2024 (11) TMI 239 - AT - Income Tax

CIT(A) exceeded jurisdiction under section 251 by directing taxation of net profit from unfiled P&L account during assessment

Krushi Sadhna Vividh Karyakari Sahakari Vikas Seva Sanstha Maryadit Versus The Income Tax Officer, Ichalkaranji.

ITAT Pune held that CIT(A) exceeded jurisdiction under section 251 by directing taxation of net profit based on a Profit and Loss Account that was never ... Powers of the Commissioner u/s 251 - CIT(A) power in enhancing the income - CIT(A) power to add a new source of income which has not been considered by the AO - CIT(A) disallowed the claim of assessee u/sec.80P and directed the AO to tax the net profit declared by assessee in the Profit and Loss Account - HELD THAT:- As observed that the impugned Profit and Loss account considered by the CIT(A) was not part of the record of Assessment Proceedings as it was never filed before the AO. Therefore, by considering the figure of “Net Profit” mentioned in the impugned Profit and Loss Account the Ld.CIT(A) has travelled beyond the jurisdiction granted by section 251 as the impugned profit and Loss account was never part of the Assessment Record. CIT(A) has erred in giving the directions to the Assessing Officer to assess the “Net Profit”. We derive support from the Hon’ble Supreme Court’s analysis of Section 31 of the Income Tax Act 1922 in the case of Rai Bahadur Hardutroy Motilal Chamaria [1967 (4) TMI 8 - SUPREME COURT]. The Section 31 of the Income Tax Act 1922 and the Section 251 of the Income Tax Act 1961 are exactly identical except the ‘Explanation’ which is inserted in the Income Tax Act 1961. However, we have already interpreted the effect of the ‘Explanation’ to section 251. Similarly, we find support from case of Vijay Builders [2015 (2) TMI 1122 - ITAT PUNE] wherein the ITAT has followed the Hon’ble Supreme Court’s decision in the case of CIT vs Shapoorji Pallonji Mistry [1962 (2) TMI 12 - SUPREME COURT] In the case under consideration the impugned source of income which was ‘Net Profit’ shown in the impugned Profit and Loss Account was never before the Assessing Officer. Hence the Assessing Officer had not applied his mind on the Taxability/ non taxability of the impugned ‘Net Profit’, hence the Ld.CIT(A) had no jurisdiction to consider the said amount of ‘Net Profit’ and enhance the income of the Assessee. CIT(A) has erred in directing the AO to tax the impugned Net Profit and erred in enhancing the income of the assessee. Accordingly, the AO is directed to delete the addition which was directed by Ld.CIT(A). In the result the ground number 1 raised by the Assessee is allowed. Issues Involved:1. Jurisdiction of the CIT(A) to consider a new source of income not assessed by the AO.2. Applicability of Section 80A(5) for denying deduction under Section 80P.3. Requirement of issuing a notice of enhancement by CIT(A).Issue-wise Detailed Analysis:1. Jurisdiction of the CIT(A) to Consider a New Source of Income:The core issue in this appeal was whether the CIT(A) had the jurisdiction to consider a new source of income, specifically the net profit of Rs. 10,93,629, which was not part of the original assessment by the AO. The assessee argued that the CIT(A) acted beyond his jurisdiction by considering the Profit and Loss Account, which was not part of the assessment record. The Tribunal noted that under Section 251 of the Income Tax Act, the CIT(A) has the power to enhance an assessment but only concerning matters arising out of the proceedings in which the order appealed against was passed. Since the Profit and Loss Account was not considered by the AO, the CIT(A) exceeded his jurisdiction by directing the AO to tax the net profit, as this source was not part of the original assessment. The Tribunal relied on the Supreme Court's decision in the case of Commissioner Of Income-Tax, Calcutta Vs. Rai Bahadur Hardutroy Motilal Chamaria, which established that the appellate authority cannot assess a new source of income not considered by the AO. Consequently, the Tribunal held that the CIT(A) erred in enhancing the income based on the net profit and directed the AO to delete the addition of Rs. 10,93,629.2. Applicability of Section 80A(5) for Denying Deduction Under Section 80P:The assessee contested the CIT(A)'s application of Section 80A(5), which led to the denial of deduction under Section 80P. The Tribunal observed that the CIT(A) denied the deduction because the assessee had not filed a return of income, invoking Section 80A(5). However, since the Tribunal resolved the primary issue of jurisdiction in favor of the assessee, the question of the applicability of Section 80A(5) became academic and was not further adjudicated.3. Requirement of Issuing a Notice of Enhancement by CIT(A):The assessee also raised the issue that the CIT(A) enhanced the income without issuing a notice of enhancement, which is a prerequisite under Section 251(2) of the Act. The Tribunal acknowledged that the CIT(A) did not provide the assessee with an opportunity to contest the enhancement, which is mandatory. However, given that the Tribunal allowed the appeal on the primary jurisdictional ground, this issue was deemed academic and was not separately adjudicated.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the CIT(A) acted beyond his jurisdiction by considering a new source of income not assessed by the AO. Consequently, the Tribunal directed the AO to delete the addition of Rs. 10,93,629. Other grounds and issues raised by the assessee were dismissed as academic due to the resolution of the primary issue. The appeal was partly allowed, and the order was pronounced in open court on 4th November 2024.