TMI Blog2022 (5) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No.: 863/CHNY/2019 - - - Dated:- 6-5-2022 - Shri Mahavir Singh, Vice President ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y overlooked and brushed aside in recording tangential findings in para 13 of the impugned order. 7. The CIT (Appeals) failed to appreciate that there could not any enhancement of assessment in reckoned an independent source of income, not considered by the Assessing Officer while framing the assessment and ought to have appreciated that the power of the First Appellate Authority as discussed in the impugned order as the co-terminus power should be considered in the context of issues/sources of income assessed in the assessment order while such co-terminus power should not be invoked for new issues/sources of income not considered by the Assessing Officer. 8. The CIT(Appeals) failed to appreciate that the presumption of diversion of interest bearing funds for non business purposes had no merit in view of lack of proper examination of the financial statements and facts available in relation thereto and ought to have appreciated that the misreading of the financial statements without examination of facts would vitiate the addition made using the power of enhancement on various facets. 9. The CIT (Appeals) erred in directing the the Assessing Officer in para 17 of the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16,32,403/- . It is held that the borrowed capital is advanced to non-business purposes and the corresponding interest debited by the assessee to the extent of Rs.16,32,403/- is disallowed out of interest debited by the assessee for the year. The Assessing Officer is directed to note the enhancement of income ordered and is further directed to issue necessary demand notice u/s 156. Penalty proceedings u/s 271(l)(c) is also initiated for concealing the particulars of income. 5.1 Further, the CIT(A) hold that the advance of Rs.24 lakhs to the wife of Managing Director of the company is taxable u/s.2(22)(e) of the Act and for this, the CIT(A) observed in para 16 17 as under:- 16. It. had also been noted that the assessee company had advanced an amount of Rs.24,00,000/- to Mrs Chitra Mohan, who was the wife of Mr. Mohan , Managing Director of the Company. The assessee had been asked to explain whether this amount of Rs.24,00,000/- had been declared u/s 2(22)(e) of the IT Act either in the hands of Mrs Chitra Mohan or in the hands of Mr.Mohan, Managing Director. In response to the same, the assessee has claimed that the amounts had been advanced in the course of business over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicate (SC) 52 ITR 229 4) State of TN vs. Arulmurugan and Co. (Madras HC) 51 STC 381 5) Megatrends Inc. (Madras HC) TS-93-HC-2016 8. We have heard rival contentions and gone through the facts and circumstances of the case. 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. We noted that this issue of power of enhancement was specifically raised before CIT(A) and CIT(A) simply brushed aside the arguments of assessee vide para 14 as under:- 14. As above, it is seen, that the courts have held in support of the wide powers of CIT(Appeals) to propose any enhancement on any issue which had not been raised by the Assessing Officer earlier. In view of the same, the objections of the assessee are over ruled. 8.1 As noted above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of enhancement is restricted only to income which was subject matter of consideration for the assessment by the AO and for this, the Hon ble Supreme Court noted the reasoning as under:- In our opinion, this Court must be held not to have expressed its final opinion on the point arising here, in view of what was stated at pp. 709 and 710 of the Report. This Court, however, gave approval to the opinion of the learned Chief Justice of the Bombay High Court that s. 31 of the Income-tax Act confers not only appellate powers upon the Appellate Assistant Commissioner in so far as he is moved by an assessee but also a revisional jurisdiction to revise the assessment with power to enhance the assessment. So much, of course, follows from the language of the section itself. The only question is whether in enhancing the assessment for any year he can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view of finding out new sources of income, not disclosed in either. It is contended by the Commissioner of Income-tax that the word assessment here means the ultimate amount which an assessee must pay, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Apex Court as noted above, on several occasions. We do not think it necessary and appropriate to proliferate this judgment by making reference to all the decisions. A few of the important ones need to be noticed. One of the earliest decisions on the point was in CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC). The matter related to the corresponding provisions of the Indian Income Tax Act, 1922 (hereinafter referred to as the old Act ). It was held, inter alia, that in an appeal filed by the assessed, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering a new source of income not considered by the Income Tax Officer in the order appealed against. A similar view was expressed in CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC). That also related to a case under section 31(3) of the old Act. It was held that the power of enhancement under section 31(3) of the old Act was restricted to the subject-matter of the assessment or the source of income, which had been considered expressly or by clear implication by the assessing officer from the point of view of taxability and that the Appellate Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confined to the matter, which had been considered by the Income Tax Officer, as the first appellate authority is vested with all the wide powers of the assessing officer may have while making the assessment, but the issue whether these wide powers also include the power to discover a new source of income was not commented upon. Consequently, the view expressed in Shapoorji Pallonji Mistry s case (supra) and Rai Bahadur Hardutroy Motilal Chamaria's case (supra) still holds the feet. It may be noted that the issue was considered in CIT v. McMillan and Co. (1958) 33 ITR 182 (SC). Referring to a decision of the Bombay High Court in Narondas Manordass v. CIT (1957) 31 ITR 909 (Bom), it was held that the language used in section 31 of the old Act is wide enough to enable the first appellate authority to correct the Income Tax Officer not only with regard to a matter which has been raised by the assessed but also with regard to a matter which has been considered by the assessing officer and determined in the course of the assessment. It is also relevant to note that in the Jute Corpn. of India Ltd. s case (supra), the Apex Court, inter alia, observed as follows : The AAC, on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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