2024 (2) TMI 486 - AT - Income Tax

CIT(A) power of enhancement u/s 250 and 251 - change of section - Addition u/s 68 v/s 69A - CIT(A) has applied and confirmed the impugned addition u/s 69A as against section 68 under which the Ld. AO - assessee received money in the form of loan through cheque with the addendum after giving cash for which there is no evidence at all - objection raised by the assessee that the creditors have not been examined in this regard has been over ruled by the Ld. CIT(A) by stating it to be baseless - HELD THAT - It is revealed from the appellate order that the Ld. CIT(A) has placed reliance on the decision of Kanpur Coal Syndicate 1964 (4) TMI 18 - SUPREME COURT wherein no doubt held that the powers of Ld. CIT(A) are wide being coterminus with those of the Ld. AO, but the Ld. CIT(A) failed to notice that it was so that he Ld. CIT(A) could entertain issues which had not been examined by the Ld. AO. In the case before us, Ld. AO examined the issue thoroughly and thereafter applied the provisions of section 68 of the Act for making the impugned addition. In our humble opinion, the Ld. CIT(A) misdirected himself in relying on the decision (supra) of the Hon ble Supreme Court. The same issue namely whether the first appellate authority has power to take into account a new source of income came up for consideration again for fresh adjudication before the full bench in CIT vs. Sardari Lal Co. 2001 (9) TMI 1130 - DELHI HIGH COURT wherein Hon ble Delhi High Court gave its verdict in favour of the assessee observing that it is unconceivable that in the presence of specific provision u/s 147/148 and 263 of the Act, a similar power is available to the first appellate authority. Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of the CIT(A)'s decision to treat the addition made under Section 68 as an addition under Section 69A.
2. Justification for the addition of Rs. 30,00,000/- as unexplained money.
3. Compliance with procedural requirements for enhancement of income by CIT(A).

Summary:

1. Legality of the CIT(A)'s decision to treat the addition made under Section 68 as an addition under Section 69A:

The assessee contested the CIT(A)'s decision to confirm the addition of Rs. 30,00,000/- under Section 69A instead of Section 68, as originally made by the AO. The Tribunal noted that Section 68 deals with unexplained cash credits, while Section 69A pertains to unexplained money, bullion, etc., found in the possession of the assessee. The Tribunal agreed with the assessee that the CIT(A) exceeded his powers under Sections 250 and 251 of the Act by changing the section for the addition without issuing a notice for enhancement, which effectively introduced a new source of income. This action was deemed contrary to settled legal principles, as highlighted in the judgments of Toffee Agricultural Farms (P) Ltd. and CIT vs. Union Tyres.

2. Justification for the addition of Rs. 30,00,000/- as unexplained money:

The AO made the addition based on an email suggesting a cash transaction of Rs. 30,00,000/- for receiving an entry in the accounts. The assessee argued that the amount was an unsecured loan from two entities, supported by confirmations and IT returns of the creditors. The AO rejected this explanation due to the lack of bank and financial statements of the creditors and the absence of a stated purpose for the loan. The CIT(A) upheld the addition but under Section 69A, stating that the assessee failed to explain the source of the cash and that the correct section should be 69A, which deals with unexplained money. The Tribunal, however, found that the CIT(A)'s action was not justified as it amounted to enhancement without proper notice.

3. Compliance with procedural requirements for enhancement of income by CIT(A):

The Tribunal emphasized that the CIT(A)'s powers are co-terminus with those of the AO, allowing him to examine issues not considered by the AO. However, the CIT(A) cannot introduce a new source of income without issuing a notice for enhancement, as this would exceed his jurisdiction under Sections 250 and 251. The Tribunal cited several judgments, including CIT vs. Sardari Lal & Co. and Brahmiah(y) vs. ITO, supporting the view that the CIT(A) cannot enhance income by introducing a new source without proper notice. The Tribunal concluded that the CIT(A)'s action to confirm the addition under Section 69A was not sustainable.

Conclusion:

The Tribunal allowed the assessee's appeal, holding that the CIT(A) exceeded his powers by changing the section for the addition without issuing a notice for enhancement, and the addition of Rs. 30,00,000/- as unexplained money under Section 69A was not justified. The appeal was decided in favor of the assessee.