The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Commissioner of Income Tax (Appeals) [CIT(A)] cannot enhance an assessment by introducing an entirely new source of income that was never examined by the Assessing Officer (AO). 

The bench of Mahavir Singh (Vice President) and Manish Agarwal (Accountant Member) has ruled that an exercise exceeds the appellate powers conferred under Section 251 of the Income Tax Act and deleted the enhancement made by the CIT(A). 

The decision came in an appeal relating to Assessment Year 2012-13 arising from proceedings initiated under Sections 153C read with 153A of the Income Tax Act following a search conducted in the Kuber Group cases on 9 October 2014. 

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According to the assessment records, the Assessing Officer alleged that the company had received share application money amounting to ₹19 crore from two entities and had immediately transferred the funds to another company. Based on statements and materials gathered during the search, the AO concluded that the assessee was merely a conduit or paper company allegedly facilitating accommodation entries. Consequently, a protective addition of ₹24.02 crore was made in the assessee’s hands, while the substantive addition was intended to be made in the hands of another entity. 

During appellate proceedings, the CIT(A) observed that the protective addition could not survive because the substantive additions in the hands of the recipient company had already been deleted. Accordingly, the CIT(A) deleted the protective addition. However, the appellate authority proceeded to enhance the assessee’s income by holding that it must have earned commission for facilitating the alleged accommodation entries and estimated such commission at 1% of ₹24.02 crore, resulting in an addition of ₹24.02 lakh. 

Before the Tribunal, the assessee challenged this enhancement, arguing that the Assessing Officer had never examined or assessed any commission income. It was contended that the CIT(A) had introduced an altogether new source of income, which was beyond the scope of powers available under Section 251. The assessee relied upon the Supreme Court’s landmark judgments in CIT v. Rai Bahadur Hardutroy Motilal Chamaria and CIT v. Shapoorji Pallonji Mistry to contend that appellate authorities cannot assess a fresh source of income not considered by the Assessing Officer. 

The department, however, argued that while the Assessing Officer had focused on the accommodation entries, the commission earned from facilitating those transactions had escaped assessment. It submitted that the CIT(A) was justified in invoking enhancement powers to tax such commission income. 

After examining the rival submissions, the Tribunal observed that the Assessing Officer’s assessment was confined to the alleged accommodation entries and that there was no finding, inquiry or discussion regarding commission income. The Bench noted that the issue of commission had never emerged from either the assessment order or the material examined during assessment proceedings. 

The Tribunal reiterated the settled legal position that although the CIT(A) possesses wide powers to enhance an assessment, those powers are restricted to matters already considered by the Assessing Officer. The appellate authority cannot travel beyond the assessment record and introduce an entirely new source of income. If the Revenue seeks to tax such a fresh source, it must invoke the appropriate statutory provisions such as Sections 147, 154 or 263, subject to fulfilment of the prescribed conditions. 

Relying extensively on the Supreme Court’s rulings in CIT v. Shapoorji Pallonji Mistry (44 ITR 891) and CIT v. Rai Bahadur Hardutroy Motilal Chamaria (66 ITR 443), as well as the Delhi High Court’s decision in CIT v. Sardari Lal & Co. and the Mumbai ITAT ruling in Edelweiss Asset Management Ltd., the Tribunal held that enhancement jurisdiction cannot be exercised for taxing a source of income never examined by the Assessing Officer. 

The Bench concluded that the 1% commission addition represented a completely new source of income which did not arise from the assessment order or the return of income. Therefore, the CIT(A) had exceeded the jurisdiction vested under Section 251 by making the enhancement. 

The ITAT deleted the enhancement of ₹24.02 lakh and allowed the assessee’s appeal in full, reaffirming that appellate powers of enhancement are confined to issues already forming part of the assessment and cannot be used to assess entirely new sources of income.

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