TaxTMI 
TaxTMI 
2017 (8) TMI 1554
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....ddition of Rs. 2,19,726 1. The learned CIT(A)-II, Nasik erred in law in not issuing enhancement notice to the appellant before proceeding to enhance the taxable income by Rs. 2,19,726/- for alleged cash payment to Shri K. S. Luthra. 2. The learned CIT(A)-II, Nasik erred in law and on facts in enhancing the taxable income of the appellant by Rs. 2,19,726/- for an altogether different issue relating to some alleged cash advance payments made to Shri K. S. Luthra without appreciating that the issue in appeal was understatement of Gross Profit on contract receipts and which issue in particular was decided in favor of the appellant. 3. The learned CIT(A)-II, Nasik further erred in law and on facts in not appreciating that the document relating to the said issue of Rs. 2,19,726/- was seized from the premises of Shri K. S. Luthra and hence, the assessment procedure relating to any search findings ought to have been followed. The learned CIT(A(II), Nasik erred in not following the procedure u/s 153C and erred in proceeding in the matter in an arbitrary manner. 4. Without prejudice to Ground No. 1, 2 & 3, the learned CIT(A)-II, Nasik erred in law and on f....
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....n granted by the learned CIT(A)-II, Nasik. 9. Without prejudice to Ground No. 5,6 &7 and alternately, the learned CIT(A)-II, Nasik erred on facts in not restricting the addition of credits in "Dummy HO cash book account" on a proportionate basis in appellant's hands. General ground 10. The learned CIT(A)-II, Nasik erred in law and on facts in not considering all replies filed from time to time before passing the appellate order. 4. In order to adjudicate the issue we make a reference to the facts and issue in ITA No.535/PUN/2013. The first issue raised by the assessee is against addition of Rs. 2,19,726/- on account of alleged cash payment to Shri K.S. Luthra without issuing any enhancement notice. The second issue raised by the assessee is against the enhancement made by the CIT(A) of Rs. 1,05,65,000/- relating to entries recorded in Dummy HO Cash Book on account of under-statement of gross profit on contract receipts. 5. Briefly, in the facts of the case, search and seizure operations u/s.132 (1) of the Act were conducted in Luthra Group cases of Nashik. Residential premises of the assessee were also searched u/s.132 of the Act on 28-09-2006. ....
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....of the Act on 31-10-2012 as to why his income should not be enhanced by Rs. 96.91 lakhs for Assessment Year 2004-05 on account of transactions mentioned at pages 27 and 28 of seized Annexure-1. It may be pointed out herein itself that the said sum of Rs. 96.91 lakhs were on account of the expenses debited to that account which were noted twice. The assessee in reply to the show cause notice pointed out that the above document was seized from the custody/residential premises/business premises of Mr. Prem Arjundas Luthra. He pointed out that the financial entries in Annexure-1 at pages 1 to 40 pertain to group of people. He also pointed out that he had submitted a detailed reply on Annexure-1, loose papers before the ACIT who inturn had not raised any further query during the course of hearing and the assessment was finalised. He further pointed out that the said Annexure did not bear any signature of the searched party or any seal of the Income-tax Department at the time of search and the assessee also objected to the enhancement since document pertained to number of assessees. 7. Another aspect which was noted by the CIT(A) from the seized documents was the cash payment on diffe....
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....illa, Lomkmanya Nagar, Gangapur Road, Nashim by Party No.3 during search u/s.132 on 28-09-2006/29-09-2006. It is also not in dispute that the copies of Ann.I have been provided to the appellant by the assessment wing as well as by me for his comments. The appellant is one of the directors in Luthra Autowheels (P) Ltd., and proprietor of Luthra Enterprises and Luthra Stone Metal. The appellant's immediate family members consist of Mrs. Urmil Luthra (Wife), Ramesh Luthra (Son) and Ms. Aarti Luthra (Daughter). It is also a matter of record that the appellant despite repeated opportunities, did not offer transaction-wise explanation of the entries reflected in dummy HO cash book and dummy HO ledger accounts relevant for A.Y. 2004-05 (pg 27 to 35). A perusal of the said pages prima-facie establishes that the transactions reflected in the seized papers pertain to the appellant and his family members. According to the dummy HO cash book there is a total cash receipt of Rs. 1,05,65,000/- during A.Y. 2004-05 including cash receipts on account of advance against properties, Nagar plot etc. The appellant has not provided any explanation for the said cash receipts. Similarly, there are expense....
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.... out that the enhancement by the CIT(A) was a preliminary issue in the present appeal wherein the CIT(A) vide Para 5 had estimated Profit on difference in contract receipts. In Para 14 the CIT(A) deleted the addition made by the Assessing Officer and issued an enhancement notice. The Ld. Authorised Representative for the assessee clearly pointed out that once assessee grounds of appeal is allowed, there is no question of any enhancement. He further referred to the first enhancement notice issued wherein the assessee was show caused to explain the payments made totalling to Rs. 96.91 lakhs. Further, second show cause notice was issued which is placed on page 175 of the paper book in respect of receipts of Rs. 1.05 crores. The Ld. Authorised Representative for the assessee pointed out that no enquiry was conducted by the Assessing Officer on the receipts and the sole basis of enquiry by the Assessing Officer was only on payments. The CIT(A) also in this regard has issued the first show cause notice on payments but in the second show cause notice he referred to the receipts of the said cash book found during the course of search, on which no queries were raised by the Assessing Office....
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....mmy HO cash book of the assessee. 15. We have heard the rival contentions and perused the record. The preliminary issue raised in the present appeal has been heard by us, wherein the assessee has challenged the exercise of enhancement carried out by the CIT(A). The assessee is aggrieved by the addition made by the CIT(A) under section 251 of the Act at Rs. 1.05 crores. Before going into merits of enhancement made by the CIT(A) under section 251 of the Act, we may first look at the powers of the CIT(A) in this regard. The powers of CIT(A) are stipulated in section 251 of the Act and he has to function within those limitations while deciding any appeal; he cannot exceed his powers in making an addition on account of new source of income. 16. The Hon'ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) has held that AAC is not competent to enhance assessment in appeal by discovering new source of income not mentioned in return or considered by the Assessing Officer in assessment. The Hon'ble Apex Court in the aforesaid case held as under:- "8...............The only question is whether in enhancin....
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....Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) has reaffirmed its view taken in the case of Commissioner of Income Tax Vs. Shapoorji Pallonji Mistry (supra) and it was held as under:- "As we have already stated, it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income tax Officer with a view to find out new sources of income and the power of enhancement under section 31(3) of the Act is restricted to the sources of income which have been the subject matter of consideration by the Income tax Officer from the point of view of taxability. In this context " consideration " does not mean " incidental " or " collateral " examination of any matter by the Income tax Officer in the process of assessment. There must be something in the assessment order to show that the Income tax Officer applied his mind to the particular subject matter or the particular source of income with a view to its taxability or to its non taxability and not to any incidental connection". 18. The law laid down by the Hon'ble Apex Court has been reiterated by the full Bench of the Hon'ble Delh....
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....e the AO to substantiate that all those figures are already recorded in the books of account. On the basis of the above the AO has not made any addition. From the copy of the audited accounts filed in the paper book we find the assessee has shown works expenses at Rs. 75,42,955/- as per Schedule-M. The Schedule-M annexed to the audited accounts shows labour charges at Rs. 14,38,060/-. Similarly, the assessee has also shown purchases to the tune of Rs. 68,11,278/-. We therefore find merit in the submission of the Ld. Counsel for the assessee that the figures in the impounded document area already entered in the regular books of account and therefore no addition is called for. Accordingly, we hold that the order of the Ld.CIT(A) enhancing the income by Rs. 25 lakhs is not proper. 14.1 Even otherwise also we are of the considered opinion that the Ld.CIT(A) was not justified in enhancing the income of the assessee by Rs. 25 lakhs. The Hon'ble Supreme Court in the case of CIT Vs. Shapoorji Pallonji Mistry (Supra) has held that it would not be open to the AAC to introduce into assessment new sources, as his power of enhancement is restricted only to income which was subject matt....
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.... 12. Thus, the principle emerging from the aforenoted pronouncements of the Supreme Court is, that the first appellate authority is invested with very wide powers under section 251(1)(a) and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee make a grievance and ranges over the whole assessment to correct the Assessing Officer not only with regard to a matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the Assessing Officer and determined in the course of assessment. However, there is a solitary but significant limitation to the power of revision, viz., that it is not open to the Commissioner to introduce in the assessment a new source of income and the assessment has to be confined to those items of income which were the subjectmatter of original assessment. 13. Applying the above well-settled principles of law to the facts of the instant case, we are of the view that the Tribunal was justified in holding that in calling for a remand report on the aforenoted four points, the Commissioner had ....
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....ddition would be under a different provisions of law and would not have any reliance to estimating the sales and gross profit rate adopted by the Assessing Officer and was beyond the scope of the First Appellate Authority." 20. The Tribunal in M/s. Jaihind Engineers Vs. ITO (supra) applied the above said propositions and held as under:- "15.........In identical facts of the present case, the Assessing Officer had made the addition on account of the suppressed production wherein GP rate was applied to work out the addition in the hands of the assessee. The Commissioner of Income Tax (Appeals) while dealing with the said issue had further issued an enhancement notice to the assessee with regard to the cost of purchases utilized for unaccounted production. Though, the Commissioner of Income Tax (Appeals) has wide powers under section 251(1)(a) of the Act but his powers are restricted and he has no power to assess a new source of income in the hands of the assessee. Accordingly, I delete the enhancement made by the assessee to the tune of Rs. 13,20,144/-. The ground of appeal No. 1 raised by the assessee is thus, allowed. Since, the issue has been decided on jurisdiction of....
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....me. 23. Now, coming to the next addition which was made by the CIT(A) by way of enhancement notice is on account of unexplained receipts of Rs. 1.05 crores. The Assessing Officer had considered the said seized documents and had estimated the profits in the hands of assessee by applying net profit rate. The Assessing Officer had considered the total receipts in the hands of assessee as per TDS certificates at Rs. 3.71 crores and had also noted the non-receipt of TDS certificates from Nashik Municipal Corporation. In respect of TDS of Rs. 27,581/-, which he held to be equivalent to contract receipts of Rs. 11,07,670/- and the total contract receipts were calculated at Rs. 3.82 crores. The Assessing Officer because of non-verifiability of expenses and the high turnover of contract, estimated the net profit at 6% of the gross receipts. The Assessing Officer thus, had accepted the total contract receipts in the hands of assessee but because of non-verifiability of expenses had estimated the net profit. 24. The CIT(A) has found new source of income i.e. total receipts found in the Dummy HO Cash Book at Rs. 1.05 crores and has made the addition on that account. The CIT(A) in the pre....