TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 686
X X X X Extracts X X X X
X X X X Extracts X X X X
....oted that the nature of the business of the assessee company does not require to lending sums for procuring goods from its suppliers. He, therefore, invoking the provisions of section 36(1)(iii) of the Income Tax Act, 1961 (in short 'the Act') made addition of Rs. 14,194/- being interest @12% per annum. 3. He further noted that the assessee has given donation of Rs. 13,000/-to two trusts namely Prem Lal Praksh Trust Rs. 10,000/- and Udantika Manav Sewa Sansta of Rs. 3,000/-. Since, the assessee could not produce any evidence in support of the same, the Assessing Officer disallowed Rs. 13,000/- claimed by the assessee on account of donation. 4. The Assessing Officer similarly made addition of Rs. 1,05,484/- being filing fees paid to the ROC on the ground that the amount is paid towards increasing its authorized share capital, which is not an allowable expenditure u/s 37(1) of the Act. 5. The Assessing Officer further noted from the stock records of the assessee that the assessee gets the Gold ornaments manufactured on job work basis. For the same purpose, the Gold bars are issued to job work contractors and recorded in issue side of stock register of Gold Bars through stock journ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er concerns of the assessee in its books to justify whether such transactions were at arm's length basis. The assessee furnished the following details of purchases with persons specified u/s 40A(2)(b): Sl. No. Name of Co. Amount in Rs. Designation Name of person 1 Goel Exim India Pvt. Ltd. 111,243,140 Director Ashok Goel, Rraveen Gupta 2 Goel Impex 227,423,145 Proprietor Praveen Gupta 3 Priyansh Gold 30,049,505 Proprietor Pradeep Goel 4 Royal Gold 12,807,644 Proprietor Jai Prakash Gupta 5 Bnavya Gold 184,453,619 Partner Jai Singh Goel, Cheten Gupta 6 Ginni Holdings 58,818,238 Partner Pradeep Goel, Praveen Gupta 7 L P Overseas 156,913,690 Partner Jai Prakash Gupta, Sandeep Gupta 8 Shree Balaji Commodities 37,178,972 Partner Ashok Goel, Reena Goel 9 Shree Ganpati Impex 296,474,012 Partner Jai singh Goel, Ashok Goel 10 Sparsh Gold 17,029,703 Partner Ashok Goel, Reena Goel 11 Shree Raj Mahal Jewellers 12,717,000 Partner Ginni Devi, Pradeep Goel G. Total 1,145,108,666 9. The learned CIT(A) made comparison of the purchase price and sale price of such items from related parties vis-a-vis outside pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n by the assessee the learned CIT(A) observed that the assessee being a bullion dealer, all transactions were to be at fair market value and there is no reason as to why most of the purchases made from related concern were at a higher rate than market rate which is taken from the rate of purchases made from unrelated concerns. Further, on many occasions on the same date, sales of some item were made to related concern at a much lower price as compared with the purchase price from other (related or unrelated) concern. Thus, the assessee has inflated purchase price from related concern and sold at lesser price to related concerns to suppress its profit. Since, according to him the assessee could not offer any justification as to why sales were made to related concern operating from the same premise at below the rate at which sales were made to outside parties and purchases made at higher price from related concerns, therefore, he enhanced the assessment to the extent of Rs. 3,57,53,276/-. 11. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before us by raising following grounds of appeal:- 1. On the facts and circumstances of the case and in law the CIT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fact that the additional ground raised by the assessee is purely a legal ground and does not require verification of any new facts, the additional ground raised by the assessee is admitted for adjudication. 15. Ground of appeal no.1 and 2 being general in nature are dismissed. 16. Ground of appeal no. 3 and 4 and the additional ground raised by the assessee relate to the order of the learned CIT(A) in enhancing the income of the assessee u/s 40A(2)(b) of Rs. 3,57,53,276/- which comprises of enhancement of Rs. 2,19,63,025/- in respect of purchases made from sister concern and an amount of Rs. 1,37,90,251/- being enhancement on account of suppressed sale to the sister concern. 17. The learned counsel for the assessee strongly challenged the order of the learned CIT(A) in issuing the enhancement notice on the ground that the First Appellate Authority is not empowered to make enhancement in respect of a new source of income, which is not subject matter of the assessment order and which has not been considered by the Assessing Officer. Referring to the latest decision of the Co-ordinate Bench of the Tribunal in the case of Hari Mohan Sharma vs ACIT reported in 110 Taxmann.com 119 (D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n respect of a new source of income which is not the subject matter of the assessment order and which has not been considered by the Assessing Officer. A perusal of the assessment order shows that the Assessing Officer has not made any addition on account of purchase from or sales made to the related concerns. Therefore, the question that arises is as to whether the learned CIT(A) is competent to enhance assessment by taking an income which was not considered expressly or by necessary implication by the Assessing Officer during assessment proceedings. 20. We find an identical issue had come up for before Co-ordinate Bench of the Tribunal in the case of Hari Mohan Sharma vs ACIT reported in 179 ITD 310. We find the Tribunal after considering various decisions including the decision of the Hon'ble Supreme Court held that the Commissioner (Appeals) has exceeded his jurisdiction in enhancing the income of the assessee considering the new source of income not at all considered by the Assessing Officer and accordingly set-aside the order of the learned CIT(A). The relevant observations of the Tribunal from para 14 onwards read as under:- " 14. Coming to the first issue of challenge ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 143(3) of the Act, any of the following situations may occur : (a) the Assessing Officer may accept the return of income without making any addition or disallowance ; or (b) the assessment is framed and the Assessing Officer makes certain addition or disallowance and in making such additions or disallowances, he deals with such item or items of income in the body of order of assessment but he under assessed such sums ; or (c) he makes no addition in respect of some of the items, though in the course of hearing before him holds a discussion of such items of income ; (d) yet, there can be another situation where the Assessing Officer inadvertently omits to tax an amount which ought to have been taxed and in respect of which he does not make any enquiry ; (e) further another situation may arise, where an item or items of income or expenditure, incurred and claimed is not at all considered and an assessment is framed, as a result thereof, a prejudice is caused to the Revenue, or (f) where an item of income which ought to have been taxed remained untaxed, and there is an escapement of income, as a result of the assessee's failure to disclose fully and truly all materia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act a Assessing Officer may accept the return of income without making any addition or disallowance ; or U/s 147 of the act subject to limitations contained therein b the assessment is framed and the Assessing Officer makes certain addition or disallowance and in making such additions or disallowances, he deals with such item or items of income in the body of order of assessment but he under assessed such sums ; u/s 251 (1) (a) where the Assessing Officer had dealt with the issue in the assessment and was the subject-matter of appeal c AO makes no addition in respect of some of the items, though in the course of hearing before him holds a discussion of such items of income U/s 263 of the act d where the Assessing Officer inadvertently omits to tax an amount which ought to have been taxed and in respect of which he does not make any enquiry u/s 147 of the act e where an item or items of income or expenditure, incurred and claimed is not at all considered and an assessment is framed, as a result thereof, a prejudice is caused to the Revenue, U/s 263 of the act f where an item of income which ought to have been taxed remained untaxed, and there is an escapement of inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tance of Rs. 5,85,000 in the process of assessment from the point of view of its taxability. It is also manifest that the Appellate Assistant Commissioner has considered the amount of remittance of Rs. 5,85,000 from a different aspect, namely, the point of view of its taxability. But since the Income-tax Officer has not applied his mind to the question of the taxability or non-taxability of the amount of Rs. 5,85,000 the Appellate Assistant Commissioner had no jurisdiction, in the circumstances of the present case, to enhance the taxable income of the assessee on the basis of this amount of Rs. 5,85,000 or of any portion thereof. 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' ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellate Assistant Commissioner has no power to enhance the assessment by discovering a new source of income, not considered by the Income-tax Officer in the order appealed against. Similar views were expressed by the apex court in CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC). It was held that the power of enhancement under section 31(3) of the 1922 Act was restricted to the subject-matter of the assessment or the source of income which had been considered expressly or by clear implication by the Income-tax Officer from the point of view of taxability and that the Appellate Assistant Commissioner had no power to assess a source of income which had not been processed by the Assessing Officer." 27. At the same time, the court also clarified that the power of the first appellate authority is not restricted to examine only those aspects of assessment about which the assessee makes a grievance but it covers the whole assessment to correct the order of the Assessing Officer not only with regard to the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the powers of the Assessing Officer, but not the appellate authority. It has held that once the assessment is reopened for any valid reason recorded under section 148(2), then the entire assessment is open for the Assessing Officer to bring to tax any item of escaped income which comes to his notice in such reassessment. 40. Under the old Income-tax Act, the corresponding provision is section 31. Interpreting that provision, the Supreme Court in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) has held that under section 31(3)(a), in disposing of an appeal, the appellate authority may confirm, reduce, enhance or annul the assessment ; under clause (b), he may set aside the assessment and direct the Income-tax Officer now AO to make a fresh assessment. The appellate authority has, therefore, plenary powers in disposing of an appeal. "The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do". 41. As we can see, CIT v. P. Mohanakala [2007] 291 ITR 278 (SC) deals with the powers of the High Court in interfering with the findings of fact-and concurrent findings, at t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and because of this peculiar position the statute has conferred very wide powers upon the appellate authority once an appeal is preferred to him by the assessee. 45. Chamaria goes on to hold that the appellate authority has no jurisdiction under section 31(3) of the Act to assess a source of income not processed by the Income-tax Officer "and which is not disclosed either in the returns filed by the assessee or in the assessment order," and therefore the appellate authority cannot travel beyond the subject-matter of the assessment. In other words, the power of enhancement under section 31(3) of the Act is restricted to the subject-matter of assessment or the sources of income considered expressly or by clear implication by the Income-tax Officer from the viewpoint of the taxability of the assessee. 46. A question regarding powers of the first appellate authority came up for consideration before the Supreme Court recently in CIT v. Nirbheram Daluram [1997] 224 ITR 610 (SC). Following the earlier decisions i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f requisite conditions are fulfilled. It is inconceivable, according to Sardari Lal, that in the presence of such specific provisions, a similar power is available to the first appellate authority. Eventually, Sardari Lal upheld the decision in Union Tyres. 51. Undeniably, the precedential position on the powers of the first appellate authority under section 251 undulates. There are seeming contradictions. But, as held by Union Tyres, and as affirmed on reference by Sardari Lal, there is a consistent judicial assertion that the powers under section 251 are, indeed, very wide ; but, wide as they are, they do not go to the extent of displacing powers under, say, sections 147, 148, and 263 of the Act. 52. Therefore, we are in respectful agreement with the view taken by the Full Bench of the High Court of Delhi in Sardari Lal. As a corollary, we hold that the Tribunal's deleting the enhancement of Rs. 22,15,116 and cancelling the order of the Commissioner of Income-tax (Appeals) on that issue call for no interference." [Underline supplied by us] 19. The principle culled out from the above judicial precedents clearly shows that words "enhance the assessment" are confined to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore for the purpose of enhancement of income by CIT (A) , it is necessary that either the matter should be raised in the appeal by the assessee or even otherwise the matter should ld have been considered and determined in the course of assessment proceedings. It is not at all necessary that AO should have made any adjustment to the total income of the assessee. Hence, enhancement u/s 251 (1) (a) of the act is prohibited on the issues which have not at all been considered by the AO during assessment proceedings. This gives the common understanding that the ld CIT (A) cannot enhance income of the assessee on altogether 'new Source'. Therefore it is clear that Therefore, the CIT(A) is not competent to enhance the assessment taking an income which income was not considered expressly or by necessary implication by the Assessing Officer at all. Such is the mandate of the decisions of various high courts such as in CIT vs. National Company Ltd. (1993) 199 ITR 445 (Cal), Sait Bansilal and Raggisetti Veeranna vs. CIT (1972) 83 ITR 750 (AP), Sterling Construction & Trading Co. vs. ITO (1975) 99 ITR 236 (Kar) and Lokenath Tolaram vs. CIT (1986) 50 CTR (Bom) 237 : (1986) 161 ITR 82 (Bom). He....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee company at the beginning of the year was Rs. 11,93,456.12/- and at the close of the year was Rs. 11,67,33,870/-. Thus, own capital and free reserves of the assessee company throughout during the year was much more than the interest free advance of Rs. 2,20,00,000/- given to M/s Lakshya Overseas. We, therefore, respectfully following the decision of the Hon'ble Bombay High Court in the case or Reliance Utilities and Power Ltd. cited (Supra) hold that the learned CIT(A) was not justified in sustaining the addition of Rs. 14,194/- made by the Assessing Officer u/s 36(1)(iii) of the Act. Accordingly, the ground no.5 raised by the assessee is allowed. 24. Ground of appeal no. 6 was not pressed by the learned counsel for the assessee for which the learned DR has no objection. Accordingly, ground of appeal no. 6 filed by the assessee is dismissed as not pressed. 25. Ground of appeal no. 7 relates to the order of the learned CIT(A) in partly sustaining the disallowance of Rs. 6,27,165/- out of addition of 13,27,855/-. 26. After hearing both the sides, we find that the Assessing Officer made addition of Rs. 13,27,855/- on the ground that the assessee has undervalued its closi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....losing stock in respect of Gold Bar 995, Gold Bar 999 and finished Gold jewellery were taken from the stock register of the appellant and examined on an excel sheet prepared at the time of hearing in the presence of the AR of the appellant. The said details are as under: The above details clearly show that the appellant had valued the finished Gold jewellery, which should have included the cost of the Gold Bar and the job work charges, at below the cost of inputs itself, for example, the actual cost of Gold Bar 995 that were issued for job work was Rs. 1232 per grm., while the actual cost of Gold Bar 999 that were issued for job work was Rs. 1233.25. However, the appellant has valued finished Gold jewellery made with the help of the said Gold Bar 999 @1231.49 per gm. In addition, value in respect of the job work charges paid should have been included in the valuation of closing stock of finished jewellery. It is thus evident that the appellant had under-valued its closing stock of Gold jewellary accordingly. As the appellant holds closing stock of Gold jewellery of Rs. 5,04,49,302/- as on 31.3.2009 while the balance amount of such jewellery has been sold off, the proportionate ....