The Income Tax Appellate Tribunal (ITAT), Chennai bench held that Commissioner Income Tax (Appeals) [CIT(A)] could enhance any issue which was touched upon by an Assessing Officer in the Assessment Order. Therefore, the bench upheld the enhancement of income made under Section 251(1) of Income Tax Act, 1961.
The assessee, Villupuram District Central Co-operative Bank is a co-operative bank after filing the return of income for the assessment year Assessee case was selected for scrutiny.
During the assessment proceedings, the AO observed that the assessee had created reserves under various heads and other miscellaneous expenditure for an amount of Rs.12,64,37,360/-after reviewing the audit report and the assessee’s income and expenditure statement for the year ending March 31, 2008, while an amount of Rs.12,12,06,212/-was added back to the net profit in the statement of total income.
As a result, the AO recalculated the deduction claim under Section 36(1)(viia)(a) of the Income Tax Act, but only to the extent that the books of accounts claimed a deduction for bad and dubious debts.
Aggrieved by the order, the assessee filed an appeal before the CIT(A) who enhanced the income under Section 251(2) of the Income Tax Act. Therefore, the assessee filed a second appeal before the tribunal.
K. Ravi, Counsel for assesee submitted that there is no expressed limitation that the deduction under Section 36(1)(viia) of the Income Tax Act is to be restricted to the amount of provisions made in the books of accounts and assessee.
Subsequently, provisions of section 36(1)(vii) of the Act wherein it is clearly laid down that bad debts should be written off as irrevocable in the accounts of the assessee and therefore according to him, there are two different provisions in the statute book i.e. 36(1)(viia) and 36(1)(vii) both are of different footings.
N.B. Som, Counsel for revenue the CIT(A) has the authority to improve the exact source of income that the AO examines because the AO has taken this matter into consideration in the assessment order regarding the claim of deduction under Section 36(1)(viia) of the Income Tax Act. The only point of contention was the quantum of the deduction, which makes up a significant portion of the assessment order.
It was observed by the tribunal that the power of the CIT(A) is co-terminus with that of the AO and enhancement can be made on any issue which was touched upon by the AO in the assessment order.
Therefore, CIT(A) cannot go beyond the assessment record and discover a new source of income for enhancement.
Thus, instead of bringing up a fresh problem, CIT(A) has used his power of enhancement to modify the assessment order and increase income to the point where he can claim a deduction under Section 36(1)(viia) of the Income Tax Act. This matter is currently under discussion by AO.
After reviewing the facts and records, the two-member bench of Manjunatha.G, (Accountant member) and Mahavir Singh, (Vice President) upheld the enhancement of income made under Section 251(1) of Income Tax Act.
Therefore, the bench dismissed the above ground.
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