Appellate enhancement without prior notice is invalid; overseas salary taxation and TDS credit require fresh factual verification.

An appellate authority cannot enhance income without first issuing the mandatory show cause notice and giving the assessee a reasonable opportunity of hearing; enhancement made in breach of section 251(2) was unsustainable. The claim that salary for overseas services was not taxable in India, and the related TDS credit, depended on factual verification of residence, period of stay abroad, nature of services, and treaty entitlement, so the matter required remand for fresh examination by the jurisdictional Assessing Officer.

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Issues: (i) Whether the first appellate authority could enhance the income without issuing the mandatory show cause notice; and (ii) whether the taxability of salary relating to overseas services and consequential TDS credit required factual verification and remand.

Issue (i): Whether the first appellate authority could enhance the income without issuing the mandatory show cause notice.

Analysis: The appellate power to confirm, reduce, enhance or annul is subject to the mandatory safeguard that the assessee must be given a reasonable opportunity before enhancement. If the authority travels beyond the grievance raised and directs taxation of income not subjected to the original adjustment without prior notice, the action amounts to enhancement without compliance with the statutory requirement.

Conclusion: The enhancement made without issuing notice under section 251(2) could not be sustained.

Issue (ii): Whether the taxability of salary relating to overseas services and consequential TDS credit required factual verification and remand.

Analysis: The claim that salary attributable to services rendered outside India was not taxable in India depended on verification of residential status, period of stay abroad, nature of services rendered, and whether the income had been offered to tax in the United States so as to attract relief under the treaty. As these factual aspects were not properly verified, and TDS credit had to follow the eventual taxability determination, the matter required reconsideration by the jurisdictional Assessing Officer.

Conclusion: The issue of taxability of the overseas salary and the consequential grant of TDS credit was remitted for fresh verification and decision in accordance with law.

Final Conclusion: The assessee obtained relief against the unauthorised enhancement, while the substantive questions concerning overseas salary taxation and TDS credit were sent back for fresh adjudication.

Ratio Decidendi: An appellate authority cannot enhance income without giving the assessee a prior opportunity of hearing, and claims of non-taxability of overseas salary with corresponding TDS credit must be decided after factual verification of residence, source of services, and treaty entitlement.

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