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

1. Power of Enhancement of
CIT(A)
Under Income Tax Act 1961

2. But before we
proceed….
We need to know few
Taxation Sections

3. BASICS
Sec 139
Sec 143(1)
Sec143(2)
Sec 143(3)

4. But what happens, if assessee is
aggrieved by the assessment
order passed by AO???

5. Not
Satisfied

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. 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. 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. 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. WHETHER POWER OF ENSURING IS
COVERED WITHIN SCOPE OF POWER OF
ENHANCEMENT OF CIT(A) ?
Sir, Sir,!!
What is Power
of
ensuring???

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. SO, WHETHER
CIT(A) HAS
POWER OF
ENSURING???

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. 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. 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. 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. 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. 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. 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. DEBATABLETOPICIn both of the cases, CIT(A) made additions
towards new sources of Income

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. 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. “….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. 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. 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. 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. 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. Any