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2016 (7) TMI 1504 - AT - Income TaxPower of CIT(A) u/s 251(1)(a) for enhancement of income - addition on account of new source of income - AO adopted GP @17% on suppressed sales - CIT(A) reduce GP @12% on the amount of suppressed sales - CIT(A) made new addition enhancing income regarding additional capital required for suppressed sales - HELD THAT - Commissioner of Income Tax (Appeals) has wide powers under section 251(1)(a) of the Act but his powers are restricted and he has no power to assess a new source of income in the hands of the assessee. Followed Hon ble Delhi High Court in CIT Vs. Union Tyres 1999 (9) TMI 81 - DELHI HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Legality of the enhancement notice issued by the Commissioner of Income Tax (Appeals) under section 251(1)(a) of the Income Tax Act, 1961. 2. Justification of the additional capital required for suppressed sales under section 69 of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: 1. Legality of the Enhancement Notice: The primary issue raised by the assessee concerns the enhancement made by the Commissioner of Income Tax (Appeals), which the assessee claims is a new source of income and beyond the scope of section 251(1)(a) of the Income Tax Act, 1961. The Tribunal examined the powers of the Commissioner of Income Tax (Appeals) under section 251(1)(a) and concluded that the Commissioner cannot introduce a new source of income not considered by the Assessing Officer. The Tribunal referenced the case of M/s. Vijay Builders Vs. The Income Tax Officer, where it was held that the appellate authority's power is restricted to the subject matter of the original assessment. The Tribunal cited several precedents, including CIT Vs. Shapoorji Pallonji Mistry and CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria, which support the view that the Commissioner of Income Tax (Appeals) cannot assess a new source of income. Consequently, the Tribunal found the enhancement notice issued by the Commissioner of Income Tax (Appeals) to be unwarranted and beyond their jurisdiction. 2. Justification of Additional Capital Required for Suppressed Sales: The second issue pertains to the merits of the addition made under section 69 of the Act for the additional capital required to account for suppressed sales. The Assessing Officer had initially identified suppressed sales amounting to ?66,00,720 and applied a gross profit (GP) rate of 17%, resulting in an addition of ?11,22,122. The Commissioner of Income Tax (Appeals) revised the GP rate to 12%, reducing the addition to ?7,92,091. However, the Commissioner also noted that the Assessing Officer did not consider the additional capital required for the enhanced turnover and issued an enhancement notice, adding ?13,20,144 under section 69 for the supposed additional investment needed for the suppressed sales. The Tribunal, referencing the legal precedents and the scope of the appellate authority's powers, ruled that such an enhancement constituted a new source of income, which the Commissioner of Income Tax (Appeals) was not authorized to assess. The Tribunal emphasized that any addition on account of unexplained investment should be addressed under different provisions, such as sections 147/148 or 263, and not through an enhancement notice by the appellate authority. Conclusion: The Tribunal concluded that the enhancement made by the Commissioner of Income Tax (Appeals) was beyond their jurisdiction as it introduced a new source of income. The Tribunal directed the deletion of the enhancement of ?13,20,144 and allowed the appeals of the assessees. The decision in ITA No. 791/PN/2016 was applied mutatis mutandis to ITA No. 792/PN/2016, resulting in both appeals being allowed. Order Pronounced: The order was pronounced on the 15th day of July, 2016, with both appeals of the assessees being allowed.
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