DR.S.MAHALAKSHMI,CHENNAI vs. ITO CORPORATE WARD 1(1), CHENNAI

आदेश / O R D E R

ITS Nos.1614 to 1622/Chny/2018 :- 2 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

PER GEORGE MATHAN, JUDICIAL MEMBER

ITA Nos.1614 to 1616/Chny/2018 are the appeals

filed by Dr.S. Mahalakshmi against the common order of

Ld.CIT(A)-4,Chennai in ITA Nos.381, 383, 385, 387 &

389/2016-17/A.Ys.2008-09 to 2012-13/CIT(A)-4 dated

15.03.2018 for assessment years 2008-09 to 2012-13.

ITA Nos.1617 to 1622/Chny/2018 are the appeals filed by

Dr.L.Saravanan against the common order of Ld.CIT(A)-I,

1,Chennai in ITA Nos.146,148,150,152,225 & 154/CIT(A)-

1/2016-17 dated 30.03.2018 for assessment years 2008-09

to 2013-14.

issues are interlinked, all the appeals are disposed of by this common

order.

Mr.Clement Ramesh Kumar represented on behalf of the Revenue.

to 5 in all the appeals were against the action of the Ld.CIT(A) in

ITS Nos.1614 to 1622/Chny/2018 :- 3 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

confirming the addition made by the ld. Assessing Officer in respect of

deemed dividend by invoking the provisions of the section 2(22)(e) of

the Act.

4.1 It was a submission that Grounds Nos.6 to 8 in the appeals

in ITA Nos.1614 to 1616/Chny/2018 are against the action of the

Ld.CIT(A) in making enhancement addition in respect of cash

payments made for purchase of medicines for invoking the provisions

of the section 40A(3) of the Act.

4.2 It was a submission that Grounds Nos.6 to 8 in the appeals

in ITA Nos.1617 to 1622/Chny/2018 are against the action of the

Ld.CIT(A) in making enhancement resulting in addition in respect of

cash deposits in the company’s account, which have been made in the

name of assessee by not accepting the source of income as explained

by the assessee.

4.3 It was further submission that Ground No.7 in all the

appeals are against the enhancement per se as made by Ld.CIT(A).

submitted by ld.A.R that in the course of assessment it was noticed by

the ld. Assessing Officer that the assessee and his wife had drawn

ITS Nos.1614 to 1622/Chny/2018 :- 4 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

funds from the company and had purchased a landed property in their

joint names and constructed a building and had leased out the said

building to the company for the purpose of running a hospital. Ld.A.R

drew our attention to page No.3 of the assessment order for

assessment year 2008-09 wherein the details of the amounts drawn

from the company through the current accounts and the accumulated

profits of the company, M/s.Abhijay Hospital Pvt. Ltd., for the financial

years 2007-08 to 2011-12 has been extracted in a chart form, which is

as follows:-

F.Y Reserves & Dr.L.Saravanan Dr.S.Mahalakshmi Surplus Drawal deposits Drawal deposits 2007-08 18,56,453 17,37,957 22,22,377 14,48,893 18,75,312 2008-09 31,61,657 55,24,270 65,24,482 25,62,620 35,56,134 2009-10 60,26,670 4,57,89,271 4,08,21,080 1,35,37,844 1,15,33,972 2010-11 1,03,35,401 2,46,58,065 2,12,06,746 51,08,161 2011-12 1,10,57,253 3,20,62,648 1,88,16,862 1,45,40,542 35,99,514

It was a submission that ld. Assessing Officer held that the assessee

had drawn funds from the company, and therefore, held that there

was violation of provisions of the section 2(22)(e) of the Act and the

Assessing Officer brought to tax the sums drawn as dividend income.

On appeal, Ld.CIT(A) had without considering the explanation of the

assessee that the drawings was in the current account and that it was

a current account transaction, upheld the order of Assessing Officer.

ITS Nos.1614 to 1622/Chny/2018 :- 5 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

It was a submission that the issue was now squarely covered by the

decision of the Co-ordinate Bench of the Tribunal in the case of

M/s.CAI Industries P Ltd., Vs. The DCIT in ITA No.356/Mds./2017 vide

order dated 21.09.2017 wherein it has been held as follows:-

“5.5 We have heard the rival submissions and carefully perused the materials on record. From the facts of the case, it is apparent that both the assessee and its sister company are dealers in automobiles of different nature and engaged in business with close proximity. The combined endurance to market the products in the same vicinity results in close commercial ties between the assessee company and its sister company. As a result both the companies were maintaining current accounts in order to achieve their respective business targets. Therefore it cannot be said that, the interdependence for meeting several business commitments of the assessee and its sister concerns does not result in commercial nexus between the assessee company and its sister concerns. As pointed out by the Ld.AR some expenses were met by both the companies which were reimbursed by either company. These facts are not disputed. Moreover at the close of the financial year the current account maintained by the assessee with its sister concern showed nil balance. In this situation, we are of the view that the decision of the Jurisdictional High Court in the case CIT vs. C.Subba Reddy would be most appropriate, wherein it was held that “when no benefit has accrued to assessee and credit was a result of business transaction and was neither in nature of loan or deposit hence, provisions of Sections 2(22)(e) of the Act do not stand attracted.” Further in the case of the assessee the circular No.19/2017 supra is also very relevant. Considering these aspects of the case, we are of the considered view that provisions of Section 2(22)(e) of the Act will not be applicable in the case of the assessee. Therefore we hereby direct the Ld.AO to delete the addition made by invoking the provisions of Section 2(22)(e) of the Act.” Ld.A.R also placed reliance in the decision of the jurisdictional High

Court in the case of CIT Vs. C.Subba Reddy, reported in (2017) 77

Taxmann.com 320(Madras), which has been referred to in the decision

ITS Nos.1614 to 1622/Chny/2018 :- 6 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

of the Co-ordinate Bench of the Tribunal in the case of M/s.CAI

Industries P Ltd., referred to supra.

jurisdictional High Court in the case of CIT Vs.P.K.Abubacker reported

in [2003] 259 ITR 507(Madras) would apply as advances had been

taken by the shareholder for the construction of the building, which

was later taken on lease by the company and such advance was set off

against the future rent. Ld.D.R also placing reliance in the decision of

the Hon’ble jurisdictional High Court in the case of Sunil Kapoor Vs.

CIT reported in [2015] 235 Taxman 279 (Madras) submitted that when

the company possessed accumulated profits in excess of amount that

was paid to assessee, then the same was liable to be treated as

deemed dividend.

material on record. At the outset, perusal of the assessment order

clearly shows that the ld. Assessing Officer has categorically

recognized the amount has been drawn through their current account.

The purpose of taking of the money was also for the purpose of

business of the company, which is also not disputed. A perusal of the

decision of the jurisdictional High Court in the case of CIT Vs.C.Subba

Reddy referred to supra which is in the year 2017 clearly shows that

ITS Nos.1614 to 1622/Chny/2018 :- 7 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

where the amount has been given by the company as part of the

contractual obligation, no deemed divided can be assessed. The

Co-ordinate Bench of this Tribunal in the case of M/s.CAI Industries P

Ltd referred to supra followed decision of has the jurisdictional High

Court in the case of CIT Vs. C.Subba Reddy (supra), as also CBDT

Circular No.19/2017 held that on account of commercial expediency

transactions in the current account should not be treated as giving rise

to deemed dividend. In the circumstances, respectfully following the

decision of the jurisdictional High Court in the case of CIT Vs. C.Subba

Reddy referred to supra, as also the principle laid down by the Co-

ordinate Bench of this Tribunal in the case of M/s.CAI Industries P Ltd

referred to supra, we are of the view that the addition as made by the

ld. Assessing Officer and confirmed by the Ld.CIT(A) is unsustainable

and therefore, stands deleted.

Nos.1617/2018 to 1622/2018 in respect of Grounds Nos.6 & 8

representing the cash deposits in the company’s account, the source

for which has been treated as unexplained by the Ld.CIT(A) in the

enhancement proceedings, it was submitted by the ld.A.R that at the

outset the enhancement as done by the Ld.CIT(A) was erroneous.

ITS Nos.1614 to 1622/Chny/2018 :- 8 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

relate to the issue of enhancement, which would be argued separately.

9.1 It was a submission that in respect of merits, the ld.A.R had

no objection, if the issues of the sources for the cash deposits was

restored to the file of the AO for re-adjudication.

9.2 In respect of the appeals of Dr.S.Mahalakshmi in ITA

Nos.1614 to 1616/2018 in respect of Ground Nos. 6 & 8, It was a

submission that the issue was in respect of cash payments in excess of

`20,000/- for purchase of medicine by invoking the provisions of the

section 40A(3) of the Act. It was a submission that out of five

transactions, one transaction was by cash. It was a submission that it

was not, as if all the purchases has been only as cash transactions.

It was only on commercial expediency, the assessee had paid the cash

for the purchase of medicines for the hospital. It was a submission that

the proviso after Section 40A(3A), which also applied to Sec.40A(3)

provided for no disallowance to be made if the payment was made for

consideration of business expediency and other relevant factors. It

was a submission that the fact that the cash payments had to be made

is an undisputed fact and that the payment was made for the purchase

of medicine was also undisputed fact and this was also shown and

proved before the Ld.CIT(A) as it is evident from the page 21 of the

ITS Nos.1614 to 1622/Chny/2018 :- 9 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

order of the CIT(Appeals). The payments had been made to

M/s.Abhijay Hospital Pvt. Ltd., which was a partnership firm between

assessee and her spouse. The said firm was incurring losses and

subsequently had also closed down. It was a submission that as the

said firm was incurring losses so as to avoid any locked down of the

assessee’s funds by the banks of the partnership firm, the payments

had been made by cash for the purchase of the medicines and the

genuineness of the transaction was never disputed. It was a

submission that in the circumstances, the enhancement made by the

Ld.CIT(A) by invoking the provisions of the section 40A(3) of the Act

in respect of cash payments made to M/s.Abhijay Hospital Pvt. Ltd.,

on account of commercial expediency for purchasing the medicines

was liable to be deleted.

source for the cash payments to the company by Dr.L.Saravanan may

be restored to the file of ld. Assessing Officer for verification and re-

adjudication.

10.1 In respect of issue of the addition representing enhancement

in the case of Dr.L.Sarvanan by invoking the provisions of the section

40A(3) of the Act, the same was liable to be upheld.

ITS Nos.1614 to 1622/Chny/2018 :- 10 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

prayer of the ld.A.R and the ld.D.R, the issue representing the source

for the cash payments which is the subject matter of enhancement as

done by the Ld.CIT(A) in the case of the assessee, Dr.L.Saravanan is

restored to the file of the ld. Assessing Officer for verification and re-

adjudication after granting the assessee adequate opportunity of being

heard.

11.1 In regard to the enhancement done by the Ld.CIT(A) in the

case of Dr.S.Mahalakshmi by inv0king the provisions of the section

40A(3) in respect of the cash payments to the partnership firm,

M/s.Abhijay Pharma Medical Technologies, wherein the assessee is

also a partner, as it is noted that the cash payments have been made

on account of commercial expediency, in view of the proviso after

Sec.40A(3A) which is also applicable to Sec.40A(3), the disallowance

as made by the Ld.CIT(A) is deleted.

against the action of enhancement done by the Ld.CIT(A), it was

submitted by ld.A.R that the Ld.CIT(A) has taken recourse to

enhancement by taking up a new source which was not permissible.

Ld.A.R placed reliance on the decision of the Hon’ble Supreme Court in

the case CIT Vs. Shapoorji Pallonji Mistry reported in 44 ITR 891(SC)

wherein it has been held that it would not be open to the AAC to

ITS Nos.1614 to 1622/Chny/2018 :- 11 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

introduce into assessment new sources as his power of enhancement

is restricted only to incomes which were subject matter of

consideration for the purpose of assessment by the Income Tax

officer.

covered bythe decision of Hon’ble Supreme Court in the case of CIT

Vs. Nirbheram Deluram reported in [1997] 224 ITR 610 (SC) wherein it

has been held that the appellate power conferred on AAC is not

confined to matter which had been considered by the Income Tax

officer. It was a submission that the said view has already been

upheld by the Hon’ble Apex Court in the case of Jute Corporation of

India Ltd Vs. CIT reported in [1991] 187 ITR 688 (SC). The ld.D.R

also placed before us the written submissions on the issue of the

power of Ld.CIT(A) to enhance the assessment which is extracted

herein below:-

‘1. It is hereby submitted that, in the factual matrix of this case the CIT(A) has powers to enhance the assessment, based on the following decisions: 2. Reliance is placed on the decision rendered in the case of Ansadldo_Enegergia Spa v. ADIT (International; Taxation), (115 TTJ 942 dated Dated May 11, 2007), by the Hon’ble ITAT Chennai, wherein it was held as follows:

“... The powers of the CIT A) are co-terminous with those of the AO. He has plenary powers in disposing of an appeal. He can do what the AO could do and can also direct the latter to do what the latter failed to do... The relevant extract of this order is reproduced as below:

ITS Nos.1614 to 1622/Chny/2018 :- 12 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

“... 7.. Learned Departmental Representative submitted that the powers of CIT(A) are co-terminous with that of AO. As such he can exercise all the powers of AO. Reference was made to various precedents. In the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) it was held that CIT(A) can do what the ITO can do. He can also direct him to do what he failed to do. Learned Departmental Representative submitted that on this factual backdrop the decisions rendered in the cases of CIT v. Shapoorji Pallonji Mistiy (supra), CIT v. Rai Bahadur Hard utroy Motilal Chamaria (supra) and CIT v. Nirbheram Daluram (supra) are to be considered. The first two decisions were rendered under the 1922 Act whereas the case of Nirbheram Daluram (supra) was rendered under the 1961 Act in which an Explanation was appended to s. 251. As per this Explanation, CIT(A) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed. In view of this and considering the ratio laid down in the cases of CIT v. Kanpur Coal Syndicate (supra) and Jute Corporation of India Ltd. v. CIT [1990] 88 CTR (SC) 66 [1991] 187 ITR 688 (SC) Supreme Court in Nirbheram Daluram’s case (supra) decided the issue in favour of the Revenue. 8. It was further submitted that CIT(A) did not add any income from totally new source. The dictionary meaning of the term “source” is “place of origin or place of issue”. In this case the source of income was contract with Neyveli Lignite Corporation (in short ‘NLC9. Assessee did offer income from Contract II and part of Contract I. Details regarding Contract III and Contract IV were also available before the AO. CIT(A) has only added income from Contract III and Contract IV as well as part of income from Contract I. 9. After considering the various details and submissions we find that Contracts I, II, Ill and IV were treated as part of a single composite contract, there was no new source of income which was considered by the CIT(A). Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. [1992] 107 CTR (SC) 209 [1992] 198 ITR 297 (SC) has held that once an assessment is reopened, the entire proceedings are open before the AO and he can bring to tax any income which escaped assessment. Therefore AO as well as CIT(A) need not restrict themselves to the issue on which the assessment was reopened.

ITS Nos.1614 to 1622/Chny/2018 :- 13 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

“... courts have consistently held that the power of the first appellate authority are coterminous with that of the Assessing Officer and that the appellate authority can do what the Assessing Officer ought to have done and also direct the latter to do what he has failed...” The relevant extract of this order is reproduced as below:

ITS Nos.1614 to 1622/Chny/2018 :- 14 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

Commissioner, has no powers to decide, if the Assessing Officer, has failed to advert to the said aspect. On this aspect, we are of the considered view, that it is only a show cause notice and it is always open to the appellant to respond. 38. While considering the scope and powers of the appellate authority, under the Income Tax Act, 1961, courts have consistently held that the power of the first appellate authority are coterminous with that of the Assessing Officer and that the appellate authority can do what the Assessing Officer ought to have done and also direct the latter to do what he has failed. Appeal is also continuation of original proceedings and unless some fetters are placed upon the powers of the appellate authority by express words, the appellate authority can exercise all the powers as that of the original authority. If the Assessing Officer, has erred in concluding the status of the assessee as a firm, it cannot be said the Commissioner of Appeals, has no jurisdiction to go into the issue....”.

4.1. Thus it is submitted that, this latest decision of the jurisdictional Madras High Court , upholding the powers of the CIT(A), u/s 251 to enhance the assessment , may be followed in this present appeal also. 5. In the aforesaid decision the Honble Madras high Court in turn has relied on the Full bench decision of the Hon’ble Madras High rendered in the case of Sate of Tamilnadu V. Arulmurugan & Co {(1982) 51 STC 381}. 5.1. In this decision based on pan materia provision in the Tmailnadu General Sales tax Act 1959 dealing with the powers of the appellate authority to issue notice for enhancement, the Hon’ble Full Bench of the Madras High court has held that

“.. the power of the appellate authority concerning an assessment under appeal is no different, and not less wide, than the power of the assessing authority to make the assessment in the first instance. It follows, therefore, that whatever discretion is conferred on the assessing authority for purposes of assessment must so be regarded, as a matter of statutory construction, to have been conferred on the appellate authority even without the concerned statutory provision expressly naming the appellate authority in that behalf.” The relevant extract of this order is reproduced as below:

“... 5. We accept the contention of the learned Government Pleader that the assessing authority, as the prescribed authority, has the power to allow further time to file C forms under the proviso to section 8(4) of the Central Sales Tax Act. Likewise, we accept the position that under the proviso to rule 12(7) of the Central Sales Tax (Registration and Turnover) Rules, 1957, the first assessing authority is invested with the power to allow further time for filing C forms. We do not, however, accept the implication in the Government Pleader’s further contention that an appellate authority cannot

ITS Nos.1614 to 1622/Chny/2018 :- 15 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

be brought within the meaning of the expression assessing authority”. In one sense, an appeal may be different from an assessment. But the difference lies only in the particular stage of the proceeding and in the particular authority having jurisdiction in the two stages. Basically, an appeal does not differ from an assessment. Just as is the case with any other appeal under our legal system, an appeal from a sales tax assessment is only a rehearing or a retrial. In the absence of any St at utoiy inhibitions or restrictions, an appellate authority has precisely the same powers, exercisable or in the same manner and to the same extent, as the assessing authority has, in the first instance. If this were not the position, no appellate authority can effectively function while hearing and determining an appeal from an assessment. Under the scheme of section 9 of the Central Sales Tax Act, appeals from Central sales tax assessments will have to be dealt with in the same manner and under the same procedure as provided for under the general sales tax law of the concerned State. The jurisdiction of an appellate authority under the Tamil Nadu General Sales Tax Act, 1959, includes the power to confirm, reduce, enhance, or annual, the assessment. It also includes the power to set aside the assessment with a direction to the assessing authority to make a fresh assessment, and also to pass any other order which the appellate authority may think fit. These powers, which are of the widest amplitude, are expressly conferred both on the Appellate Assistant Commissioner and on the Appellate Tribunal, vide sections 31 and 36 of the Tamil Nadu General Sales Tax Act, 1959. The provisions show clearly that the power of the appellate authority concerning an assessment under appeal is no different, and not less wide, than the power of the assessing authority to make the assessment in the first instance. Besides, such power as the appellate authority is empowered to exercise in relation to an assessment under appeal, has got to be exercised only in the same manner and subject to the same conditions, if any, which govern the exercise of the power of assessment by the assessing authority in the first instance. It follows, therefore, that whatever discretion is conferred on the assessing authority for purposes of assessment must so be regarded, as a matter of statutory construction, to have been conferred on the appellate authority even without the concerned statutory provision expressly naming the appellate authority in that behalf It goes without saying that an appellate authority, engaged as it is in precisely the same task under the fiscal statute as that of the assessing authority must also be possessed to like powers as those of the assessing authority. It is implicit in the very nature of the appellate jurisdiction, as well as the purposes for which that jurisdiction is created by the statute, that the appellate authority will have to function, in the very image of the assessing authority. Appellate proceedings are often truly described as an extension of the assessment proceedings, or as a continuation of the assessment proceedings. In this context, therefore, it does not matter that a power is conferred, by any provision in the taxing statute or in the statutory rules, eo nomine on the assessing authority, and is silent about the appellate authority or any other authority under the Act. Since the enabling section, or the rule, as the case may be, expressly refers

ITS Nos.1614 to 1622/Chny/2018 :- 16 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

to the assessing authority, as the repository of the power, it is elementary construction to hold that such power can be, and is intended to be, exercised by the assessing authority named in the particular provision concerned. But, it does not mean that the appellate authority and any other fiscal authority who are in seisin of the assessment, either in appeal, or in revision or in any other proceeding, cannot exercise a like power. The fact that the appellate authority is not expressly mentioned in the provision conferring the enabling power, does not mean that the legislature intended to exclude that authority from the purview of the provision... 21. Having regard to the considerations which we have set out in the foregoing paragraphs, we must uphold the decision of the Tribunal in both the cases. We hold that the Tribunal has the power to receive C forms at the time of the appeal, for sufficient cause. The Tribunal can then proceed to the next step of applying the concessional rate of tax to the turnover covered by the C forms. Or, the Tribunal may remand the case to the Appellate Assistant Commissioner. The remand may be for the specific purpose of going into the question of sufficient cause. The remand may also be loaded with a finding by the Tribunal that there has been sufficient cause, leaving the scrutiny of the C forms alone to be undertaken on remand. The Tribunal may, if satisfied about the sufficient cause set aside even the assessment order, and direct the assessing authority to re-do the assessment, in which event there would be no occasion for the assessing authority to go into any question of “delay” in filing the C forms, for with the setting aside of the assessment the whole thing is once again at large. It is needless to add that whatever has been stated by us as respects the Tribunal’s power and the modes of its exercise apply, mutatis mutandis, to the Appellate Assistant Commissioner in like situations occurring in the appeals before him... -----An appeal is a continuation of the process of assessment, and an assessment is but another name for adjustment of the tax liability to accord with the taxable event in the particular tax- payer’s case. There can be no analogy or parallel between a tax appeal and an appeal, say, in civil cases. A civil appeal, like a law suit in the court of first instance out of which it arises, is really and truly an adversary proceeding, that is to say, a controversy or tussle over mutual rights and obligations between contesting litigants ranged against each other as opponents. A tax appeal is quite different. Even as the assessing authority is not the tax-payer’s “opponent”, in the strictly procedural sense of the term, so too the appellate authority sitting in appeal over the assessing authority’s order of assessment is not strictly an arbitral tribunal deciding a contested issue between two litigants ranged on opposite sides. In a tax appeal, the appellate authority is very much committed to the assessment process. The appellate authority can itself enter the arena of assessment, either by pursuing further investigation, or causing further investigation to be done. It can do so on its own initiative, without being prodded by any of the parties. It can enhance the assessment, taking advantage of the opportunity afforded by the tax-payer’s appeal, even though the appeal itself has been mooted only with a view to a reduction in the assessment. These are special

ITS Nos.1614 to 1622/Chny/2018 :- 17 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

and exceptional attributes of the jurisdiction of a tax appellate authority is no different, functionally and substantially, from the assessing authority itself. This position has been well brought out in more than one decision of the Supreme Court (Para 15)...”

5.2. From the above , it is here by submitted that these reasoning laid down by the Full Bench decisions of the Jurisdictional Madras High Court , (as relied in the Income tax decision by the jurisdictional Madras high Court in the case of Mega Trends Inc (Supra)), may be followed in the the Hon’ble Chennal ITAT.

7.1. The relevant extract of this decision is reproduced as below: “... If an appeal lies, section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under section 31(3)(a), in disposing of such an appeal, the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is coterminous 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’.

“….The above observations are squarely applicable in the interpretation of section 251(1)(a)of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminous with that of the Income-tax Officer, and if that is so,

ITS Nos.1614 to 1622/Chny/2018 :- 18 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

there appears to be no reason as to 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 to this view as the Act does not place any restriction or limitation on the exercise of 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. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. . .

8.1. Thus submitted that , two larger bench of the Supreme Court has held that the powers of CIT(A) is coterminous with that of the AO.

The relevant extract of this order is reproduced as below:

At the instance of the revenue, the Tribunal was directed by the Madhya Pradesh High Court to refer the following questions of law for opinion: “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting a sum of Rs.2,30,000 freshly added by the Appellate Assistant Commissioner? 2. Whether the sum of Rs.2,30,000 was added by the Appellate Assistant Commissioner on new sources of income of items not considered by the Income-tax Officer from the point of view of assessability? 3. Whether the Appellate Assistant Commissioner had no jurisdiction or power to add the sum of Rs. 2,30,000 in the facts and circumstances in which he has added the same ?“ (Para) 4. Having regard to the decision in Jute Corpn. of India Ltd. ‘s case (supra),it must be held that the High Court was in error in holding that the appellate power conferred on the AAC under section 251 was confined to the matter which had been considered by the ITO and the AAC exceeded his jurisdiction in making an addition of Rs. 2,30,000 on the basis of the other 10 items of

ITS Nos.1614 to 1622/Chny/2018 :- 19 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

hundis which had not been explained by the assessee. This means that even if question No. 2 is answered in the affirmative, question Nos. I and 3 must be answered in the negative. The appeal is, therefore, allowed, the impugned judgment of the High Court insofar as it relates to question Nos. 1 and 3, is set aside and the said questions are answered in the negative, i.e., in favour of the revenue and against the assessee. No order as to costs.”

9.1. Thus it is submitted that this latest decision of the supreme court , which has held that the powers of the CIT (A) is co-terminous with that of the AC, may be followed in the present appeal before the Hon’ble ITAT, Chennai.

The relevant extract of this order is reproduced as below: “... (Para) 11.1 Respectfully following the same, we are of the opinion that Ld. CIT(A) has jurisdiction to consider the loss claimed of the assessee, which AC has not examined, as he has powers to enhance also given to him u/s. 251. The provisions of Section 251(1)(a) empowers the CIT in an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Thus, since the CIT(A) has not un- earthed a new source of income, but only has gone by the annual report! statements enclosed to the return in which assessee has claimed trading loss to set-off to other incomes, we are of the opinion that CIT(A) has power to enhance and accordingly the contentions of assessee on this issue are rejected...”

ITS Nos.1614 to 1622/Chny/2018 :- 20 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

((87 Taxmann.com 330)], the enhancement had been made by the CIT(A), by assessing the salary income of the assessee, earned by him from abroad sources, which was not originally offered to tax , in his return orginally filed, and based on which the appeal procedings have originated. 11.4. In this case the assessee is not found to have got an another salary income from an another hopital or business in come from running medical institute or professional income from an another clinic , which were hitherto not offered to tax. Had such income was brought to tax , by the CIT(A) , then it can be said that income an another new source , has been enhanced by the CIT(A). But as submitted earlier that is not the case, in this enhancement made by the CIT(A). 11.5. Thus it is submitted that the decisions relied by the assessee are not applicable to this case under appeal.

Supreme Court in the case of CIT Vs.Shappori Pallonji Mistry referred

to supra was a three-Judge decisions. It was a further submission that

the decision in the case of CIT Vs.Nirbheram Daluram referred to supra

was a two-Judge decision and had no applicability in so far as that was

a case where the Assessing Authority had disallowed various hundis

loans, the AAC had taken note of other items of hundis loans and had

enhanced the assessment in respect of those other ostensible hundis

loans. It was a submission that in the present appeals, the ld.

Assessing Officer had considered the issue of deemed dividend in the

course of assessment, the ld. Assessing Officer had not touched upon

the source of the deposits of cash in the accounts of the company by

the assessee Dr.L.Saravanan nor had the ld. Assessing Officer touched

ITS Nos.1614 to 1622/Chny/2018 :- 21 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

upon the issue of cash payments by the assessee, Dr.S.Mahalakshmi

for purchase of medicine from the partnership firm. It was a

submission that, consequently, these issues were fresh source of

income which had been touched by the Ld.CIT(A) for the purpose

enhancement. It was a submission that the Hon’ble Supreme Court in

the case of Jute Corporation of India Ltd. Vs. CIT reported in [1990]

53 Taxman 85(SC) was on the issue to decide that the Appellate

Authority while hearing appeal against the order of subordinate

authority has all the powers which the original authority may have in

deciding the question before it subject to the restrictions or limitations,

if any, prescribed by the statutory provisions. It was a submission that

in fact the explanation to Section 251 laid restrictions to the powers of

the Ld.CIT(A) in respect of enhancements in so far as he may

consider and decide “any matter arising out of the proceedings in

which the order appealed against was passed’. It was a submission

that unless the issue had been taken up for consideration or decision

in the course of assessment proceedings, the fresh issue which has not

been considered or decided, in the course of assessment proceedings

was out of the purview of enhancement or consideration by the

Ld.CIT(A). It was a submission that the Hon’ble Supreme Court in the

case of CIT Vs. Kanpur Coal syndicate reported in [1964] 53 ITR

225(SC) is also the decision of three-judge Bench, which was again

ITS Nos.1614 to 1622/Chny/2018 :- 22 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

considering the Indian Income-tax Act, 1922, had held that “the scope

of his power is co-terminous 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”. It was a submission that in fact, the

Explanation to section 251, which was not in Section 31(3)(a) of Indian

Income-tax Act, 1922, clearly restricted the second portion to say that

the Appellate Authority can do only an extension of what the Income

Tax officer has done and he cannot open up fresh areas of

assessment. It was a submission that the enhancement as done by

the ld.CIT(A) was liable to annulled.

must be decided in favour of the Revenue in so far as there is a

direction from the Board that the Ld.CIT(A) are expected to enhance

the assessment where they find that the assessment has not been

done properly by the ld. Assessing Officer.

material on record. At the outset, the argument of the ld.D.R that the

issue of enhancement must be upheld in so far as the Board has

directed the Ld.CIT(A) to enhance the assessment where they find

that the ld. Assessing Officer has not done the assessment properly,

ITS Nos.1614 to 1622/Chny/2018 :- 23 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

would not hold any water in so far as the Tribunal is an Appellate

Authroity and as far as the Tribunal is concerned, both the Revenue

and the assessee are litigants before it.

worthwhile to extract the provisions of the section 251 of the Act in its

entirety.

“Powers of the Commissioner (Appeals)

3251. (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; (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit. (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant 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.”

Section 251(1)(a) is a provision for enhancement. Section 251(2) is a

provision under which it is made compulsory for Ld.CIT(A) to provide

ITS Nos.1614 to 1622/Chny/2018 :- 24 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

reasonable opportunity of showing cause in respect of enhancement or

reduction of refunds. The Explanation to Sec.251 is the procedure laid

down for adjudicating the issues by the Ld.CIT(A) when such issues

have not been raised before the ld.CIT(A) by the assessee. Thus, the

explanation also acts as a curtailment on the issues which could be

gone into by the ld.CIT(A).

The methods being, re-opening u/s.148 of the Act, such powers being

available to the ld. Assessing Officer; the provisions of the section 263

providing for revision of an order, which is erroneous or prejudicial to

the interests of the Revenue, this power being with the Commissioner

of Income Tax. Here, what needs to be clearly kept in mind is that the

provisions of the section 148 of the Act is controlled by a particular

limitations provided u/s.153 of the Act, the limitations u/s.263 of the

Act is provided in the provisions of the section 263 itself.

relevant to assessment year 2009-10, the return of income in the case

of an individual under the normal circumstances ought to be filed on or before 31st July, 2010. In such a situation, the assessment is

completed u/s.143(3) of the Act as per the provisions of the section 153 on or before 30th April, 2012. In the event of any escapement of

ITS Nos.1614 to 1622/Chny/2018 :- 25 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

income, the re-opening gets permissible depending upon the quantum

of the escapement of income by four years or six years, or in some

cases 16 years from the end of the relevant assessment year. If there

is an escapement of income or it is found that assessment order or re-

assessment order has been passed erroneously and has caused

prejudicial to the interests of the Revenue then the Commissioner of

Income Tax under the powers of Sec.263 of the Act gets additional

two years from the end of the financial year in which the order sought

to be revised was passed. Thus, in the case of escapement of income

from the assessment, the Revenue has multiple options depending

upon the situations and the varying time limits for the purpose of

subjecting such income, which was escaped assessment to tax. In

fact, the explanation-2 to Sec.147 also widens the scope of the term

“income chargeable to tax has escape assessment ”. When such

plenary and specific powers are available to the ld. Assessing Officer

and the CIT to read in such specific power into the explanation to

Section 251 would be in effect to make the provisions of the section

148 & 263 otiose. If the explanation to Sec.251 is interpreted to

include the blanket power of enhancement on any issue, whether it is

part of the return of the assessee or the actions of the assessee or

connected actions or actions connected to the assessee, then the

opportunity of re-opening by the ld. Assessing Officer would get

ITS Nos.1614 to 1622/Chny/2018 :- 26 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

completely hampered in so far as it would be a clear change of

opinion on the part of the ld. Assessing Officer as against that of the

Ld.CIT(A). The powers of Ld.CIT u/s.263 would also get hampered in

so far as once the issue has been looked into or adjudicated by the

Ld.CIT(A), then in view of the Explantion-1(c) to Sec.263(1) would

preclude the operations of Sec.263 of the Act. Not only that the

operations of provisions of the section 263(1) itself could get precluded

in so far as it would very much be valid argument to say that the order

of the ld. Assessing Officer has merged with the order of ld.CIT(A) and

therefore, the order of ld. Assessing Officer no more survives and the

revision being attempted would be of the order of the Ld.CIT(A), which

is not permissible. A Perusal of the decision of the Hon’ble Supreme

Court in the case of CIT Vs.Shappori Pallonji Mistry referred to supra

admittedly specifies that it would not be open to the AAC to introduce

in assessment a new soruce as his power of enhancement is

restricted only to income which was a subject matter of computation

for the purpose of assessment by the Income Tax officer. Admittedly,

this is a decision of Hon’ble Apex Court by three-judge Bench. This

decision explains provisions of the section 31 in the Indian Income-tax

Act, 1922.The decision relied upon by the Revenue in the case of CIT

Vs.Nirbheram Daluram referred to supra, admittedly is relevant to

assessment year 1956-57, but the applicability of the provisions of the

ITS Nos.1614 to 1622/Chny/2018 :- 27 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

section 251 of the Income Tax Act, 1961. The said decision is by two-

judge Bench of the Hon’ble Supreme Court, and answered the

question as to whether the Appellate power conferred on the AAC is

confined to matters which had been considered by the Income Tax

officer, has been answered in the negative. Here what is peculiar is

that neither of the decisions has considered the Explanation to Sec.251

and its effect thereon.

case of Kanpur Coal Syndicate referred to supra, though dealing with

the provisions of enhancement under the Indian Income-tax Act, 1922

has explained that the powers of the appellate authority is

coterminous with that of the Assessing Authority. This means that

“they have the same boundaries’ or extent in space, time or meaning”.

The Hon’ble Supreme Court went further to say “He can do what the

Income Tax officer can do and also direct him to do what he has not

done”. This shows that the Appellate Authority can look into only such

things that the assessing authority has opened. It must be appreciated

that for the purpose of making an inquiry before assessment, the

notice u/s.142(1) is to be issued only by the Assessing Officer and

none else. Similarly, Section 143(3) is very specific to say “after

hearing such evidences as the assessee may produce and such other

evidences as the Assessing Authority may require on specified points,”.

ITS Nos.1614 to 1622/Chny/2018 :- 28 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

These powers that are specific to the Assessing Authority cannot be

usurped by any authority unless they take on themselves the status of

the assessing authority, in which case, the limitation provided in

section 153 would also become operational. This however, does not

mean that the ld.CIT(A) is precluded from directing the assessing

authority to verify or look into specific issues, subject to the limitations

and permissibility under law. The Hon’ble Delhi High Court in Full

Bench in the case of CIT Vs.Sardari Lal & CO., reported in [2001] 251

ITR 864(Delhi), after considering the implication of both decisions of

the Hon’ble Supreme Court in the cases of Shappori Pallonji

Mistry(supra) and Nirbheram Daluram(supra) had held as under:-

“8. ----------, 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 AO, the jurisdiction to deal with the same in appropriate cases may be dealt with under s. 147/148 of the Act and s. 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority.- ------“

In the above circumstances, respectfully following the principles laid

down by the Hon’ble Bull Bench of Delhi High Court, it is held that the

enhancement as has been done by the Ld.CIT(A) in the case of the

appeals herein being in respect of new source of income, which has

not been considered by the ld. Assessing Officer in course of

ITS Nos.1614 to 1622/Chny/2018 :- 29 -: Dr.S.Mahalakshmi &Dr.L.Saravanan

assessment proceedings, being the proceedings in which the order

appealed against before the ld.CIT(A) was passed, the enhancement

as done by the ld.CIT(A) stands quashed.

grounds Nos.6 & 8, it had been submitted by ld.A.R and the ld.D.R

that the issue may be restored to the file of ld. Assessing Officer for

re-adjudication and the same had already been so directed in the

earlier portion of this order. This direction of set-aside would become

otiose in view of our finding in respect of the issue of enahancement.

assessment years 2010-11 to 2012-13 and all the appeals filed by Dr.L.Saravanan for assessment years 2008-09 to 2013-14 are allowed.

Order pronounced in the open court on 29th October, 2018, at Chennai.

Sd/- Sd/- (ए. मोहन अलंकामणी) ( जॉज� माथन) (GEORGE MATHAN) (A.MOHAN ALANKAMONY) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 29th October , 2018. K S Sundaram आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF