Megatrends Increpresented By Its Mrs.mita Kalpesh Patel66, Flat v. The Commissioner Of Income Tax, Appeals-4

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE S.MANIKUMARANDTHE HONOURABLE MR.JUSTICE D.KRISHNAKUMAR Megatrends Increpresented by its Mrs.Mita Kalpesh Patel66, Flat No.12, Alsuha Flats, Spur Tank RoadChetpet, Chennai - 600 031...Appellant -vs- 1.The Commissioner of Income Tax, Appeals-4 121, Mahatma Gandhi Road Chennai - 600 034 2.The Assistant Commissioner of Income Tax Non Corporate Circle 3 121, Mahatma Gandhi Road Chennai - 600 034...Respondents Prayer: Writ Appeal filed under Clause 15 of the LettersPatent, against the order, dated 11.02.2016 in W.P.No.37072 of2015. For appellant: Ms.T.C.A.Sangeetha Writ appeal is directed against the order of the writcourt, dated 11.02.2016 made in W.P.No.37072 of 2015 by which,the writ court, declined to interfere with the show causenotice, issued for enhancement of assessment made by theCommissioner of INcome Tax, Appeals-4, Chennai ITA No.85/2015-2016, for the Assessment Year 2012-2013. 2. Facts leading to the appeal are that the appellant,claimed that it is a partnership firm, trading in stocks,https://hcservices.ecourts.gov.in/hcservices/shares, debentures, manufacturing, buying, selling and transporting of various consumer and industrial commodities.The appellant, filed its return for the Assessment year 2012-2013 on 29.09.2012, admitting, a total income ofRs.1,74,36,050/-. The return of income was processed, underSection 143(1) of the Income Tax Act, 1961 and selected forscrutiny. Details were called for, and after considering thesame, explanation was given by the assessee. Assessment Orderunder Section 143(3) of the Income Tax Act, 1961, was passedon 30.03.2015 by the Assistant Commissioner of Income Tax,Chennai, viz. respondent No.2. He has disallowed deductions,made under Section 35(1)(ii) of the Income Tax Act, 1961, tothe tune of Rs.2,62,50,000/-, and assessed the income of theassessee at Rs.4,36,86,050/-. Aggrieved by the said order, theappellant/assessee preferred an appeal, on 05.05.2015, to theCommissioner of Income Tax, Appeals-4, Chennai/1st respondent. 3. On 26.10.2015, the Commissioner of Income Tax,Appeals-4, Chennai (1st respondent), issued a notice forhearing of the appeal, fixing the date as 29.10.2015. The saidnotice was received by the appellant on 28.10.2015. Theappellant sought time, till the fourth week of November 2015,for submitting reply. 4. Commissioner of Income Tax, Appeals-4, Chennai, issueda notice dated 6.11.2015, to show cause as to why theassessment of the appellant, should not be enhanced, pointingout that a partnership firm, cannot be a partner in a firm,and hence proposed the appellant, as an AOP (Associate ofPerson) and not a firm. 5. Being aggrieved by the same, appellant, has filedW.P.No.37072 of 2015 and sought for a writ of certiorari, toquash the show cause notice dated 6.11.2015, issued forenhancement of assessment made by the Assistant Commissionerof Income Tax, Appeals-4, Chennai/2nd respondent, for theAssessment Year 2012-2013. 4. Commissioner of Income Tax, Appeals-4, Chennai, issueda notice dated 6.11.2015, to show cause as to why theassessment of the appellant, should not be enhanced, pointingout that a partnership firm, cannot be a partner in a firm,and hence proposed the appellant, as an AOP (Associate ofPerson) and not a firm. 5. Being aggrieved by the same, appellant, has filedW.P.No.37072 of 2015 and sought for a writ of certiorari, toquash the show cause notice dated 6.11.2015, issued forenhancement of assessment made by the Assistant Commissionerof Income Tax, Appeals-4, Chennai/2nd respondent, for theAssessment Year 2012-2013. 6. Before the writ court, the appellant has contendedthat it is a partnership firm, originally constituted on1.4.1997 and reconstituted vide, Partnership Deed dated23.12.2006. Contentions have been made that, on 1.4.2011,there were some constitutional changes in the firm, wherein,some partners retired, and new partners joined the firm.Before the writ court, contention has also been made that theappellant has been assessed to income tax, for the past 17years, as a partnership firm. Further contention has been madethat, it is evident that, the Deed of Partnership proved thatconstituent members of a smaller firm, entering into a largerpartnership firm, and that the same is valid. Reliance hasalso been made on the decision of the Hon'ble Apex court inDhulichand Laxminarayan [1956] 29 ITR 535, later on, clarifiedhttps://hcservices.ecourts.gov.in/hcservices/by the Hon'ble Apex Court in Kylasa Sarabhaiah vs. CIT reported in [1965] 56 ITR 219, and contentions have been thatthe said decision has been followed by this court, in A.Asha& Co vs. CIT reported in [1973] 87 ITR 57 . 7. Contention has also been made before the writ court,that the impugned show cause notice, is predetermined that theappellant is not a partnership firm, and the said show causenotice, proposing to disallow a sum of Rs.2,62,50,000/- is onthe premise that, the appellant is not a firm. The appellanthas also contended that the Commissioner of Income Tax,Appeals-4, Chennai / 1st respondent, has no jurisdiction toissue a show cause notice for enhancement of assessment. 8. Before the writ court, setting out the powers, underSection 251(1) of the Income Tax Act, 1961, the Commissionerof Income Tax, Appeals-4 / 1st respondent has submitted thatan appeal proceedings is a continuation of the assessmentproceedings and that therefore, the appellate authority canhimself enter into the arena of assessment, either by pursuingfurther investigation or causing further investigation to bedone. On the above proposition, reliance has been made to aFull Bench decision of this court in State of Tamil Nadu vs.Arulmurugan and Co. reported in 51 STC 381. Referring toSection 11 of the Companies Act, 1956, respondents havecontended that the maximum number of persons, who can becomepartners, in a partnership firm is ten persons, for thepurpose of carrying on the business of banking and twentypersons for the purpose of carrying on any other business. 9. The respondents have further contended that apartnership between individual members and two other firmswould be valid, only when all the partners of both the firms,represent the smaller firms in the larger partnership and mererepresentation of one of the partners is not valid. It is alsocontended that a partner may have dual capacity qua thepartnership in his personal capacity, and qua the third partyin his representative capacity, and that the same does notconfer status to the appellant, as firm, automatically, whenthe other conditions are omitted to be satisfied. 9. The respondents have further contended that apartnership between individual members and two other firmswould be valid, only when all the partners of both the firms,represent the smaller firms in the larger partnership and mererepresentation of one of the partners is not valid. It is alsocontended that a partner may have dual capacity qua thepartnership in his personal capacity, and qua the third partyin his representative capacity, and that the same does notconfer status to the appellant, as firm, automatically, whenthe other conditions are omitted to be satisfied. 10. Before the writ court, on merits, contention has beenmade by the department that on verification of records, it wasfound that M/s.Krupa Trading Co. is having six partners andM/s.DCP Trading Co., and also having six partners, havingoffice at No.67/3, Spur Tank Road, Chetpet, Chennai-31, with14th and 15th partners, in the appellant firm, thusconstituting 16 partners. It is also contended that all thepartners in the above firm were not representing the appellantfirm, and only one of the partners each represented theirrespective firms, and therefore, the appellant cannot beconsidered as a valid partnership firm, as per the law laidhttps://hcservices.ecourts.gov.in/hcservices/down by the Hon'ble Apex Court in Dulichand Laxminarayan v. Commissioner of Income Tax reported in [1956] 29 ITR 535 (SC).The respondents have contended that the decisions in KylasaSarabhaiah vs. CIT reported in (1965) 56 ITR 219 SC followedby this court in A.Asha & Co., vs. CIT reported in (1973) 87ITR 57 are distinguishable. 11. On the competence of the Commissioner of Income Tax,Appeals-4, Chennai / 1st respondent, in issuing the show causenotice dated 6.11.2015, the respondent has submitted that inan appeal against an order of assessment, the Commissioner ofIncome Tax (Appeals) may confirm, reduce, enhance or annul theassessment and therefore, challenge to the competency shouldbe rejected. On merits, the respondens have submitted that theappellant is not a partnership firm, as claimed. 12. By filing a reply affidavit, appellant has contendedthat as per the decision of the Hon'ble Apex Court in BergerPaints India vs. CIT reported in (2004) 266 ITR 99 SC, rule ofconsistency has to be followed. For the assessment year 2011-2012, there was no such issue of this nature, raised by therespondents. The appellant has also relied on a decision ofthe Hon'ble Apex Court in Parshuram Pottery Works Co. Ltd. v.ITO reported in (1977) 106 ITR 01 (SC), wherein, it has beenheld that "we have to bear in mind that the policy of law isthat there must be a point of finality in all legalproceedings, that stale issues should not be rectivated beyonda particular stage and that lapse of time must induce reposein and set at rest judicial and quasi judicial controversiesas it must in other spheres of human activity." Contention hasbeen made that change of status of the assessee cannot be doneduring the course of assessment by the appellate authority.Decision of the High Court of Jharkand in Central CoalfieldLimited and ors. vs. Commissioner of Income Tax (Appeals),Ranchi has also been relied on, supporting the contention ofthe appellant that is a partnership firm. 13. In the sur-rejoinder filed by the respondents, atparagraph 3 of the said affidavit, it has been contended bythe respondents that contents of the show cause notice dated6.11.2015, proposing to assess the appellant as an AOP cannotbe termed, as pre-determination of the issue. Furthercontention has been made that since the impugned show causenotice itself states, "to show cause the asssessee/appellanthas all the liberty to put forth its case, objecting to thebasis and reasoning for the said show cause notice. Contentionhas also been made that show cause notice has been issued inorder to provide an opportunity to the appellant, to file itsreply/objections, if any, against the notice. Therefore, theissue against the appellant has not been concluded as yet, andit does not devolve that the appellant is already treated asan AOP. Reliance has been made on the decision of this courthttps://hcservices.ecourts.gov.in/hcservices/in CIT vs. Lotte India Corporation Ltd. in T.C.A.No.2279 of 2006 dated 14.09.2006. Contention on the rule of consistencyemphasized by the Hon'ble Apex Court in Berger Paints Ltd. vs.CIT reported in (2004) 266 ITR 99 SC has been distinguished,by the respondents on the ground that it relates to valuationof closing stock and that the same cannot be applied to thecase on hand. 14. Adverting to the above submissions and to the issue,as to whether appellant has to be termed as Associate ofPerson, taking note of the unreported judgment of the JharkandHigh Court, the rival contentions, on the jurisdiction of theCommissioner of Income Tax, Appeals-4, with reference to thestatutory provision, Section 251(1)(a) of the Income Tax Act,1961, and on the show cause notice issued as to whyenhancement should not be made for the Assessment years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09,2009-10, the writ court vide order dated 11.02.2016 inW.P.No.37072/2015, at paragraph Nos.11 to 14 ordered ashereunder: "11. Since the CIT (Appeals) has expressedthe doubts that the petitioner is not a Companyand is seeking to reopen assessment of thepetitioner company over the years, the DivisionBench were of the view that the impugned showcause notices are in excess of jurisdiction andare liable to be quashed. However, the JharkhandHigh Court gave liberty to to the CIT (Appeals)to issue a fresh show cause notice in accordancewith law. 12.In the case on hand, the Notice underSec.2561(1) of the Income Tax Act, issued to thepetitioner on 6.11.2015 is in respect of thepending appellate proceedings for the AssessmentYear 2012-13 and therefore, the judgment, reliedupon by the learned counsel for the petitioner isnot applicable to the present case. 13.In the show cause notice dated6.11.2015, the respondent had called upon thepetitioner to show cause as to why the amount ofRs.96,60,000/- may not be disallowed asexpenditure and added back to the petitioner'staxable income for the relevant year, which isunder consideration. By the impugned show causenotice, the respondent had called upon thepetitioner to submit his explanation on or before18.11.2015. Since the petitioner have to explainas to why the said amount may not be disallowed asexpenditure and added back to the taxable incomeof the petitioiner, they can very well submittheir explanation and contest the same, on meritsand in accordance with law befoer the CIThttps://hcservices.ecourts.gov.in/hcservices/(Appeals). 14.In these circumstances, I do not findmerits in the writ petition, which is liable to bedismised. However, I give liberty to thepetitioner to submit their explanation before CIT(Appeals) and make their submissions with regardto the query, raised in the impugned show causenotice dated 06.11.2015. After receiving theexplanation and hearing the submissions on behalfof the petitioner, the CIT (Appeals) is directedto pass orders, on merits and in accordance withlaw." 14.In these circumstances, I do not findmerits in the writ petition, which is liable to bedismised. However, I give liberty to thepetitioner to submit their explanation before CIT(Appeals) and make their submissions with regardto the query, raised in the impugned show causenotice dated 06.11.2015. After receiving theexplanation and hearing the submissions on behalfof the petitioner, the CIT (Appeals) is directedto pass orders, on merits and in accordance withlaw." 15. Being aggrieved by the aforesaid order, made by thewrit court, instant appeal has been filed. Vide judgmentdated 23/4/2016, a Hon'ble Division Bench of this court, hasallowed the writ appeal, by setting aside the order made inW.P.No.37072/2015dated11.02.2016.Subsequently,on25.04.2016, the appeal has been listed under the caption "forbeing mentioned", and after hearing the learned counsel forthe appellant, order dated 23.04.2016 has been passedrecalling the earlier order dated 23.04.2016 and that WritAppeal No.276/2016 has been directed to be listed for hearing. 16. Material on record further disclosed that as againstthe recalling order, the appellant has moved the Hon'ble ApexCourt in S.L.P.(C) No.19815/2016. 17. On 08.08.2016, when the Writ Appeal came up forhearing, learned counsel for the appellant submitted thatS.L.P.(C) No.19815/2016 filed, challenging the order made inW.A.No.276/2016 dated 25.04.2016, has been permitted to bewithdrawn, with liberty to approach the High Court forappropriate relief and accordingly, orders were passed on29.07.2016 by the Hon'ble Apex Court. We perused the copy ofthe order of the Apex Court. Ms.T.C.A.Sangeetha, learnedcounsel for the appellant submitted that she would onlyaddress the issues raised in writ appeal No.276/2016 and wouldnot make any submissions, with reference to the order dated25.04.2016. 18. Assailing the correctness of the order made inW.P.No.37072/2015, learned counsel for the appellantreiterated the submissions made before the writ court andcontended that the Commissioner of Income Tax, Appeals-4,Chennai has exceeded in his jurisdiction, in issuing theimpugned show cause notice dated 6.11.2015, changing thestatus of the appellant, which was not a part of theproceedings, before the Assistant Commissioner of Income Tax,Chennai/respondent No.2, the Assessing Officer. She alsosubmitted that the first respondent has predetermined thehttps://hcservices.ecourts.gov.in/hcservices/status of the appellant. It is also her contention that earlier, in the assessment proceedings, the appellant haddisclosed all the material facts. She further submitted thatthe writ court has failed to consider that the Commissioner ofIncome Tax, Appeals -4 has not applied his mind to the factsand circumstances of the case, and also the provisions of theIncome Tax Act, 1961, that a person can be a partner,representing another firm. 19. Learned counsel for the appellant further submittedthat the writ court, has also erred to consider that theCommissioner of Income Tax, Appeals-4, chennai / respondentNo.1, has no jurisdiction to issue the impugned show causenotice dated 6.11.2015 for enhancement, proposing to disallow,on the premise, treating the appellant as an Associate ofPerson. 20. To substantiate the contention that the Commissionerof Income Tax, Appeals-4, has no power to issue a show causenotice or to enhance the assessment, reliance has been made toa decision of this court in Commissioner of Income Tax vs.Chaganlal Kailas & Co. reported in (1984) 148 ITR 7. 19. Learned counsel for the appellant further submittedthat the writ court, has also erred to consider that theCommissioner of Income Tax, Appeals-4, chennai / respondentNo.1, has no jurisdiction to issue the impugned show causenotice dated 6.11.2015 for enhancement, proposing to disallow,on the premise, treating the appellant as an Associate ofPerson. 20. To substantiate the contention that the Commissionerof Income Tax, Appeals-4, has no power to issue a show causenotice or to enhance the assessment, reliance has been made toa decision of this court in Commissioner of Income Tax vs.Chaganlal Kailas & Co. reported in (1984) 148 ITR 7. 21. Per contra, Mr.T.S.Ravikumar, learned senior standingcounsel for the Income Tax department submitted that, thoughrightly or wrongly, the Commissioner of Income Tax, Appeals-4,Chennai in the impugned show cause notice dated 6.11.2015 hasreferred the appellant as an AOP, the same is based on theperusal of the assessment records, information and factsavailable before the said authority and that the Commissionerof Income Tax, Appeals-4, Chennai / 1st respondent, hasnoticed that the appellant/assessee had been wrongly assessed,as a firm, instead of AOP. To arrive at a prima facieconclusion, the Commissioner of Income Tax, Appeals-4, Chennaihas also perused schedules 1 and 2 forming part of the balancesheet, wherein, it was shown that the appellant/assessee had13 share holders, in the status of individuals, belonging toone Patel family and two other shareholders, namely, M/s.KrupaTrading Co. having six partners and M/s.DCP Trading Co., inall, totalling up to 15 shareholders. 22. Learned counsel for the Revenue also pointed that theCommissioner of Income Tax, Appeals-4, Chennai/1st respondenthas considered that the last two share holders are firms, andthus prohibited to be partners, in another firm. Taking noteof the decision of the Hon'ble Apex Court in DulichandLakshminarayanan vs. CIT-II reported in (1956) 29 ITR 535, andby arriving at a prima facie view, the impugned show causenotice dated 6.11.2015 has been issued. According to thelearned Senior Standing Counsel for Income Tax Department,challenge to the same is premature and it is always open tothe appellant/assessee to submit its response/explanation, tothe same.https://hcservices.ecourts.gov.in/hcservices/ 23. He further submitted that when the appellant haspreferred a statutory appeal before the Commissioner of IncomeTax, Appeals-4, Chennai, challenging the assessment orderdated 30.03.2015 of the Assistant Commissioner of Income Tax,viz. respondent No.2, there cannot be a parallel proceedingbefore this court. He submitted that as agaisnt the impugnednotice dated 6.11.2015 issued under Section 251(1) of theIncome Tax Act, 1961, it is always open to the appellant torespond and at this juncture, writ petition is notmaintainable. Reliance has been made on the decision of thiscourt in Commissioner of Income TAx vs. Express NewspapersLtd. reported in (2003) 179 CTR 0550. 24. On the reliance to the decision in Commissioner ofIncome Tax vs. Chaganlal Kailas & Co. reported in (1984) 148ITR 7, Mr.T.S.Ravikumar, learned senior standing counselsubmitted that on pari materia provision in the Tamil NaduGeneral Sales Tax Act, 1959 dealing with the powers of theappellate authority to issue notice for enhancement, a Hon'bleFull Bench of this court in State of Tamil Nadu vs.Arulmurugan reported in 51 STC 381, held that the AppellateAuthority has jurisdiction to issue such notice forenhancement. 25. In this context, learned Senior Standing counsel forthe Income Tax department referred to the provisions underSection 251(1) of the Income Tax Act and Section 31(3) of theTamil Nadu General Sales Tax Act, 1959 and prayed that thelatter decision of the Hon'ble Full Bench of this court, beapplied to the instant case, and for the above said reasons,prayed for dismissal of the writ appeal. 25. In this context, learned Senior Standing counsel forthe Income Tax department referred to the provisions underSection 251(1) of the Income Tax Act and Section 31(3) of theTamil Nadu General Sales Tax Act, 1959 and prayed that thelatter decision of the Hon'ble Full Bench of this court, beapplied to the instant case, and for the above said reasons,prayed for dismissal of the writ appeal. 26. Though on 8.8.2016, Ms.T.C.A.Sangeetha, learnedcounsel for the appellant made a submission that she wouldaddress only the issues raised in instant appealW.A.No.276/2016, and thus we have recorded her submission, andaccordingly directed the Registry to post the writ appeal forfinal hearing, today, learned counsel for the appellant madesubmissions on the order, recalling the earlier order dated23.04.2016. She also submitted that there are contradictorystatements made by the Commissioner of Income Tax, Appeals-4,Chennai, in the counter/sur rejoinder affidavits. According toher, the impugned show cause notice dated 6.11.2015, has to beset aside, as without jurisdiction. Heard the learned counsel for the parties and perused thematerial on record. 27. At the outset, we would like to address the questionas to whether the Commissioner of Income Tax, Appeals-4,https://hcservices.ecourts.gov.in/hcservices/Chennai / 1st respondent, has jurisdiction to issue a show cause notice for enhancement and in this regard, have acursory look at the statutory provision. 28. Section 251(1) of the Income Tax Act, 1961 statesthat in disposing of an appeal, the Commissioner (Appeals)shall have the following powers: 251. Powers of the Commissioner (Appeals) (1)In disposing of an appeal, the Commissioner (Appeals) shall have the following powers-(a) in an appeal against an order ofassessment, he may confirm, reduce, enhance orannul the assessment. (aa) in an appeal against the order ofassessment in respect of which the proceedingbefore the Settlement Commission abates undersection 245HA, he may, after taking intoconsideration all the material and otherinformation produced by the assessee before, orthe results of the inquiry held or evidencerecorded by, the Settlement Commission, in thecourse of the proceeding before it and such othermaterial as may be brought on his record, confirm,reduce, enhance or annul the assessment; (b) in an appeal against an order imposing apenalty, he may confirm or cancel such order orvary it so as either to enhance or to reduce thepenalty; (c) in any other case, he may pass such ordersin the appeal as he thinks fit. (2) The Commissioner (Appeals) shall notenhance an assessment or a penalty or reduce theamount of refund unless the appellant has had areasonable opportunity of showing cause againstsuch enhancement or reduction. Explanation: - In disposing of an appeal,Commissioner (Appeals) may consider and decide anymatter arising out of the proceedings in which theorder appealed against was passed, notwithstandingthat such matter was not raised before theCommissioner (Appeals) by the appellant. 29. A bare reading of the provision itself makes it clearthat among other things stated supra in the Section, theCommissioner (Appeals) while disposing of an appeal has thepower to enhance the assessment. There is no ambiguity inSection 251 of the Income Tax Act, 1961, and therefore, we arenot inclined to burden this judgment, incorporating cases, onthe intrepretation of statutes. However, it is useful toconsider few decisions. https://hcservices.ecourts.gov.in/hcservices/29.1. In Commissioner of Income-Tax v. Chaganlal Kailas & Co., reported in 1984 (148) ITR 7 (Mad.), the issue which cameup for consideration, was whether, the Appellate AssistantCommissioner, in exercise of the powers of enhancement ofsource of income, which was not before the assessing officer.At Paragraphs 3 to 5, this Court held as follows: https://hcservices.ecourts.gov.in/hcservices/29.1. In Commissioner of Income-Tax v. Chaganlal Kailas & Co., reported in 1984 (148) ITR 7 (Mad.), the issue which cameup for consideration, was whether, the Appellate AssistantCommissioner, in exercise of the powers of enhancement ofsource of income, which was not before the assessing officer.At Paragraphs 3 to 5, this Court held as follows: “3. ....On the question, the Tribunal,following the decision of the Supreme Court in CITv. Rai Bahadur Hardutory Motilal chamaria, 1967(66) ITR 443, held that since the assessee had notshown the receipts by way of charity in the returnand the same not having been considered by the ITOduring the assessment, it was not open to the AAC tobring the charity collections as a trading receiptand to include in the taxable income. 4. The decision of the Tribunal, in so far asit relates to the jurisdiction of the AAC to enhancethe assessment, has been challenged in thisreference by the Revenue. The Tribunal has not,however, gone into the merits of the assessabilityof the receipts under the head "Charity" and,therefore, that question also does not arise forconsideration by us. On the question of jurisdictionof the AAC to enhance the receipts amounting to Rs.12,696 collected by the assessee by way of charity,we are of the view that the Tribunal has come to theright conclusion. 5. It is, no doubt, true, as has been urged bythe learned counsel for the Revenue, that the powerof the AAC is plenary and co-extensive with that ofthe ITO. It has been so held in CIT v. Kanpur Coalsyndicate, (1964) 53 ITR 225 (SC). But, that is notconclusive on the question whether the AAC can bringin a new item or source of income which was notbefore the ITO, and not considered by him at thestate of the assessment. On this question, it isseen that the cases have uniformly held that thepower of the AAC to enhance an assessement can onlyrelate to the items of income which were before theITO, and considered by him or the purpose ofbringing to tax or for the grant of relief to theassessee. The reasons given by the Supreme Court forrestricting the power of the AAC to enhance arefound in CIT v. Shapoorji Pallanji Mistry, (1962) 44ITR 891 (SC), at Page 896. One of the reasons isthat if the appellate power extends to matters oritems not considered by the ITO, then the assesseewill stand deprived of a finding by two Tribunals inrespect of the new matter considered by the AAC andone right of appeal. One other reason given by theSupreme Court is that the limit of the power of theAAC to enhave the assessment has been prescribed bythe Legislature in ss. 31 and 33B (of the 1922 Act), https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ taking into account the interpretation placed onthose sections by the courts, and that if really theLegislature wanted to make a departure, it wouldhave amended s. 31 and specified its intentionclearly. In the said case, the Supreme Court hasclearly laid down that, in an appeal filed by theassessee, the AAC has no power to enhance theassessment by discovering new sources of income notmentioned in the return of the assessee orconsidered by the ITO in the order appealed against.In CIT v. Rai Bahadur Hardutory Motilal chamaria,1967 (66) ITR 443, the Supreme Court has againreiterated its view that the power of enhancement ofthe AAC is restricted by s. 31(3) of the 1922 Act tothe sources of income which have been the subject-matter of consideration by the ITO from the point ofview of taxability, that the word "consideration"does not mean incidental or collateral examinationof any matter by the ITO in the process ofassessment, that the matter should be clear from theassessment order that the ITO considered the saiditem with a view to its taxability or its non-taxability.'29.2.In Goel Die cast Ltd., v. Commissioner ofIncome-Tax (Appeals), reported in 2008 (297) ITR 72 (P & H),after extracting Section 251 of the Income-Tax Act, 1961, aHon'ble Division Bench of the Punjab and Haryana High Court,at Paragraph 6, held as follows:'A perusal of the above extracted provisions ofs. 251 of the Act, which defines powers of the CIT(A), it is evident that appellate authority has beengiven powers to confirm, reduce, enhance or annulassessment. The only pre-condition mentioned forexercising the powers to enhance the income is thatthe same could be done only after providing adequateopportunity of hearing to the assessee. There is norestriction under the Act that the information,which could form basis for enhancement of income,could not be sourced from the AO. The enoughsafeguard for exercising of such powers in the formof principle of natural justice has been provided. The Hon'ble Division Bench of Punjab and Haryana High Courtalso considered a case of the Kerla High Court in PopularAutomobiles vs. CIT, (1990) 89 CTR (Ker) 248 : (1991) 187 ITR86 (Ker) wherein, it has been held as under : "It was contended before us that it is open tothe CIT(A) to enhance the assessment suo motu. Thequestion that was mooted was that the CIT(A) was notobliged to do so, on a motion made by the ITO inthat regard. In other words, it was argued that thehttps://hcservices.ecourts.gov.in/hcservices/power vested in the CIT(A), even to enhance an assessment, is a suo motu discretionary power andthe ITO has no right to demand the exercise of thatpower in any particular case. We see no force inthis plea.' Ultimately, at Paragraph 8, the Division Bench of Punjab andHaryana High Court , held as follows: 'Keeping in view the plain language of s. 251of the Act and the interpretation given to it byKerala High Court in Popular Automobiles’ case(supra), we are of the view that power to enhanceincome can be exercised by the CIT(A) even on aninformation furnished by the AO. For the reasonsrecorded above, we do not find any merit in thepetition and accordingly dismiss the same.'29.3.In Saheli Synthetics Pvt. Ltd., v. Commissionerof Income-Tax reported in 2008 (302) ITR 126 (Guj.), afterconsidering a catena of decisions, the Gujarat High Court, atParagraphs 13 to 15, held as follows: 'Keeping in view the plain language of s. 251of the Act and the interpretation given to it byKerala High Court in Popular Automobiles’ case(supra), we are of the view that power to enhanceincome can be exercised by the CIT(A) even on aninformation furnished by the AO. For the reasonsrecorded above, we do not find any merit in thepetition and accordingly dismiss the same.'29.3.In Saheli Synthetics Pvt. Ltd., v. Commissionerof Income-Tax reported in 2008 (302) ITR 126 (Guj.), afterconsidering a catena of decisions, the Gujarat High Court, atParagraphs 13 to 15, held as follows: '13. .....There is a subtle, fine distinctionbetween assessment simplicitor, namely assessment ofincome, and the assessment order. In practice and ineffect an assessment order may contain number ofassessments of incomes under one head, dependingupon the source of income, and/or under more thanone head. Even in case where, an Appellate Authoritywants to exercise powers of enhancement, under Sub-section (2) of Section 251 of the Act such powershave to be exercised after giving a notice forenhancement providing for a reasonable opportunityof showing cause and not in absence of such anotice. This provision itself gives an indicationthat even if the Appellate Authority wants toprocess a new source of income which forms part ofeither return of income or the order of assessment,but was not in challenge in appeal before theAppellate Authority, the Appellate Authority has togive a reasonable opportunity of hearing beforeprocessing such a source of income and enhancing theassessment. 14. A fortiori if it is not open to theAppellate Authority to enhance an assessment ofincome without issuing show cause notice one cannever contemplate that the Appellate Authority canset aside an assessment so as to enable theAssessing Officer to exercise powers of enhancementvested in the Appellate Authority without theAppellate Authority discharging the statutoryobligation cast on the Appellate Authority by virtueof provisions of Section 251(2) of the Act. 15. Similarly even where an assessment is setaside simplicitor, without any enhancement proposal,https://hcservices.ecourts.gov.in/hcservices/it is always in context of the appeal against an order of assessment and cannot be read to mean thatthe Appellate Authority granted powers to theAssessing Officer in relation to items of assessmentwhich were never forming part of Appeal before theAppellate Authority.' 30. Section 31(3) of the Tamil Nadu General Sales TaxAct, 1959 deals with the powers of the Assistant Commissionerand Section 251(1) of the Income Tax Act, 1961 deals with thepower of the Commissioner (Appeals). They are tabulatedhereunder: 15. Similarly even where an assessment is setaside simplicitor, without any enhancement proposal,https://hcservices.ecourts.gov.in/hcservices/it is always in context of the appeal against an order of assessment and cannot be read to mean thatthe Appellate Authority granted powers to theAssessing Officer in relation to items of assessmentwhich were never forming part of Appeal before theAppellate Authority.' 30. Section 31(3) of the Tamil Nadu General Sales TaxAct, 1959 deals with the powers of the Assistant Commissionerand Section 251(1) of the Income Tax Act, 1961 deals with thepower of the Commissioner (Appeals). They are tabulatedhereunder: Section 31(3) of the Tamil NaduSection 251(1) of the Income TaxGeneral Sales Tax Act, 1959Act, 1961In disposing of an appeal, the251. Powers of the CommissionerAppellate Assistant Commissioner(Appeals) (1) In disposing of anmay, after giving the appellant aappeal,theCommissionerreasonable opportunity of being(Appeals)shallhavetheheard, and for the sufficientfollowing powers-reasons to be recorded in writing(a) in an appeal against an- order of assessment, he may(a) in the case of an order ofconfirm, reduce, enhance or annulassessment -the assessment.(i) confirm, reduce, enhance or(aa) in an appeal againstannul the assessment or thethe order of assessment inpenalty or both;respect of which the proceeding(ii) set aside the assessment andbefore the Settlement Commissiondirect the assessing authority toabates under section 245HA, hemake a fresh assessment aftermay,aftertakingintosuch further inquiry as may beconsideration all the materialdirected; orand other information produced by(iii) pass such other orders asthe assessee before, or thehe may think fit; orresults of the inquiry held or(b) in the case of any otherevidencerecordedby,theorder, confirm, cancel or varySettlement Commission, in thesuch ordercourse of the proceeding beforeProvided that at the hearing ofit and such other material as mayany appeal, the appropriatebe brought on his record,authority shall have the right toconfirm, reduce, enhance or annulbe heard either in person or by athe assessment;representative.(b) in an appeal against anorder imposing a penalty, he mayconfirm or cancel such order orvary it so as either to enhanceor to reduce the penalty;(c) in any other case, hemay pass such orders in theappeal as he thinks fit.(2)TheCommissioner(Appeals) shall not enhance anassessment or a penalty or reducethe amount of refund unless theappellant has had a reasonableopportunity of showing causeagainst such enhancement orreduction. https://hcservices.ecourts.gov.in/hcservices/ Co. reported in (1984) 148 ITR 7 relied on by the learnedcounsel for the appellant rendered on the facts andcircumstances of the reported case, would not lend any supportto the case of the appellant, on the power of the Commissionerto enhance. Section 251 of the Act, 1961 itself provides thepower, and for enhancement, an opportunity should be providedto the assessee. In State of Tamil Nadu vs. Arulmuruganreported in (1994) 51 STC 391, a Hon'ble Full Bench of thiscourt held as follows: https://hcservices.ecourts.gov.in/hcservices/ Co. reported in (1984) 148 ITR 7 relied on by the learnedcounsel for the appellant rendered on the facts andcircumstances of the reported case, would not lend any supportto the case of the appellant, on the power of the Commissionerto enhance. Section 251 of the Act, 1961 itself provides thepower, and for enhancement, an opportunity should be providedto the assessee. In State of Tamil Nadu vs. Arulmuruganreported in (1994) 51 STC 391, a Hon'ble Full Bench of thiscourt held as follows: " In one sense, an appeal may be differentfrom an assessment. But the difference lies only inthe particular stage of the proceeding and in theparticular authority having jurisdiction in the twostages. Basically, an appeal does not differ froman assessment. Just as is the case with any otherappeal under our legal system, an appeal from asales tax assessment is only a rehearing or aretrial. In the absence of any statutoryinhibitions or restrictions, an appellate authorityhas precisely the same powers, exercisable or inthe same manner and to the same extent, as theassessing authority has, in the first instance. Ifthis were not the position, no appellate authoritycan effectively function while hearing anddetermining an appeal from an assessment. Under thescheme of section 9 of the Central Sales Tax Act,appeals from Central sales tax assessments willhave to be dealt with in the same manner and underthe same procedure as provided for under thegeneral sales tax law of the concerned State. Thejurisdiction of an appellate authority under theTamil Nadu General Sales Tax Act, 1959, includesthe power to confirm, reduce, enhance, or annual,the assessment. It also includes the power to setaside the assessment with a direction to theassessing authority to make a fresh assessment, andalso to pass any other order which the appellateauthority may think fit. These powers, which are ofthe widest amplitude, are expressly conferred bothon the Appellate Assistant Commissioner and on theAppellate Tribunal, vide sections 31 and 36 of theTamil Nadu General Sales Tax Act, 1959. Theprovisions show clearly that the power of theappellate authority concerning an assessment underappeal is no different, and not less wide, than thepower of the assessing authority to make theassessment in the first instance. Besides, suchpower as the appellate authority is empowered toexercise in relation to an assessment under appeal,has got to be exercised only in the same manner andsubject to the same conditions, if any, whichhttps://hcservices.ecourts.gov.in/hcservices/govern the exercise of the power of assessment by the assessing authority in the first instance. Itfollows, therefore, that whatever discretion isconferred on the assessing authority for purposesof assessment must so be regarded, as a matter ofstatutory construction, to have been conferred onthe appellate authority even without the concernedstatutory provision expressly naming the appellateauthority in that behalf. It goes without sayingthat an appellate authority, engaged as it is inprecisely the same task under the fiscal statute asthat of the assessing authority must also bepossessed to like powers as those of the assessingauthority. It is implicit in the very nature of theappellate jurisdiction, as well as the purposes forwhich that jurisdiction is created by the statute,that the appellate authority will have to function,in the very image of the assessing authority.Appellate proceedings are often truly described asan extension of the assessment proceedings, or as acontinuation of the assessment proceedings. In thiscontext, therefore, it does not matter that a poweris conferred, by any provision in the taxingstatute or in the statutory rules, eo nomine on theassessing authority, and is silent about theappellate authority or any other authority underthe Act. Since the enabling section, or the rule,as the case may be, expressly refers to theassessing authority, as the repository of thepower, it is elementary construction to hold thatsuch power can be, and is intended to be, exercisedby the assessing authority named in the particularprovision concerned. But, it does not mean that theappellate authority and any other fiscal authoritywho are in seisin of the assessment, either inappeal, or in revision or in any other proceeding,cannot exercise a like power. The fact that theappellate authority is not expressly mentioned inthe provision conferring the enabling power, doesnot mean that the legislature intended to excludethat authority from the purview of the provision." 32. In light of the statutory provision Section 251 ofthe Income Tax Act, 1961 and the decision supra, we have nohesitation to conclude that the Legislature has conferredpowers on the first appellate authority to enhance the taxliability, subject to of course, to provide an opportunity tothe assessee, by issuing a show cause notice. 33. On the prayer to set aside the show cause notice, itis useful to consider few decisions. https://hcservices.ecourts.gov.in/hcservices/33.1.In State of U.P. v. Brahm Datt Sharma reported in 1987 (2) SCC 179, at Paragraph 9, held as follows: "When a show cause notice is issued to agovernment servant under a statutoryprovision calling upon him to show cause,ordinarily the government servant must placehis case before the authority concerned byshowing cause and the courts should bereluctant to interfere with the notice atthat stage unless the notice is shown to havebeen issued palpably without any authority oflaw. ‘The purpose of issuing show causenotice is to afford opportunity of hearing tothe government servant and once cause isshown it is open to the Government toconsider the matter in the light of the factsand submissions placed by the governmentservant and only thereafter a final decisionin the matter could be taken. Interference bythe court before that stage would bepremature, the High Court in our opinionought not have interfered with the show causenotice. 33.2.The Supreme Court in Special Director v. Mohd.Ghulam Ghouse reported in 2004 (3) SCC 440, at paragraph 5,held as follows: "This Court in a large number of caseshas deprecated the practice of the HighCourtsentertainingwritpetitionsquestioning legality of the show-causenotices stalling enquiries as proposed andretarding investigative process to findactual facts with the participation and inthe presence of the parties. Unless the HighCourt is satisfied that the show-cause noticewas totally non est in the eye of the law forabsolute want of jurisdiction of theauthority to even investigate into facts,writ petitions should not be entertained forthe mere asking and as a matter of routine,and the writ petitioner should invariably bedirected to respond to the show-cause noticeand take all stands highlighted in the writpetition. Whether the