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No addition to income sources if assessment is over, rules ITAT
June, 16th 2008

The Appellate Commissioner of Income-Tax can no longer levy additional tax if it discovers a source of income that was not taken into account by the income-tax department at the time of assessment.

A recent decision of the Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) in the case of Amrit Petroleums has restricted the powers of the Commissioner (Appeals) for enhancement of income. The Mumbai bench has stated that the Commissioner (Appeals) has no powers to consider sources of income not considered by the department.

Prior to this ITAT ruling, Commissioner (Appeal), the first appellate forum for tax matters, had the powers to enhance or reduce the tax liability of a taxpayer who appealed before him.

The decision came amid an ongoing debate, fuelled by conflicting judicial decisions, on the scope of the powers of the Commissioner (Appeals) for making an enhancement. An important aspect of the issue was whether the appellate commissioner can add an altogether new source of income not even considered by the department.

In this case, Amrit Petroleum, represented by lawyer Jignesh R Shah, argued that the appellate commissioners powers of enhancement does not include powers to tax an altogether new source of income which was not even within the contemplation of the assessing officer.

Mr Shah said the Commissioner (Appeals) can consider only those items of income considered by the department and cannot add fresh items and go beyond the assessment order. The tribunal accepted Mr Shahs argument and held that the Commissioner (Appeals) has no powers to make enhancement in respect of sources of income not considered by the Assessing Officer.

This decision may substantially reduce the fears of a taxpayer while referring an appeal to the Commissioner (Appeals).

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