Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.356/Bang/2019 Assessment Year : 2008-09 Shri. C. N. Babu, Vs. ITO, Prop: Hotel Chirag, Ward – 1, B. M. Road, Bidadi, Ramanagara. Ramanagaram Taluk – 562 109. PAN : AJXPB 4497 N APPELLANT RESPONDENT Assessee by : Shri. Raghavendra R. Chakravarthy, CA Revenue by : Shri. K. R. Narayana, Addl. CIT(DR)(ITAT), Bengaluru. Date of hearing : 08.08.2022 Date of Pronouncement : 16.08.2022 O R D E R Per N. V. Vasudevan, Vice President This is an appeal by the assessee against the order dated 27.12.2018 of CIT(A) – 3, Bengaluru, relating to Assessment Year 2008-09.
Ground Nos.1, 11 and 12 raised by the assessee are general in nature and does not require any adjudication. Ground No.2 raised by the assessee reads as follows:
The Commissioner of Income Tax (Appeals) has grossly erred in upholding addition made by the Assessing Officer amounting to Rs.5,00,000/- as unexplained cash credit u/s 68 of the Act and the same is liable to be annulled under the facts and circumstances of the case.
ITA No.356/Bang/2019 Page 2 of 22
The assessee is an individual. He filed a return of income for Assessment Year 2008-09 declaring a total income of Rs.1,59,123/-. The AO, in the Order of Assessment, has mentioned that the assessee was running a non-vegetarian hotel at Bidadi. He did not maintain any books of accounts and had prepared the Profit and Loss A/c and Balance Sheet on the basis of certain bills, vouchers, average collections and taking the market prices of assets and amounts payable to parties towards goods supplied. The total sales shown by the assessee was Rs.7,14,807/-. With these observations, the AO proceeded to make additions to the total income, some of which are challenged by the Assessee in this appeal.
As far as the issue raised in ground No.2 of the grounds of appeal of the assessee is concerned, the AO noticed that there was a cash deposit of Rs.5 lakhs in the bank account maintained by the assessee in the Kotak Mahindra Bank, Bidadi, vide A/c No.044501500018 on 21.07.2007. The plea of the assessee before the AO was that his brother-in-law one Mr. B. R. Arun wanted to purchase a site from one Mr. L. Dilip Kumar. He gave a sum of Rs.5 lakhs which was deposited in the assessee’s bank account. The assessee submitted that Rs.1,00,000/- was withdrawn on 11.08.2007 for the purpose of paying brokerage and registration expenses and the remaining sum of Rs.4,00,000/- was given to the seller of the property Mr. L. Dilip Kumar on 21.08.2007 by issuing of 2 cheques for Rs.2 lakhs each. A copy of the sale deed was also filed by the assessee and the sale consideration shown in the sale deed was only Rs.3,45,000/-. In this scenario, the AO was of the view that the explanation given by the assessee was not satisfactory and therefore the entire cash remittance of Rs.5 lakhs was added as income from unexplained sources.
ITA No.356/Bang/2019 Page 3 of 22
Before the CIT(A), the assessee filed affidavit of Mr. B. R. Arun affirming the fact that a sum of Rs.5 lakhs was given by him to the assessee and that sum was used for making payments to Mr. L. Dilip Kumar for purchase of plot at Bidgadi. The affidavit dated 15.07.2016 of Mr. B. R. Arun was additional evidence filed by the assessee before the CIT(A). The CIT(A) was of the view that this additional evidence cannot be admitted for the reason that the assessee did not give any valid reason as to why this was not filed before the AO. The CIT(A) was of the view that in terms of Rule 46A of the Income Tax Rules, 1962 (hereinafter called ‘the Rules’) certain conditions had to be satisfied for filing additional evidence. Since the assessee did not satisfy the conditions laid down in Rule 46 A of the Rules, the CIT(A) refused to admit the additional evidence. Further, the CIT(A) also observed that there was no supporting evidence to show the credit worthiness of Shri. B. R. Arun. The CIT(A) therefore confirmed the order of the AO. Aggrieved by the order of the CIT(A), the Assessee has raised ground No.2 before the Tribunal.
We have heard the rival submissions. The learned DR relied on the order of the CIT(A). Learned Counsel for the assessee submitted that the case of the assessee stands proved by the affidavit of Shri. B. R. Arun. It was also submitted by him that in terms of section 46A Sub Rule 4 of the Rules, CIT(A) has inherent powers to admit any evidence for substantial cause and he ought to have exercised his powers.
We have given a very careful consideration to the rival submissions. Perusal of the copy of affidavit of Shri. B. R. Arun which is at pages 156 and 157 of the Paper Book shows that he had clearly admitted that a sum of Rs.5 lakhs was given by him to the assessee in the month of July, 2007. It
ITA No.356/Bang/2019 Page 4 of 22
was also affirmed that the said sum was given to the assessee to enable him to purchase a plot at Bidadi. It is also submitted in the affidavit that a sum of Rs.4 lakhs was paid by cheque from the account of the assessee to the seller of the property. In our view, this evidence was very vital and had a bearing on the explanation offered by the assessee in respect of the cash deposited in the assessee’s bank account. The AO has made a reference to the provisions of section 68 of the Income Tax Act, 1961 (hereinafter called ‘the Act’), whereas the relevant application provision is section 69A of the Act. The burden under section 69A of the Act is to explain the nature and source of acquisition of money to the satisfaction of the AO. In our view, the explanation offered by the assessee ought to have been considered by the CIT(A) by examining Mr. B. R. Arun and also to verify the claim of Mr. B. R. Arun with regard to the manner of utilization of a sum of Rs.5 lakhs. In this regard, we also find that Mr. B. R. Arun is also an income tax assessee and the PAN has been given in the affidavit. The reason given by the Assessee that he was under the bonafide belief that the evidence filed by him was sufficient to discharge the onus to prove the source of cash deposits in the bank account, in our view, would constitute reasonable cause for not filing the required evidence before the AO. The mind of the AO that he is not satisfied with the evidence produced by the Assessee will be known only when the order of assessment is passed. We are therefore of the view that the additional evidence in the form of affidavit of Mr. B. R. Arun ought to have been accepted by CIT(A) and the claim made in the affidavit ought to have been examined in accordance with law. Since this exercise has not been carried out by the CIT(A), we set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in accordance with law and in the light of the observations made above, after affording the assessee opportunity of being heard.
ITA No.356/Bang/2019 Page 5 of 22
Ground Nos.3 and 4 raised by the assessee can be dealt together conveniently and these grounds read as follows: 3. The Commissioner of Income Tax (Appeals) has grossly erred in upholding addition made by the Assessing Officer amounting to Rs.9,00,000/- as unexplained cash credit u/s 68 of the Act and the same is liable to be annulled under the facts and circumstances of the case. 4. The Commissioner of Income Tax (Appeals) has grossly erred in upholding addition made by the Assessing Officer amounting to Rs.7,18,000/- as unexplained cash credit u/s 68 of the Act and the same is liable to be annulled under the facts and circumstances of the case.
In so far as the facts in relation to ground Nos.3 and 4 are concerned, it is seen from the order of the AO that in the very same bank account referred to in ground No.2 above, the assessee made another cash deposit of Rs.9,00,000/- on 30.07.2007 and a sum of Rs.7,10,000/- on 07.09.2007. When the assessee was asked to explain the source of funds out of which the aforesaid cash payments were made, the assessee explained that a sum of Rs.9 lakhs was cash from business transactions and a sum of Rs.7,10,000/- was unsecured loans borrowed from various parties with an intention to purchase a site at Bidadi. To support his contention, the assessee filed computerized cash book extracts and ledger extracts along with a letter dated 14.12.2010. The AO rejected the contention of the assessee that held that the computerized cash book extracts and ledger extracts filed along with letter dated 14.12.2010 were based on entries made by way of adjustment figures to suit the needs of the assessee. The following were the observations made by the AO in this regard.
ITA No.356/Bang/2019 Page 6 of 22
“As regards cash remittance of Rs.9,00,000/- on 30-7-2007, vide his letter dated: 14-12-2010, the assessee has stated that the transaction forms part of his business transactions which are according to his books of account. With regard to cash remittance of Rs,7,10,000/-, the assessee has further stated in the said letter, that during the year, he has borrowe 'unsecured loans from various parties with an intention to purchase a site at Bidadi d later on, due to various changes in real estate business, he has changed his intention and paid of all unsecured loans. Surprisingly, the assessee has enclosed computerized cash book extracts and ledger extracts along with the said letter., On going through these computerized extracts, it is seen that all the entries made are all adjusted figures on various dates to suit the needs of the assessee. Vide this office letter dated: 14-12-2010, the assessee was given another opportunity to explain the above three cash credits with supporting proof. Vide his letter dated: 23-122010, the assessee has reiterated his earlier statement. Further, on 23-12-2010, the assessee's authorized representative appeared and sprang up another surprise by producing two diaries claiming to be manually written day books for the period 01-4-2007 to 31-3-2008. The assessee's representative contended that computerized account books have been prepared based on the entries made in these two books. On going through these two diaries, it is seen that all the entries have been made recently at a stretch in a hurried manner. It is very clear and evident from these two books and the computerized print outs that the assessee has made futile attempt to bring in some cooked up evidence to explain the cash remittances made by him as above to the extent of Rs.21,18,000/- from undisclosed and unexplained sources. It can very well be seen that the assessee has brought in sundry creditors on various dates to substantiate the cash remittances on the dates mentioned above. To substantiate his claim that he has borrowed unsecured loans from thirty two parties for remitting the cash to bank amounting to Rs.9,00,000/- and Rs.7,10,000/-, the assessee was given an opportunity vide this office letter dated: 23-2-2010, to produce in this office all the thirty two persons from whom the assessee is claiming to have raised loans for verification and confirmation. On 27-12-2010, the assessee's authorized representative brought eight persons from whom statements were recorded. All these eight persons stereotyped answers that they are agriculturists and have advanced monies to the assessee out of the cash from agricultural income available with them. However, the
ITA No.356/Bang/2019 Page 7 of 22
representative expressed his inability to produce the remaining twenty four persons. In the circumstances, the assessee's claim that he has borrowed monies from thirty two persons is hereby rejected as not genuine. It is therefore evident that the assessee has made futile attempts to explain the cash remittances by preparing computerized accounts with imaginary figures and by incorporating creditors for an appropriate amount to suit the needs of the day. As already mentioned above, in the two diaries claimed to be day books, the entries have been made at a stretch in a hurried manner only after issue of letter on 08-11-2010.
In the light of the foregoing facts, it is very clear that the computerized books and the two diaries wherein entries have been made manually at a stretch in a hurried manner, are not genuine and do not depict the true ‘and correct day to day business transactions of the assessee. Therefore, the entries and transactions mentioned in the so called compputerized books as also the written c* books are hereby rejected as not genuine.”
The AO therefore treated the aforesaid two cash deposits as undisclosed income of the assessee. On appeal by the assessee, the CIT(A) confirmed order of the AO for the following reasons:
“4.20 As regards the amounts of Rs.9,00,000/- and Rs.7,18,000/-, treated as unexplained income by the AO, the argument of the appellant is that the amounts were from his business transactions and from unsecured loans taken from various agriculturists. The appellant has submitted that sufficient cash-in-hand was available in his cash book to make such deposits in his bank account. During appellant proceedings the appellant has furnished additional evidence in the form of confirmation from 36 lenders. The appellant has requested that the same may be treated as additional evidence as the same could not be produced before the AO due to paucity of time. A perusal of these documents shows that all of these lenders are stated to be farmers with meager land holdings. In relation to 21 of these lenders, no documents have been attached to show the extent of their land holding so as to ascertain their creditworthiness. As regards remaining 15 lenders, the
ITA No.356/Bang/2019 Page 8 of 22
land holding of most of them is less than I acre or a few acres only, which does not prove their creditworthiness. Further during assessment proceedings the amount was stated to be received from 32 persons, however during appellate proceedings the appellant has given confirmation from 36 persons. The appellant has not explained these aspects. Further two of these confirmations are from persons who are stated to be dead. All the confirmations are signed on 10.01.2013. One of these confirmation is reproduced as follows:
aspects. Further two of these confirmations are from persons who are stated to be dead. All the confirmations are signed on 10.01.2013. One of these confirmation is reproduced as follows:
4.21 A perusal of this confirmation shows thal the confirmation was first signed in blue ink, however later on the signature was erased with white fluid, although some part of the signature is still visible (white fluid and blue ink visible in the original available on appellate record). After doing this the appellant indicated 'Death" on the confirmation.
ITA No.356/Bang/2019 Page 9 of 22
This aspect shows that signatures on these confirmations are forged ones. This is also noted that from the assessment order that multiple opportunities were given by the AO to the appellant including opportunity to produce all the agriculturists before him, however the appellant did not avail such opportunity. In fact the appellant expressed his inability to do so and only 8 agriculturists were produced by him before the AO. The AO did not find their statements to be reliable. Considering above facts the additional evidence filed by the appellant is not admitted.
4.22 During appellate proceeding the appellant has argued that the AO had not given it opportunity to cross examine the agriculturists produced by him before the AO. The appellant has also submitted that after completion of the assessment proceedings a copy of statement was asked for by him from the AO vide his letter dated 21.01.2013, however the same had not been provided by the AO. These arguments of the appellant are devoid of any merit. A perusal of the records shows that the appellant never sought any cross examination of any of the 8 agriculturist, who were produced before the AO. Further the wavering stand of the appellant viz whether there were 32 number of lenders or 36 number of lenders, itself shows that the appellant is not stating the correct facts. The analysis of the cash book as produced by the appellant before the AO itself shows that the same was prepared to show requisite cash balances on different dates so as to explain the deposit of cash in the bank account by introducing cash received in the cash book in the form of unsecured loans or in form of sundry receivables, and as such the same was not a reliable document. Considering above the action of the AO in treating the amounts of Rs.9,00,000/-and Rs.7,18,000/- as unexplained income of the appellant is upheld and the ground of appeal 2.1 of the appellant is dismissed.”
Aggrieved by the order of the AO, the assessee has raised grounds 3 and 4 before the Tribunal. We have heard the submissions of the learned Counsel for the assessee who reiterated the submissions as made before the CIT(A). Learned DR relied on the order of the CIT(A). After considering the rival submissions, we find that in so far as the explanation with regard to cash deposits of Rs.9 lakhs made on 30.07.2007, the source was
ITA No.356/Bang/2019 Page 10 of 22
explained by the assessee as cash balance as on 29.07.2007. The assessee has arrived at this cash balance by taking into consideration the collection made in the course of running the hotel business and cash withdrawal of Rs.4,50,000/- from the very same bank account on 26.07.2007. In this regard, we find that the AO in the Order of Assessment has explained as to how the extract of cash book and ledger extracts were not reliable piece of evidence. The relevant cash book and ledger extracts are available at pages 18 to 75 of the assessee’s Paper Book. The assessee has not rebutted the findings of the AO with regard to the authenticity and correctness of cash books and ledger extracts as mentioned in the Order of Assessment. Since these documents have been found to be not authentic and since there is no proper explanation from the assessee with regard to findings of the AO, we are of the view that the addition of Rs.9 lakhs was justified and calls for no intereference. In this regard, we also find that the assessee has admitted that it had not maintained any books of accounts and in the circumstances, cannot seek to rely on the cash book and seek to explain the source of cash of Rs.9 lakhs deposited in the SB A/c.
In so far as addition of Rs.7,15,000/- is concerned, it is seen that the explanation of the assessee has been that he has availed unsecured loans from 36 creditors who are all agriculturists. These confirmation letters are at pages 86 to 144 of the assessee’s Paper Book. All the sums mentioned in the confirmation are less than Rs.20,000/- to ensure that there is no violation of provisions of section 269SS of the Act, i.e., prohibition against availing cash loans in excess of Rs.20000/-. The creditors are all small agriculturists. The claim of the assessee is that the AO examined 8 persons and came to the conclusion that the claim of the assessee was not satisfactory. It has been the stand of the assessee that in the light of the
ITA No.356/Bang/2019 Page 11 of 22
confirmations filed, the claim of the assessee should be accepted. We are of the view that the reasons given by the CIT(A) for not accepting the plea of the assessee are acceptable. The assessee’s failure to produce the agriculturists before the AO and the fact that the assessee never sought cross examination of the 8 agriculturists who could not prove their capacity to pay the assessee unsecured loans clearly shows that the plea of the assessee was not satisfactory. In the given facts and circumstances of the case, we are of the view that the conclusions of the CIT(A) on the addition of Rs.7,18,000/- does not call for any interference. Accordingly, grounds 3 and 4 raised by the assessee are dismissed.
Grounds 5 to 10 raised by the assessee reads as follows: 5. The Commissioner of Income Tax (Appeals) has grossly erred in enhancing the assessment by Rs.45,91,254/- by bringing a new source to the assessed income which are beyond the powers of the Commissioner of Income Tax (Appeals) and the same is liable to be annulled under the facts and circumstances of the case. 6. The Commissioner of Income Tax (Appeals) has grossly erred in travelling beyond the powers confined to him to bring a new source of income to tax which was never a subject matter of return of income or the assessment order and accordingly the entire enhancement is liable to be annulled under the facts and circumstances of the case. 7. The Commissioner of Income Tax (Appeals) has grossly erred in enhancing the assessment without serving mandatory notice on the appellant u/s 251 of the Act and accordingly the appellate order is liable to be quashed under the facts and circumstances of the case. 8. The Commissioner of Income Tax (Appeals) has grossly erred in enhancing the assessment without providing opportunity to the appellant and the Impugned enhancement is against principles of
ITA No.356/Bang/2019 Page 12 of 22
natural justice and equity and accordingly the enhancement is liable to be quashed in total under the facts and circumstances of the case. 9. Without prejudice to the above the appellant denies himself liable to be assessed at total income of Rs.22,77,120/- as against declared income of Rs.1,59,123/- under the facts and circumstances of the case. 10. The appellant denies himself liable to be assessed at an enhanced income of Rs.45,91,254/- under the facts and circumstances of the case. 14. In so far as these grounds are concerned, they relate to addition of Rs.45,91,254/- being cash deposits in a bank account with Canara Bank bearing No.22065. We have already seen while deciding ground No.3 that the assessee had to explain cash deposit of Rs.9 lakhs in his Kotak Mahindra Bank. In the course of offering explanation for the aforesaid source, the assessee pointed out that he had withdrawn cash from a bank account and the copy of the said bank account statement was given as Annexure 5 to the written submission of the assessee dated 12.08.2013 filed before the CIT(A). The CIT(A) while examining the aforesaid source noticed that assessee was the first account holder of aforesaid Canara Bank A/c and this account has not been disclosed by him in his return of income. He also noticed that there were the following cash deposits in the aforesaid account of the assessee.
Date Particulars Amount of Deposits (Rs.) 17.05.2017 Cash 5,000/- 13.06.2017 Cash 3,65,000/- 18.06.2007 Cash 50,000/- 18.06.2007 Cash 2.50,000/- 29.06.2007 Cash 4,50,000/- 02.07.2007 Cash 2,00,000/- 16.07.2007 Cash 31,00,000/- 10.09.2007 NNND 3374 Closed 8,700/-
ITA No.356/Bang/2019 Page 13 of 22
14.11.2007 Cash 5,000/- 30.11.2007 5670 5,670/- 1 12.12.2007 GL 17921 60,000/- 08.01.2008 NNND 3517 Closed 72,694 29.01.2008 Cash 10,000/- 15.02.2008 Cash 7,500/- 26.03.2008 Cash 1,690/- Total 45,91,254 i 15. The CIT(A), in exercise of his power of enhancement under section 251 of the Act, was of the view that cash deposits in the aforesaid Canara Bank Ac/ should also be added to the total income of the assessee as undisclosed income under section 69 of the Act because the assessee failed to give a satisfactory explanation with regard to source of funds out of the aforesaid cash deposits were made.
Before the Tribunal, the first and the foremost contention of the learned Counsel for the assessee was that in exercise of powers of enhancement under section 251 of the Act, the CIT(A) is precluded from exercising powers of enhancement on any matter not arising out of the proceedings in which the order appealed against was passed. It was contended that since this issue was not examined by the AO, the CIT(A) could not exercise his powers of enhancement under section 251(1)(a) of the Act, in view of the embargo laid down in Explanation to 251 of the Act. The relevant statutory provisions are as follows:
“251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers — (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or "annul the assessment (b)……. (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant
ITA No.356/Bang/2019 Page 14 of 22
has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.—In disposing of an appeal, 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 Commissioner (Appeals)] by the appellant.”
The learned Counsel for the assessee drew our attention to decision of the Hon’ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry 44 ITR 891 wherein the Hon’ble Supreme Court has held that in an appeal filed by the assessee the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the Income-tax Officer in the order appealed against. Learned Counsel for the assessee further placed reliance on the decision of Hon’ble Supreme Court in the case of CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria 66 ITR 443 (SC) wherein the Hon’ble Supreme Court held that the Appellate Assistant Commissioner has no jurisdiction under section 31(3) of the Indian Income-tax Act, 1922, to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order. It is not therefore open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer, with a view to finding out new sources of income and the power of enhancement under section 31(3) is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of, view of taxability. In this context "consideration" does not mean "incidental" or "collateral" examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the
ITA No.356/Bang/2019 Page 15 of 22
particular subject-matter or the particular source of income w a view to its taxability or to its non-taxability and not to any incidental connection.” 18. Learned DR on the other hand placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Nirbheram Daluram 224 ITR 610 (SC) wherein the Hon’ble Supreme Court held that in Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 it has been held that the power of the AAC is coterminous with that of the ITO and therefore the appellate authority can modify an assessment order on decide additional ground even if not raised before the ITO. The scope of his power is coterminous with the ITO. He can do what the ITO can do and also direct him to do what he has failed to do. Therefore the appellate power conferred on the AAC under section 251 was not confined to the matter which had been considered by the ITO.
Learned Counsel for the assessee pointed out that the aforesaid decision cited by learned DR was considered by the Hon’ble Delhi High Court in the light of the decisions cited by the learned Counsel for the assessee, in the case of CIT Vs. Sardari Lal & Co. 251 ITR 864 (Delhi) and the Court held after referring to decisions in the case of Shappoorji Pallonji Mistry (supra) and Rai Bahadur Harudtroy-Motilal Chamaria (supra) the decision rendered in the case of Nirbheram Daluram (supra) observed that in the decision rendered in the case of Nirbheram Daluram (supra), the Hon’ble Supreme Court only commented on powers of first appellate authority u/s.251 of the Act, by observing that the appellate powers conferred on the first appellate authority under section' 251 of the Income- tax Act, 1961, were not confined to the matter, which had been considered by the Income-tax Officer, as the first appellate authority is vested with till
ITA No.356/Bang/2019 Page 16 of 22
the wide powers that the Asses-sing Officer may have while making the assessment, but the issue whether these wide powers also include the power to discover a new source of income was not commented -upon. Consequently, the Hon’ble Dellhi High Court preferred to follow the view expressed in Shapoorji Pallonji Mistry (supra) and Rai Bahadur Hardutroy Motilal Chamaria (supra) and held that the said law still holds good and when-ever the question of taxability of income from a new source which had not been considered by the Assessing Officer is sought to be taxed, the jurisdiction to deal with the same will be either under section 147 / 148 of the Act and section 263 of the Act, if requisite conditions are fulfilled. The Hon’ble Court held that in the presence of such specific provisions a similar power is not available to the first appellate authority.
Learned Counsel for the assessee also placed reliance on the decision of Hon’ble Kerala High Court in the case of CIT Vs. B.P. Sharafudin 252 Taxman 326 (Ker) wherein the Hon’ble Karnataka High Court considered all the decisions referred to above and preferred to follow the decision of the Hon’ble Delhi High Court in the case of Sardari Lal & Co.(supra). “Precedential position : 39. A Full Bench of this court in CIT v. Best Wood Industries and Saw Mills [2011] 331 ITR 63 (Ker) [FB] has examined the powers of the Assessing Officer, but not the appellate authority. It has held that once the assessment is reopened for any valid reason recorded under section 148(2), then the entire assessment is open for the Assessing Officer to bring to tax any item of escaped income which comes to his notice in such reassessment. 40. Under the old Income-tax Act, the corresponding provision is section 31. Interpreting that provision, the Supreme Court in CIT v.
ITA No.356/Bang/2019 Page 17 of 22
Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) has held that under section 31(3)(a), in disposing of an appeal, the appellate authority may confirm, reduce, enhance or annul the assessment ; under clause (b), he may set aside the assessment and direct the Income-tax Officer now AO to make a fresh assessment. The appellate authority has, therefore, plenary powers in disposing of an appeal. "The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do". 41. As we can see, CIT v. P. Mohanakala [2007] 291 ITR 278 (SC) deals with the powers of the High Court in interfering with the findings of fact--and concurrent findings, at that by re- appreciating the evidence. The Supreme Court has held in the negative. The Supreme Court in Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 (SC) has stated that the declaration of law is clear that the power of the appellate authority is co-terminus with that of the Income-tax Officer, and if that is so, there appears to be no reason why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income-tax Officer. No exception could be taken, held the Supreme Court in CIT v. Nirbheram Daluram [1997] 224 ITR 610 (SC) to this view as the Act places no restriction or limitation on exercising appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitation, if any, prescribed by the statutory provisions. Absent any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have. 42. In CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC), the assessment year was 1947-48, and the case was finally decided in February 14, 1962. So the Act considered was pre- Independence enactment. Examining section 31 of the old Act, the Supreme Court has held that there is no doubt that the appellate authority can "enhance the assessment". This power must, at least, fall within the words "enhance the assessment", if they are not to be rendered wholly nugatory.
ITA No.356/Bang/2019 Page 18 of 22
Now, we may examine the authorities that also have dealt with the powers of the appellate authority but seem to have taken a divergent path. 44. In CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC) a three-judge Bench of the Supreme Court has observed that it is only the assessee who has a right conferred under section 31 to prefer an appeal against the order of assessment made by the Income-tax Officer. If the assessee does not appeal the order of assessment becomes final subject to any power of revision that the Commissioner may have under section 33B of the Act. Therefore, it would be wholly erroneous to compare the powers of the appellate authority with the powers possessed by a court of appeal, under the Civil Procedure Code. The Appellate Assistant Commissioner is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and because of this peculiar position the statute has conferred very wide powers upon the appellate authority once an appeal is preferred to him by the assessee. 45. Chamaria goes on to hold that the appellate authority has no jurisdiction under section 31(3) of the Act to assess a source of income not processed by the Income-tax Officer "and which is not disclosed either in the returns filed by the assessee or in the assessment order," and therefore the appellate authority cannot travel beyond the subject-matter of the assessment. In other words, the power of enhancement under section 31(3) of the Act is restricted to the subject-matter of assessment or the sources of income considered expressly or by clear implication by the Income-tax Officer from the viewpoint of the taxability of the assessee. 46. A question regarding powers of the first appellate authority came up for consideration before the Supreme Court recently in CIT v. Nirbheram Daluram [1997] 224 ITR 610 (SC). Following the earlier decisions in Kanpur Coal Syndicate and Jute Corporation of India, the Supreme Court reiterated that the appellate powers conferred on the Appellate Commissioner under section 251 could not be confined to the matter considered by the Income-tax Officer, as the Appellate Commissioner is vested with all the plenary powers which the Income-tax Officer may have while making the assessment.
ITA No.356/Bang/2019 Page 19 of 22
Indeed, examining Daluram's holding, a Division Bench of the Delhi High Court in CIT v. Union Tyres, Delhi [1999] 240 ITR 556 (Delhi) has observed that Daluram did not comment whether these wide powers also include the power to discover a new source of income. So, Union Tyres concludes that the principle of law laid down in Shapoorji and Chamaria still holds the field. 48. The principle emerging from various pronouncements of the Supreme Court, Union Tyres observes, is that the first appellate authority is invested with very wide powers under section 251(1)(a) of the Act and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee makes a grievance and ranges over the whole assessment to correct the Assessing Officer not only regarding a matter raised by the assessee in appeal but also regarding any other matter considered by the Assessing Officer and determined in assessment. 49. There is a solitary but significant limitation, according to Union Tyres, to the power of revision : It is not open to the Appellate Commissioner to introduce in the assessment a new source of income and the assessment must be confined to those items of income which were the subject-matter of the original assessment. 50. In course of time, Union Tyres was doubted. In CIT v. Sardari Lal and Co. [2001] 251 ITR 864 (Delhi) [FB], the same issue whether the appellate authority has the power under section 251 to discover a new source of income was referred to a Full Bench. After examining the authorities holding the fielding on that issue, the learned Full Bench has held that the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147, or section 148, or even section 263 of the Act if requisite conditions are fulfilled. It is inconceivable, according to Sardari Lal, that in the presence of such specific provisions, a similar power is available to the first appellate authority. Eventually, Sardari Lal upheld the decision in Union Tyres. 51. Undeniably, the precedential position on the powers of the first appellate authority under section 251 undulates. There are seeming
ITA No.356/Bang/2019 Page 20 of 22
contradictions. But, as held by Union Tyres, and as affirmed on reference by Sardari Lal, there is a consistent judicial assertion that the powers under section 251 are, indeed, very wide ; but, wide as they are, they do not go to the extent of displacing powers under, say, sections 147, 148, and 263 of the Act. 52. Therefore, we are in respectful agreement with the view taken by the Full Bench of the High Court of Delhi in Sardari Lal. As a corollary, we hold that the Tribunal's deleting the enhancement of Rs. 22,15,116 and cancelling the order of the Commissioner of Income- tax (Appeals) on that issue call for no interference." 21. The principle culled out from the above judicial precedents clearly shows that the first appellate authorities power to enhance an assessment is confined to and he has no power to enhance the assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the Income-tax Officer in the order appealed against. There is a consistent judicial assertion that the powers under section 251 are, indeed, very wide ; but, wide as they are, they do not go to the extent of displacing powers under, say, sections 147, 148, and 263 of the Act. In the present case, the Canara Bank Account was never subject matter of assessment or considered by the AO. The learned DR made an attempt to submit that since this bank account and withdrawals therefrom (i.e., Canara Bank account not considered by the AO) was used to explain the source of deposit of Rs.9 lakhs added by the AO, it has to be construed that this item of income was also subject matter of assessment. In our view, this stand taken by the Department cannot be accepted. The admitted factual position is that the Canara Bank account was never a subject matter of assessment. It is also a fact but for the assessee giving the details of the Canara Bank account before the first appellate authority, there was no occasion for the CIT(A) to have known the existence of Canara Bank Account. The law is very clear that in exercise of his power of enhancement, the CIT(A) cannot find out new
ITA No.356/Bang/2019 Page 21 of 22
source of income and the power of enhancement is restricted to the sources of income which have been the subject matter of consideration by the AO from the point of view of taxability. What was the subject matter of consideration by the AO cannot include incidental or collateral examination of any matter by the ITO in the process of assessment. There must be something in the Assessment Order to show that the AO applied his mind to the particular subject matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. In this case, there has been no incidental or collateral examination of the Canara Bank account also by the AO. In these circumstances, we are of the view that the CIT(A) fell into an error in exercising his powers of enhancement with a view to bring the cash deposits in the Canara Bank account to tax. We hold that this was outside the purview of the powers of the CIT(A) under section 251(1)(a) of the Act. Consequently, the addition made in this regard is directed to be deleted and the relevant grounds of appeal in this regard are allowed. Other grounds with regard to the merits of the addition do not require any consideration.
The grounds relating to charging of interest u/s.234A, 234-B and 234-D of the Act are purely consequential and the AO is directed to give consequential relief.
ITA No.356/Bang/2019 Page 22 of 22
In the result, the appeal of the assessee is partly allowed.
Pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/- (LAXMIPRASAD SAGU) (N.V.VASUDEVAN) Accountant Member Vice-President Bangalore, Dated: 16.08.2022. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.