2016 (3) TMI 957 - AT - Income Tax

Validity of provisions of section 251(2) invoked by CIT(A)- enhancement of income - examination of new source of income - Held that - Undisputedly the Assessing Officer has made disallowance under the head gross profit rate and disallowance of certain expenses claimed by the assessee under different heads. The Assessing Officer has not examined the issue of sundry debtors and sundry creditors available in the balance sheet, but during the course of hearing of the first appeal, the ld. CIT(A) has examined the issue of huge balance existed against the sundry debtors and sundry creditors of the assessee. He has also examined the interest paid on borrowed funds and advances made by the assessee to the sister concern without interest. The ld. CIT(A) accordingly made corresponding disallowance of interest paid on the borrowed funds, which were advanced to its sister concern. The ld. CIT(A) has also examined reasonableness of the commercial expediency for advancement of loan on the borrowed funds to the sister concern. In the light of these facts, of the considered opinion that the ld. CIT(A) has adjudicated a new issue which was not even touched upon by the Assessing Officer for making disallowance in the hands of the assessee. Also carefully perused the judgment of CIT vs. Sardari Lal & Co. (2001 (9) TMI 1130 - Delhi High Court ), in which Hon ble High Court has adjudicated the powers of the ld. CIT(A) conferred under section 251(1)(a) of the Act in the light of various judicial pronouncements of different High Courts and Apex Court and was of the view that whenever question of taxability of income from new source of income is concerned, which has not been considered by the Assessing Officer, the ld. CIT(A) or the first appellate authority cannot examine that issue or new source of income. Since the ld. CIT(A) has examined a new source of income in the instant case, the ld. CIT(A) has exceeded his jurisdiction. Therefore, the addition resulting into enhancement of income is not sustainable in the eyes of law. - Decided in favour of assessee

Summary

Issues:
1. Jurisdiction of the ld. CIT(A) to enhance income beyond issues examined by the Assessing Officer.

Analysis:
The appeal was filed against the ld. CIT(A)'s order enhancing the income by &8377; 8.42 lakhs under section 251(2) of the Income-tax Act, 1961. The Assessing Officer had initially assessed the income at &8377; 2,67,370/-, making small additions under different heads. However, the ld. CIT(A) examined the issue of huge balances against sundry debtors and creditors, leading to an enhancement based on interest-free advances to a sister concern. The ld. counsel for the assessee argued that the ld. CIT(A) exceeded jurisdiction by adjudicating on issues not touched by the Assessing Officer, citing relevant case law. The ld. D.R. supported the ld. CIT(A)'s order.

Upon thorough consideration, the Tribunal found that the ld. CIT(A) indeed ventured into a new issue of sundry debtors and creditors not addressed by the Assessing Officer. Citing the judgment of the Hon'ble Delhi High Court, the Tribunal concluded that the ld. CIT(A) had exceeded jurisdiction by examining a new source of income. The Tribunal referred to various judicial pronouncements and held that the ld. CIT(A) cannot assess a source of income not considered by the Assessing Officer. Consequently, the Tribunal set aside the ld. CIT(A)'s order and deleted the addition, allowing the assessee's appeal.

In summary, the Tribunal's decision focused on the jurisdictional limits of the ld. CIT(A) in enhancing income beyond issues examined by the Assessing Officer. The Tribunal emphasized that the ld. CIT(A) cannot adjudicate on new sources of income not considered during assessment, as per relevant legal precedents. The Tribunal's ruling favored the assessee, highlighting the importance of adhering to jurisdictional boundaries in tax assessments.