2017 (8) TMI 1554 - AT - Income Tax

Enhancement of income on account of total credits in Dummy HO Cash Book Account i.e. expenses debited to that account - NP determination - show cause notice issued u/s 251 - HELD THAT - The assessee pointed out that detailed reply was filed before the AO and the assessment was made by considering the said expenses and by applying NP rate of 6%. The second plea of assessee before the CIT(A) was that the said documents pertained to number of assessee and the total credits on account of expenses could not be added in the hands of assessee. Later another show cause notice was issued on 30.11.2012 asking the assessee as to why the total credits of Rs. 1.05 crores as shown in the Dummy HO Cash Book should not be added to the income of assessee. CIT(A) added sum of Rs. 1.05 crores to the income of assessee on account of unexplained receipts. Another addition which was made was on account of cash payment in advance of Rs. 2, 19, 726/- for which no enhancement notice was issued by the CIT(A). In the first instance since no enhancement notice has been given to the assessee in respect of addition of Rs. 2, 19, 726/- the same merits to be deleted in the hands of assessee and hence we direct the AO to delete the same. Addition made by the CIT(A) by way of enhancement notice is on account of unexplained receipts - AO had considered the said seized documents and had estimated the profits in the hands of assessee by applying net profit rate. AO had considered the total receipts in the hands of assessee as per TDS certificates at Rs. 3.71 crores and had also noted the non-receipt of TDS certificates from Nashik Municipal Corporation. In respect of TDS of Rs. 27, 581/- which he held to be equivalent to contract receipts of Rs. 11, 07, 670/- and the total contract receipts were calculated at Rs. 3.82 crores. The Assessing Officer because of non-verifiability of expenses and the high turnover of contract estimated the net profit at 6% of the gross receipts. The Assessing Officer thus had accepted the total contract receipts in the hands of assessee but because of non-verifiability of expenses had estimated the net profit. CIT(A) has found new source of income i.e. total receipts found in the Dummy HO Cash Book at Rs. 1.05 crores and has made the addition on that account. CIT(A) in the present case has travelled beyond the sources of income which was the subject matter of consideration by the AO wherein the AO after accepting the contract receipts had doubted the expenses claimed by the assessee and accordingly applied the net profit rate to determine the income in the hands of assessee. CIT(A) had first started enquiries in respect of payments made by the assessee which was the issue considered by the Assessing Officer while completing assessment under section 143(3) of the Act. Later the CIT(A) has issued the show cause notice wherein reference was made to receipts which were accepted by the Assessing Officer and not disturbed. In the absence of any enquiry by the Assessing Officer regarding receipts recorded in the Dummy HO Cash Book the same was outside the purview of enhancement scope of the CIT(A). In case any new source of income is to be added in the hands of assessee which was not considered by the Assessing Officer the jurisdiction to deal with the same in appropriate cases is to be dealt with under section 147/148 of the Act and / or under section 263 of the Act where requisite conditions are fulfilled. Such is the proposition laid down by the Hon ble High Court of Delhi in CIT Vs. Sardari Lal Co. 2001 (9) TMI 1130 - DELHI HIGH COURT . Applying the said propositions and the dictate of the Hon ble Supreme Court on the issue we hold that it is not open to the CIT(A) to introduce in the assessment a new source of income and the assessment had to be confined to those items of income which were the subject matter of original assessment. Accordingly we reverse the order of CIT(A) in this regard and delete the addition of Rs. 1.05 crores. The grounds of appeal raised by the assessee are thus allowed. Levy of penalty u/s 271(1)(c) - HELD THAT - Perusal of penalty order reflects that the penalty has been levied on account of enhancement made by the CIT(A) where the CIT(A) had directed the Assessing Officer to issue notice under section 274 r.w.s. 271(1)(c). The notice was returned by the postal authorities and thereafter the same was affixed at the premises of assessee. The CIT(A) levied penalty on the addition of Rs. 1.05 crores and Rs. 2, 19, 726/-. Both these additions were made in the hands of assessee pursuant to enhancement made by the CIT(A). We have in the paras hereinabove already deleted the enhancement and in view thereof we hereby delete the penalty levied under section 271(1)(c) of the Act on such enhanced income. The grounds of appeal raised by the assessee are thus allowed.

Summary

Issues Involved:
1. Addition of Rs. 2,19,726 without issuing enhancement notice.
2. Enhancement of taxable income by Rs. 1,05,65,000 based on Dummy HO Cash Book entries.
3. Jurisdiction of CIT(A) in making enhancements.
4. Penalty under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

Issue 1: Addition of Rs. 2,19,726 without Issuing Enhancement Notice
The assessee challenged the enhancement of taxable income by Rs. 2,19,726 by CIT(A) without issuing any enhancement notice. The document relating to this amount was seized from the premises of Shri K. S. Luthra, and the assessee argued that the proper procedure under section 153C was not followed. The CIT(A) treated the amount as unexplained income due to the absence of proof of cash payments in the regular financial statements.

Issue 2: Enhancement of Taxable Income by Rs. 1,05,65,000 Based on Dummy HO Cash Book Entries
The CIT(A) enhanced the taxable income by Rs. 1,05,65,000 based on entries in the Dummy HO Cash Book, which included huge cash receipts and payments. The assessee argued that the document was seized from Shri Prem Luthra's premises and not from the assessee's premises. The CIT(A) issued show cause notices and ultimately added the amount as unexplained receipts. The assessee contended that the CIT(A) exceeded his powers by introducing a new source of income that was not considered by the Assessing Officer (AO).

Issue 3: Jurisdiction of CIT(A) in Making Enhancements
The Tribunal examined the powers of CIT(A) under section 251 of the Act. It referred to several judicial precedents, including the Supreme Court's rulings in Shapoorji Pallonji Mistry and Rai Bahadur Hardutroy Motilal Chamaria, which held that the CIT(A) cannot introduce a new source of income not considered by the AO. The Tribunal noted that the CIT(A) had added a new source of income by considering the Dummy HO Cash Book entries, which was beyond his jurisdiction. The Tribunal held that such additions should be dealt with under sections 147/148 or 263 of the Act.

Issue 4: Penalty Under Section 271(1)(c) of the Income Tax Act
The penalty was levied based on the enhanced income of Rs. 1,05,65,000 and Rs. 2,19,726. Since the Tribunal deleted the enhancements made by the CIT(A), the penalty under section 271(1)(c) was also deleted.

Conclusion
The Tribunal allowed the appeals of the assessee, deleting the enhancements made by the CIT(A) and the corresponding penalties. The Tribunal emphasized that the CIT(A) had exceeded his jurisdiction by introducing new sources of income not considered by the AO, and such actions should be dealt with under the appropriate sections of the Act.