Case Law Details
Sugota Industries Pvt. Ltd Vs ITO (ITAT Mumbai)
The AO in this case has only disallowed expenses u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules. No other aspect or issue has been touched by the AO in the assessment order. The ld. CIT(A) enhanced the assessment by disallowing the claims made by the assessee on account of payment of salary.
The question is whether the ld. CIT(A) has such powers of enhancement u/s 251(1) of the Act.
Any order made under section 143(3) is appealable and the powers of the appellate court are provided in section 251 of the Act wherein appellate authority has power to confirm, reduce, enhance or annul the assessment or he may set aside the assessment and refer the case back to the ITO for making fresh assessment in accordance with directions given in appeal and after making such further enquiry as may be necessary. These powers are, inter alia, mentioned in the other powers. According to sub-section (2) of section 251, the AAC has no power to enhance assessment or a penalty, or reduce the amount or refund unless the appellant has a reasonable opportunity for showing cause against such enhancement or reduction. An explanation has been provided according to which the AAC may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding the fact that such matter was not raised before him. A perusal of sections 246 to 251 of the Act makes it clear that any questions arising out of the assessment orders in an appeal by the assessee can be possible and wide powers are given to the appellate authority, but these powers are circumscribed by the assessment order in the matters arising thereof or a matter arising out of the proceedings. Even the appellate authority has suo motu power to consider the questions arising thereof but there is no provision to go beyond the matter arising out of the proceedings before the assessing authority, more particularly as separate provisions for that are made in the Act. The Tribunal has elaborately discussed the provisions of the Act and the case law on the subject and has rightly come to the conclusion that new sources not mentioned in the return or considered by the ITO are beyond the scope of powers of the AAC.
In the case on hand, the AO made a statutory disallowance u/s 14A of the Act. Under the circumstances, disallowance of salary is enhancement of income from a new source which was not considered by the AO. Thus, we agree with the argument of the ld. Counsel for the assessee and quash the enhancement of the assessment by the ld. CIT(A).
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