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2019 (2) TMI 113 - AT - Income TaxAddition u/s 68 - enhancement u/s 251(1)(a) by CIT-A - eligibility for deduction u/s 54F - Held that - Words enhance the assessment are confined to the assessment reached through a particular process. It cannot be extended to the amount which ought to have been computed. There being other provisions which allow escaped income from new sources to be taxed after following a certain prescribed procedure. So long as a certain item of income had been considered and examined by the AO from the point of view of its assessability and so long as the CIT(A) does not travel beyond the record of the year, there has never been any doubt as to his powers of redoing the categorization and bringing the assessment within the true description of the law. Claim of the assessee u/s 54F of the act which was rejected after inquiry and further claim alternatively made u/s 54 of the act was also rejected. The issue of verification of capital gain was not the issue which was at all dealt with by the assessing officer, or even a question of verification made by AO. There was no inquiry made by the ld AO on the issue of capital gain shown by the assessee. AO has not at all considered the issue of sales consideration received by the assessee on sale of house as an issue of dispute before him. Therefore according to us, CIT (A) could not have made enhancement on the issue holding that capital gain shown by the assessee itself is not in accordance with the law and given a finding that no capital gain has accrued to the assessee. CIT (A) further held that funds received by the assessee is unaccounted income of the assessee and chargeable to tax u/s 68 of the act. Hence, enhancement u/s 251 (1) (a) of the act is prohibited on the issues which have not at all been considered by the AO during assessment proceedings. This gives the common understanding that the ld CIT (A) cannot enhance income of the assessee on altogether new Source . Therefore it is clear that CIT(A) is not competent to enhance the assessment taking an income which income was not considered expressly or by necessary implication by the Assessing Officer at all. Such is the mandate of the decisions of various high courts such as in CIT vs. National Company Ltd. 1990 (8) TMI 16 - CALCUTTA HIGH COURT , Sait Bansilal and Raggisetti Veeranna vs. CIT 1970 (1) TMI 25 - ANDHRA PRADESH HIGH COURT , Sterling Construction & Trading Co. vs. ITO 1974 (5) TMI 22 - KARNATAKA HIGH COURT and Lokenath Tolaram vs. CIT 1985 (8) TMI 332 - BOMBAY HIGH COURT . Decided in favour of the assessee. CIT (A) has exceeded his jurisdiction in enhancing the income of the assessee by considering the new sources of income not at all considered by the AO, consequently we allow the ground no 9, 10,11,12 and 13 of the appeal of the assessee where the addition u/s 68 has been made by the CIT (A) enhancing income of the assessee holding that sale consideration received by the assessee on sale of property is chargeable to tax as undisclosed income u/s 68 of the act. We also allow ground of the appeal of the assessee where the sales consideration received by the assessee of sale of property is chargeable to tax as capital gain and not as undisclosed income u/s 68 of the act. Further Ground of the appeal with respect to claim of deduction u/s 54 of the act , we set aside it back to the file of the AO with a direction to verify whether assessee is eligible for deduction u/s 54 or not. Assessee is directed to put its claim in its entirety and ld AO may proceed in accordance with law after granting roper opportunity of hearing. - Decided in favour of assessee.
Issues Involved:
1. Enhancement of assessment by CIT (A). 2. Addition under Section 68 of the Income Tax Act. 3. Sale of house property and capital gains. 4. Claim of deduction under Section 54 of the Income Tax Act. 5. Violation of natural justice by not affording proper opportunity of hearing. Issue-wise Detailed Analysis: 1. Enhancement of Assessment by CIT (A): The CIT (A) enhanced the income of the assessee, which was challenged on the grounds that such enhancement was without jurisdiction. The Tribunal noted that the CIT (A)'s powers under Section 251(1)(a) of the Income Tax Act allow for the enhancement of assessment but do not permit the introduction of a new source of income not considered by the Assessing Officer (AO). The Tribunal cited various judicial precedents, including the Delhi High Court's decision in CIT v. Sardari Lal and Co., which restricts the CIT (A) from enhancing income by discovering new sources not examined by the AO. Thus, the Tribunal concluded that the CIT (A) exceeded its jurisdiction in enhancing the income based on new sources. 2. Addition under Section 68 of the Income Tax Act: The CIT (A) added the sale consideration received by the assessee as unexplained income under Section 68. The Tribunal found that the CIT (A) conducted extensive enquiries and concluded that the sale transaction was a colorable device to route unaccounted money. However, since the AO had not considered this issue during the assessment proceedings, the Tribunal held that the CIT (A) could not make such an addition. The Tribunal emphasized that the power of enhancement is restricted to matters considered by the AO, and new sources of income should be dealt with under Sections 147/148 or 263 of the Act. 3. Sale of House Property and Capital Gains: The assessee disclosed capital gains from the sale of a property and claimed deductions under Section 54F, which were denied by the AO. The CIT (A) further held that the sale transaction was not genuine and treated the sale consideration as unexplained income. The Tribunal, however, determined that the AO had not questioned the genuineness of the sale transaction during the assessment. Therefore, the CIT (A) could not re-characterize the transaction and deny the capital gains treatment. The Tribunal allowed the assessee's grounds related to the sale of property and capital gains. 4. Claim of Deduction under Section 54 of the Income Tax Act: The assessee claimed deductions under Section 54 for reinvestment in a new property. The AO denied the claim, and the CIT (A) upheld the denial based on the alleged non-genuineness of the sale transaction. The Tribunal set aside this issue, directing the AO to verify the eligibility of the deduction under Section 54, as the AO had not initially considered this claim. The Tribunal instructed the AO to grant a proper opportunity of hearing to the assessee and proceed according to the law. 5. Violation of Natural Justice by Not Affording Proper Opportunity of Hearing: The assessee claimed that the CIT (A) did not provide a valid and meaningful opportunity to rebut the AO's report. The Tribunal found no merit in this ground, noting that the assessee had been given sufficient opportunities at every stage of the proceedings. Therefore, this ground was dismissed. Conclusion: The Tribunal partly allowed the appeals for statistical purposes, setting aside the issue of deduction under Section 54 for verification by the AO and dismissing the ground related to the violation of natural justice. The Tribunal's decision applied mutatis mutandis to the identical issues raised in the appeal by another assessee, resulting in a similar outcome.
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