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2022 (5) TMI 518 - AT - Income TaxPowers of CIT(A) u/s 251 - Enhancement of assessment - New source of income introduced by CIT(A) while deciding the appeal and enhancement of income - Deemed dividend u/s.2(22)(e) - enhancement of assessment on account of disallowance made being interest charged @ 12% p.a. on the presumption of diversion of borrowed capital for the purpose of advancing interest free loans to the extent of an average amount - HELD THAT:- We have gone through the assessment order and noted that the above noted three disallowances i.e., disallowance u/s.40(a)(ia), disallowance u/s.40A(3) and disallowance u/s.40a(ii) of the Act are made by the AO and there is no discussion on the issue of disallowance of interest or allowance of interest in regard to diversion of funds for non-business purposes or on the issue of advance given to the wife of Managing Director in violation of provisions of section 2(22)(e) of the Act i.e., deemed dividend. As gone through the case law of Hon’ble Supreme Court in the case of CIT vs. Shapoorji Pallonji Mistry,[1962 (2) TMI 12 - SUPREME COURT] wherein the Hon’ble Supreme Court has considered this issue and held that it would not be open to the first appellate authority to introduce into assessment a new source of income as his power of enhancement is restricted only to income which was subject matter of consideration for the assessment by the AO. Also Hon’ble Delhi High Court in the case of Sardari Lal & Co [2001 (9) TMI 1130 - DELHI HIGH COURT] has considered the case laws cited by CIT(A) and the ld.Senior DR and finally held that no new source of income can be introduced by CIT(A) while deciding the appeal and enhancement of income. In view of the above case laws considered and facts of the case that the two issues i.e., disallowance of interest on diverted borrowed capital and advance of amount to the wife of the Director treated as deemed dividend u/s.2(22)(e) of the Act, were never subject matter of assessment order. Hence, we are of the view that enhancement made by CIT(A) on altogether new issues is without authority of law and accordingly, we quash the enhancement and allow these issues of assessee’s appeal.
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