Ita/881/2009 Of The Commissioner Of Income Tax,Thrissur v. Shri.b.p.sherafudin, Gazala Inn.sultanpe

C.R. IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 24TH DAY OF OCTOBER 2017/2ND KARTHIKA, 1939 ITA.No. 881 of 2009 ( ) ------------------------ AGAINST THE ORDER IN ITA 161/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED29-11-2007 APPELLANT/APPELLANT/REVENUE:: ---------------------------- THE COMMISSIONER OF INCOME TAX, THRISSUR. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT/ASSESSEE:: ------------------------------- SHRI.B.P.SHERAFUDIN, HOTEL GAZALA INN, SULTHANPET, PALAKKAD DISTRICT. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 6.2.2017, ALONG WITH ITA. 1294/2009, THE COURT ON 24.10.2017 DELIVERED THE FOLLOWING: ITA No.881 of 2009 APPENDIX APPELLANT'S ANNEXURES ANNEXURE ATRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3)DTD.30.3.1999. ANNEXURE BTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) IN ITA NO.10/PGT/CIT/C II(A)/99-00 DTD.9.1.2006. ANNEXURE CCERTIFIED COPY OF THE ORDER OF THE INCOME TAX APPELLATETRIBUNAL IN ITA 161(COCH)/2006 DTD.29.11.2007 TRUE COPY P.S.TO JUDGE css/ C.R. Antony Dominic & Dama Seshadri Naidu, JJ. ------------------------------------------------- I. T. Appeal Nos.881 & 1294 of 2009 -------------------------------------------------- Dated this the 24[th] day of October 2017 JUDGMENT Dama Seshadri Naidu, J Introduction: An assessee did not disclose his income fully, and it ledto a reassessment. On a particular plea about the source ofincome, the assessee pleads in defence that he sold a few bars ofgold. He gave the particulars of the putative purchasers, too. Afew, though not all, have been examined and found to beuntrustworthy. The question is, who has the burden proof on thesource of income? 2. On appeal, the appellate authority finds a new source of income. Then, the question is, can he, under section 251 of theAct, find a new source of income not dealt with by the assessingofficer? ITA No.881/2009 & 1294/2009 2 Facts: 3. The Department is the appellant; the assessee is thesole respondent; and the Assessment Year is 1995-96. In thisappeal under section 260 A of the Income Tax Act (“the Act”),the Department assails the order, dt. 29-11-2007, of the IncomeTax Appellate Tribunal, Cochin Bench, in ITA No. 161/2006. 4. For the Assessment Year 1995-96, the assessee, anindividual, filed its return of income on 22 August 1995disclosing a total income of `13,840/-. After processing thereturn, the Assessing Officer (AO) noticed that the assessee hadnot fully disclosed his income. So he issued a notice undersection 148 of the Act. In April 1997, the assessee filed anotherreturn reiterating the income he had originally shown. Later, inMarch 1998 the assessee filed a revised return declaring totalincome of `38,030/-. In all the returns, the assessee reflected hisstatus as “Resident”. After processing the return under section143 (3) of the Act, the AO determined the total income at`7,80,160/-. ITA No.881/2009 &1294/2009 3 5. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-II, Calicut (“theAppellate Authority”). Through his order, dt.09.01.2006, theAppellate Authority, in fact, enhanced the assessee’s income by`2,215,116/-. He has found unexplained income in the statementof receipts and payments submitted by the assessee; it obviouslymissed the AO’s attention. 6. Further aggrieved, the assessee filed the second appealbefore the Appellate Tribunal (“the Tribunal”) in ITA No. 161 of2006. Through its order, dt.29.11.2007, the Tribunal substantially,rather than partly, allowed the appeal. Then, it was theDepartment’s turn to come to this Court under section 260 A ofthe Act. The Process of Assessment: 5. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-II, Calicut (“theAppellate Authority”). Through his order, dt.09.01.2006, theAppellate Authority, in fact, enhanced the assessee’s income by`2,215,116/-. He has found unexplained income in the statementof receipts and payments submitted by the assessee; it obviouslymissed the AO’s attention. 6. Further aggrieved, the assessee filed the second appealbefore the Appellate Tribunal (“the Tribunal”) in ITA No. 161 of2006. Through its order, dt.29.11.2007, the Tribunal substantially,rather than partly, allowed the appeal. Then, it was theDepartment’s turn to come to this Court under section 260 A ofthe Act. The Process of Assessment: 7. During the reassessment, the AO added `31,284/-towards capital gain. The assessee sold two pieces of immovableproperty and purchased one property in the same year. Theassessee is said to have deposited the balance `5,00,000/- into hiswife’s savings-bank account. The AO found that the assessee ITA No.881/2009 &1294/2009 4 already possessed a house, so he could not claim exemption fromcapital gains. This reasoning found favour with the AppellateAuthority, as well. 8. The assessee has rental income: from “Sumaya Lodge”, allegedly owned by his wife and him jointly. And the rentalincome for that assessment year was `27,681/-, out of which, theassessee showed `13,840/-as his share of income. The AOdisbelieved the assessee’s claim that his wife had independentincome when they had purchased the lodge. As a result, heshowed the entire rental amount as the assessee’s income. And it,too, merited the Appellate Authority’s acceptance. 9. The savings bank account of the assessee’s wife hadtwo deposits of `5,00,000/- each. Asked to explain the source ofthese deposits, the assessee, first, maintained that they wereremitted from abroad. Later, he changed his stand and said thatthe amounts had been borrowed from their NRE friends. Onceagain, he changed his stand and asserted that, while coming backto India, he brought 12 bars of gold on 26 October 1992. He issaid to have sold them to his relatives and realised `5,00,000/-, ITA No.881/2009 &1294/2009 5 which he deposited into his wife’s bank account. He furnishedthe purchasers’ names, too. Of the 12 purchasers, the AOexamined five but disbelieved their version. So he concluded thatthe source for `5,00,000/- remained unexplained. 10. As to the other deposit, the AO found that only`3,00,000/-, out of `5,00,000/-, had the source explained: theassessee sold his property, purchased another property, anddeposited the balance `3,00,000/- into his wife’s account.Therefore, in the end, of the two amounts deposited into theaccount of the assessee’s wife, `7,00,000/- remained unexplained.Or so both the AO and Appellate Authority concluded. The Addition or Enhancement by the Appellate Authority: 11. During the appeal proceedings, the AppellateAuthority noticed that that the assessee had declared an incomeof `22,15,116/- from abroad. He perused the assessee’s originalreturn filed on 22.8.1995 and the revised return filed on11.3.1998. He noticed that the assessee had claimed the status of“resident”. In the Appellant Authority’s opinion, as the assesseehas claimed the status of resident, he should have offered his ITA No.881/2009 &1294/2009 6 “global income” for taxation. So, the Appellate Authoritybrought to tax the income of `22,15,116/- declared by the assesseeas income from abroad. He issued a notice of enhancement u/s.251(1)(i) of the Act. Though the assessee resisted the proposal, theAppellate Authority sustained the enhancement. The Tribunal’s Findings: ITA No.881/2009 &1294/2009 6 “global income” for taxation. So, the Appellate Authoritybrought to tax the income of `22,15,116/- declared by the assesseeas income from abroad. He issued a notice of enhancement u/s.251(1)(i) of the Act. Though the assessee resisted the proposal, theAppellate Authority sustained the enhancement. The Tribunal’s Findings: 12. As to the undisclosed income of `5,00,000/-in theaccount of the assessee’s wife, the Tribunal has felt that theassessee has discharged his primary burden. The AO could haveissued summons to the remaining purchasers under section 131of the Act. So it found no justification to sustain the addition. 13. On the addition of `3,00,000/-, the Tribunal upheldthe findings. 14. On the addition of new income of `22,15,116/-, theTribunal has held that this item of income was not before theAO. as it was not the subject of assessment. The judgment of theDelhi High Court’s Full Bench in CIT v. Sardari Lal[1], fully coversthe issue, and so the enhancement cannot be sustained. 1 251 ITR 864 (Del) (FB) ITA No.881/2009 &1294/2009 7 Submissions: Appellant’s: 15. On the addition of unexplained income of`5,00,000/-, Sri P.K. Ravindranath has submitted that those whoallegedly purchased the bars of gold from the assessee are his ownrelatives. Therefore, he ought to have produced them before theAO. Even otherwise, the assessee has, according to the learnedsenior counsel, the statutory burden of establishing his defencethat he had a proper source for the income. 16. The learned senior counsel for the revenue has takenus to section 251 of the Act to assert that the appellate authority’spowers are plenary and coextensive with those of the AO.Therefore, the addition or enhancement of income, supported bycogent reasons, ought not to have been disturbed by the Tribunal. Respondent’s: 17. Smt. S.K. Devi, the learned counsel for the assessee,has entirely supported the Tribunal’s findings. According to her,the assessee did all he could to prove that he had sold the bars of ITA No.881/2009 &1294/2009 8 gold and realised the money. First, the AO had no grounds todisbelieve the witnesses he examined. Second, nothing preventedthe AO to summon the other purchasers, whose details theassessee had given. 18. The learned counsel has taken pains to drive homeher contention that adding new income by the appellateauthority is beyond his powers under section 251 of the Act. Theprovision, at best, permits the appellate authority to re-examinewhat has already been considered by the AO but not what hasnever been in the AO’s contemplation. 19. True, both the learned counsel have relied on aprofusion of precedents. We will refer to them during ourdiscussing the issues. 20. Heard Sri PK Ravindranatha Menon, the learnedsenior counsel for the revenue, and Smt. SK Devi, the learnedcounsel for the assessee, besides perusing the record. The Questions of Law Framed by the Revenue: 1. Is the Tribunal right in holding that the Commissioner ofIncome-Tax (Appeals) is not justified in enhancing the assessment ITA No.881/2009 &1294/2009 9 by taking the assessee’s status as ‘residnet’ and by bringing to taxthe income earned by him outside India? 2. Given the first appellate authority’s special powers under theIncome Tax Act,1961 is the Tribunal right in (a) interfering withthe enhancement effected by the appellate authority, (b) holdingthat the enhancement contemplated under Sec. 251 cannot beequated with that available to the AO under Section 147 of theAct? 3. Is the Tribunal justified in raising a dispute about the assessee’sstatus? And has the Tribunal rightly concluded on the assessee’sstatus? The Questions of Law Framed by the Revenue: 1. Is the Tribunal right in holding that the Commissioner ofIncome-Tax (Appeals) is not justified in enhancing the assessment ITA No.881/2009 &1294/2009 9 by taking the assessee’s status as ‘residnet’ and by bringing to taxthe income earned by him outside India? 2. Given the first appellate authority’s special powers under theIncome Tax Act,1961 is the Tribunal right in (a) interfering withthe enhancement effected by the appellate authority, (b) holdingthat the enhancement contemplated under Sec. 251 cannot beequated with that available to the AO under Section 147 of theAct? 3. Is the Tribunal justified in raising a dispute about the assessee’sstatus? And has the Tribunal rightly concluded on the assessee’sstatus? 4. Has the assessee discharged his burden of proof on the sourceof learned counsel has taken pains to drive home her contentionthat 5,00,000/- the assessee deposited into his wife’s account? Oris the Tribunal justified in deleting the addition of learnedcounsel has taken pains to drive home her contention that5,00,000/-? Discussion: 21. Succinctly stated, we need to examine two issues: (1) Has the assessee discharged what is stated to be the primaryburden that he did sell his bars of gold and deposited the amountinto his wife’s account? (2) Has the Appellate Authority the ITA No.881/2009 &1294/2009 10 power under section 251 to add to or enhance the assessee’sdeclared income from a source never considered by the AO?The Burden of Proof: 22. It is a truism to say that the Evidence Act per se doesnot apply to the proceedings under the Income Tax Act, with itsown provisions on the burden of proof. In other words, the A.O.is a quasi-judicial authority not fettered by technical rules ofevidence and pleadings; he is entitled to act on materials whichmay not be accepted as evidence in a court of law. Referring tothe Indian Income Tax Act, 1922, a Constitution Bench of theSupreme Court has held in Dhakeshwari Cotton Mills Ltd v.CIT[2] that the Income-tax Officer is “not fettered by technicalrules of evidence and pleadings, and that he is entitled to act onmaterial which may not be accepted as evidence in a Court oflaw, but there the agreement ends; because it is equally clear thatin making the assessment under sub-section (3) of section 23 ofthe Act, the Income-tax Officer is not entitled to make a pureguess and make an assessment without reference to any evidence ITA No.881/2009 &1294/2009 11 or any material at all. There must be something more than baresuspicion to support the assessment under section 23(3).” 23. Before the amendment by Act 23 of 2012, Section 68of the Act read to the effect that where any sum is found creditedin the books of an assessee maintained for any previous year, andthe assessee does not explain the nature and source thereof or theexplanation offered by him is not, in the opinion of theAssessing Officer, satisfactory, the sum so credited may becharged to income tax as the income of the assessee of thatprevious year. 24. In Kale Khan Mohammad Hanif v. CIT[3] the SupremeCourt, in answering the question “whether the burden of provingthe source of the cash credit is on the assessee” has observed that“the onus of proving the source of a sum of money found tohave been received by the assessee is on him. If he disputes theliability for tax it is for him to show either that the receipt wasnot income or that if it was, it was exempt from taxation underthe Act. In the absence of such proof, the Income-tax Officer is 3 [1963] 50 ITR 1(SC) entitled to treat as taxable income.” 24. In Kale Khan Mohammad Hanif v. CIT[3] the SupremeCourt, in answering the question “whether the burden of provingthe source of the cash credit is on the assessee” has observed that“the onus of proving the source of a sum of money found tohave been received by the assessee is on him. If he disputes theliability for tax it is for him to show either that the receipt wasnot income or that if it was, it was exempt from taxation underthe Act. In the absence of such proof, the Income-tax Officer is 3 [1963] 50 ITR 1(SC) entitled to treat as taxable income.” 25. In Orient Trading Co. Ltd. v. CIT[4] one of the questionsreferred to the Bombay High Court was whether there was anymaterial before the Tribunal to hold that a sum standing in thebooks of the assessee to the credit of a third party belonged to theassessee. The Bombay High Court discussed cash credits in suchcases. It observed that when cash credits appear in the accounts ofan assessee, whether in his own name or in the name of thirdparties, the Income-tax Officer is entitled to satisfy himself on thetrue nature and source of the amounts entered, and if, afterinvestigation or inquiry, he is satisfied that the assessee does notexplain those entries, he could regard them as representing theundisclosed income of the assessee. When these credit entriesstand in the name of the assessee himself, the burden isundoubtedly on him to prove satisfactorily the nature and sourceof these entries and to show that they constitute no part of hisbusiness income liable to tax. When, however, entries stand, notin the assessee's own name, but in the name of third parties, there ITA No.881/2009 &1294/2009 13 has been some divergence of opinion expressed on the questionof the burden of proof. 26. In Sarogi Credit Corporation v. Commissioner ofIncome-Tax[5] the Patna High Court has held that if the creditentry stands in the names of the assessee's wife and children, or inthe name of any other near relation, or an employee of theassessee, the burden lies on the assessee, though the entry is not inhis own name, to explain satisfactorily the nature and source ofthat entry. 27. But, if the entry stands not in the name of any suchperson having a close relation or connection with the assessee,but in the name of an independent party, the burden will, holdsSarogi Credit Corporation, still lie upon the assessee to establishthe identity of that party and to satisfy the Income-tax Officerthat the entry is real and not fictitious. Once the identity of thethird party is established before the Income-tax Officer, andprima facie evidence is placed before him asserting that the entryis not fictitious, the burden of proof initially lying on the 5 [1976] 103 ITR 344 (Pat) ITA No.881/2009 &1294/2009 14 assessee can be said to have been duly discharged by him. It willnot, therefore, be for the assessee to explain further on how orunder what circumstances the third party obtained the money,and how or why he advanced the money as a loan to the assessee. 28. In Sona Electric Co. v. CIT[6] the Delhi High Courthas held that the section clarifies that the entry can be rejected ifthe explanation offered by the assessed can be rejected by the ITOon cogent grounds. When such grounds are themselves based onno evidence, the question of presumption does not arise. 29. In Sumati Dayal v. Commissioner of Income Tax,Bangalore[7] the Supreme Court has held that where a receipt issought to be taxed as income, the burden lies on the Departmentto prove that it is within the taxing provision and if a receipt isin the nature of income, "the burden of proving that it is nottaxable because it falls within exemption provided by the Act liesupon the assessee. But, in view of Section 68 of the Act, whereany sum is found credited in the books of the assessee for anyprevious year the same may be charged to income tax as the6 152 ITR 507 Delhi 7 [1995] 214 ITR 801 (SC) 29. In Sumati Dayal v. Commissioner of Income Tax,Bangalore[7] the Supreme Court has held that where a receipt issought to be taxed as income, the burden lies on the Departmentto prove that it is within the taxing provision and if a receipt isin the nature of income, "the burden of proving that it is nottaxable because it falls within exemption provided by the Act liesupon the assessee. But, in view of Section 68 of the Act, whereany sum is found credited in the books of the assessee for anyprevious year the same may be charged to income tax as the6 152 ITR 507 Delhi 7 [1995] 214 ITR 801 (SC) ITA No.881/2009 &1294/2009 15 income of the assessee of that previous year if the explanationoffered by the assessee about the nature and source thereof is, inthe opinion of the Assessing Officer, not satisfactory. In such acase there is prima facie evidence against the assessee, viz., thereceipt of money. And if he fails to rebut, the unrebuttedevidence can be used against him to hold that the receipt reflectsincome. 30. Where the explanation offered by the assessee aboutsums found credited in the books is not satisfactory there is,prima facie, evidence against the assessee, viz; the receipt ofmoney, the burden is on the assessee to rebut the same and, if hefails to rebut, it can be held against the assessee that it was areceipt of an income. So held the Supreme Court in CIT v. Smt.P.K. Noorjahan.[8] 31. Culling out from a Catena of case law, Kanga &Palkhivala’s The Law and Practice of Income Tax[9] has observedthat if the assessee has adduced evidence to establish prima faciethe source of cash credit, the onus shifts to the Department. The 8 [1999] 237 ITR 570 (SC)9 10[th] Ed., Lexis Nexis, N. Delhi, p.1360 (Vol.I) ITA No.881/2009 &1294/2009 16 cogent evidence of the assessee cannot be rejected based onconjectures and assumptions. At the same time, the assessee mustproduce cogent evidence to rebut the presumption; a baldexplanation is not enough. The mere furnishing of or the merefact of payment by an account payee cheque, or mereidentification of donor or creditor, or the mere submission of theconfirmatory letter by the creditor is by itself not enough to shiftthe onus on to the Department, although these facts may, alongwith other facts, be relevant in establishing the genuineness of thetransaction. 32. Here, initially, the assessee changed version threetimes about the source of `5,00,000/-: that the amount wasremitted from abroad; that his NRE friends lent the money; thathe sold the bars of gold. The AO examined five witnesses; noneinspired confidence or sounded even remotely truthful. True thatthe assessee provided the particulars of the other allegedpurchasers, too. Equally true is the fact that the principle offalsus uno, falsus omnibus does not apply to the testimonies inthe courts of India. In other words, those unsummoned witnesses ITA No.881/2009 &1294/2009 17 might have thrown more light on the issue, and the falsity of thewitnesses already examined could have posed no hurdle. But, atthe same time, we cannot discount the diligent efforts by the AOto get at the truth. 33. To put it simply, we may observe that by changinghis versions frequently and by producing witnesses who inspiredno confidence, the assessee did not discharge his primary burden.Absent that discharge, we cannot insist that the AO could haveprobed further and further. Suffice it to say that the source for`5,00,000/-, one of the two deposits, remained unexplained—evenprima facie. So, we see no justification for the Tribunal to upsetthe AO’s well-reasoned findings, which later stood affirmed bythe Appellate Authority. We therefore reverse the Tribunal’sfinding on the source of income for the assessee to deposit`5,00,000/- in his wife’s savings bank account. 33. To put it simply, we may observe that by changinghis versions frequently and by producing witnesses who inspiredno confidence, the assessee did not discharge his primary burden.Absent that discharge, we cannot insist that the AO could haveprobed further and further. Suffice it to say that the source for`5,00,000/-, one of the two deposits, remained unexplained—evenprima facie. So, we see no justification for the Tribunal to upsetthe AO’s well-reasoned findings, which later stood affirmed bythe Appellate Authority. We therefore reverse the Tribunal’sfinding on the source of income for the assessee to deposit`5,00,000/- in his wife’s savings bank account. 34. On the deposit of another `5,00,000/-, the AO andthe Appellate Authority found that `2,00,000/- was unexplained.As the Tribunal did not disturb this finding, the entireunexplained income of `7,00,000/- remains undisturbed. ITA No.881/2009 &1294/2009 18 New Income: 35. As we have already mentioned, from the assessee’sreturns, the Appellate Authority noticed that the assessee claimedthe status of ‘resident’ but did not bring to tax his income of Rs.22,15,116/- from abroad. So the authority enhanced theundisclosed income. 36. The Appellate Authority’s action was attacked on oneprincipal plank: Has the Appellate Authority the power undersection 251 of the Act to add income not at all considered by theAO? Of course, the assessee did plead that his mentioning hisstatus as ‘resident’ was by oversight. To justify, the assessee assertsin his other returns about gift tax and wealth tax, he mentionedhis status as ‘non-resident’. The Ambit of Appellate Power: 37. To begin with, let us examine section 251 of the Act. Asthe assessment year was 1995-96, we will examine the provision as stood then. Before the amendment by Act 18 of 2008, section 251read as: 251. Powers of the [* * *] Commissioner (Appeals).— (1) In ITA No.881/2009 &1294/2009 19 disposing of an appeal, the [* * *] Commissioner (Appeals)shall have the following powers— (a) in an appeal against an order of assessment he mayconfirm, reduce, enhance or annul the assessment; [* * *]confirm, reduce, enhance or annul the assessment; [* * *] (b) in an appeal against an order imposing a penalty, he mayconfirm or cancel such order or vary it so as either toenhance or to reduce the penalty;confirm or cancel such order or vary it so as either toenhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal ashe thinks fit.he thinks fit. (2) The [* * *] Commissioner (Appeals) shall notenhance an assessment or a penalty or reduce the amount ofrefund unless the appellant has had a reasonableopportunity of showing cause against such enhancement orreduction. Explanation.—In disposing of an appeal, the [* * *]Commissioner (Appeals) may consider and decide anymatter arising out of proceedings in which the orderappealed against was passed, notwithstanding that suchmatter was not raised before the [* * *] Commissioner(Appeals) by the appellant. 38. The provision clarifies that in an appeal against an order of assessment, the Appellate Authority may confirm,reduce, enhance, or annul the assessment. In an appeal against an order imposing a penalty, he may confirm or cancel such orderor vary it so as either to enhance or to reduce the penalty. The explanation to the provision further emphasizes that theAppellate Authority may consider and decide any matter arisingout of proceedings in which the order appealed against was ITA No.881/2009 &1294/2009 20 passed, though such matter was not raised before him by theappellant. Precedential Position: 38. The provision clarifies that in an appeal against an order of assessment, the Appellate Authority may confirm,reduce, enhance, or annul the assessment. In an appeal against an order imposing a penalty, he may confirm or cancel such orderor vary it so as either to enhance or to reduce the penalty. The explanation to the provision further emphasizes that theAppellate Authority may consider and decide any matter arisingout of proceedings in which the order appealed against was ITA No.881/2009 &1294/2009 20 passed, though such matter was not raised before him by theappellant. Precedential Position: 39. A Full Bench of this Court in the CIT v. Best WoodIndustries and Saw Mills[10] has examined the powers of the AO,but not the Appellate Authority. It has held that once theassessment is reopened for any valid reason recorded underSection 148(2), then the entire assessment is open for the AO tobring to tax any item of escaped income which comes to hisnotice in such reassessment. 40. Under the old Income Tax Act, the correspondingprovision is section 31. Interpreting that provision, the SupremeCourt in CIT v. Kanpur Coal Syndicate[11] has held that undersection 31(3)(a), in disposing of an appeal, the AppellateAuthority may confirm, reduce, enhance or annul the assessment;under clause (b), he may set aside the assessment and direct theIncome-tax Officer [now AO] to make a fresh assessment. TheAppellate Authority has, therefore, plenary powers in disposing10 331 ITR 63 (Ker) (FB)11 53 ITR 225 (SC) ITA No.881/2009 &1294/2009 21 of an appeal. “The scope of his power is conterminous with thatof the Income-tax Officer. He can do what the Income-tax Officercan do and also direct him to do what he has failed to do.” 41. As we can see, CIT v. P. Mohanakala[12] deals with thepowers of High Court in interfering with the findings of fact—and concurrent findings, at that—by re-appreciating the evidence.The Supreme Court has held in the negative. The Supreme Courtin Jute Corpn. of India Ltd. v. CIT[13] has stated that thedeclaration of law is clear that the power of the AppellateAuthority is co-terminus with that of the Income Tax Officer,and if that is so, there appears to be no reason why the appellateauthority cannot modify the assessment order on an additionalground even if not raised before the Income Tax Officer. Noexception could be taken, held the Supreme Court inCommissioner of Income Tax, M.P., Bhopal vs. M/s. NirbheramDeluram[14] to this view as the Act places no restriction orlimitation on exercising appellate power. Even otherwise, an12 291 ITR 278 13 (1991) 187 ITR 688 (SC)14 224 ITR 610 ITA No.881/2009 &1294/2009 22 appellate authority while hearing the appeal against the order of asubordinate authority, has all the powers which the originalauthority may have in deciding the question before it subject tothe restrictions or limitation, if any, prescribed by the statutoryprovisions. Absent any statutory provision, the appellateauthority is vested with all the plenary powers which thesubordinate authority may have. 42. In CIT v. Shapoorji Pallonji[15] the assessment yearwas 1947-1948, and the case was finally decided in 14.02.1962. Sothe Act considered was pre-Independence enactment. Examiningsection 31 of the old Act, the Supreme Court has held that thereis no doubt that the appellate authority can "enhance theassessment". This power must, at least, fall within the words"enhance the assessment", if they are not to be rendered whollynugatory. 43. Now, we may examine the authorities that also havedealt with the powers of the appellate authority but seem to havetaken a divergent path. ITA No.881/2009 &1294/2009 23 42. In CIT v. Shapoorji Pallonji[15] the assessment yearwas 1947-1948, and the case was finally decided in 14.02.1962. Sothe Act considered was pre-Independence enactment. Examiningsection 31 of the old Act, the Supreme Court has held that thereis no doubt that the appellate authority can "enhance theassessment". This power must, at least, fall within the words"enhance the assessment", if they are not to be rendered whollynugatory. 43. Now, we may examine the authorities that also havedealt with the powers of the appellate authority but seem to havetaken a divergent path. ITA No.881/2009 &1294/2009 23 44. In CIT v. Rai Bahadur Hardutroy MotilalChamaria,[16] a three-Judge Bench of the Supreme Court hasobserved that it is only the assessee who has a right conferredunder section 31 to prefer an appeal against the order ofassessment made by the Income-tax Officer. If the assessee doesnot appeal the order of assessment becomes final subject to anypower of revision that the Commissioner may have under section33B of the Act. Therefore, it would be wholly erroneous tocompare the powers of the appellate authority with the powerspossessed by a court of appeal, under the Civil Procedure Code.The Appellate Assistant Commissioner is not an ordinary courtof appeal. It is impossible to talk of a court of appeal when onlyone party to the original decision is entitled to appeal and notthe other party, and because of this peculiar position the statutehas conferred very wide powers upon the appellate authority oncean appeal is preferred to him by the assessee. 45. Chamaria goes on to hold that the appellateauthority has no jurisdiction under section 31(3) of the Act to ITA No.881/2009 &1294/2009 24 assess a source of income not processed by the Income-tax Officer“and which is not disclosed either in the returns filed by theassessee or in the assessment order,” and therefore the appellateauthority cannot travel beyond the subject-matter of theassessment. In other words, the power of enhancement undersection 31(3) of the Act is restricted to the subject-matter ofassessment or the sources of income considered expressly or byclear implication by the Income-tax Officer from the viewpointof the taxability of the assessee. 46. A question regarding powers of the first AppellateAuthority came up for consideration before the Supreme Courtrecently in CIT v. Nirbheram Daluram.[17] Following the earlierdecisions in Kanpur Coal Syndicate and Jute Corporation ofIndia, the Supreme Court reiterated that the appellate powersconferred on the Appellate Commissioner under Section 251could not be confined to the matter considered by the ITO, asthe Appellate Commissioner is vested with all the plenary powerswhich the Income Tax Officer may have while making the 17 [1997] 224 ITR 610(SC) ITA No.881/2009 &1294/2009 25 assessment. 47. Indeed, examining Daluram’s holding, a Division Benchof the Delhi High Court in CIT v. Union Tyres, Delhi,[18] hasobserved that Daluram did not comment whether these widepowers also include the power to discover a new source ofincome. So, Union Tyres concludes that the principle of law laiddown in Shapoorji and Chamaria still holds the field. 48. The principle emerging from various pronouncementsof the Supreme Court, Union Tyres observes, is that the firstAppellate Authority is invested with very wide powers underSection 251(1)(a) of the Act and once an assessment order isbrought before the authority, his competence is not restricted toexamining only those aspects of the assessment about which theassessee makes a grievance and ranges over the whole assessmentto correct the Assessing Officer not only regarding a matter raisedby the assessee in appeal but also regarding any other matterconsidered by the Assessing Officer and determined inassessment. ITA No.881/2009 &1294/2009 26 48. The principle emerging from various pronouncementsof the Supreme Court, Union Tyres observes, is that the firstAppellate Authority is invested with very wide powers underSection 251(1)(a) of the Act and once an assessment order isbrought before the authority, his competence is not restricted toexamining only those aspects of the assessment about which theassessee makes a grievance and ranges over the whole assessmentto correct the Assessing Officer not only regarding a matter raisedby the assessee in appeal but also regarding any other matterconsidered by the Assessing Officer and determined inassessment. ITA No.881/2009 &1294/2009 26 49. There is a solitary but significant limitation, accordingto Union Tyres, to the power of revision: It is not open to theAppellate Commissioner to introduce in the Assessment a newsource of income and the assessment must be confined to thoseitems of income which were the subject-matter of the originalassessment. 50. In course of time, Union Tyres was doubted. In CITv. Sardari Lal & Co.,[19] the same issue—whether the appellateauthority has the power under section 251 to discover a newsource of income—was referred to a Full Bench. After examiningthe authorities holding the fielding on that issue, the learned FullBench has held that the inevitable conclusion is that wheneverthe question of taxability of income from a new source of incomeis concerned, which had not been considered by the assessingofficer, the jurisdiction to deal with the same in appropriate casesmay be dealt with under section 147, or section 148, or evensection 263 of the Act if requisite conditions are fulfilled. It isinconceivable, according to Sardari Lal, that in the presence of 19251 ITR 864 (Del) (FB) ITA No.881/2009 &1294/2009 27 such specific provisions, a similar power is available to the firstappellate authority. Eventually, Sardari Lal upheld the decision inUnion Tyres. 51. Undeniably, the precedential position on the powersof the first appellate authority under section 251 undulates. Thereare seeming contradictions. But, as held by Union Tyres, and asaffirmed on reference by Sardari Lal, there is a consistent judicialassertion that the powers under section 251 are, indeed, very wide;but, wide as they are, they do not go to the extent of displacingpowers under, say, sections 147, 148, and 263 of the Act. 52. Therefore, we are in respectful agreement with theview taken by the Full Bench of the High Court of Delhi inSardari Lal. As a corollary, we hold that the Tribunal’s deletingthe enhancement of `22,15,116/- and canceling the order of theCIT (A) on that issue call for no interference. 53. We thus answer the questions of law partly in theRevenue’s favour and allow IT Appeal No.881 of 2009 in part.No order on costs. ITA No.881/2009 &1294/2009 28 IT Appeal No.1294 of 2009: 54. This appeal by the Revenue concerns the penalty proceedings. 55. The Appellate Authority enhanced the assessee’sincome on account of what is said to be newly foundunexplained income. He invoked section 271 (1) (c) of the Actand imposed a penalty of `10,00,000/-. 56. Aggrieved, the assessee filed before the AppellateTribunal, which through its order, dt.21.12.2007, deleted thepenalty. Given our decision in IT Appeal No.881 of 2009, weconfirm the order of the Appellate Tribunal. So this appealstands dismissed. No order on costs. Sd/-Antony Dominic, Judge Sd/- Dama Seshadri Naidu, Judge css/ true copy P.S.TO JUDGE