ITAT Mumbai Sets Aside CIT(A) Enhancement Of Taxable Income On Issue Not Examined By AO

The Income Tax Appellate Tribunal (ITAT) at Mumbai has held that the Commissioner of Income Tax (Appeals) cannot enhance an assessment by introducing a fresh issue that was never examined by the Assessing Officer, setting aside an addition made through adjustment of work in progress in the case of Skyline Greathills, a real estate company.

A Bench of Vice President Saktijit Dey and Accountant Member Arun Khodpia observed, “Section 251(1) of the Act restricts the CIT(A) to assume jurisdiction for enhancement of income, on an issue or new source of income, which was not dealt with or considered by the AO during the assessment proceedings.”

The ruling came in cross-appeals for Assessment Years 2012 to 2013, where the dispute centered on whether the appellate authority could reopen an entirely untouched aspect of the assessment.

The case arose from a survey disclosure of Rs. 12 crore. Although the amount was offered as income, it was also capitalised in the books as work in progress. The CIT(A) viewed this as neutralising the disclosure and reduced WIP by about Rs. 11.97 crore, effectively enhancing the taxable income.

The tribunal found that the Assessing Officer had not examined this aspect at all during the original assessment. Without such examination, the appellate authority could not widen the scope of the proceedings.

It clarified that issues not considered by the Assessing Officer may be dealt with, if at all, through revision, reassessment, or rectification proceedings under the Act, but not by way of enhancement in appeal. On this basis, the WIP adjustment was set aside on jurisdictional grounds, and the assessee's appeal was allowed.

The revenue's grounds were rejected.

On the issue of deemed dividend under Section 2(22)(e), the tribunal agreed that the assessee firm was neither a registered nor a beneficial shareholder of the company providing the security deposits, making the provision inapplicable.

It also rejected the Revenue's attempt to tax Rs.17.66 crore under a joint development agreement by adopting the stamp duty value of the entire land. The Tribunal held that the assessee was entitled only to the constructed area of 16,500 square meters under the agreement and not the value of the full land parcel, making the Revenue's approach unsustainable.

With that, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.

For Assessee: Naresh Jain, AR

For Revenue: Arun Kanti Datta, CIT-DR