MANMOHANSINGH S. RANAWAT,MUMBAI vs. INCOME TAX OFFICER-2(5), THANE

The present appeal has been preferred by the assessee against the order dated 25.05.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.

The assessee has raised the following grounds of appeal: “1.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in making the enhancement of income u/s.251(1)(a) in respect of new source of income of Rs.1,32,78,592/- on ignoring the fact that such matters were not arising out of the proceedings of the appealed order;

The sole issue in ground No.1 to 7 is against the order of Ld. CIT(A) making enhancement of income under section 251(1)(a) of the Act in respect of new sources of income of Rs.1,32,78,592/- by ignoring the fact that the item of additions are not arising out of the assessment order and constituted altogether new sources of income.

The facts in brief are that the assessment in this case was framed by the AO vide order dated 25.03.2015 passed under 3 Mr. Manmohan Singh S. Ranawat section 144 of the Act wherein 4 additions were made to the income of the assessee as under:- a. Unexplained cash deposits of Rs.66,43,500/- b. Unexplained investments under section 69 of Rs.52,15,000/- c. Unexplained investments under section 69 of Rs.22,17,300/-. d. Short term capital gain of Rs.23,44,000/-.

In the appellate proceedings, the Ld. CIT(A) by exercising the powers under section 251(1)(a) of the Act enhanced the income by Rs.1,32,78,592/- which were from new sources of income and were not appearing or referred to or discussed by the AO in the assessment order. The first addition made by the Ld. CIT(A) was in respect of loans of Rs.37,80,000/-. According to the Ld. CIT(A) the assessee did not furnish any detail except stating that money was received by account payee cheque and directed the AO to add the same to the income of the assessee under section 68 of the Act as the assessee failed to offer any explanation about the nature and source of the same as credited in the books of account. Similarly, the Ld. CIT(A) enhanced the income by Rs.61,60,000/- towards advance received against sale of land. Out of the said amount Rs.51,90,000/- was received in the earlier year whereas Rs.9,70,000/- was received during the year. The Ld. CIT(A) directed the same to be added under section 68 of the Act as the assessee was not having the details of the persons from whom the advances were received. Similarly, Rs.51,90,000/- which was received in the earlier year against sale of land could not be explained by the assessee and same was added to the income of the assessee as bogus liability or ceased liability u/s 41(1) of the Act by observing that same is required to be enhanced under section 251(2) of the Act.

The Ld. A.R. vehemently argued before us that Ld. CIT(A) has made the additions in respect of new sources of income/new items altogether which were not discussed or appeared in the assessment order and it is not open to Ld. CIT(A) to make any addition which is not arising out of the sources/additions as discussed/referred in the assessment order. In defence of his arguments the Ld. A.R. relied on the following decisions: CIT vs. Sardari Lal & Co. 251 ITR 864 (Del-HC) 1. 2. CIT vs. B.P. Sherafudin 87 Taxmann.com 330 (Ker-HC) 3. CIT vs. Union Tyres 240 ITR 556 (Del-HC) 4. CIT vs. Nirbheram Daluram 5 Taxman 84 (MP-HC) 5. CIT vs. Associated Garments Makers 64Taxman215(Raj-HC) 6. CIT vs. Shapoorji Pallonji Mistry 44 ITR 891 (SC) (decision of Bom-HC (344 ITR 342) 7. CIT vs. Rai Bahadur Hardutroy Motilal Chamaria 66 ITR 443 (SC) 8. Zuberi Enginnering Company vs. DCIT 103 taxmann.com 196 (Jaipur-ITAT) 9. Gurinder Mohan Singh Nindrajog vs. CIT 348 ITR 170 (Del-HC)

The Ld. D.R., on the other hand, relied heavily on the order of Ld. CIT(A) by submitting that the AO has framed assessment under section 144 of the Act and there was no occasion to discuss and investigate the various items of additions or sources of income during the assessment proceedings and thus justified

We have heard the rival submissions of both the parties and perused the material on record including the assessment order, appellate order and various case laws relied upon by the Ld. A.R. We observe that Ld. CIT(A) has made/enhanced the income by Rs.1,32,78,592/-. We have perused the order of AO carefully and observed that nowhere in the assessment order the nature of additions/sources of income of additions as made by the Ld. CIT(A) were discussed or referred to by the AO. Thus all these additions were made altogether on new items or new sources of income which in our opinion is beyond the jurisdiction of the Ld. CIT(A). In the case of CIT vs. Sardari Lal & Co. (supra) it has been held that whenever the question of taxability of income from new source of income is concerned, which had not been considered by the AO, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 and 263 of the Act if requisite conditions are fulfilled. Thus the Hon’ble Delhi High Court has held that the first appellate authority has no power to enhance the assessment by discovering a new source of income not considered by the AO in the order appealed against. In the case of CIT vs. B.P. Sherafudin (supra) the Hon’ble Kerala High Court has held that powers under section 251 are very wide but do not go to the extent of displacing the power say under section 147, 148 & 263 of the Act. In the said decision, the Hon’ble Kerala High Court has considered the decision in the case of CIT vs. Sardari Lal & Co. (supra) and CIT vs. Union Tyres (supra) and held that it is not open to the appellate commissioner to 6 Mr. Manmohan Singh S. Ranawat introduce in the assessment a new source of income and assessment must be confined to those items of income which were subject matter of original assessment. In the case of CIT vs. Union Tyres (supra) the Hon’ble Delhi High Court has held that first appellate authority is vested with vide powers under section 251(1) of the Act. However, there is a solitary but significant limitation to the powers of revision viz. that it is not open to AAC to introduce in the assessment a new source of income and the assessment has to be confined to those items of income which were subject matter of original assessment. In the case of CIT vs. Nirbheram Daluram (supra) the Hon’ble Madhya Pradesh High Court has held that it is not open to the AAC in the appellate proceedings to consider new source of income and to assess the same. It is abundantly clear from the ratio laid down in the various decisions that it is not open to the first appellate authority to enhance the income on altogether new source of income on items which are not subject matter of the assessment proceedings. We, therefore, respectfully following the same direct the AO delete the same. Ground raised by the assessee is allowed.

The second issue raised by the assessee in ground No.8 is in respect of confirmation of addition of Rs.63,63,280/- as made by the AO under section 68 of the Act comprising contract receipt credited in P& L A/C of Rs.15,69,800/-, recoveries from old debtors/advances of Rs.9,53,480/- and unsecured loans of Rs.38,40,000/-.

At the outset, the Ld. Counsel of the assessee submitted before the Bench that the assessee could not furnish the details

The Ld. D.R., on the other hand, relied on the order of Ld. CIT(A) and grounds of appeal.

In the result, the appeal of the assessee is partly allowed for statistical purpose.