2014 (4) TMI 1126 - AT - Income Tax

CIT(A) power of enhancement in respect of an issue which was not the subject-matter of the appeal - Held that - CIT (A) can make addition in respect of item not considered by the Assessing Officer. See Kashi Nath Chandiwala 2004 (12) TMI 21 - ALLAHABAD High Court - Decided against assessee Disallowance towards Labour and Wages and towards Creditors - Held that - When the assessee is not producing the books of account along with the bills and vouchers the Assessing Officer or CIT(A) is left with only two choices. Either he has to accept the claim of the assessee blindly because he cannot pin point any defect in the claim of the assessee in the absence of books of account or he has to make an ad hoc disallowance/addition on the reasonable basis. The first action of blindly accepting the entire claim even in the absence of books of account cannot be accepted as a correct approach and therefore the approach adopted by learned CIT(A) of making ad hoc disallowance / addition has to be upheld although it has to be seen as to whether the same is reasonable or not. In this regard we find that nothing has been produced before us in the form of comparative chart of the expenditure claimed in the present year and in the preceding or and succeeding year to bring on record that the addition/ disallowance made by CIT(A) is excessive or unreasonable. Hence in our considered opinion no interference is called for in the order of learned CIT(A) on this issue.- Decided against assessee

Summary

Issues Involved:
1. Legality of enhancement of returned income by the CIT(A) without the issue being raised in the appeal.
2. Ad hoc disallowance of labor and sundry creditors.
3. Determination of income at an allegedly unrealistic rate.
4. Alleged violation of principles of natural justice by the CIT(A).

Detailed Analysis:

1. Legality of Enhancement of Returned Income by the CIT(A):

The assessee contended that the CIT(A), Kanpur, committed illegality by enhancing the returned income on account of disallowance of labor expenditure and sundry creditors, which were not grounds raised in the appeal. The CIT(A) was accused of overstepping his jurisdiction and abusing his power under section 251A. The assessee referenced judgments from the Hon'ble Delhi High Court and Hon'ble Apex Court to support their position. However, the Tribunal upheld the CIT(A)'s authority to make such enhancements, citing the Hon'ble Allahabad High Court's judgment in the case of Commissioner of Income-tax Vs Kashi Nath Chandiwala, which allowed the CIT(A) to make additions even on issues not considered by the Assessing Officer. The Tribunal concluded that the CIT(A) was within his rights to enhance the income and rejected the assessee's ground.

2. Ad Hoc Disallowance of Labor and Sundry Creditors:

The assessee argued that the CIT(A) made an arbitrary and unjustified enhancement of Rs. 26.50 lacs, including Rs. 11.50 lacs towards labor and wages and Rs. 15 lacs towards creditors, despite the books being audited and the book results being accepted. The Tribunal noted that the CIT(A) provided sufficient opportunities for the assessee to produce books of account and vouchers, which were not complied with. In the absence of such evidence, the CIT(A) was justified in making an ad hoc disallowance based on reasonable judgment. The Tribunal found no basis to interfere with the CIT(A)'s decision, as the assessee failed to present any comparative data or evidence to prove the disallowance was excessive.

3. Determination of Income at an Allegedly Unrealistic Rate:

The assessee contended that the CIT(A) determined the income at an unrealistic rate of over 30% of gross receipts, which was claimed to be impossible for a contractor to earn. The Tribunal observed that the assessee did not produce any comparative charts or evidence of income from preceding or succeeding years to substantiate the claim. Without the production of books of account, bills, and vouchers, the authorities had to estimate the income. The Tribunal upheld the CIT(A)'s decision as reasonable in the absence of any contrary evidence from the assessee.

4. Alleged Violation of Principles of Natural Justice:

The assessee claimed that the CIT(A) violated the principles of natural justice by not providing a proper opportunity to be heard, as the last hearing date coincided with the CIT(A)'s leave due to a personal bereavement. The Tribunal found no merit in this claim, noting that no evidence or affidavit was provided to support the assertion. Moreover, the assessee did not submit any written arguments or evidence even after the said date. The Tribunal concluded that the CIT(A) provided sufficient opportunities, and the assessee failed to utilize them.

Conclusion:

The Tribunal dismissed the appeal and the stay petition, upholding the CIT(A)'s order in all respects, including the enhancement of income and the ad hoc disallowance of labor and sundry creditors. The Tribunal emphasized the necessity of producing books of account and supporting evidence to substantiate claims, which the assessee failed to do.