Tribunal rules in favor of appellant, CIT(A) breached natural justice. Notice under section 251 required.

The Tribunal found in favor of the appellant on all issues. The CIT(A) was held to have violated principles of natural justice by enhancing income without issuing a notice under section 251 of the Income-tax Act. The Tribunal emphasized that any increase in assessed income necessitates such notice to the assessee. The disallowance of interest and depreciation by the Assessing Officer was not addressed due to the remand of the entire assessment. The change in the head of income by the CIT(A) resulting in enhanced assessed income was set aside, requiring re-adjudication with the directive to issue the necessary notice under section 251(2) of the Act.

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Issues:
1. Violation of principles of natural justice by the CIT(A) in enhancing the income without issuing a notice u/s 251 of the Income-tax Act.
2. Disallowance of interest and depreciation by the Assessing Officer.
3. Change of head of income by the CIT(A) resulting in enhancement of assessed income.

Analysis:
1. The appeal addressed the violation of principles of natural justice by the CIT(A) in enhancing the income without issuing a notice u/s 251 of the Income-tax Act. The Assessing Officer observed that the assessee, a partnership concern, had incurred interest expenditure and claimed it as a deduction from rental income. The CIT(A) treated the entire income as income from house property, disallowing the claim of interest and depreciation. The Tribunal found that the assessed income was enhanced by the CIT(A), triggering the need for a notice u/s 251(2) before such enhancement. Citing the case law, the Tribunal emphasized that any change resulting in an increase in assessed income requires a notice to the assessee. Consequently, the Tribunal set aside the CIT(A)'s order and remitted the issue for re-adjudication with a directive to issue the necessary notice u/s 251(2) of the Act.

2. The second issue involved the disallowance of interest and depreciation by the Assessing Officer. The AO disallowed a portion of the interest and depreciation claimed by the assessee, considering it capital in nature. The assessee appealed to the CIT(A), arguing for the allowance of these deductions. However, the CIT(A) upheld the disallowance, treating the entire income as income from house property. As the entire assessment was remanded for re-adjudication, the Tribunal did not delve into the merits of these disallowances at that stage.

3. The final issue pertained to the change of head of income by the CIT(A), resulting in the enhancement of the assessed income. The Tribunal noted that the CIT(A) had plenary powers to consider all aspects of a matter in an appeal. However, when such a change led to an increase in assessed income and tax, a notice u/s 251(1) was necessary. Since no such notice was issued in this case, the Tribunal set aside the CIT(A)'s order and directed a re-adjudication after issuing the requisite notice u/s 251(2) of the Act. Consequently, the appeal was treated as allowed for statistical purposes, pending the re-adjudication by the CIT(A.

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