its support.
The Tribunal observed that the impugned addition was made on the basis of an email unearthed as a result of a search operation. The AO rejected the explanation of the assessee with respect to money received on the ground that the assessee failed to file copy of bank statements and financial statements of the creditors and that the purpose of loan taken by the assessee had not been stated by the assessee. This resulted in the impugned addition to the income of the assessee u/s 68 of the Act.
The issue for consideration before the ITAT was whether the CIT(A) is within his powers under the Act to confirm the addition u/s 69A of the Act as against the addition made by the Ld. AO u/s 68 of the Act?
The Tribunal observed that there is difference in the language employed in section 68 and those in sections 69 to 69C of the Act. Section 68 of the Act enacts that the unexplained cash credit ‘may be charged to income tax as the income of the assessee of that previous year’, section 69 to 69C ‘deem the unexplained investment, unexplained money etc., amount of investment etc., not fully disclosed in books of accounts and unexplained expenditure etc., to be the income of the assessee for such financial year. Such distinction assumes legal significance in the context of change of section 68 to 69 etc., for the purpose of addition.
The Tribunal observed that it was the change of section 69A from that of section 68 that the assessee had challenged by contending that it is not in accordance with law as it is in excess of the powers vested in CIT(A) u/s 250 and 251 of the Act.
The Tribunal expressed agreement with the contention of the assessee that the said change tantamounted to enhancement of income by introducing new source of income without giving a specific notice to the assessee to that effect. The Tribunal stated that the decision of Hon’ble Andhra Pradesh High Court is in supports this view. Further, The Delhi Bench of the Tribunal took a similar view wherein it was held that in the absence of any power provided u/s 250 and 251 of the Act the CIT(A) could not have treated addition made by the Ld. AO u/s 69C as addition made under section 69B and that action of CIT(A) in treating addition made under section 69C as had been made under section 69B was contrary to law.
Further, the Delhi Bench of the Tribunal had occasion to consider “whether enhancement by the CIT(A) u/s 251(1)(a) of the Act is prohibited on issues which have not at all been considered by the AO during assessment proceedings” and it was held that the CIT(A) is not competent to enhance assessment by taking an income which income was not considered expressly or by necessary implication by AO during assessment.
The Tribunal observed that the decision relied upon was of no help to the Revenue as in that case the AY involved was in FY 1946-47 and the Hon’ble Allahabad High Court rendered the decision in the peculiar facts and circumstances of the case under the 1922 Act.
The Tribunal observed that it is revealed from the appellate order that the CIT(A) had placed reliance on the decision of the Hon’ble Supreme Court who held that the powers of CIT(A) are wide being co-terminus with those of the AO, but the CIT(A) failed to notice that it was so that the CIT(A)] could entertain issues which had not been examined by the AO.
The Tribunal observed that in the instant case the AO examined the issue thoroughly and thereafter applied the provisions of section 68 of the Act for making the impugned addition. The ITAT opined that the CIT(A) misdirected himself in relying on the decision of the Hon’ble Supreme Court.
The ITAT opined that issue was whether the CIT(A) has power to enhanced the income from a source which was not before him in appeal. It was noted that the Hon’ble Delhi High Court considered the relevant decisions including the decision of Hon’ble Supreme Court in where the Hon’ble Supreme Court reiterated the powers of CIT(A) “co-terminus with that of the AO” so that the CIT(A) can do what the Ld. AO can do and can also direct him to do what he failed to do”, a proposition laid down by the Hon’ble Supreme Court which was followed in and applied by SC in later decision. The Delhi High Court applied the principles of Law laid down by the Hon’ble Supreme Court in their earlier decisions that there is a solitary but significant limitation to the power of CIT(A) u/s 251 of the Act, namely that it is not open to him to introduce in the assessment a new source of income and the assessment has to be confined to those items of income which were the subject of matter of original assessment
The ITAT noted that the same issue namely whether the first appellate authority has power to take into account a new source of income came up for consideration again for fresh adjudication before the full bench of Hon’ble Delhi High Court. The Revenue contended that proceedings before the first appellate authority cannot be restricted to only those matters considered and decided by the AO. The first appellate authority has the power to adjudicate and decide everything necessary to ascertain the true and correct income of the assessee. The assessee, on the other hand contended that if such a view was taken, the provision u/s 147/148 and 263 of the Act would become meaningless and purposeless. The Hon’ble Delhi High Court gave its verdict in favour of the assessee observing that it is unconceivable that in the presence of specific provision u/s 147/148 and 263 of the Act, a similar power is available to the first appellate authority.
Accordingly, in the light of the various decisions and on the facts and in the circumstances of case, the ITAT decided the appeal in favour of the assessee.
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