2016 (1) TMI 313 - AT - Income Tax

Power of the CIT(A) to enhance the assessment u/s 251 - disallowances as well as enhancement of income done by CIT(A) - DR stated that the assessee has agreed before the learned Commissioner of Income-tax (Appeals) for enhancement there is no reason in the appeal now to be filed before ITAT - Held that - According to provisions of sub-section 2 of section 251 of the Income Tax Act, the learned Commissioner of Income-tax (Appeals) shall not enhance the assessment unless the appellant had a reasonable opportunity of showing cause against any such enhancement. On reading the order of the learned Commissioner of Income-tax (Appeals) we did not find any mention about the show cause notice issued by him giving the reasons for enhancement and the manner of determining the amount of enhancement. There is no opportunity granted to the assessee at all. According to the order of the learned Commissioner of Income-tax (Appeals), on 25.03.2015 the appellant was confronted with the remand report and learned Commissioner of Income-tax (Appeals) has passed the order on the same day. Therefore it is apparent that on 25.03.2015 the assessee was shown remand report and on the same day the appellate order was passed by the learned Commissioner of Income-tax (Appeals) enhancing the income of the assessee by ₹ 2 lacs. We also could not gather from the order of the learned Commissioner of Income-tax (Appeals) that how the sum of ₹ 2 lac was arrived at. We are not at all concerned with whether the assessee agreed with the enhancement or not. In absence of show cause notice to the assessee stating the defects , allegation and the manner of determining the amount of enhancement and then fixing the date of hearing after affording reasonable time to the assessee to rebut the allegations and then passing a speaking order making enhancement of income is mandatory. Further on the grounds raised before CIT (A) there is no finding given by him whether confirming or deleting disallowance . We are not in a position to sustain the order of CIT (A) confirming other additions as well as the amount of enhancement of ₹ 2 lac. Therefore, in the interest of justice we set aside the matter back to the file of Commissioner of Income-tax (Appeals) with a direction to pass a speaking order on each of the grounds raised following the procedure prescribed u/s 251 of the Act - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
Appeal against assessment order u/s 143(3) | Disallowances made by assessing officer | Enhancement of income by CIT(A) | Principles of Natural Justice | Disallowance on various expenses | Legal charging of interest u/s 234B, 234C & 234D

Analysis:

1. Appeal Against Assessment Order u/s 143(3):
The appeal was filed against the assessment order passed by the Assessing Officer under section 143(3) for the assessment year 2010-11. The assessee contended that the assessment order was illegal, bad in law, and without jurisdiction. The total income was computed at Rs. 6,78,780/-, whereas the declared income was Rs. 4,77,890/-.

2. Disallowances Made by Assessing Officer:
The Assessing Officer disallowed various expenses, including free insurance scheme, car and scooter running expenses, generator running and maintenance expenses, and advertisement expenses. These disallowances were made due to lack of proper documentation and justification, resulting in additions to the total income of the assessee.

3. Enhancement of Income by CIT(A):
The CIT(A) not only confirmed the disallowances made by the Assessing Officer but also enhanced the income of the assessee by Rs. 2,00,000. The enhancement was made without issuing a notice or providing adequate opportunity of hearing to the assessee, which raised concerns regarding the principles of natural justice.

4. Principles of Natural Justice:
The Tribunal highlighted that the power of the CIT(A) to enhance an assessment is subject to the appellant having a reasonable opportunity to show cause against such enhancement. In this case, it was observed that the CIT(A) did not provide the required opportunity to the assessee before enhancing the income by Rs. 2,00,000.

5. Disallowance on Various Expenses:
The disallowances on expenses such as free insurance scheme, car and scooter running expenses, generator running and maintenance expenses, and advertisement expenses were found to be made without proper justification and documentation. The Tribunal emphasized the need for proper verification and justification before disallowing expenses.

6. Legal Charging of Interest u/s 234B, 234C & 234D:
The assessee raised concerns regarding the charging of interest under sections 234B, 234C, and 234D, stating that it was wrongly and illegally charged due to the disallowances and additions made in the assessment. The Tribunal noted these concerns raised by the assessee.

Conclusion:
The Tribunal set aside the decision of the CIT(A) and directed a reevaluation of the case, emphasizing the importance of following the prescribed procedure under section 251 of the Income Tax Act. The appeal of the assessee was allowed for statistical purposes, highlighting the need for adherence to principles of natural justice and proper justification for disallowances and enhancements in income assessments.