Mandatory notice before assessment enhancement: addition set aside for breach of section 251(2) procedure.

An appellate authority may examine the transaction, but any enhancement of assessment must comply with section 251(2) and be preceded by prior notice. Here, the first appellate authority enhanced the assessment by treating part of the transaction as taxable long-term capital gain without issuing the mandatory notice, so the enhancement was procedurally invalid and could not stand. The resulting addition was set aside, and the assessee obtained relief. The document also notes that the assessee's capital gains treatment and section 54F relief could not be interfered with through a notice-free enhancement.

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Issues: Whether the addition made by the first appellate authority could be sustained when the assessment was enhanced without issuing notice under section 251(2), and whether the assessee's claim for capital gains treatment and section 54F relief could be interfered with in that manner.

Analysis: The reassessment had been initiated on information concerning investment of Rs. 40 lakh, while the first appellate authority went further and treated the balance Rs. 30 lakh from the same transaction as taxable long-term capital gain. Although the appellate authority could examine the transaction, enhancement of assessment required compliance with the statutory procedure and prior notice before making an adverse enhancement. Since no notice under section 251(2) was issued, the enhancement was made without following due process. The procedural lapse went to the validity of the addition itself.

Conclusion: The enhancement could not be sustained and the addition made by the first appellate authority was set aside, resulting in relief to the assessee.

Final Conclusion: The appeal succeeded on the ground of invalid enhancement for want of statutory notice, and the impugned addition did not survive.

Ratio Decidendi: An appellate authority cannot enhance an assessment without first issuing the mandatory notice required by section 251(2) of the Income-tax Act, 1961, and any enhancement made in breach of that procedure is unsustainable.

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