If the CIT(A) spots an untaxed source of income, what is the correct route to bring it to tax?
The Delhi High Court held that the first appellate authority cannot use the enhancement power to reach a source of income the Assessing Officer never considered. Where such a source surfaces, the statutory route is reassessment under s.147/148 or revision under s.263, not enhancement in the pending appeal.
Decided by the High Court on 1999, reported as (1999) 240 ITR 556 (Delhi). It bears on section 251, section 147, section 263 of the Income Tax Act 1961, in Appeals, Reassessment & Reopening and Revision & Rectification matters.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The Revenue sought to sustain an enhancement made in the first appeal on income that the Assessing Officer had not dealt with. The High Court examined the tension between the wide, coterminous powers repeatedly attributed to the first appellate authority and the restriction laid down in Shapoorji Pallonji Mistry and Rai Bahadur Hardutroy Motilal Chamaria. It concluded that the restriction as to a new source of income continued to operate notwithstanding later, more general statements about the width of appellate power. The Revenue's attempt to sustain the enhancement therefore failed.
The restriction as to source of income continues, so it was not open to the first appellate authority to discover a new source of income. Wherever the taxability of income from a new source not considered by the Assessing Officer is in question, the jurisdiction to deal with it lies in appropriate cases under section 147/148 or under section 263.
The appellate authority's jurisdiction is derivative: it exists to correct the assessment before it, not to make a fresh one. The Act supplies purpose-built machinery for untaxed income - reassessment and revision - each with its own conditions, safeguards and limitation periods. Allowing enhancement to swallow that machinery would let the Revenue escape those conditions and would leave the assessee without the protections the statute attaches to reopening. The apparently wider language in later decisions was read as addressing the depth of appellate power over the assessment, not its subject-matter boundary.
the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147, or section 148
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppThe Delhi High Court held that the first appellate authority cannot use the enhancement power to reach a source of income the Assessing Officer never considered. Where such a source surfaces, the statutory route is reassessment under s.147/148 or revision under s.263, not enhancement in the pending appeal. This was decided by the High Court and bears on section 251, section 147, section 263 of the Income Tax Act 1961. It is reported as (1999) 240 ITR 556 (Delhi). If it applies to you, the first step is this: When enhancement is proposed on something the AO never touched, ask the CIT(A) in writing to identify where in the assessment order or the AO's queries that source was considered.
The Revenue sought to sustain an enhancement made in the first appeal on income that the Assessing Officer had not dealt with. The High Court examined the tension between the wide, coterminous powers repeatedly attributed to the first appellate authority and the restriction laid down in Shapoorji Pallonji Mistry and Rai Bahadur Hardutroy Motilal Chamaria. It concluded that the restriction as to a new source of income continued to operate notwithstanding later, more general statements about the width of appellate power. The Revenue's attempt to sustain the enhancement therefore failed. The matter was decided on 1999 by the High Court. On those facts the High Court held as follows. The restriction as to source of income continues, so it was not open to the first appellate authority to discover a new source of income. Wherever the taxability of income from a new source not considered by the Assessing Officer is in question, the jurisdiction to deal with it lies in appropriate cases under section 147/148 or under section 263.
The appellate authority's jurisdiction is derivative: it exists to correct the assessment before it, not to make a fresh one. The Act supplies purpose-built machinery for untaxed income - reassessment and revision - each with its own conditions, safeguards and limitation periods. Allowing enhancement to swallow that machinery would let the Revenue escape those conditions and would leave the assessee without the protections the statute attaches to reopening. The apparently wider language in later decisions was read as addressing the depth of appellate power over the assessment, not its subject-matter boundary. In the words reproduced by the source cited on this page: "the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147, or section 148"
It was decided by the High Court on 1999 and is reported as (1999) 240 ITR 556 (Delhi). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 251, section 147, section 263, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The restriction as to source of income continues, so it was not open to the first appellate authority to discover a new source of income. Wherever the taxability of income from a new source not considered by the Assessing Officer is in question, the jurisdiction to deal with it lies in appropriate cases under section 147/148 or under section 263. It arises in Appeals, Reassessment & Reopening and Revision & Rectification matters, on section 251, section 147, section 263 of the Income Tax Act 1961. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Point out that the Revenue is not without remedy - s.147/s.148 and s.263 exist - so refusing enhancement causes no loss of revenue, only a change of route. Check whether the limitation for reassessment or revision has run: that is often the real reason enhancement is being attempted. Record the objection before the enhancement order is passed, because s.251(2) requires a reasonable opportunity of showing cause and your objection is the record of that. Carry the point to the ITAT as a jurisdictional ground if enhancement is nonetheless made.
Still good law. A separate validity check found the Union Tyres approach adopted and reinforced by the Delhi High Court Full Bench in CIT v Sardari Lal & Co (2001) 251 ITR 864, which held that the wide, coterminous powers of the first appellate authority do not extend to discovering an entirely new source of income. No overruling was found. That finding was checked against a published source, which is linked on this page, on 2026-08-19. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The restriction as to source of income continues, so it was not open to the first appellate authority to discover a new source of income. Wherever the taxability of income from a new source not considered by the Assessing Officer is in question, the jurisdiction to deal with it lies in appropriate cases under section 147/148 or under section 263.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
My return was only processed under 143(1). Does that stop the department reopening it later?
How much am I actually required to disclose — and can they reopen because the officer drew the wrong conclusion?
The sanctioning authority just wrote 'yes' and signed. Is that a sanction?
A reassessment was done in between. Does the two-year clock for s.263 restart from it?