1980 (2) TMI 31 - HC - Income Tax

Summary

Issues involved:
The judgment involves the following issues:
1. Whether the Tribunal was justified in deleting the sum of Rs. 2,30,000 added by the Appellate Assistant Commissioner?
2. Whether the sum of Rs. 2,30,000 was added on new sources of income not considered by the Income-tax Officer?
3. Whether the Appellate Assistant Commissioner had the jurisdiction to enhance the sum of Rs. 2,30,000 under the given circumstances?

Summary:

The High Court of Madhya Pradesh addressed a reference made by the Income-tax Appellate Tribunal regarding the assessment year 1956-57. The Income Tax Officer (ITO) initiated reassessment proceedings after discovering certain entries related to hundi loans, which were deemed as income from undisclosed sources. The ITO assessed the undisclosed income at Rs. 2,45,000. Subsequently, the Appellate Assistant Commissioner (AAC) identified additional bogus entries amounting to Rs. 2,30,000, not considered by the ITO, and added them as income from undisclosed sources. The Tribunal ruled that the AAC exceeded jurisdiction by adding Rs. 2,30,000 when these sources were not previously considered by the ITO.

The powers of the AAC in handling appeals are outlined in section 251 of the Income Tax Act, 1961. The Supreme Court's interpretation of a similar provision in the 1922 Act emphasized that the AAC cannot enhance assessments by introducing new sources of income not reviewed by the ITO. The court held that the AAC's authority is limited to matters already processed by the ITO, as stated in previous judicial decisions.

The court examined the Explanation in section 251, which allows the AAC to consider any matter arising from the proceedings, even if not raised by the appellant. However, the court concluded that this provision does not grant the AAC the power to address matters not previously raised or processed by the ITO. Therefore, the Explanation did not support the department's position.

Based on the above analysis, the court answered all questions in favor of the assessee, ruling that the AAC had no jurisdiction to add the new entries of Rs. 2,30,000 as income from undisclosed sources.