2005 (10) TMI 437 - AT - Income Tax

2016 (5) TMI 1503 - AT

Issues Involved:
1. Enhancement of income by Rs. 20,23,053.
2. Difference in the cost of construction of the office building.
3. Jurisdiction and powers of CIT(A) during set-aside appeal proceedings.
4. Validity of enhancement notice and the quantum of enhancement.
5. Trading addition of Rs. 1,25,000.

Detailed Analysis:

1. Enhancement of Income by Rs. 20,23,053:
The first issue pertains to the enhancement of the assessee's income by Rs. 20,23,053, in addition to the original assessment of Rs. 3,58,679. The IT authorities conducted a survey under section 133A on 10th March 1993, which was later converted into a search and seizure action under section 132(1). The stock inventory prepared during the search showed a closing stock of Rs. 15,88,757 as of 13th March 1993, while the assessee's books indicated Rs. 13,76,975 as of 31st March 1993. After adjustments, the Assessing Officer found a discrepancy of Rs. 4,34,297 in the stock. The Assessing Officer rejected the book results, enhanced the sales by Rs. 10 lakhs, and applied a GP rate of 8.5%, resulting in a trading addition of Rs. 2 lakhs. The CIT(A) later reduced this addition to Rs. 75,000. However, the Tribunal restored the issue to the CIT(A) for fresh consideration, who then issued an enhancement notice proposing to increase the income by Rs. 13,20,564. Eventually, the CIT(A) enhanced the income by Rs. 20,23,053, citing various discrepancies and the need for estimation.

2. Difference in the Cost of Construction of the Office Building:
The Assessing Officer had made an addition of Rs. 1,51,000 due to the difference in the cost of construction as shown in the books and as determined by the Valuation Officer. The CIT(A) deleted this addition, and the Tribunal upheld the CIT(A)'s decision. The Tribunal noted that this issue had attained finality and should not have been included again in the set-aside appeal proceedings.

3. Jurisdiction and Powers of CIT(A) During Set-Aside Appeal Proceedings:
The Tribunal emphasized that the CIT(A) exceeded his jurisdiction by enhancing the income beyond the scope of the issue restored to his file. The Tribunal restored the matter to the CIT(A) only for deciding the trading addition of Rs. 1,25,000, and not for enhancing the income. The CIT(A)'s power to enhance the income is confined to the issues that were remanded to him by the Tribunal. The Tribunal cited several judgments to support this view, including CIT v. Late Jawahar Lal Nagpal, Surendra Overseas Ltd. v. CIT, and CIT v. Mahindra & Co.

4. Validity of Enhancement Notice and the Quantum of Enhancement:
The CIT(A) issued an enhancement notice proposing to increase the income by Rs. 13,20,564 but ultimately enhanced it by Rs. 20,23,053. The Tribunal found this approach to be biased and prejudiced against the assessee. The Tribunal noted that the CIT(A) should have confined his enhancement to what was proposed in the notice. Moreover, the Tribunal found no justification for such a high enhancement and deemed it illegal, as it was beyond the scope of the directions given by the Tribunal.

5. Trading Addition of Rs. 1,25,000:
The Tribunal restored the issue of the trading addition of Rs. 1,25,000 to the CIT(A) for fresh adjudication. The assessee did not challenge this specific addition before the Tribunal, implying acceptance of the addition. Therefore, the Tribunal upheld the addition of Rs. 1,25,000 as it was within the scope of the issue restored to the CIT(A).

Conclusion:
The Tribunal quashed the CIT(A)'s order for enhancing the income by Rs. 20,23,053 and deleted the addition. The Tribunal upheld the trading addition of Rs. 1,25,000 and confirmed that the CIT(A) had no jurisdiction to enhance the income beyond the specific issue restored by the Tribunal. The appeal filed by the assessee was disposed of accordingly.

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