2014 (9) TMI 574 - HC - Income Tax

Power of CIT(A) to enhance the income - Claim for deduction of loss disallowed Notice u/s 251 not issued - Whether it was competent for the Commissioner to have fastened a higher liability upon the assessee than the one imposed under the order of assessment Held that - The grievance of the assessee was mostly in relation to the disallowance of deduction of loss to have been incurred in the Saw Mill business for particular AYs - The Commissioner is conferred with the power not only to confirm the order of assessment or reduce the tax liability but also to enhance such liability or annul the very assessment - the Commissioner made certain observations, as to why the grievance of the assessee cannot be said to be genuine - Had he stopped at that and dismissed the appeals, there would not have been any other complications - he proceeded to issue certain directions, which are certainly detrimental to the interest of the appellant - He could have done that only after issuing a notice u/s 251(2) - Since no such notice was issued, the order dated 13.03.1997 passed by the Commissioner suffered a serious illegality and it is contrary to Section 251(2) of the Act thus, the order of the Commissioner is set aside and the matter is remitted back to the Commissioner for fresh adjudication Decided in favour of assessee.

Summary

Issues:
1. Competence of the Commissioner to impose a higher liability than the one imposed under the order of assessment while dealing with appeals.
2. Whether the Commissioner followed the necessary procedure under Section 251 of the Income Tax Act.
3. Legality of the order passed by the Commissioner without issuing a notice under sub-section (2) of Section 251.

Analysis:
1. The appellant, a trader in timber with other income sources, filed returns for Assessment Years 1990-91, 1991-92, and 1992-93. The Assessing Officer disallowed the claim for deduction of loss on the Saw Mill business, treating the income as nil. The Commissioner rejected the appellant's contention, directing a different basis for calculating income. The Tribunal dismissed the appeals, leading to the current appeals under Section 260-A of the Act.

2. The key question was whether the Commissioner could impose a higher liability on the appellant than assessed, without following due process. Section 251 of the Act grants the Commissioner powers to confirm, reduce, enhance, or annul assessments. However, if enhancement is sought, the appellant must be given a reasonable opportunity to show cause against it. In this case, the Commissioner's order lacked a notice as required by Section 251(2), making it illegal.

3. The Court found the Commissioner's actions to be in violation of the Act, as he issued directions detrimental to the appellant without providing an opportunity to contest the enhanced liability. The absence of the required notice rendered the order dated 13.03.1997 invalid. Consequently, the Court allowed all three appeals, setting aside the orders and remanding the matter to the Commissioner for fresh adjudication. Any directions imposing additional tax liability must be preceded by a notice under Section 251(2) of the Act to ensure due process. No costs were awarded, and pending petitions were disposed of.