2017 (11) TMI 128 - HC - Income Tax

Appellate Authority power u/s 251 to add to or enhance the assessee s declared income from a source never considered by the AO - Reopening of assessment - undisclosed income - Burden proof on the source of income - assessee pleads in defence that he sold a few bars of gold - enhancing the assessment by taking the assessee s status as resident and by bringing to tax the income earned by him outside India - Held that - In an appeal against an order of assessment, the Appellate Authority may confirm, reduce, enhance, or annul the assessment. In an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty. The explanation to the provision further emphasizes that the Appellate Authority may consider and decide any matter arising out of proceedings in which the order appealed against was passed, though such matter was not raised before him by the appellant. Full Bench in CIT v. Sardari Lal & Co., (2001 (9) TMI 1130 - Delhi High Court) has held that the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the assessing officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147, or section 148, or even section 263 of the Act if requisite conditions are fulfilled. It is inconceivable, according to Sardari Lal, that in the presence of such specific provisions, a similar power is available to the first appellate authority. Eventually, Sardari Lal upheld the decision in Union Tyres 1999 (9) TMI 81 - DELHI High Court . Undeniably, the precedential position on the powers of the first appellate authority under section 251 undulates. There are seeming contradictions. But, as held by Union Tyres 1999 (9) TMI 81 - DELHI High Court and as affirmed on reference by Sardari Lal, there is a consistent judicial assertion that the powers under section 251 are, indeed, very wide; but, wide as they are, they do not go to the extent of displacing powers under, say, sections 147, 148, and 263 of the Act. Therefore, we are in respectful agreement with the view taken by the Full Bench of the High Court of Delhi in Sardari Lal. As a corollary, we hold that the Tribunal s deleting the enhancement of ₹ 22,15,116/- and canceling the order of the CIT (A) on that issue call for no interference. We thus answer the questions of law partly in the Revenue s favour

Issues Involved:
1. Burden of proof on the source of income.
2. Powers of the Appellate Authority under Section 251 of the Income Tax Act.
3. Justification of the Tribunal's interference with the Appellate Authority's enhancement.
4. Assessment of the assessee's status.
5. Penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Burden of Proof on the Source of Income:
The primary issue is whether the assessee discharged the burden of proof regarding the source of ?5,00,000 deposited into his wife’s account. The AO found the assessee's explanations inconsistent and the witnesses unreliable. The Tribunal felt the assessee had discharged his burden, but the High Court disagreed, emphasizing that the assessee's frequent changes in his story and unreliable witnesses did not meet the burden of proof. Consequently, the High Court reversed the Tribunal's finding, concluding that the source of ?5,00,000 remained unexplained.

2. Powers of the Appellate Authority under Section 251 of the Income Tax Act:
The Appellate Authority enhanced the assessee's income by ?22,15,116, which was not considered by the AO. The High Court examined whether the Appellate Authority had the power to add income from a new source not considered by the AO. The Court referred to Section 251 and various precedents, concluding that while the Appellate Authority has wide powers, it cannot introduce a new source of income not considered by the AO. The High Court upheld the Tribunal's decision to delete the enhancement of ?22,15,116.

3. Justification of the Tribunal's Interference with the Appellate Authority's Enhancement:
The Tribunal interfered with the Appellate Authority's enhancement of income, and the High Court examined whether this was justified. The High Court agreed with the Tribunal, citing precedents that the Appellate Authority cannot enhance income by introducing a new source not considered by the AO. The Tribunal's decision to delete the enhancement was upheld.

4. Assessment of the Assessee's Status:
The Appellate Authority treated the assessee as a resident and taxed his global income. The High Court noted that the assessee claimed his status as a resident by oversight and had mentioned his status as a non-resident in other returns. The High Court upheld the Tribunal's finding that the Appellate Authority's action was beyond its powers.

5. Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:
The Appellate Authority imposed a penalty of ?10,00,000 on the assessee for unexplained income. The Tribunal deleted the penalty, and the High Court confirmed this decision, given its findings in the main appeal. The penalty proceedings were dismissed, and no costs were ordered.

In conclusion, the High Court partly allowed the Revenue's appeal, reversing the Tribunal on the ?5,00,000 unexplained deposit but upheld the Tribunal's deletion of the ?22,15,116 enhancement and penalty.

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