ITAT Delhi: CIT (Appeals) Can’t Include a New Source of Income Without Sending an Enhancement Notice

The Income Tax Appellate Tribunal (ITAT) Delhi issued a significant ruling in the matter of Mandeep Singh Anand Vs ACIT for the authority of the Commissioner of Income Tax (Appeals) (CIT(A)) to add a new source of income without providing an enhancement notice. This blog furnishes a summary of the case and the decision of the tribunal.

Mandeep Singh Anand Vs ACIT Case Overview

• Background: From a separate order of CIT(A) the petition filed via the taxpayer emerges with the assessment years 2013-14 and 2014-15. The taxpayer filed the original income return dated 31/07/2013, specifying a total income of Rs 20,69,420. Under section 132 of the Income Tax Act, a search and seizure action was conducted in ETPPL group of cases on 10/08/2017.
• Addition by AO: At the time of the search, documents were seized, along with the document displaying an expenditure of Rs. 30,753/- paid to HDFC by the taxpayer. The taxpayer said that the expenditure might show the personal expenditure made in cash. The AO regarded the same expenditure as unexplained expenditure under section 69C of the Act.
• Appeal Before CIT(A): The taxpayer before the CIT(A) argued that the expenditure was paid by M/s Spring Travels Pvt. Ltd. on behalf of the taxpayer and was claimed as business promotion expenses. The expenditure was paid from the bank statement of M/s Spring Travels Pvt. Ltd. and treated as a perquisite under section 17(2) rather than unexplained expenditure under section 69C, CIT(A) noted.
• ITAT Delhi’s Verdict: ITAT Delhi ruled that the expenditure filed via M/s Spring Travels Pvt. Ltd. on behalf of the taxpayer could not be regarded as an unexplained expenditure in the hands of the taxpayer under section 69C as it was sourced from the funds of the company and accounted for via normal banking channels. The ITAT stressed that without issuing an enhancement notice to the assessee, CIT(A) could not add a new income source.
• Conclusion: The petition of the taxpayer is permitted by the ITAT ruling that the additions made by the AO and maintained by the CIT(A) were on different grounds. The ITAT ruled that CIT(A) made an error in ministering the expenditure as a perquisite by not issuing an enhancement notice, hence breaching the provisions of section 251(2) of the Act. 

Conclusion: The ruling in the case of Mandeep Singh Anand Vs ACIT highlights the significance of complying with procedural needs and ensuring justice in tax assessments. It shows that CIT(A) could not add a new income source without furnishing the taxpayer with a chance to reply through an enhancement notice.