Section 251 of the Act, as apparent from its title
namely ‘Powers of the Commissioner (Appeals)’ empowers the Commissioner (Appeals) [herein after referred to as ÇIT(A)] to confirm, enhance, reduce or annul the
assessment in the course of disposal of the appeal.
The CIT(A) may direct the
production of any document, or the examination of any document, or the
examination of any witness, to enable him to dispose of the appeal, or for any
other substantial cause including the enhancement of the assessment or penalty (whether
on his own motion or on the request of the Assessing Officer) under section 251(1)(a)
or imposition of penalty under section 271.
The powers of the CIT(A) under section 251(1)(a) of the
Act, includes the power to “Enhance the Assessment”. Through this article we
will analyse and discuss the scope of the power of the CIT(A) to “Enhance the
Assessment” and how wide this power actually is.
Section 251 of the Act, which
deals with the powers of the Commissioner of Income Tax (Appeals):
Text
of Section 251
POWERS OF THE COMMISSIONER (Appeals)
(1) In disposing of an appeal, the
Appellate Assistant Commissioner or, as the case may be, 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; or he may
set aside the assessment and refer the case back to the Income-tax Officer for
making a fresh assessment in accordance with the directions given by the
Appellate Assistant Commissioner or, as the case may be, the Commissioner
(Appeals) and after making such further inquiry as may be necessary, and the
Income-tax Officer shall thereupon proceed to make such fresh assessment and
determine, where necessary, the amount of tax payable on the basis of such
fresh 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
penaltyor reduce the amount of refundunless 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.
Powers co-terminus with that of the Assessing Officer
The power of Commissioner (Appeal) while deciding the appeals is
co-terminus with the Assessing Officer and therefore, Commissioner (Appeal)
definitely can do such things as the Assessing Officer could have done for the
purpose of making proper assessment of income. Power which can be exercised
against the interest of the assessee inter alia include the power to enhance
assessment, enhance penalty or reduce refund.
Principle of natural justice
Sub-section (2)
to section 251, makes it incumbent on the CIT(A) to grant an opportunity of
being heard to the assesse, prior to making enhancement to the total income. The
requirement of issuing show cause notice and hearing the concerned parties can
be considered as a fundamental procedure required to be followed in case any
party is to be effect adversely in case any proposed order is passed.
Therefore, whether there be any statutory provision or not specifically
requiring issue of show cause notice and hearing will not make much difference
and even in absence of such a specific provision the authorities should issue
show cause notice and provide opportunity of hearing before passing any order
which adversely affect the concerned party. Therefore, even in a case where the
assessee or appellant had indicated himself the mistake in the order passed by
the lower authority the appellate authority or revisionary authority should not
pass an order without issuing show cause notice and without providing
reasonable opportunity of hearing to the assessee to explain or re-explain the
issue. Thus, where any
modification proposed by the CIT(A) which shall lead to enhancement of income,
the CIT(A) shall be bound to issue a Show Cause Notice to give an opportunity
of hearing, and in absence of such notice the enhancement shall be invalid.
Notice must be specific
It is also necessary that the notice for enhancement should be specific.
The Commissioner(Appeals) cannot go beyond scope of Show Cause Notice. In case
he wants to make enhancement on any additional points, not covered by the Show Cause
Notice, he may issue another notice to cover new point, however, enhancement
cannot be made simply on a general notice or by giving notice for some points
and making enhancement on other points also.
Overall relief yet opportunity on
point of enhancement is required
It may be that in the appellate order substantial relief is allowed and
the amount involved in enhancement is meager one, and in totality there is net
relief, still the Commissioner (Appeals) must allow opportunity about the
matter of enhancement. It would be wrong on part of the authority that as there
is no net enhancement opportunity on point of enhancement is not required.
CIT (A) cannot enhance income based on source not considered
during assessment
In
the present case, assessee declared capital gain on sale of certain property. Assessing
Officer was concerned with respect to claim of the assessee under section 54F
which was rejected after inquiry and relying up on the decision of the
Honourable Supreme court. CIT (A) had made enhancement of income holding that
capital gain shown by the assessee itself was not in accordance with the
law and given a finding that no capital gain had accrued to assessee. CIT(A)
further held that funds received by assessee was unaccounted income of the
assessee and chargeable to tax under section 68. It was held the issue of
verification of capital gain was not the issue which was at all dealt with by Assessing
Officer or even a question of verification made by Assessing Officer. There was
no inquiry made by Assessing Officer on the issue of capital gain shown by
assessee. For the purpose of enhancement of income by CIT(A), it is necessary
that either the matter should be raised in the appeal by the assessee or even
otherwise the matter should have been considered and determined in the course
of assessment proceedings. Hence, enhancement under section 251(1)(a) is
prohibited on the issues which have not at all been considered by Assessing
Officer during assessment proceedings. This gives the common understanding that
CIT(A) cannot enhance income of the assessee on altogether “new Source‘.
Therefore, CIT(A) had exceeded his jurisdiction in enhancing the income of the
assessee by considering the new sources of income not at all considered by Assessing
Officer. Consequently, no addition under section 68 could be made by CIT(A)
enhancing income of assessee. (Related Assessment Year : 2014-15)
– [Hari Mohan
Sharma v. ACIT -
Date of Judgement : 31.01.2019 (ITAT Delhi)]
CIT(A) cannot enhance the assessment and also change the head of income
without giving any show-cause notice, accordingly the impugned order could
not be sustained
In the case of Naresh
Sunderlal Chug v. ITO, the CIT(A) reclassified income under capital
gains as business income thereby increasing the total income as against the
assessed income. The ITAT on the precise point of whether the said
reclassification amounted to enhancement, held as under:
“The
CIT(A) was not only changing the head of income but was also enhancing the
assessment, since income which is assessed in the hands of assessee as per
direction of CIT(A) had worked out at Rs.49,41,225/- as against income assessed
by the Assessing Officer under the head Long Term Capital Gain at
Rs.48,75,610/-. The second aspect
is rate of tax. In case
income is assessed under the head Long Term Capital Gain, the rate of tax is
lower than the rate applied when the income is being assessed as business
income. In view thereof in not giving an opportunity or any
show cause notice of enhancement as required under section 251(2) of the Act,
the order of CIT (A) suffers from infirmity and the same cannot be sustained” (Related Assessment year : 2009-10) – [Naresh
Sunderlal Chug v. ITO (2018) 171 ITD 116 (ITAT Pune)]
CIT(A) cannot enhance assessment for income
from a new source not considered in assessment
CIT (A) has no power to travel beyond the
subject-matter of the assessment and is not entitled to assess new sources of
income. In order for the CIT(A) to enhance, there must be something in the
assessment order to show that the Assessing Officer applied his mind to the
particular subject-matter or the particular source of income with a view to its
taxability or to its non-taxability and not to any incidental connection –
Enhancement of long term capital gains on sale transaction was deleted
Tribunal held that CIT(A) has no power to travel beyond the
subject-matter of the assessment and is not entitled to assess new sources of
income. In order for the CIT(A) to enhance, there must be something in the
assessment order to show that the Assessing
Officer applied his mind to the particular subject-matter or the
particular source of income with a view to its taxability or to its
non-taxability and not to any incidental connection. Enhancement of long term
capital gains on sale transaction was deleted. (Related Assessment years : 2006-07,
2007-08, 2008-09) – [Jagdish Narayan Sharma v. ITO – Date of
Judgement : 2.05.2018 (ITAT Jaipur)]
Commissioner (Appeals) has power to consider such items which was considered by the Assessing Officer and enhance assessment
The appellant was an individual. The
appellant draws income from salaries, income from house property and income
from other sources. A search and seizure operation under section 132 was
conducted on 19.11.1999 at the residential and office premises of the appellant
at Mumbai. On the basis of the aforesaid search, a notice under section 158BC
was issued on 25.09.2000. In compliance thereto, the appellant filed a return
of an undisclosed income for the block assessment period 1990-91 to 2000-02 on
13.11.2000, declaring therein an undisclosed income of Rs. 15,00,000. However,
the Dy. CIT vide orders under section 158BC computed the total undisclosed
income at Rs. 57,42,698 by inter alia making the additions to the declared
undisclosed income of Rs. 15,00,000 by the appellant. In terms of the aforesaid
order under section 158BC, the Assessing Officer made the additions of
undisclosed income of Rs. 10,00,000 under section 68. The Assessing Officer
made an addition of Rs. 2,42,698 as undisclosed income on account of dividend
received on canshares. One is not concerned with this addition in the present
appeal. Further, the Assessing Officer made an addition of Rs. 10,00,000 on
account of amount allegedly paid to Mr. J as undisclosed income. The Assessing
Officer made an addition of Rs. 20,00,000 on account of amount received from
Mr. V as undisclosed income. The appellant being aggrieved from the order under
section 158BC, filed an appeal before CIT(A) and challenged the additions made
to the declared undisclosed income which was made by the Assessing Officer on
various grounds. The CIT(A) disposed of the appeal vide orders dated
24.03.2003. The CIT(A) not only confirmed the additions made by the Assessing
Officer but also enhanced the assessment made under section 158BC. Items considered by the Assessing
Officer but no
addition made. It was held that commissioner appeal has power to consider such
items and enhance assessment. The CIT(A), in terms of the aforesaid
order, enhanced the assessment of undisclosed income made by the Assessing
Officer in respect of certain alleged transactions. Held: Justified. Accordingly addition made
by the Commissioner (Appeals), on the basis of analyzing the documents which
was confirmed by the Tribunal was held to be proper. (Block Period
1990-91(Block Period 1990-91 to 2001-02) – [Gurinder Mohan Singh Nindrajog v. CIT (2012)
348 ITR 170 (Del)]
Power to enhance income can be exercised
by the Commissioner of Income-tax (Appeals) even on an information furnished by
the Assessing Officer
It
was held that it is open to the Income-tax Officer to bring to the notice of
the Commissioner of Income-tax (Appeals) any lapse or omission or error in the
assessment and invite the appellate authority to exercise the power vested in
him to enhance the assessment or take other steps to undo the harm or error. It
is idle to contend that though the Commissioner of Income-tax (Appeals) can
exercise the power to enhance the assessment even suo motu, such a power cannot
be exercised when the occasion for the exercise of such power is on an alert
made by the Income-tax Officer or brought to his notice by the Income-tax
Officer (assessing authority). The Income-tax Officer cannot prefer an appeal
against his own assessment. It may be that it is open to him either to rectify
the order under Section 154 of the Act or initiate proceedings for
reassessment, if it is justified in law, or request the Commissioner of
Income-tax to exercise his suo motu power of revision under Section 263 of
the Income-tax Act. It is also open to the Income-tax Officer to point out the
error or omission and request the Commissioner of Income-tax (Appeals), before
whom the appeal filed by the assessee is pending, to take reasonable steps to
see that a true and proper assessment is rendered in the case. The powers
aforesaid are concurrent. We hold that the Income-tax Officer had lotus standi
or right to alert the Commissioner of Income-tax (Appeals) and bring to his
notice that Section 37(3A) of the Act is applicable in the instant
case and that an enhancement in disallowance is called for on that account.
(Related Assessment year : 2004-05) –
[Goel Die Cast Ltd. v. CIT (2008) 297 ITR 72 (P&H)]
In
an appeal filed by assessee, Appellate Assistant Commissioner has no power to
enhance assessment by discovering a new source of income not considered by
assessing officer in order appealed against
It was held that the
power of enhancement under section 31(3) of the Income Tax Act, 1922 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 had no power to assess the source of income, which had not been
taken into consideration by the assessing officer. Looking from the aforesaid
angles, 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 assessing officer, the jurisdiction to deal with the same in appropriate
cases may be dealt with under section 147/148 and section 263 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. [Para 5] – [CIT v. Sardari Lal
& Co. (2001) 251 ITR 864 : 170 CTR 431 : (2002) 120 TAXMAN 595 (Del)]
First
appellate authority cannot consider new scope of income under section 251(1) of
the Act while enhancing the Assessment and the appellate proceedings has to be
confined to those items of income which where the subject-matter of original
assessment.
That it is not open to the Appellate
Assistant Commissioner to introduce in the assessment a new source of income
and the assessment has to be confined to those items of income which were the
subject matter of original assessment. and, therefore, it was not open to the
first appellate authority to therefore, to direct the Assessing Officer to
conduct enquiry about such new source of income. (Related
Assessment year 1967-68) - [CIT
v. Union Tyres (1999) 240 ITR 556 (Del)]
Appellate
Assistant Commissioner is entitled to direct additions in respect of items of
income not considered by the Income Tax Officer
It was held
that the CIT(A)’s power to enhance is not confined to matters considered
by the Assessing Officer and the CIT(A) may consider any source of income
whether same is considered by the CIT(A). - [CIT
v. Nirbheram Daluram (1997) 224 ITR 610 (SC)]
Declaration of law is clear that the power of the
appellate authority is co-terminus with that of the Assessing Officer
The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminus with that of the Income Tax Officer. If that be so, 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 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 provisions to the contrary the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter.
If
the Appellate Assistant Commissioner is satisfied he would be acting within his
jurisdiction in considering the question so raised in all its aspects. Of
course, while permitting the assessee to raise an additional ground, the Appellate
Assistant Commissioner should exercise his discretion in accordance with law
and reason. He must be satisfied that the ground raised was bona fide and that the
same could not have been raised earlier for good reasons. The satisfaction of
the Appellate Assistant Commissioner depends upon the facts and circumstances
of each case and no rigid principles or any hard and fast rules can be laid
down for this purpose.
– [Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC)]
Appellate
Assistant Commissioner had no power to assess the source of income, which had
not been taken into consideration by the Assessing Officer
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 had no power to assess the source
of income, which had not been taken into consideration by the Assessing
Officer. Apex Court has went a step further by observing that the subject
matter of consideration by the ITO should be from the point of view of
taxability and such consideration must be conscious and not merely incidental
or collateral examination of any matter by the ITO. – [CIT v. Rai Bahadur
Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC)]
CIT(A) cannot discover new sources of income
Power of CIT(A) is co-terminus
with that of the Assessing Officer. He can do what the assessing officer can do
and also direct him assessing officer can do and also direct him to do what he
failed to do. However CIT(A) cannot discover new sources of income. – [CIT v. Kanpur Coal Syndicate (1964) 53 ITR
225 (SC)]
Appellate Assistant Commissioner/Deputy Commissioner (Appeals)/
Commissioner (Appeals) can levy penalty on the assessee even though the
Income-tax Officer has not levied the penalty
While deciding on quantum
proceedings the CIT(A) may initiate penalty in respect of the additions on
which the Assessing Officer failed to initiate the penalty in the first place.
As far as the sections where the CIT(A) has been specifically empowered to
initiate and levy penalty, the CIT(A) may absolutely correct the error on the
part of the Assessing Officer & levy such penalty in the quantum
proceedings . The Hon’ble Supreme Court in the case of Kamlapat Motilal
v. CIT (1962) 45 ITR 266 while deciding on a question
whether the AAC [now the CIT(A)] was empowered to levy penalty under section 28(1)(c)
[parimateria to 271(1)(c)] in respect of addition where the Assessing
Officer failed to initiate a penalty, held as under:-
Section 28 of the Income-tax Act in terms enables the Appellate Assistant Commissioner to take action under that section if in the course of any proceedings under the Act he is satisfied that any person has, Inter alia, concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The High Court rightly pointed out that the Appellate Assistant Commissioner was within his right in taking action under section 28 of the Income-tax Act against the assessee when in the course of the appeal proceedings before him he was satisfied that the assessee had deliberately furnished inaccurate particulars of its income in the sense that it debited a sum of Rs. 76,836 on account of excise duty, an expenditure which related to another year and could not be debited against the profits of the year under consideration. We are satisfied that the Appellate Assistant Commissioner was legally justified in issuing a notice under section 28 of the Income-tax Act against the assessee. – [Kamlapat Motilal v. CIT (1962) 45 ITR 266 (SC)]
CIT(A)
cannot find a new source of income not considered by ITO. Power of enhancement
is restricted to the subject matter of assessment or source of income
considered by ITO
In CIT v. Shapoorji
Pallonji Mistry, the matter related to the corresponding provisions of the
Indian Income Tax Act, 1922. It was a settled proposition that it was not open
to the CIT(A) to travel outside the record of assessment while enhancing the
income. The CIT(A) had to restrict to the source of income which had been the
subject matter of consideration by the ITO. It was held, inter alia, that in an
appeal filed by the assessee, 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. – [CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC)]
Extent of power to enhance
the Hon’ble Bombay High Court
in the case of Narrondas Manordas v. CIT deciding
on the amplitude of powers of the AAC [CIT(A)] held that the power to enhance
is not confined to the ‘subject matter of appeal’ but to the ‘subject matter of assessment’.
But such power does not extend to bringing a new source of income to taxation,
under the garb of enhancement. – [Narrondas Manordas v. CIT (1957) 59 BOMLR 511, ILR 1957 Bom 512 (Bom)]
Power of Enhancement- Penalty
Power to enhance the quantum of penalty - The CIT(A) has the power to
enhance quantum of penalty imposed by the Assessing Officer. (Related Assessment years : 1959-60 to 1961-62) – [Bhoomareddy Bros v. CIT (1987) 163 ITR 854 (Kar.)]
KEY NOTE
If any enhancement / addition to income is made in appeal by CIT(A), then
it is only the CIT(A) who can initiate the penalty proceedings under section
271 or 270A of the Act.
Enhancement of the assessment would mean an enhancement of the assessment as a whole and not enhancement of a particular item of income in the assessment which does not result in the enhancement of the assessment as a whole and that income-tax is one tax and not a collection of taxes on different items of income
In the case of CIT v. T. Namberumal
Chetty & Sons, the AAC [CIT(A)]
in course of appellate proceedings increased income under one head and
simultaneously reduced the income under the other head of income. As a
consequence to the order of the AAC the total income of the assesse
actually reduced as against the assessed income, as a result of the net effect
of addition under one head of income and reduction of income under the other.
But the assesse challenged that increase of income under a head of income,
irrespective of reduction in the total income, amounts to enhancement. The
Hon’ble High Court held as under:-
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