Section 251

Section 251 — the law in short

What the courts have decided on section 251, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Nirbheram Daluram Supreme CourtHelps department
  The first appellate authority has enhanced my assessment using items the Assessing Officer never looked at. Can it do that, or has it gone beyond its jurisdiction?
  It can. The Supreme Court held that the appellate power under section 251 is not confined to matters the Assessing Officer considered. Following the three-judge decision in Kanpur Coal Syndicate and the three-judge decision in Jute Corporation of India, the first appellate authority has plenary powers, coterminous with those of the Assessing Officer: it may confirm, reduce, enhance or annul the assessment, may do what the Assessing Officer could do, and may direct him to do what he failed to do. The Act places no restriction on that power, so ten further hundi credits of Rs 2,30,000 were properly added.
• Jute Corporation of India Ltd v CIT Supreme CourtCuts both ways
  Can you raise a ground before the CIT(A) that you never raised before the officer?
  Yes, where the ground is raised bona fide and could not reasonably have been raised earlier. The appellate authority's powers are co-terminus with the officer's, and nothing in the Act restricts the right to raise an additional ground.
• Kapurchand Shrimal v CIT Supreme CourtCuts both ways
  The assessing officer ignored my partition claim and assessed the family anyway. If the Tribunal finds that illegal, can it simply cancel the assessment and stop there?
  No. The Supreme Court held that although an assessment made on a Hindu undivided family without the enquiry the statute requires into a partition claim made in time must be set aside, the Tribunal's duty does not end with declaring the assessment illegal. An appellate authority has the jurisdiction and the duty to correct all errors in the proceedings under appeal and to issue appropriate directions to the authority below to dispose of the matter afresh, unless the statute forbids it. The Tribunal erred in cancelling the assessments without directing fresh ones, and the High Court erred in upholding them.
• CIT v S. Chenniappa Mudaliar Supreme CourtCuts both ways
  Can an appellate authority under the Income-tax Act throw out an appeal because the appellant did not turn up?
  The Supreme Court struck down the rule that allowed the Appellate Tribunal to dismiss an appeal for default of appearance, holding it ultra vires the statutory obligation to dispose of an appeal on the merits. The reasoning - that the statute commands a decision, not a disposal - is the source of the settled position that the CIT(A) too must decide, not dismiss for non-prosecution.
• CIT v Rai Bahadur Hardutroy Motilal Chamaria Supreme CourtCuts both ways
  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.
• CIT v Kanpur Coal Syndicate Supreme CourtCuts both ways
  How wide are the first appellate authority's powers when it disposes of an appeal?
  An association of persons was assessed as a single unit; it argued the members should have been assessed individually. The Supreme Court held that the first appellate authority has plenary powers in disposing of an appeal, coterminous with those of the Assessing Officer, and can direct the officer to do what he has failed to do. This is the foundation of every later statement about the CIT(A)'s powers under s.251.
• CIT v Shapoorji Pallonji Mistry Supreme CourtHelps taxpayer
  Can the first appellate authority tax a source of income the officer never looked at?
  No. In an appeal filed by the assessee, the first appellate authority has no power to enhance by discovering new sources of income not mentioned in the return or considered by the officer.
• CIT v McMillan & Co Supreme CourtHelps department
  The assessing officer accepted my method of accounting. Can the first appellate authority reject it for the first time in my own appeal and enhance the assessment?
  Yes. By a majority the Supreme Court held that nothing in section 31 read with the proviso to section 13 of the 1922 Act stops the Appellate Assistant Commissioner, in an appeal by the assessee, from exercising the power the Income-tax Officer has to reject a method of accounting from which true profits cannot be deduced, and from computing income under Rule 33. The Income-tax Officer decides first, but he must act reasonably and judicially, and his decision is not final. Once the appellate authority is properly seised of the assessment, section 31(3) imposes no such limitation. Bhagwati J dissented.
• Satish Kumar Bansal HUF v NFAC High CourtHelps taxpayerNo later treatment found
  I asked for a personal hearing in my faceless assessment and never got one. Is the order bad?
  Yes. Allahabad held that once a request is made under s.144B(6)(vii), granting the hearing is mandatory and not discretionary; fixing the rescheduled hearing on a Sunday, the day after the adjournment application, was not a real opportunity.
• CIT v Premkumar Arjundas Luthra (HUF) High CourtHelps taxpayer
  You did not appear before the CIT(A). Can the appeal simply be dismissed for non-prosecution?
  No. Once an appeal is filed the CIT(A) must dispose of it on merits by a written order stating the points for determination, the decision and the reasons. There is no power to dismiss for non-prosecution — and no right to withdraw either.
• Bharat Petroleum Corporation Ltd v ITAT High CourtCuts both ways
  What happens if an appeal is dismissed for want of prosecution and the recall application is filed late?
  The appellant did not appear and its appeal was dismissed for want of prosecution. The Bombay High Court held that there is no power to dismiss an appeal for non-appearance and that the appeal had to be decided on merits after hearing the respondent. The dismissal was irregular, but because the recall application came after the four-year limit it could not be undone.
• CIT v Pruthvi Brokers & Shareholders High CourtHelps taxpayer
  Goetze says I cannot make a claim except by revised return. Does that stop me raising it before the CIT(A) or the Tribunal?
  No. An assessee is entitled to raise before the appellate authorities not merely additional legal submissions but additional claims not made in the return. Goetze (India) was confined to the power of the assessing authority and the Supreme Court expressly said it does not touch the power of the Tribunal under s.254. The appellate authorities have jurisdiction to entertain a new ground; whether they exercise the discretion to admit it is a separate question.
• Dahod Sahakari Kharid Vechan Sangh v CIT High CourtCuts both ways
  Does failing to file a cross-objection make the findings decided against you final?
  The Tribunal had treated findings against the assessee as final because no cross-objection had been filed, even though the assessee had succeeded before the Commissioner (Appeals). The Gujarat High Court held that this reasoning would render Rule 27 redundant and nugatory, and set it aside.
• CIT v Sardari Lal & Co High CourtHelps taxpayerNo later treatment found
  Can the CIT(A) enhance my assessment by taxing a source the AO never looked at?
  No. The power of enhancement is confined to the subject matter of the assessment under appeal — the items the AO considered, expressly or by necessary implication. A new source has to be brought to tax by reassessment or by revision, each of which carries its own safeguards and time limits.
• CIT v Union Tyres — the Commissioner (Appeals) cannot bring in a new source of income High CourtCuts both ways
  Can the Commissioner (Appeals) use the enhancement power to tax a source of income the Assessing Officer never considered?
  No. The Delhi High Court held that the first appellate authority's power, wide as it is, carries one limitation: it cannot introduce into the assessment a new source of income that the Assessing Officer never considered. That is what this judgment decides, and it decides it under s.251(1)(a). It does not say where the Revenue must go instead — for that, see CIT v Sardari Lal & Co, the Full Bench decision two years later, which added that the route lies under s.147/148 or s.263.
• Smt. Prabhavati S. Shah v CIT High CourtCuts both ways
  If additional evidence does not fit any of the four gateways in Rule 46A, is the CIT(A) powerless to look at it?
  The Bombay High Court held that Rule 46A fetters the assessee's right to produce evidence but does not fetter the CIT(A)'s own powers under s.250(4) and s.250(5). Where the appellate authority considers evidence necessary to examine the claim, it can direct an inquiry or the production of documents even though the assessee could not have brought the evidence in as of right.
• CIT v Edward Keventer (Successors) High CourtCuts both ways
  How far can a respondent go under Rule 27 - can it reopen matters outside the subject-matter of the appeal?
  The Delhi High Court set the outer boundary of Rule 27 of the Appellate Tribunal Rules: a respondent may support the order under appeal on grounds decided against it, but may not use the rule as a device to travel outside the subject-matter of the appeal. At the same time the Court insisted the subject-matter be understood broadly, so that interconnected grounds are looked at together.
• B.R. Bamasi v CIT High CourtCuts both ways
  Can a respondent who did not appeal use Rule 27 to get the assessment annulled?
  The Bombay High Court held that a respondent invoking Rule 27 may deploy a ground decided against him only to sustain the order under appeal. He cannot use it to obtain further relief, and certainly not to have the assessment itself annulled. The ceiling on a Rule 27 plea is therefore the order he already holds.
• CIT v Sundaram & Co High CourtCuts both ways
  Is Rule 27 a concession the Tribunal may refuse, or a right the respondent can insist on?
  The Madras High Court held that Rule 27 confers a right on the respondent and that the Tribunal has no discretion to deny him its benefit. It is an enabling provision, rooted in natural justice, which allows a party who won below to defend that result on every ground he had urged, whether or not it found favour.
• Kaane Visionary Projects Pvt Ltd v ACIT ITATHelps taxpayerJudgment not reachable
  The CIT(A) deleted the addition but taxed something else instead. Can the first appeal introduce a new source of income?
  No. The enhancement power under s.251 is confined to what was the subject matter of the assessment. Estimating commission income the Assessing Officer had never examined went beyond it, and the enhancement was deleted.
• TSC Fashions Pvt Ltd v ITO ITATHelps departmentNo later treatment found
  My client missed the tax audit because the old auditor stopped cooperating. Is that a reasonable cause that kills the s.271B penalty?
  Not on assertion alone. The Tribunal confirmed the penalty because the assessee produced no correspondence, email, letter, complaint or affidavit against the earlier auditor, and showed no proactive steps of its own; a bald plea of auditor non-cooperation is a mere allegation and does not discharge the burden under s.273B.
• Net Agri Company Pvt Ltd v ITO ITATHelps taxpayer
  The Commissioner (Appeals) accepted my explanation for the investment but then made a fresh addition for cash deposits he spotted in my bank statement, without telling me. Can he do that?
  No. The Delhi Tribunal held that the Commissioner (Appeals) cannot determine taxability from a new source, and cannot enhance without show-causing the assessee. The Assessing Officer had added the investment in property as unexplained under section 69. Having accepted the evidence and deleted most of it, the Commissioner (Appeals) went on to tax cash deposits in the bank account used to repay the bridging loan, treating them as unexplained cash credits under section 68. That was a different exercise from the one the officer had done, it went beyond the Tribunal's earlier remand, and no notice was given. The addition of Rs 1,75,50,000 was deleted.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.