Powers of the CIT(A), of enhancement under section 251 of Income Tax Act is restricted to the matter dealt with by the AO

[Vivek Jalan]

Section 251(1)(a) of The Income Tax Act on Powers of the Joint Commissioner (Appeals) or the Commissioner (Appeals) provides that in disposing of an appeal, the Commissioner (Appeals) shall have the power to confirm, reduce, enhance or annul the assessment; However Section 251(2) requires that The Joint Commissioner (Appeals) or the Commissioner (Appeals), shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction; Further Explanation to Section 251 requires that In disposing of an appeal, the Joint Commissioner (Appeals) or the Commissioner (Appeals), may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Joint Commissioner (Appeals) or the Commissioner (Appeals), as the case may be, by the appellant.

The power of the CIT(A) to enhance has been a subject matter of debate before Hon'ble Supreme Court, various High Courts and Tribunals where the issue has been held for as well as against the assessee considering the facts and circumstances specific to the case. Section 251(1)(a) provides the CIT(A) could enhance such an assessment qua the under-assessed sum i.e. where the AO had dealt the issue the assessment and was the subject matter of appeal. In other words, the CIT(A) can exercise the power to enhance under section 251(1) in a case where the AO has considered a particular issue of disallowance or addition and while doing so has under assessed the income of the assessee. In cases where the AO has not dealt with the issue at and has not applied his mind on the taxability or non-taxability of a certain matter then the CIT(A) has no jurisdiction to enhance under section 251(1) but should resort to alternate course of action either under section 263 or 147 or 154 as the case may be.

The Hon'ble Supreme Court of India in the case of COMMISSIONER OF INCOME-TAX, CALCUTTA VERSUS RAI BAHADUR HARDUTROY MOTILAL CHAMARIA - 1967 (4) TMI 8 - SUPREME COURT held that the power of the appellate Asst. Commissioner for enhancement under section 31(3) of the Act is restricted to the subject matter of assessment or the source of income which have been considered expressly or by clear implications by the Income Tax Officer from the point of view of the taxability of the assessee. The Kolkata Bench of the Tribunal in the case of APEEJAY SHIPPING LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-III, KOLKATA. [2023 (6) TMI 117 - ITAT KOLKATA] also had a similar view. Similar view was taken in the case of EDELWEISS ASSET MANAGEMENT LTD. VERSUS ACIT, CIRCLE-3 (1) (2) , MUMBAI - 2024 (1) TMI 650 - ITAT MUMBAI