Case Law Details
Chander Veer Singh Bhullar Vs ITO (ITAT Delhi)
ITAT held that the CIT (A) does not have the power to change the section while confirming the addition. If CIT (A) has done so, he has exceeded the jurisdiction and appeal of the assessee is to be allowed.
ITAT Observation & Decision: I find merit into the contention of the assessee that there is no power conferred upon the learned CIT(Appeals) to assess a particular item under different provision of the Act what the Assessing Officer had done without giving a specific notice to the assessee regarding such action. The Revenue has not brought any material to suggest that the assessee was put to notice by the learned CIT(Appeals) before taking such action. I am of the considered view that law does not permit for such change of provision of law. As per section 250 of the Act, the learned CIT(Appeals) is empowered to make further inquiry as he thinks fit or may direct the Assessing Officer to make further inquiry and report to the learned CIT (Appeals). As per section 251(1)(a), in appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment, but there is no such power provided by the law that learned CIT(Appeals) could change the provision of law qua the item of which assessment was made. Therefore, in the absence of such power, learned CIT(Appeals) could not have treated the addition made u/s 69C as the addition made u/s 69B and the same is contrary to the spirit of the Act. Reliance placed by the learned counsel for the assessee on the judgment of the Hon’ble Delhi high Court, rendered in the case of Aar Pee Apartments (P.) Ltd. , has held that from the reading of sub-section (1) of section 142A, it is clear that legislature referred to the provisions of sections 69, 69A and 69B but specifically excluded 69C. The principle of casus omissus becomes applicable in a situation like this. What is not included by legislature and rather specifically excluded, cannot be interpreted by the Court through the process of interpretation. The only remedy is to amend the provision. It is not the function of the Court to legislate or to plug the loopholes in the law. In the light of the above binding precedent the action of the learned CIT(Appeals) in treating the addition made by the Assessing Officer u/s 69C as have been made u/s 69B is contrary to the law laid down by the Hon’ble Jurisdictional High Court. I, therefore, respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of Aar Pee Apartments (P.) Ltd., the impugned order is therefore set aside. The addition made u/s 69C on the basis of the report of the DVO by the Assessing Officer deserves to be deleted. Hence, impugned addition is hereby deleted.
Similarly, in the case of Smt. Sekar Jayalakshmi Vs. ITO, the coordinate Bench deleted the addition that was originally made u/s.68 of the Act by the AO. In first appeal the CIT(A) held that addition u/s 68 is not made out and instead invoked the provisions of section 69A of the Act to sustain the addition, without notice to the assessee.
Grounds of appeal taken by the assessee are allowed accordingly.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Bengaluru [in short ‘the CIT(A)’] dated 05.03.2026, for Assessment Year 2011-12.
2. Sh. Ruchesh Sinha appearing on behalf of the assessee made two-fold submissions assailing the impugned order passed by the CIT(A). The ld. Counsel submits that in ground No.3 of appeal the assessee has assailed the action of CIT(A) in re-characterization of the addition. The AO had made addition of Rs.26,58,269/- u/s 69C of the Act, the CIT(A) without issuing specific notice to the assessee directed the AO to treat the said addition u/s.68 of the Act.
The submissions on second addition assailed in ground no.4 of appeal are against ad-hoc disallowance of expenditure Rs.20,16,315/-.
2.1 In respect of first addition the ld. Counsel submits that the assessee is an agriculturist and owns 40 acres (approx.) of agricultural land at Village Bhullarwala , Tehsil Lambi, Distt. Muktsar, Punjab. The assessee has inherited agricultural land from his father. The Jamabandis to show ownership of agricultural land are at pages 10 to 12 of the paper book and Khasra girdawri to show cultivation of crop on said land are at pages 13 to 22 of the paper book. The assessee has been cultivating Rabi and Kharif crops on his agricultural land for the past several years. To further substantiate sale of crop the assessee has furnished FORM-J at pages 32 to 51 of the paper book. The aggregate receipts from sale of crop as per FORM-J are Rs.50,37,014/-. The assessee in his return of Income for AY 2011-12 declared Agricultural Income of Rs.53,16,538/-. The AO in an arbitrary manner held that the assessee must have incurred expenditure towards cultivation of crop equal to 50% of agricultural receipts. The AO thus made addition of Rs.26,58,269/- u/s 69C of the Act as unexplained income. The addition u/s. 69C of the Act was made by the AO without any basis.
2.2. The assessee carried the issue in appeal before the CIT(A), the CIT(A) without notice to the assessee changed nature of addition from section 69C to 68 of the Act. The Ld. Counsel submits that the unilateral decision of change in nature of addition by the CIT(A) without notice to the assessee is arbitrary, against the principles of natural justice, hence, unsustainable. In support of his submissions the ld. Counsel placed reliance on the following decisions:
1. Toffee Agricultural Farms (P) Ltd., 141 com 429 (Delhi Trib.);
2. smt. Sekar Jayalakshmi Vs. ITO, 150 taxmann.com 120 (Chennai Trib.)
2.3 In respect of second addition of Rs. 20,16,315/- the Ld. Counsel submits that the assessee is also engaged in the business of manufacturing readymade garments. The assessee has declared turnover of Rs.89,66,615/- and has declared Net Profit of Rs. 24,88,177/- from the said business. Admittedly, during assessment the assessee could not produce some of the vouchers to substantiate expenditure, the AO disallowed expenditure by making ad-hoc disallowance @ 20% of the expenditure claimed. The ld. Counsel submits that the AO in a mechanical manner and without appreciating facts has made adhoc disallowance @ 20% which is very much on the higher side. He pointed that the AO in the assessment order has recorded wrong facts. The AO has held that the assessee has declared loss of Rs.30 lakhs (approx.) which is factually incorrect. Referring to Profit and Loss A/c (at page 72-73 of the paper book) the ld counsel pointed that the assessee has earned profit of over Rs.24 lakhs and the same has been offered to tax as per computation sheet (at page 96 of the paper book).
3. Per contra, Shri Manoj Kumar representing the Department vehemently supporting the impugned order prayed for dismissing appeal of the assessee. The ld. DR reiterated findings of the AO and the CIT(A).
4. Both sides heard and orders of the lower authorities examined. In ground No.3 of appeal, the assessee has assailed action of the CIT(A) in making addition of Rs.26,58,269/- u/s. 68 of the Act which was originally made by AO u/s.69C of the Act. The short submission of the assessee is that before changing nature of addition from ‘Unexplained Expenditure’ u/s 69C of the Act to ‘Cash Credit’ u/s 68 of the Act, the CIT(A) had not confronted the assessee, i.e. no show cause was issued to the assessee. The co-ordinate Bench of the Tribunal in the case of Toffee Agricultural Farms (P) Ltd. Vs. ITO (supra) where in somewhat similar situation, where the AO had originally made addition u/s. 69 of the Act, in first appellate proceedings the CIT(A) without notice to the assessee changed the nature of addition and held the addition be made u/s.69C of the Act. The assessee carried the issue in appeal before the Tribunal. The Tribunal deleted the addition inter-alia holding as under:
“6. Now coming to the question regarding action of the learned CIT(Appeals) to treat the reference u/s 142 for the purpose of section 69B, I find merit into the contention of the assessee that there is no power conferred upon the learned CIT(Appeals) to assess a particular item under different provision of the Act what the Assessing Officer had done without giving a specific notice to the assessee regarding such action. The Revenue has not brought any material to suggest that the assessee was put to notice by the learned CIT(Appeals) before taking such action. I am of the considered view that law does not permit for such change of provision of law. As per section 250 of the Act, the learned CIT(Appeals) is empowered to make further inquiry as he thinks fit or may direct the Assessing Officer to make further inquiry and report to the learned CIT (Appeals). As per section 251(1)(a), in appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment, but there is no such power provided by the law that learned CIT(Appeals) could change the provision of law qua the item of which assessment was made. Therefore, in the absence of such power, learned CIT(Appeals) could not have treated the addition made u/s 69C as the addition made u/s 69B and the same is contrary to the spirit of the Act. Reliance placed by the learned counsel for the assessee on the judgment of the Hon’ble Delhi high Court, rendered in the case of Aar Pee Apartments (P.) Ltd. (supra), has held that from the reading of sub-section (1) of section 142A, it is clear that legislature referred to the provisions of sections 69, 69A and 69B but specifically excluded 69C. The principle of casus omissus becomes applicable in a situation like this. What is not included by legislature and rather specifically excluded, cannot be interpreted by the Court through the process of interpretation. The only remedy is to amend the provision. It is not the function of the Court to legislate or to plug the loopholes in the law. In the light of the above binding precedent the action of the learned CIT(Appeals) in treating the addition made by the Assessing Officer u/s 69C as have been made u/s 69B is contrary to the law laid down by the Hon’ble Jurisdictional High Court. I, therefore, respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of Aar Pee Apartments (P.) Ltd. (supra), the impugned order is therefore set aside. The addition made u/s 69C on the basis of the report of the DVO by the Assessing Officer deserves to be deleted. Hence, impugned addition is hereby deleted.Grounds of appeal taken by the assessee are allowed accordingly.”
5. Similarly, in the case of Sekar Jayalakshmi Vs. ITO (supra) the coordinate Bench deleted the addition that was originally made u/s.68 of the Act by the AO. In first appeal the CIT(A) held that addition u/s 68 is not made out and instead invoked the provisions of section 69A of the Act to sustain the addition, without notice to the assessee. The Tribunal held:
“7. ______ I find merit into the contention of the ld. Counsel for the assessee that there is no power conferred upon the ld. CIT(A) to assess a particular item under different provision of the Act what the Assessing Officer had done without giving a specific notice to the assessee regarding such action. I am of the considered view that law does not permit for such change of provision of law. As per section 250 of the Act, the ld. CIT(A) is empowered to make further inquiry as he thinks fit or may direct the Assessing Officer to make further inquiry and report to the ld. CIT(A). As per section 251(1)(a) of the Act, in appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment, but there is no such power provided by the law that ld. CIT(A) could change the provision of law qua the item of which assessment was made. Therefore, in the absence of such power, learned CIT(Appeals) could not have treated the addition made under section 69A of the Act. Therefore, the addition made by the ld. CIT(A) under section 69A of the Act is liable to be deleted.”
6. In the instant case as well, no material is available on record to show that the CIT(A) had issued any specific show cause to the assessee regarding change of section for making the addition. Thus, in light of facts of the case and the decisions discussed above, I find merit in the submission of the assessee. Accordingly, findings of the First Appellate Authority on this issue are quashed. The assessee succeeds on ground no.3 of appeal.
7. In respect of ground No. 4 of appeal relating to ad-hoc disallowance of 20% of expenditure claimed by the assessee, it is observed that in the P & L account the assessee has declared total sales turnover of Rs. 89.66 lacs. The assessee has declared net profit of Rs. 24.88 lacs, whereas, in assessment order the AO has wrongly recorded that the assessee has declared loss of Rs. 30 lacs. This shows that neither the AO, nor the CIT(A) has examined the facts correctly. Considering entire facts of the case, ad-hoc disallowance @20% of direct/indirect expenditure by the AO/CIT(A) is on the higher. To meet the ends of justice, disallowance of expenditure is restricted to 10%. Ergo, ground No. 4 of appeal is partly allowed.
8. In respect of ground of appeal No. 5, the ld. Counsel for the assessee made statement at Bar that he is not pressing ground No.5. In light of statement made by ld. Counsel for the assessee, ground no.5 of appeal is dismissed as not pressed.
9. Ground no. 1 and 2 of appeal are general in nature, hence, require no separate adjudication.
10. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on Thursday, the 04th day of June, 2026.
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