A.P.RAMASAMY,KARUR vs. DCIT CIRCLE 2, TRICHY

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -1, Trichy, dated 04.02.2019 and pertains to assessment year 2004-05.

Shri N. Quadir Hoseyn, the Ld.counsel for the assessee, submitted that the CIT(Appeals) enhanced the disallowance towards expenditure relating to cloth production, packaging charges, etc. from 2% to 20% without issuing the statutory notice as required under Section 251(2) of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, the expenditure was actually incurred only at 2%. Therefore, the CIT(Appeals) is not justified in enhancing the disallowance to 20%. According to the Ld. counsel, failure of the assessee to produce the details after a lapse of 14 years cannot be a reason to enhance the assessment. The Ld.counsel submitted that the matter may be decided by the Tribunal by estimating the expenses at 2% instead of remanding the matter to the file of CIT(Appeals).

We heard Shri V.M. Mahidar, the Ld. Departmental Representative also. It is not in dispute that the Assessing Officer disallowed expenses towards cloth production and packaging charges at 2%. However, the CIT(Appeals) enhanced the same to 20% for non-production of vouchers. Section 251(2) of the Act mandates the CIT(Appeals) to issue show cause notice before enhancing the assessment. Unfortunately, the CIT(Appeals) has not issued any notice. The assessment was enhanced by increasing the disallowance from 2% to 20% without issuing mandatory statutory notice. This Tribunal is of the considered opinion that the failure of the CIT(Appeals) to issue notice for enhancement as required under Section 251(2) of the Act is a rectifiable error. Therefore, the appeal has to be re-examined by the CIT(Appeals) by issuing a show cause notice for enhancement as required under Section 251(2) of the Act. The apprehension of the Ld.counsel for the assessee that the matter was pending for a long time also needs to be taken into consideration by the CIT(Appeals) while disposing the appeal. Accordingly, the order of the CIT(Appeals) is set aside and remitted back to his file. The CIT(Appeals) shall issue the statutory notice as required under Section 251(2) of the Act for the proposed enhancement by increasing the disallowance from 2% to 20% and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.

Since the assessment year involved is 2004-05, the CIT(Appeals) shall dispose the appeal within four months from the date of receipt of the copy of this order.

With the above observation, the appeal filed by the assessee stands allowed for statistical purposes.