Procedural Safeguards: enhancement after processing intimation requires a prior show cause; remand for factual verification of treaty relief and TDS credit.

Enhancement of income following a processing intimation under section 143(1) cannot be sustained absent the procedural safeguard of a prior show cause notice under section 251(2); the appellate enhancement is set aside to the extent it exceeded the intimation. Separately, taxability of salary for services performed abroad and entitlement to TDS credit require verification of residency, period of stay, nature of services and whether the income was taxed abroad; those factual and documentary issues are remitted to the Jurisdictional Assessing Officer for limited verification and fresh decision on treaty relief and TDS credit after affording the assessee an opportunity to be heard.

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Issues: (i) Whether the Commissioner (Appeals) could adjudicate and enhance the assessee's income beyond the limited scope of an intimation under section 143(1) without issuing a show cause notice under section 251(2); (ii) Whether the salary attributable to services rendered outside India during the overseas assignment is taxable in India and whether the assessee is entitled to grant of TDS credit reflected in Form 26AS/Form 16.

Issue (i): Whether the Ld. CIT(A) erred in enhancing income arising from an intimation under section 143(1) without issuing a show cause notice as required by law.

Analysis: The Tribunal examined the limited nature of adjustments permissible on processing under section 143(1) and the legislative requirement that enhancement of assessment by the appellate authority under section 251(1) must be preceded by issuance of a show cause notice under section 251(2). The impugned order of the CIT(A) directed taxation of the entire salary receipts, which amounted to enhancement beyond the issue framed by the 143(1) intimation. There is no material to show that a specific notice proposing enhancement was issued before the CIT(A) enhanced income.

Conclusion: The direction of the Ld. CIT(A) to enhance income without issuing the show cause notice under section 251(2) is not sustainable and is set aside to the extent it amounts to enhancement.

Issue (ii): Whether the portion of salary attributable to services rendered outside India is taxable in India and whether full TDS credit as per Form 26AS/Form 16 should be granted.

Analysis: The Tribunal considered the rival contentions on applicability of section 5(2), section 9(1)(ii), section 90 and Article 16(1) of the India-USA DTAA, and noted that factual aspects crucial to treaty relief and residency (period of stay, nature of services, and whether the income was offered to tax in the United States) were not properly verified by lower authorities. The Tribunal observed that grant of TDS credit under section 199 read with Rule 37BA is subject to verification of corresponding income and records. Given the factual issues, the Tribunal directed that the matter be remitted to the Jurisdictional Assessing Officer for limited verification with opportunity to the assessee to produce evidence, and that the Assessing Officer decide entitlement to TDS credit in accordance with law while taking judicial precedents into account.

Conclusion: The question of taxability of the overseas portion of salary and entitlement to TDS credit is remitted to the Jurisdictional Assessing Officer for fresh verification and decision in accordance with law; the appellate direction enhancing income without prior show cause notice is set aside.

Final Conclusion: The appeal is allowed for statistical purposes by setting aside the impugned enhancement and remitting the matter to the Jurisdictional Assessing Officer for limited factual verification and fresh determination of taxability and TDS credit, after providing the assessee an opportunity of being heard.

Ratio Decidendi: Enhancement of assessment arising from an intimation under section 143(1) requires compliance with the procedural safeguard of issuing a show cause notice under section 251(2), and factual issues bearing on treaty relief and entitlement to TDS credit must be verified by the Assessing Officer before denial or allowance of credit.

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