Can the CIT(A) use the enhancement power to tax a source of income the Assessing Officer never examined?
The first appellate authority enhanced the assessment by bringing in amounts which the Income-tax Officer had not examined from the point of view of taxability. The Supreme Court held the enhancement power is confined to the subject-matter of the assessment, that is, to sources the officer had considered expressly or by clear implication. Material merely lying in the assessment record is not enough.
Decided by the Supreme Court on 1967-04-07, reported as (1967) 66 ITR 443 (SC). It bears on section 250, section 251 of the Income Tax Act 1961, in Appeals and Assessment & Scrutiny matters.
Binding on every court and authority in India.
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The assessment was taken in appeal to the Appellate Assistant Commissioner, who proceeded to enhance it. The enhancement rested on items which appeared in the material before the Income-tax Officer but which the officer had not applied his mind to as taxable income. The question referred was whether the appellate authority's power of enhancement under section 31(3) of the 1922 Act extended to such items. The Supreme Court answered it against the Revenue.
The power of enhancement is restricted to the subject-matter of assessment or the source of income which has been considered, expressly or by clear implication, by the Income-tax Officer from the point of view of the taxability of the assessee. A source which the officer never examined for taxability cannot be brought to tax by way of enhancement, even if it was mentioned somewhere in the record.
An appeal is against an assessment, so the appellate authority's jurisdiction is bounded by what the assessment dealt with. The test is not whether material existed on the file but whether the officer turned his mind to it as a question of taxability. If enhancement could reach untouched sources, the statutory machinery for reassessment and for revision would be rendered otiose, and the assessee would face a new charge with no fresh right of appeal against its initiation. The Court therefore drew the line at the subject-matter actually processed by the officer.
restricted to the subject-matter of assessment or the source of income which have been considered expressly or by clear implication by the Income tax Officer from the point of view of the taxability of the assessee
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Handle my notice → Ask a CA on WhatsAppThe first appellate authority enhanced the assessment by bringing in amounts which the Income-tax Officer had not examined from the point of view of taxability. The Supreme Court held the enhancement power is confined to the subject-matter of the assessment, that is, to sources the officer had considered expressly or by clear implication. Material merely lying in the assessment record is not enough. This was decided by the Supreme Court and bears on section 250, section 251 of the Income Tax Act 1961. It is reported as (1967) 66 ITR 443 (SC). If it applies to you, the first step is this: On receiving a s.251(2) enhancement notice, first ask the single question: did the AO consider this source at all, from the point of view of taxability?
The assessment was taken in appeal to the Appellate Assistant Commissioner, who proceeded to enhance it. The enhancement rested on items which appeared in the material before the Income-tax Officer but which the officer had not applied his mind to as taxable income. The question referred was whether the appellate authority's power of enhancement under section 31(3) of the 1922 Act extended to such items. The Supreme Court answered it against the Revenue. The matter was decided on 1967-04-07 by the Supreme Court. On those facts the Supreme Court held as follows. The power of enhancement is restricted to the subject-matter of assessment or the source of income which has been considered, expressly or by clear implication, by the Income-tax Officer from the point of view of the taxability of the assessee. A source which the officer never examined for taxability cannot be brought to tax by way of enhancement, even if it was mentioned somewhere in the record.
An appeal is against an assessment, so the appellate authority's jurisdiction is bounded by what the assessment dealt with. The test is not whether material existed on the file but whether the officer turned his mind to it as a question of taxability. If enhancement could reach untouched sources, the statutory machinery for reassessment and for revision would be rendered otiose, and the assessee would face a new charge with no fresh right of appeal against its initiation. The Court therefore drew the line at the subject-matter actually processed by the officer. In the words reproduced by the source cited on this page: "restricted to the subject-matter of assessment or the source of income which have been considered expressly or by clear implication by the Income tax Officer from the point of view of the taxability of the assessee"
It was decided by the Supreme Court on 1967-04-07 and is reported as (1967) 66 ITR 443 (SC). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 250, section 251, 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 power of enhancement is restricted to the subject-matter of assessment or the source of income which has been considered, expressly or by clear implication, by the Income-tax Officer from the point of view of the taxability of the assessee. A source which the officer never examined for taxability cannot be brought to tax by way of enhancement, even if it was mentioned somewhere in the record. It arises in Appeals and Assessment & Scrutiny matters, on section 250, section 251 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. Reply with a jurisdictional objection before arguing merits, and put the Hardutroy/Shapoorji line on record in writing so it survives to the Tribunal. Distinguish 'material on the record' from 'a source considered by the officer' - the Revenue will conflate the two, and this judgment separates them. If the CIT(A) enhances anyway, take the jurisdictional ground as a separate ground of appeal to the ITAT, not merely as part of the merits ground. Expect the Revenue to cite Nirbheram Daluram for wider language; be ready with the reconciliation adopted in Union Tyres and Sardari Lal.
Still good law. A separate validity check on whether the restrictive rule survived CIT v Nirbheram Daluram (1997) 224 ITR 610 (SC) found commentary and High Court authority holding that Nirbheram did not comment on the new-source question, so that the principle in Shapoorji Pallonji Mistry and Rai Bahadur Hardutroy Motilal Chamaria 'still holds the field'; Union Tyres (Del) and the Sardari Lal Full Bench proceed on that basis. 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 power of enhancement is restricted to the subject-matter of assessment or the source of income which has been considered, expressly or by clear implication, by the Income-tax Officer from the point of view of the taxability of the assessee. A source which the officer never examined for taxability cannot be brought to tax by way of enhancement, even if it was mentioned somewhere in the record.
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