TaxTMI 
TaxTMI 
2022 (5) TMI 518
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.... the assessee is not interested in prosecuting these two issues and hence, the same are dismissed as "not-pressed". 3. The third and fourth issue are regarding enhancement of assessment on account of disallowance made of Rs.16,32,403/- being interest charged @ 12% per annum on the presumption of diversion of borrowed capital for the purpose of advancing interest free loans to the extent of an average amount of Rs.1,36,03,358/- and taxing under deemed dividend u/s.2(22)(e) of the Act., as the CIT(A) failed to appreciate that the power of enhancement although it is coterminous with the power of AO but it should be considered in the context of issues / sources of income assessed by the AO in the assessment order and not to be invoked for new issues / sources of income, which are not considered by the AO. For this, assessee has raised Ground Nos.5 to 9 which read as under:- 5. The CIT (Appeals) erred in enhancing the assessment in making the disallowance of Rs. 16,32,4037- being interest rate of 12% per annum on the presumption of diversion of borrowed capital to the extent of an average amount of Rs.1,36,03,3587- in para 15 of the impugned order without assigning proper reasons and....
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....rough the CIT(A) order and assessee has challenged only the three disallowances before CIT(A) out of which CIT(A) deleted the disallowance made by AO by invoking the provisions of section 40(a)(ia) of the Act, but retained the following two disallowances:- i) Disallowance u/s 40A(3) Rs.1,00,679/- ii) Disallowance u/s 40a(ii) Rs.1,66,330/- Apart from the above, the CIT(A) independently gone through the balance sheet and corresponding schedules and considered the two new issues, which were never the subject matter of the assessment order 5. As regards to disallowance of interest on the diversion of borrowed capital towards non-business purposes and thereby disallowed the interest at Rs.16,32,403/- and also invoking the provisions of deemed dividend u/s.2(22)(e)of the Act as the company has advanced an amount of Rs.24 lakhs to Smt. Chitra Mohan, the wife of the Managing Director of the company. The CIT(A) has disallowed the interest by observing in para 15 as under:- 15. It is further held that the assessee had diverted borrowed capital to the extent of an average amount of Rs. 1,36,03,358/-during the year towards non-business purposes. Taking a conservative interest rate of 1....
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....two issues are not subject matter of present appeal proceedings in as much as the same does not arise from the assessment order under challenge. The ld.counsel for the assessee stated that new issues / additions / sources of income would fall outside the ambit of provisions of section 251 of the Act in regard to enhancement of income. The ld.counsel for the assessee relied on the case law of Hon'ble Delhi High Court in the case of CIT vs. Sardari Lal & Co., [2001] 251 ITR 864 (Delhi) and argued that the Hon'ble Delhi High Court has categorically held that whatever the question of taxability of income from a new sources of income is concerned, which had not been considered by the AO in the assessment order, jurisdiction to deal with the same in appropriate cases may be dealt with u/s.147 or u/s. 263 of the Act as the law mandates and if the requisite conditions are fulfilled but it is inconceivable that in presence of such specific provisions a similar power is available to the first appellate authority u/s.251 of the Act. 7. On the other hand, the ld. Senior DR relied on the case laws relied on by the CIT(A) as under:- 1) Nirbheram Daluram (SC) 224 ITR 610 2) Jute Corporation ....
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....ld by Hon'ble High Court that an item of income noticed by the officer, but not examined by him from the point of view of its taxability or non-taxability, cannot be said to have considered by him. Consideration does not mean incidental or collateral examination of any matter by the officer in the process of assessment. There must be something in the assessment order to show that the officer has applied his mind to a particular subject matter or the particular sources of income with a view to its taxability or to its non-taxability and not to any incidental connection. As in the present case, the Hon'ble Madras High Court has considered that the sources was not new and which was already noticed by the AO, the Hon'ble High Court has upheld the order of the first appellate authority for making enhancement but the ratio laid down by the Hon'ble Madras High Court is very clear and categorical. 8.2 We have also gone through the case law of Hon'ble Supreme Court in the case of CIT vs. Shapoorji Pallonji Mistry, [1962] 44 ITR 891 (SC), wherein the Hon'ble Supreme Court has considered this issue and held that it would not be open to the first appellate authority to introduce into assessme....
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....ere is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commission to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended section 31 and specified the other intention in express words. The Income-tax Act was amended several times in the last 37 years, but no amendment of section 31(3) was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible." 8.3 Further, as cited by ld.counsel for the assessee, the Hon'ble Delhi High Court in the case of Sardari Lal & Co, supra, wherein the Hon'ble Delhi High Court has considered the case laws cited by CIT(A) and the ld.Senior DR and finally held that no new source of income can be introduced by CIT(A) while deciding the appeal and enhancement of income. The Hon'ble Delhi High Court has considered this issue in great detail in para 6, 7 & 8 as under:- 6. A si....
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....f what had been stated by the Apex Court in Jute Corporation's case (supra) and Daluram's case (supra). In Jute Corporation's case (supra), the Apex Court while considering the question whether the Appellate Assistant Commissioner has the jurisdiction to allow the assessed to raise an additional ground in assailing the order of assessment before it, referred to Shapoorji's case (supra), and drew a distinction between the power to enhance tax on discovery of a new source of income and granting a deduction on the admitted facts supported by the decision of the Apex Court. Relying on certain observations made by the Apex Court in CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), the Apex Court held that powers of the first appellate authority are coterminous with those of the assessing officer and the first appellate authority is vested with all the wide powers, which the subordinate authority may have in the matter. In Daluram's case (supra), the decisions of Kanpur Coal's case (supra) and Jute Corporation's case (supra) were also considered and it was observed by the Apex Court that the appellate powers conferred on the first appellate authority under ....