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Nitisha

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Power of Enhancement of CIT(A) under Income Tax Act, 1961

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Nitisha

  1. 1. Power of Enhancement of CIT(A) Under Income Tax Act 1961
  2. 2. But before we proceed…. We need to know few Taxation Sections
  3. 3. BASICS Sec 139 Sec 143(1) Sec143(2) Sec 143(3)
  4. 4. But what happens, if assessee is aggrieved by the assessment order passed by AO???
  5. 5. Not Satisfied
  6. 6. Any injustice in the matter of revenue and taxation can be appealed to higher authorities of Taxation judiciary SC HC ITAT CIT(A) AO
  7. 7. POWERS OF CIT(A) In the case of, CIT vs. Kanpur Coal syndicate,[1964] 53 ITR 225 (SC) Association of Persons Purchase and supply of coal During Assessment proceedings Mr. AO levied tax upon TI of AOP
  8. 8. POWERS OF CIT(A) In the case of, CIT vs. Kanpur Coal syndicate,[1964] 53 ITR 225 (SC) During Assessment proceedings They claimed that income be taxed individually in the hands of each member Mr. AO didn’t comply with the request
  9. 9. In the case of, CIT vs. Kanpur Coal syndicate,[1964] 53 ITR 225 (SC) Assessee went into appeal It was held that , “…..The scope of power of CIT(A)is conterminous with that of the ITO. He can do what the ITO can do and also direct him to do what he has failed to do….” Decision in the favour of assessee
  10. 10. WHETHER POWER OF ENSURING IS COVERED WITHIN SCOPE OF POWER OF ENHANCEMENT OF CIT(A) ? Sir, Sir,!! What is Power of ensuring???
  11. 11. Power of Ensuring As per Section 143(2) AO has a power to ensure: whether the asssesse has under stated the income, over stated the losses, or under paid the taxes.
  12. 12. SO, WHETHER CIT(A) HAS POWER OF ENSURING???
  13. 13. SECTION 251: POWERS OF CIT(A) CIT(A) may • confirm, reduce, enhance or annul the assessment; • may confirm or cancel an order imposing penalty or vary it so as either to enhance or to reduce the penalty; • he may pass such orders in the appeal as he thinks fit.
  14. 14. EXPLANATION TO SECTION 251 In disposing of an appeal, the CIT(A) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the CIT(A) by the appellant.
  15. 15. WE HAVE VARIOUS CONTRARY DECISIONS!! DOES CIT(A) HAS POWER TO MAKE ENHANCEMENTS FOR THOSE AREAS AND SOURCES OF INCOME WHICH WERE NOT CONSIDERED BY AO AT THE ASSESSMENT STAGE???
  16. 16. In various decisions it is held that, CIT(A) cannot over utilize his power of enhancement that lead to new source of income. i.e. his powers are restricted to only those areas and sources of income which were considered by AO at the assessment stage, as in following cases: • CIT Vs. Shapoorji Pallonji Mistry, [1962] 44 ITR 891 • (SC) and CIT vs. Rai Bahadur Hardut Roy Motilal Chamaria, [1967] 66 ITR 443 (SC) • CIT Vs. Chaganlal Kailas & Co. [1984] 19 Taxman 536 (Madras)
  17. 17. CIT VS. CHAGANLAL KAILAS & CO. [1984] 19 TAXMAN 536 (MADRAS) During the assessment proceedings, AO disallowed a portion of Entertainment Expenditures CIT(A) confirmed such disallowance +He found that the assessee had collected certain amount under the head 'charity' , which had not been brought to tax by the ITO The assessee went into appeal with Tribunal
  18. 18. CIT VS. CHAGANLAL KAILAS & CO. [1984] 19 TAXMAN 536 (MADRAS) Tribunal held that: • Since the assessee had not shown the charity receipts in the return, • The same had not been considered by the ITO during the assessment It was not open to the CIT(A) to bring the charity collections as a trading receipt and to include them in the taxable income.
  19. 19. WHEREAS… IN THE CASE OF CIT VS. NIRBHERAM DALURAM, [1997] 224 ITR 610 (SC), The MP HC held that CIT (A) did not have jurisdiction to consider new entries. The CIT (A) observed there were 10 other items of unexplained Hundi Loans amounting to Rs2,30,000 which should have also been brought to tax The SC allowed the appeal holding that that CIT(A) had not exceeded the jurisdiction in making the enhancement. ITO made addition to the assessee's income to the extent of Rs. 2,45,000 on account of ostensible transactions in hundi loans shown by the assessee
  20. 20. DEBATABLETOPICIn both of the cases, CIT(A) made additions towards new sources of Income
  21. 21. whether CIT(A) can exercise the power of ensuring of AO?? Whether CIT(A) can do what AO can do?? Whether CIT(A) can consider new entries which were not considered by AO??
  22. 22. CIT Vs. Chaganlal Kailas & Co. [1984] 19 Taxman 536 (Madras) CIT VS. NIRBHERAM DALURAM, [1997] 224 ITR 610 (SC) Neither assessee showed charity receipts in return of income. Same. Nor, ITO considered the fact in assessment proceedings. ITO considered the fact in assessment proceedings. CIT(A) made addition for 10 other unexplained Hundi Loans. It amounts to new source of income not taken by ITO Matter was considered by ITO. “….. Further charity collections did not form trading receipts and they were from different source. It could not, therefore, be contended that they belonged to the same source which had been subjected to assessment.
  23. 23. “….Powers of CIT(a) is restricted to the sources of income which have been the subject-matter of consideration by the ITO from the point of view of taxability. In this context ‘consideration’ does not mean ‘incidental’ or ‘collateral’ examination of any matter by the ITO in the process of assessment. There must be something in the assessment order to show that the ITO 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. (SC) and CIT vs. Rai Bahadur Hardut Roy Motilal Chamaria, [1967] 66 ITR 443 (SC)
  24. 24. WHETHER INCOME OF THIRD PERSON ESCAPED FROM ASSESSMENT CAN BE REOPENED BY THE CIT(A) WITHIN THE SCOPE OF SEC 251 ? Mr. Assessee During Appeal proceeding, gave a diary to CIT(A) Mr. Y Undisclosed Income Can CIT(A) reopen the case of Mr. Y ???
  25. 25. REASSESSMENT VS. ENHANCEMENT Power of reassessment is codified in section 147 • Power available only with AO • AO must have a reason to believe. • Time limit for passing the order: 4-6 from the end of relevant A.Y.
  26. 26. CAN JUDGMENT EXCERSIED BY AO BE SUBSTITUTED BY EXERCISING THE POWERS OF ENHANCEMENT?? Declared Net profit @ 9% of revenue But AO rejected the books, and declared net profit % same as that declared by ‘Bombay Pav Bhají”of 12.5% But CIT(A), took past 3 yrs net profit average ratio as average. AO CIT(A)
  27. 27. COMPARATIVE ANALYSIS Particulars 143(2) 147 251 263 Scope Power of ensuring which means he can make rowing enquiries. Power of reassessment if he has reason to believe Power of enhancing, confirming, cancelling, reducing, annulling the order of AO. Revision of erroneous orders prejudicial to interest of revenue. Authority AO AO CIT(A) CIT Time Limit for passing the order 2 years from end of relevant financial year in which return is filed. 4-6 years from the end of relevant A.Y. No time limit. 2 years from the end of financial year in which the order sought to be revised was passed by the AO.
  28. 28. Any

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