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2025 (5) TMI 1396 - AT - Income TaxCIT(A) jurisdiction u/s 251(2) - Enhancing the income of the appellant in respect of the matter not considered and determined by the AO during the course of assessment proceedings - CIT(A) enhanced income on account of provision for contract loss - HELD THAT - In our considered opinion the learned CIT(A) cannot invoke his enhancement powers in terms of section 251(2) of the Act and make addition on account of a new source of income. Reliance in this regard is rightly placed on the decision of Gurinder Mohan Singh Nindrajog 2011 (9) TMI 755 - DELHI HIGH COURT which is directly on the issue We allow the Original Ground No. 1 and Additional Ground raised by the assessee on technical ground for want of jurisdiction for the learned CIT(A) to consider a new source of income by using his enhancement powers. No decision is rendered herein on the merits of the addition proposed by the learned CIT(A) and it is left open. Disallowance of balances written off - HELD THAT - As submitted that the advances were given in the regular course of its business and the same becoming irrecoverable the assessee had no choice but to write off the same during the year under consideration and claim the same as deduction.AR however fairly agreed for restoring this issue back to the file of AO for this factual verification. No objection was raised by DR before us for the same. Accordingly we deem it fit and appropriate in the interest of justice and fair play to restore this issue to the file of learned AO for de novo adjudication in accordance with law only for the limited extent. The assessee is at liberty to furnish fresh evidences if any in support of its contentions. Accordingly the Ground No. 2 raised by the assessee is allowed for statistical purposes. Disallowance made u/s 14A - HELD THAT - It is not in dispute that there was no exempt income claimed by the assessee during the year under consideration. Hence in view of the decision of Era Infrastructure (India) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT no disallowance under section 14A of the Act could be pressed into service. Accordingly the Ground No. 1 raised by the revenue is dismissed. Delayed Employees contribution to PF and ESI - HELD THAT - AR drew our attention to the table containing the due dates and date of actual remittance of employees contribution to PF and ESI which in our considered opinion requires factual verification. Hence we deem it fit and appropriate in the interest of justice and fair play to restore this issue to the file of learned AO for denovo adjudication in accordance with law and in the light of the decision of Checkmate Services Pvt Ltd 2022 (10) TMI 617 - SUPREME COURT (LB) . We make it clear that the due date for the purpose of PF and ESI Act is to be determined based on the date of disbursement of salary to the employees. Accordingly the Ground No. 3 raised by the revenue is allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction of the CIT(A) to Enhance Income by Introducing New Source of Income Legal Framework and Precedents: The Tribunal examined the scope of powers of the first appellate authority under section 251(1)(a) and 251(2) of the Act. The key precedent relied upon was the decision of the Hon'ble Jurisdictional High Court in Gurinder Mohan Singh Nindrajog vs CIT, which held that the first appellate authority cannot enhance assessment by discovering a new source of income not considered by the Assessing Officer. This principle was further supported by earlier Supreme Court rulings in CIT v. Shapoorji Pallonji Mistry and CIT (Central) Calcutta v. Rai Bahadur Hardutory Motilal Chamaria, which restrict the appellate authority's enhancement powers to matters considered by the Assessing Officer either expressly or by clear implication. Court's Interpretation and Reasoning: The Tribunal noted that although the CIT(A) enhanced income by Rs. 1,54,68,280/- on account of provision for contract loss, this was a new source of income not reflected in the assessment order. The Tribunal emphasized that while the appellate authority has wide powers to confirm, reduce, enhance, annul or set aside the assessment, it cannot introduce a new source of income. The Tribunal carefully examined the record, including the questionnaire issued by the Assessing Officer and the assessee's replies, and concluded that the property transactions forming the basis of the CIT(A)'s addition were indeed considered by the Assessing Officer during the assessment proceedings, albeit no addition was made. This consideration, however, did not empower the CIT(A) to make a fresh addition as a new source of income. Application of Law to Facts: The Tribunal held that the CIT(A) lacked jurisdiction to enhance the income on a new source not assessed by the AO. The issue was thus remitted without adjudicating on the merits of the addition, leaving it open for the revenue to proceed under appropriate provisions such as section 147/148 or section 263 of the Act if warranted. Treatment of Competing Arguments: The revenue argued that the Assessing Officer had considered the issue since a questionnaire was issued; however, the Tribunal distinguished that consideration from an actual assessment or addition. The Tribunal sided with the assessee's contention on jurisdictional grounds. Conclusion: The Tribunal allowed the ground raised by the assessee on the technical ground of want of jurisdiction of the CIT(A) to introduce a new source of income by enhancement. Issue 2: Disallowance of Amounts Written Off under Section 37(1) Legal Framework: Section 37(1) permits deduction of any expenditure not expressly disallowed if it is incurred wholly and exclusively for business purposes. Provisions for doubtful advances are generally contingent liabilities and require crystallization before being allowed as deduction. Court's Interpretation and Reasoning: The Assessing Officer disallowed the provision for doubtful advances of Rs. 4,14,74,122/- on the ground that it was a contingent liability not crystallized during the year. The assessee contended that the provision related to invoked bank guarantees and was based on legal claims under arbitration. The CIT(A) partially allowed the claim by granting relief to the extent of Rs. 3,33,63,891/- reversed in the subsequent assessment year, but sustained disallowance of Rs. 81,10,231/- due to lack of substantiation and reconciliation. Application of Law to Facts: The Tribunal accepted the assessee's submission that the disallowed amount represented actual write-offs rather than mere provisions. However, since the assessee agreed to factual verification, the Tribunal restored the issue relating to Rs. 81,10,231/- to the Assessing Officer for de novo adjudication, allowing the assessee to produce fresh evidence. Treatment of Competing Arguments: The revenue did not object to restoration. The Tribunal balanced the interests of justice and fair play by allowing a fresh factual inquiry. Conclusion: The ground was allowed for statistical purposes with directions for fresh adjudication. Issue 3: Disallowance under Section 14A of the Act Legal Framework: Section 14A disallows expenditure incurred in relation to income which does not form part of total income (exempt income). Court's Interpretation and Reasoning: The Tribunal noted that the assessee had not claimed any exempt income during the year. The Hon'ble Jurisdictional High Court's decision in PCIT vs Era Infrastructure (India) Ltd was cited, holding that no disallowance under section 14A can be made if there is no exempt income. Application of Law to Facts: Since no exempt income was claimed, the disallowance under section 14A was rightly deleted by the CIT(A). Conclusion: The Tribunal dismissed the revenue's appeal on this ground. Issue 4: Provision for Doubtful Advances and Reversal in Subsequent Year Legal Framework: Provisions for doubtful debts or advances are allowable deductions only when the liability is crystallized or the amount is written off. Reversal of provisions in subsequent years affects the allowability in the year of provision. Court's Interpretation and Reasoning: The CIT(A) allowed relief to the extent of reversal of provision in the subsequent year to avoid double taxation. The Tribunal found it appropriate to restore the issue to the Assessing Officer to verify the correctness of the reversal and its accounting treatment. Application of Law to Facts: The restoration was to ensure factual verification of whether the reversal indeed took place as claimed. Conclusion: The ground was allowed for statistical purposes with directions for fresh verification. Issue 5: Employees' Contribution to PF and ESI Legal Framework: The Supreme Court's decision in Checkmate Services Pvt Ltd vs CIT clarified that the due date for remittance of PF and ESI contributions is to be determined based on the date of disbursement of salary to employees. Court's Interpretation and Reasoning: The Tribunal observed that the issue of delayed remittance required factual verification, including examination of dates of salary disbursement and actual remittance. Application of Law to Facts: The Tribunal restored the issue to the Assessing Officer for de novo adjudication in accordance with the Supreme Court's decision. Conclusion: The ground was allowed for statistical purposes with directions for fresh adjudication. General Grounds General grounds raised by both parties were found not to require specific adjudication. 3. SIGNIFICANT HOLDINGS The Tribunal preserved the following crucial legal reasoning verbatim from the High Court judgment in Gurinder Mohan Singh Nindrajog vs CIT:
Core principles established include:
Final determinations on each issue were:
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