CIT(A) cannot enhance assessment on matter which is not arising out of assessment proceedings.

This appeal filed by the Assessee is directed against the impugned order dated 28.06.2019 passed by the Ld. CIT(A), Faridabad in relation to assessment year 2016-17 on the following grounds:-

1. Because the action is under challenge on facts and law since the findings recorded qua appeal dismissal of appeal is in violation to the principles Assessee by Sh. Rakesh Jain, Adv.

Department by Sh. Prakash Dubey, Sr. DR. of natural and substantial justice for a decision in accordance with law.

2. Because the action is under challenge on facts and law for making addition of Rs. 14,09,372/- by disallowing set off of carried forward losses u/s. 72 and unabsorbed depreciation u/s. 32 on the basis of assessment order u/s. 143(3) for the AY 2015- 16.

3. Because the action is under challenge on facts and law since CIT(A) has no power to go beyond the matter arising out of the proceedings before the AO more particularly when the separate provisions for eventuality are provided under the Income Tax Act, 1961.

4. Because the action for enhancement of addition of Rs. 43,91,000/- is being challenged on facts and law by making addition u/s. 68 by treating deemed income of the appellant as assesee as not explained the source of income overlooking that assessee has already shown the said amount as consultancy portfolio income.

5. Because action is being challenged on facts and law for disallowing the loss of Rs. 29,03,880/- from trading in shares to be set off against addition of Rs. 43,91,000/- u/s. 68 overlooking that assessee has already shown the said amount as consultancy portfolio income.

6. For any consequential relief and / or legal claim arising of this appeal and for any addition, deletion, amendment and modification in the grounds of appeal before the disposal of same in the interest of substantial justice to the assessee.

2. At the time of hearing, Ld. Counsel for the assessee stated that he is not pressing the ground no. 1 and 2 and the same may be dismissed as not pressed. Hence, we dismiss the same.

3. As regards to other grounds, Ld. Counsel for the assessee stated that the issue involved in ground no. 3 & 4 is legal and is covered by the various decisions of the ITAT and the Hon’ble Delhi Court. He enclosed the copies of the same decision by way of a small paper book containing pages 1-22 in which he has attached the order of the Delhi Bench, ITAT passed in the case of Ramesh Kumar Pabbi vs. ACIT dated 01.08.2018 in ITA No. 5594/Del/2014 (AY 2010-11) copy of which is at page no. 1-7 of the paper book and the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Sardari Lal & Co. dated 07.09.2001 which is at page no. 8-13 and order of the ITAT, Delhi Bench passed in the case of Kishore Jeram Bhai Khaniya vs. ITO dated 13.05.2014 which is at page no. 14-22 of the Paper Book filed by the assessee. He stated that income of the assessee has been enhanced by the Ld. CIT(A) which is illegal and invalid and beyond the powers of the Ld. CIT(A), because the AO has not made any addition on account of consultancy income of Rs. 43,91,000/-. Hence, the Ld. CIT(A) cannot make enhancement on the issue which does not arise out of the order of the assessment. He further submitted that according to section 251(2) of the Income Tax Act, 1961, the CIT(A) cannot enhance the assessment on the matter which is not arising out of the assessment proceedings and this issue is also covered in favour of the assessee by the decision of the ITAT, Delhi Bench in the case of Ramesh Kumar Pabbi vs. ACIT (Supra); Kishore Jeram Bhai Khaniya vs. ITO (Supra) and Hon’ble Delhi High Court decision in the case of CIT vs. Sardari Lal & Co.(Supra). He requested that the impugned order is not sustainable in the eyes of law and may be cancelled by allowing the appeal filed by the assessee.

4. On the contrary, Ld. DR relied upon the order passed by the Ld. CIT(A) and stated that in view of section 251(2) of the I.T. Act, 1961, the CIT(A) has power to enhance the assessment in dispute. Therefore, the appeal filed by the assessee may be dismissed. He further stated that the decisions of the ITAT and the Hon’ble Delhi High Courts, as discussed above, are not applicable in the case of the assessee.

5. We have heard both the parties and perused the orders passed by the revenue authorities especially the impugned order dated 28.06.2019 passed by the Ld. CIT(A) alongwith the case laws cited by the Ld. Counsel for the assessee in the case of Ramesh Kumar Pabbi vs. ACIT (Supra); Kishore Jeram Bhai Khaniya vs. ITO (Supra) and CIT vs. Sardari Lal & Co. (Supra), copies of which, the assessee has attached in the paper book containing page 1-22, as aforesaid. We have gone through the aforesaid decision of the Tribunal as well as Hon’ble Delhi High Court and we are of the view that Ld. CIT(A) cannot enhance the assessment on the matter which is not arising out of assessment proceedings. As in the case of the assessee, the Ld. CIT(A) has enhanced the income of the assesee on account of consultancy amounting to Rs. 43,91,000/- which has not been arisen out of the order of assessment in dispute.

Therefore, the impugned order dated 28.06.2019 passed by the Ld. CIT(A) is illegal and invalid and beyond the powers of the Ld. CIT(A) and is thus liable to be cancelled. Accordingly, we cancel the same. Our aforesaid view is fortified by the decision of the Delhi Tribunal in the case of Ramesh Kumar Pabbi vs. ACIT dated 01.08.2018 passed in ITA No. 5594/Del/2014 (AY 2010-11) wherein, it has been held as under:-

“8. The Ld. Counsel for the assessee submitted that the enhancement of income by Ld. CIT (Appeals) is illegal and invalid and beyond the powers of the CIT (Appeals). The ssessing Officer has not made any addition on account of commission payment. The Ld. CIT (Appeals) cannot make enhancement on the issue which does not arise out of the order of the assessment. According to section 251 (2) the Ld. CIT (Appeals) cannot enhance the assessment on the matter which is not arising out of the assessment

proceedings. He has submitted that issue is covered in favour of the assessee by judgment of Hon’ble Bombay High Court in case of Shapoor Ji Pallonji Mistry Vs. CIT 34 ITR 342 and judgment of full bench of Hon’ble Delhi High Court in the case of CIT Vs. Sardari Lal and Co. reported in 251 ITR 864. He has also submitted that similar issue have been considered and decided by ITAT Delhi Bench in the case Bikram Singh Vs. DCIT reported in 82 taxmann.com 230 in which above judgments have been considered and the Tribunal in para 11 held as under :-

“11. We have perused all the records and heard both the counsels, it is pertinent to know that Assessing Officer has not dealt the reply and the enclosures/ documents given on the date of assessment order i.e. 19/11/2011, the same was not testified before the CIT(A). The CIT(A) should have taken cognizance of all those records and the letters. This shows that the CIT (A) has totally ignored this letter along with the

enclosures/ documents and passed the order accordingly which is not tenable under the law.

The appropriate opportunity was not given to the assessee. The A. O. has proceeded to compute income of the assessee on the basis of the income as per intimation u/s 143 (1) of the Act; whereas the A.O. was required to compute the income of the assessee on the basis of income returned. This was a ground raised before the CIT (A) and is a part of ground of appeals in the present appeal. It being wholly legal ground of the appeal deserves to be adjudicated. The Assessing Officer has acted beyond the jurisdiction by computing income of the assessee on the basis of income of the assessee as per Section 143 (3) where as the intimation was u/s 143 (1). The CIT (A) acted beyond its power by directing the Assessing Officer to tax the capital gains in respect of sale of land at Gurgaon, though, there was no addition made by the Assessing Officer in the assessment order to that respect.

Capital gain is an independent and different source of income and was not the subject matter of appeal before him nor was the issue considered by the Assessing Officer by framing an assessment order. Instead, the Assessing Officer termed the same as commission on the sale of land. The Ld. AR has relied on the various case laws more preciously that of Shapoorji Pallonji Mistry V. CIT [1958] 34 ITR 342 (Bom) (confirmed by the Apex Court in CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (Hon'ble Supreme Court) wherein the Hon’ble Bombay High Court while dealing with the powers of the CIT(A) held that CIT (A) was not empower to enhance an income on an issue which was not the subject matter of the assessment. The ratio laid down in the judgment of full Bench of Delhi High Court in the case of Sardari Lal & Co. (supra) is also relevant in assessee’s case that the CIT(A) cannot touch upon an issue which does not arise from the order of the assessment and was outside the scope of the order of the assessment. The order of the CIT (A) does not sustain.”

9. The Ld. Counsel for the assessee further submitted that the assessee filed details of commission paid on which TDS was also deducted and TDS certificate have been issued. Therefore, the addition is unjustified.

10. On the other hand DR heavily relied on the orders of the authorities below.

11. After considering the rival submissions, we are of the view that addition made by enhancement of commission expenses is wholly unjustified. In this case the Assessing Officer did not made disallowance out of commission expenses. The Ld. CIT (Appeals) has taken up the issue of commission expenses suo-moto in the appellate proceedings, therefore, the issue of commission did not arises out of the assessment proceedings.

It is well settled law that Ld. CIT (A) was not empowered to enhance an income which is not matter of assessment. The issue is covered by aforesaid judgments relied upon by Ld. counsel for the assessee. It is, therefore, clear that Ld. CIT(A) cannot touch upon an issue which does not arise from the order of the assessment and was outside the scope of the order of the assessment. Thus, the order of the CIT(A) cannot be sustained in law. This alone is sufficient to delete the entire addition. Further we may note that in A. Y. 2011-12, ITAT Delhi Bench in the case of same assessee in ITA No.6890/14 has deleted the similar addition vide order of the even date. There is no basis to make addition.

12. Considering the above discussions, we set aside the order of the Ld. CIT (A) and delete the addition of Rs.43,94,545/-. This ground is allowed. ITA NO.7155/DEL/2019

13. In the result the appeal of the assessee is allowed.” 5.1 Since we have decided the legal issue, as aforesaid in assesse’s favour, hence, there is no need to adjudicate upon the other grounds.

6. In the result, the Assessee’s Appeal is partly allowed.

The decision is pronounced on 16.12.2020.