First Appellate Authority can enhance Income even without a formal notice: ITAT Mumbai [Read Order]

Appellate Authority - Taxscan

The Mumbai bench of the Income Tax Appellate tribunal, in a recent ruling, held that under section 251(2) of the Income Tax Act, 1961, the First Appellate Authority is empowered to enhance the income of the assessee while concluding the appellate proceedings.The Tribunal opined that such an action does not require a formal notice under the said section. Therefore, the order enhancing the income of the assessee by the FAA without a formal notice is valid under the said section.

The assessee is a company engaged in the business of share-broking, filed its return of Income declaring total at Nil. However, the Assessing Officer, completed assessment by disallowing the claim of the assessee towards Long Term Capital Losson ground that the claim is not genuine since the assessee has not submitted the required documents in time.

On appeal, the Commissioner of Income Tax (Appeals), enhanced the income of the assessee by observing that “the assessee had failed to establish the genuineness of the loss claimed in respect of the shares of TCLL,that it was not only the question of cost of shares,that the genuineness of the loss claimed was also in question, that income of the assessee had been under-assessed to the extent of Rs. 1.82 lakhs.”The assessee preferred appeal before the Appellate Tribunal challenging the order of the Commissioner of Income Tax (Appeals) contending that the enhancement of income is erroneous and unsustainable.

While verifying the legality of the impugned order, the Tribunal observed that “We find that the FAA had enhanced the income after intimating the AR of the assessee about the proposed action. Thus,he had followed the mandate of section 251(2)of the Income Tax Act, though a formal notice under the said section was not issued.In our opinion, the FAA had rightly enhance the income, because the AO had erroneously allowed the deduction to the tune of Rs.1.82 lakhs.As an appellate authority,the FAA has power to enhance the income of the assessee. So,we do not find any legal infirmity in his order.”

Read the full text of the order below.