2019 (5) TMI 1791 - AT - Income Tax

Tribunal cancels jurisdiction over new income source, rules in favor of assessee on disallowance.

The Tribunal held that the CIT(A) exceeded jurisdiction by introducing a new income source, contrary to precedents and statutory provisions. The ... Enhancement made by CIT(A) - Assessment by entering into a new source of income - power of enhancement conferred on the ld. CIT(A) - HELD THAT:- CIT(A) has no power to enhance the assessment by introducing a new source of income which is not mentioned in the return of income by the assessee or considered by the Assessing Officer in an order appealed against and must confine himself only to those items of income which were the subject matter of the original assessment. Applying the propositions of law to the facts of this case, I have to agree with the submissions made by the ld. Counsel for the assessee. CIT(A) proposed to enhance the assessment by entering into a new source of income. Hence the enhancement is hereby cancelled. Disallowance u/s 14A - HELD THAT:- Following the judgment in the case of Commissioner Of Income Tax vs M/s Ashika Global Securities Ltd [2018 (7) TMI 1425 - CALCUTTA HIGH COURT] hold that no disallowance can be made u/s 14A of the Act, when there is no exempt income earned by the assessee during the year. Issues Involved:1. Jurisdiction of the CIT(A) to enhance assessment by introducing a new source of income.2. Disallowance under Section 14A of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Jurisdiction of the CIT(A) to Enhance Assessment by Introducing a New Source of Income:The primary contention raised by the assessee was that the enhancement made by the CIT(A) was beyond his jurisdiction as it sought to tax a new and distinct source of income than what was considered by the Assessing Officer (AO). The assessee argued that the power of enhancement conferred on the CIT(A) by the Act is restricted to the source of income which the AO considered in the assessment order and cannot be exercised for bringing to tax a new source of income. The assessee relied on several judicial precedents, including CIT vs. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC), CIT vs. Shapoorji Pallonji Mistry 44 ITR 891 (SC), CIT vs. Associated Garments Makers [64 Taxman 215], and CIT vs. Sardari Lal & Co. [2001] 251 ITR 864 (Delhi) (FB).The Tribunal examined Section 251(1)(a) of the Act, which allows the CIT(A) to confirm, reduce, enhance, or annul the assessment. However, it noted that the Hon’ble Courts have interpreted this section to mean that the CIT(A) cannot assess a source of income which has not been processed by the AO and which is not disclosed in the returns filed by the assessee or in the assessment order. The Tribunal cited the Supreme Court's decision in CIT vs. Rai Bahadur Hardutroy Motilal Chamaria, which held that the CIT(A) has no jurisdiction to enhance the taxable income by considering a new source of income not considered by the AO.Applying these legal principles, the Tribunal concluded that the CIT(A) had indeed proposed to enhance the assessment by introducing a new source of income, which was beyond his jurisdiction. Therefore, the enhancement made by the CIT(A) was cancelled.2. Disallowance under Section 14A of the Income Tax Act, 1961:The second issue pertained to the disallowance made by the AO under Section 14A of the Act. The assessee contended that it had not earned any exempt income during the year and, therefore, no disallowance under Section 14A should be made. The assessee relied on the judgment of the Jurisdictional High Court in the case of Commissioner Of Income Tax vs. M/s Ashika Global Securities Ltd, which held that no disallowance can be made under Section 14A if no exempt income is earned by the assessee during the year.The Tribunal observed that the Departmental Representative did not make any submissions opposing the assessee's contention on this issue. Respectfully following the judgment of the Jurisdictional High Court, the Tribunal held that no disallowance under Section 14A could be made as the assessee had not earned any exempt income during the year.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the enhancement made by the CIT(A) was beyond his jurisdiction and that no disallowance under Section 14A could be made in the absence of exempt income. The appeal was thus decided in favor of the assessee.