The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has made a ruling stating that the Commissioner of Income Tax (Appeals) [CIT(A)] has the authority to initiate enhancement proceedings on their own accord if deemed necessary.
The assessee Mr. T.S. Kumarasamy, Prop: M/s Christy Fried Gram Industry (in short CFI) is engaged in the business of production and supply of weaning food/nutrient supplements to government schemes in Tamil Nadu.
The assessee filed the returns and the case was selected for scrutiny. Due to the complexities of the accounts, a special auditor was appointed under section 142(2A) of the Income Tax Act, 1961.
Both the assessee and the revenue has submitted 19 cross appeals against the order of the Commissioner of Income Tax (Appeals)[CIT(A)].
During the course of appellant proceedings, a notice of enhancement dated 10/06/2022 was issued by the CIT(A) proposing to bring the amount of Rs.237 crs held to have been given to the appellant by Smt.Sasikala in specified bank notes during the period of demonetisation on the basis of assessment order passed in the case of Smt.Sasikala for AY 2017-18.
The CIT(A) proposed to enhance the assessment to the extent of Rs. 237 crores under Section 56(2)(vii)(a) of the Income Tax Act, towards the alleged amount paid by Smt. Sasikala in specified bank notes, on the basis of search conducted in the case of Smt. Sasikala on 09.11.2017.
The CIT(A) on the basis of a pending appeal filed by Smt. V.K. Sasikala for the assessment year 2017-18 noticed that an addition of Rs. 237 crores was made under Section 69A of the Income Tax Act towards unexplained money represented by cash of Rs. 237 crores given to Shri T.S. Kumarasamy in specified bank notes during the demonetization period.
According to the CIT(A), although there is enough material before the Assessing Officer to suggest that a sum of Rs. 237 crores has been received by the appellant without any consideration, the Assessing Officer failed to bring said sum to tax as per the provisions of section 56(2)(vii))(a) of the Act and thus, a notice of enhancement dated 10.06.2022 was issued to the appellant.
In response to proposed enhancement, the appellant filed detailed submissions and explained that the provisions of section 56(2)(vii)(a) are not applicable. The CIT(A), therefore held that the enhancement proposed during the course of appellate proceedings in this respect is not warranted. Aggrieved by the CIT(A) order, the revenue is on appeal before tribunal.
Rajan, the department representative submitted that the CIT(A) erred in issuing suo moto enhancement notice, even though the issue of cash received by the assessee of Rs. 237 crores in specified bank notes from Smt. V.K. Sasikala is neither emanating from assessment order, nor the issue has been contested by the assessee during appellate proceedings.
The bench noticed that there was no other corroborative evidence to hold that the appellant had received OHDs/SBNs (cash in old currency) of Rs.237 crores from Smt.Sasikala apart from the statements.
The Revenue during the course of the proceedings before the Tribunal that the enhancement notice issued by the CIT(A) is ab initio void in the absence of jurisdiction to enhance the assessment and the subsequent conclusion in favour of the assessee is not valid in the eye of law.
The tribunal after examining the facts of the present case in light of provisions of section 251 of the Income Tax Act stated that “on powers of the Commissioner (Appeals), there is no dispute of whatsoever on the powers of the Commissioner in disposing of an appeal including enhancement of assessment, if such enhancement is necessary in the given facts and circumstances of the case, he may suomoto initiate enhancement proceedings to consider and decide the issue.”
The two-member bench of V. Durga Rao (Judicial Member) and Manjunatha G. (Technical Member) viewed that the CIT(A) did not travel outside his jurisdiction by issuing enhancement notice and such notice is not void, ab initio and thus, the subsequent conclusion of enhancement proceedings in favour of the assessee is valid on facts and in law. By upholding the decision of the CIT(A), the bench dismissed the grounds of the revenue.
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