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Issues Involved:
1. Power of the first appellate authority to consider a new source of income u/s 251(1)(a) of the Income Tax Act, 1961. 2. Jurisdiction of the first appellate authority in enhancing income and granting deductions. 3. Applicability of sections 147/148 and 263 of the Act in cases of new sources of income. Summary: Issue 1: Power of the first appellate authority to consider a new source of income u/s 251(1)(a) of the Income Tax Act, 1961 The High Court deliberated on whether the first appellate authority can consider a new source of income not initially assessed by the Income Tax Officer (ITO). The court referenced the case of CIT v. Union Tyres (1999) 240 ITR 556 (Del), where the Appellate Assistant Commissioner (AAC) directed the ITO to investigate various aspects of the assessed's finances, which were not part of the original assessment. The Tribunal held that the AAC exceeded his jurisdiction by calling for a remand report on new points unrelated to the original assessment. The court reaffirmed that the first appellate authority cannot introduce a new source of income and must confine the assessment to items originally considered by the ITO. Issue 2: Jurisdiction of the first appellate authority in enhancing income and granting deductions The court examined the extent of the first appellate authority's jurisdiction, emphasizing that it is wide and coterminous with that of the ITO. The first appellate authority can correct the ITO's assessment, grant deductions not claimed before the ITO, and enhance income if necessary. However, this power does not extend to discovering new sources of income not considered by the ITO. The court cited several Supreme Court judgments, including CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) and CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC), which support this limitation. Issue 3: Applicability of sections 147/148 and 263 of the Act in cases of new sources of income The court noted that the appropriate jurisdiction for dealing with new sources of income not considered by the ITO lies u/s 147/148 (reopening of assessment) and u/s 263 (revision by Commissioner) of the Act. The presence of these specific provisions indicates that the first appellate authority does not have the power to assess new sources of income. The court concluded that the decision in Union Tyres' case correctly reflects the law and does not require reconsideration. Conclusion: The High Court upheld that the first appellate authority cannot consider new sources of income not assessed by the ITO and must operate within the confines of the original assessment. The appropriate mechanisms for addressing new sources of income are provided u/s 147/148 and 263 of the Act. The decision in Union Tyres' case remains valid and does not need to be revisited.
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