2019 (9) TMI 201 - HC - Income Tax

Power of CIT(A) u/s 251 - new source of income - power to consider new source of income which was not dealt by A.O. in assessment order - HELD THAT - In the present case the CIT (A) had deleted addition made by AO and had made two additions of the labour charges and sundry creditors on the basis of the profit and loss account and balance-sheet filed by the assessee along with his return. Thus there was no new source of income as claimed by the assessee. Case law relied upon by the assessee in case of Sardari Lal Co. 2001 (9) TMI 1130 - DELHI HIGH COURT and Shapoorji Pallonji Mistry 1962 (2) TMI 12 - SUPREME COURT are all distinguishable in the facts of the present case and the Hon ble Courts in those cases had only dealt with the situation wherein AAC found new source of income and made additions to the income while in the present case no such addition was made from any new source of income but from the return so submitted by the assessee himself. Issuance of fresh notice of enhancement by the CIT (A) has no relevance once the order of the Tribunal as well as CIT (A) was set aside by this Court on 10.12.2014 restoring the appeal back to CIT (A) for reconsideration and fixing 31th December 2014 as last date for the appellant to file all required information and documentary material and to appear before CIT (A) on 05th January 2015. The question of law raised by the assessee is of no consequence as he thereafter had filed the documents before CIT (A) and had appeared thus the question of issuance of fresh notice for enhancement does not arise and the CIT(A) rightly decided the question so raised before it. Argument of assessee cannot be accepted so as to restrict the power of Commissioner (Appeals) on the ground of new source of income as Section 251 clearly envisages the power of the appellate authority for considering and deciding any material arising out of proceedings in which order appealed against was passed. In the present case all the materials looked upon by the appellate authority was before the assessing authority as such the Commissioner (Appeals) rightly proceeded to decide the same as it arose out of the proceedings of assessment. The Apex Court has also affirmed that power of Commissioner (Appeals) cannot be restricted and in the case of Jute Corporation of India Ltd. 1990 (9) TMI 6 - SUPREME COURT held that the power of the Commissioner (Appeals) being coterminous with that of the Income Tax Officer he can do what the Income Tax Officer do and further the section also empowers him to direct the Assessing Officer to do what he had failed to do. The power of the Commissioner is not bridled in any way and the language of the section is plain and simple. The law laid down by the Apex Court in regard to the power of Commissioner (Appeals) exercisable under Section 251 of the Act we are of the considered opinion that the order of the Tribunal needs no interference and the appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Whether the CIT(A) has the power to consider a new source of income not dealt with by the AO.
2. Whether the CIT(A) was justified in not issuing a fresh notice of enhancement after set-aside proceedings.
3. Whether the ITAT was correct in disallowing 25% of labor charges despite an increase in the G.P. rate.
4. Whether the ITAT rightly sustained the addition of ?15 lacs out of Sundry Creditors beyond the statutory period for maintaining books of accounts.

Issue-wise Detailed Analysis:

1. Power of CIT(A) to Consider New Source of Income:
The assessee argued that the CIT(A) cannot introduce a new source of income not considered by the AO, citing decisions like CIT v. Shapoorji Pallonji Mistry and CIT v. Sardari Lal & Co. The court, however, found that the CIT(A) did not introduce a new source of income but made additions based on the records produced by the assessee, including labor charges and sundry creditors. The court referenced the Supreme Court decisions in Nirbheram Deluram and Jute Corporation of India, which established that the powers of the CIT(A) are coterminous with those of the AO and include the ability to enhance assessments based on the same records.

2. Issuance of Fresh Notice of Enhancement:
The assessee contended that the CIT(A) should have issued a fresh notice of enhancement after the High Court set aside the earlier order. The court noted that the High Court had set specific deadlines for the submission of documents and appearances before the CIT(A), which the assessee complied with. Therefore, there was no need for a fresh notice of enhancement, and the CIT(A) acted within its jurisdiction.

3. Disallowance of 25% of Labor Charges:
The ITAT disallowed ?5.95 lacs, being 25% of labor charges, despite an increase in the G.P. rate. The court observed that both the CIT(A) and the ITAT had examined the facts in detail and found that the disallowance was justified based on the records and evidence provided. The court did not find any substantial question of law in this issue, as it was a matter of factual determination.

4. Sustaining Addition of ?15 Lacs Out of Sundry Creditors:
The ITAT sustained the addition of ?15 lacs out of Sundry Creditors, which the assessee argued was beyond the statutory period for maintaining books of accounts. The court found that the CIT(A) and the ITAT had based their decisions on the records available and the fact that only a few creditors were traceable. The court upheld the addition, stating that it was based on the evidence and records provided by the assessee.

Conclusion:
The court concluded that the CIT(A) did not introduce a new source of income and acted within its powers under Section 251 of the Income Tax Act. The requirement for a fresh notice of enhancement was deemed unnecessary given the compliance with the High Court's directions. The disallowance of labor charges and the addition of sundry creditors were upheld as they were based on detailed factual analysis. The appeal was dismissed, and the questions of law were answered in favor of the Revenue and against the Assessee.