2016 (12) TMI 49 - AT - Income Tax

Enhancement of income - powers of CIT(A) - Held that - As far as the issue of enhancement of income by the Ld. CIT (A) is concerned, as in the case of CIT vs. Sardari Lal & Company 2001 (9) TMI 1130 - Delhi High Court has held that CIT (A) has no power to direct the AO to bring to tax a new source of income, which is not considered by the AO in the order appealed against him. The Hon ble Delhi High Court observed that wherever the question of taxability of income from a new source of income is concerned, which has not been considered by the AO, the jurisdiction to deal with the same in appropriate cases may be dealt with u/s 147/148 and section 263 if the requisite conditions are fulfilled. The Hon ble High Court further observed that in presence of such specific provisions, the CIT (A) does not have the power to tax a new source of income not considered by the AO in the order of assessment which was appealed against before him. In coming to this finding the Hon ble Delhi High Court approved its own decision in the case of CIT vs. Union Tyre (1999 (9) TMI 81 - DELHI High Court) and CIT vs. Shapoorji Pallonji Mistry (1962 (2) TMI 12 - SUPREME Court ) and CIT vs. Rai Bahadur Hardutroy Motilal Chamaria (1967 (4) TMI 8 - SUPREME Court). Thus we hold that the Ld. CIT (A) did not have the power to enhance the income of the assessee in the instant case and the enhancement made by him is beyond the powers conferred upon him by the statute. -Decided in favour of assessee

Summary

Issues involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
2. Enhancement of income by the CIT (A) beyond the powers conferred upon him by the statute.

Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act, 1961:
The assessee, engaged in Fabrication, Job Work, and Trading of Cloth, disclosed a turnover of ?21,08,032/- and income from job work and fabrication at ?1,62,93,530/-. The Assessing Officer (AO) rejected the trading results due to the assessee's failure to submit books of accounts and other relevant documents. The AO computed the net profit at 8% on the total turnover of ?1,84,01,562/-, resulting in a business income of ?14,72,124/-. The CIT (A) enhanced the income by ?97,68,528/- while deleting the earlier addition of ?14,72,124/-, citing non-compliance with TDS provisions. The assessee appealed to the ITAT, challenging the CIT (A)'s decision under section 40(a)(ia).

Issue 2: Enhancement of income by the CIT (A) beyond the powers conferred upon him by the statute:
The ITAT analyzed the CIT (A)'s power to enhance income and referred to the Delhi High Court's ruling in CIT vs. Sardari Lal & Company. The High Court held that the CIT (A) lacks the authority to introduce a new source of income not considered by the AO. The ITAT, following the High Court's decision, concluded that the CIT (A) exceeded his powers by enhancing the income, and therefore, the enhancement was quashed. The ITAT upheld the AO's original order, ruling in favor of the assessee.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing that the CIT (A) had overstepped his authority by enhancing the income, contrary to the provisions of the statute. The original order of the AO was reinstated, providing relief to the assessee in this matter.