ORDER
S. Bandyopadhyay, Accountant Member
1. The assessee has been engaged in the liquor business as an excise contractor for a long time. The assessment records however show that he carries on the business not individually but as the partner of six different firms. In that way, he does not have individual business. Besides, he also earns quite substantial amounts of income from agricultural operations.
2. A search and seizure operation was carried on by the Income-tax Department in the residential and the business premises of the assessee on 7-6-1985, which resulted in the discovery of a bank pass-book of the assessee with Canara Bank Langford Town Branch, showing inter alia, amongst others, the following credits on three different dates in the month of May 1985 :
on 2-5-1985 Rs. 50,00,000
on 13-5-1985 Rs. 50,00,000
on 16-5-1985 Rs. 35,00,000
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Rs. 135,00,000
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The assessee stated in a statement taken from him during the course of the search that he himself was not aware of the source of the money but that his son Shri K. Venkatesh Dutt had arranged the fund and knew every thing about it. It was however, found out that the credit entries in the bank occurred by way of realisation of demand drafts in favour of the assessee purchased by one Shri P.J. Fernandez. The son of the assessee and Shri Fernandez originally confirmed about the loan of the entire amount of Rs. 135 lakhs by Shri Fernandez to the assessee on the basis of a pro-note. Shri Fernandez again told that he had borrowed the major portion of the amount from his partner, viz., one Shri Srikanta Datta Wodeyar. Shri S.D. Wodeyar also confirmed the transaction. The assessee stated at this stage that he was also aware of the fact that the loan had come from Shri Fernandez, although the entire affairs had been arranged by his son.
3. The Department, however, conducted search and seizure proceedings successively in the premises of Shri Fernandez and Shri S.D. Wodeyar. During the course of examinations as a sequel to the search, both Shri Fernandez and Shri S.D. Wodeyar categorically denied that they had advanced the amount of Rs. 135 lakhs to the assessee. On the other hand, Shri Fernandez came up with the version that on being approached, he allowed his own name to be lent in the affair and in that way he had simply acted as an accommodator.
3.1 At that stage, the Department confronted both the assessee as well as his son with the latest version of Shri Fernandez and of Shri S.D. Wodeyar about having not lent the money to the assessee. The assessee simply stated that his son knew every thing about the matter. His son, however, originally tried to stick to the old version about the loan having been given by Shri Fernandez, although when confronted with the categorical denial by Shri Fernandez, he stated that he would have to consult his father before coming out with any clear-cut statement.
4. All these things happened in the months of June and July 1985. However, in the month of August 1985, Shri K. Venkatesh Dutt, son of the assessee, filed a petition before the CIT in which he stated that he was a partner of a firm M/s. Intercorp Associates and that the said firm had opened certain bank accounts and had also obtained facilities for discounting of bills and furthermore that such bills and cheques were being discounted and the proceeds thereof were being advanced by way of loans to businessmen in the line of film and real estate at very high rates of interest. He also stated that monies earned from such business were now being offered for tax. The petition also mentioned that there had been certain complications with the said bank facility of discounting the bills, in that the cheques discounted were not realised as sufficient funds were not available with the drawee bank. Shri Venkatesh Dutt furthermore mentioned in the petition that for the purpose of depositing one month’s kist in excise auction bids, huge amounts were required by his father, viz., the assessee and that in order to meet such requirements, Shri Venkatesh Dutt had credited the amounts in the bank account of the assessee in the garb of loans from Shri Fernandez. In the petition, it was urged that in order to buy peace with the Department and to settle the matters in regard to the search proceedings in the case of the assessee, the petitioner Shri Venkatesh Dutt would like to offer a part of the said credit in the bank account of the assessee, viz., Shri K.S. Dattatreya, shown as loan from Shri Fernandez as the income of the firm/income of the managing partner earned during the period from June 1984 to June 1985, i.e., relevant to assessment year 1986-87. It was also tried to explain therein that as criminal proceedings had been initiated against the partners of the firm, M/s. Intercorp Associates, it was considered expedient not to bring the monies of M/s. Intercorp Associates into the books of account of Shri K.S. Dattatreya directly and for this reason, the name of Shri Fernandez had been used as a name-lender. Shri Venkatesh Dutt actually filed a return of income of his for assessment year 1986-87 on 31-3-1987 showing the return as having been filed under the Amnesty Scheme. He disclosed a total income of Rs. 30 lakhs along with the net agricultural income of Rs. 50,000 in the said return. In the statement showing computation of income, Shri Venkatesh Dutt started with the amount of Rs. 135 lakhs being the gross credit in the name of Shri K.S. Dattatreya, added thereto interest received to the extent of Rs. 15,68,702 and after making adjustments on account of various allowances and losses etc., ultimately came down to the figure of Rs. 20,56,203. During the course of the proceedings at different stages, it was stated by Shri Venkatesh Dutt that although initially he had come up with the figure of his income for this year as calculated above at Rs. 20.56 lakhs, as a gesture of goodwill he offered for taxation the total amount of Rs. 30 lakhs.
5. Subsequently, Shri Venkatesh Dutt filed another return of income for this year on 13-3-1989 in which he showed the net total income of Rs. 62 lakhs along with agricultural income of Rs. 1 lakh. He referred to the Settlement petition filed earlier before the CIT and tried to support the estimation of his income at this figure. The AO completed the assessment of Shri Venkatesh Dutt for this year on 29-3-1989 at the total figure of income of Rs. 1,03,26,133 with further agricultural income of Rs. 1 lakh. In the assessment, he followed the computation shown by Shri Venkatesh Dutt starting from the figure of Rs. 135 lakhs shown as credit entries in the bank account of Shri K.S. Dattatreya and thereafter either allowing or disallowing many of the adjustments byway of losses and allowances as claimed by Shri Venkatesh Dutt.
6. In the income-tax assessment of the assessee, however, the AO stated that it was evident that a sum of Rs. 1.35 crores stood credited to the bank account of the assessee and that the explanation offered by the assessee regarding the source of money was not at all satisfactory and hence, the entire amount was assessable in the hands of the assessee as his income. He furthermore added that irrespective of the fact whether the amount had been offered by anybody else as income, the basic fact remained that the amount appeared as a credit in the books of the assessee for which no valid or reasonable explanation could be offered by the assessee and hence, the amount was clearly taxable in the hands of the assessee under Section 68. Finally, the AO added back the entire amount of Rs. 135 lakhs in the assessment of the assessee for this year.
7. It is curious to note that it was the same AO who completed the assessments of both the assessee Shri K.S. Dattatreya and also of his son Shri K. Venkatesh Dutt on the same day, viz., 29-3-1989 by including the amount of Rs. 135 lakhs in both the assessments on substantive basis.
8. In appeal filed by the assessee before him, the CIT(A) made full discussions about the facts of the case. He referred to the discrepancies in the statements of various persons connected with the transactions. Ultimately, he came to the conclusion that when credits were found in the books of the assessee for which no satisfactory explanation was forthcoming, the credits have got to be deemed to be his income under Section 68. He stated that although it was not clear as to whom the money belonged and as to where the money came from, in the absence of any cogent evidence in that regard, the deeming provisions of Section 68 were applicable. In that view, he confirmed the addition of the entire amount.
9. During the course of the appellate proceedings before him, the CIT(A) also found that in addition to this amount of Rs. 135 lakhs, certain further credits were found in an account book of the assessee discovered during the course of a search and seizure proceeding in the case of the assessee’s son Shri Venkatesh Dutt on 23-2-1988. The credit amounts on two dates, viz., 23-5-1985 and 17-6-1985 in the names of several persons actually represented loans stated to have been taken in the form of draft which were again returned by the assessee on the same day. The assessee’s explanation was that he had taken the drafts from different persons for making bids in the excise auctions and on being unsuccessful in bidding, he returned the drafts to the respective owners.
9.1 The CIT(A) took out one of such credit entries being of Rs. 40 lakhs in the name of Shri Rajan Patel on 17-6-1985. Although the assessee, initially, filed a confirmation letter in support of the loan stated to have been given by the lender, the CIT(A) however directed the AO to make further enquiries into the different credit items and to examine the same in detail. So far as the credit item of Rs. 40 lakhs in the name of Rajan Patel is concerned, it. was found out that actually the name of the person was Shri B. Rajarina. During the course of his deposition before the departmental authorities, Shri Rajanna completely denied having lent the amount of Rs. 40 lakhs to the assessee or even having issued the confirmation letter. On the basis of such denial, the CIT(A) made enhancement of the income of the assessee by another amount of Rs. 40 lakhs on account of the credit standing in the name of Shri Rajanna after, of course, providing an opportunity to the assessee for making out his case.
10. Before us, the assessee challenges the action of the CIT(A) in confirming the addition of Rs. 135 lakhs and also of making further enhancement of Rs. 40 lakhs. In fact, these two are the main issues in this appeal.
10.1 Shri Venkatesan, counsel for the assessee strongly argued that there is no doubt about the fact that the money came to the bank account of the assessee by way of drafts purchased by Shri Fernandez. He furthermore stated that although initially an attempt was made to show the loans as from Shri Fernandez, later on, however, Shri Venkatesh Dutt, son of the assessee came forward with the ownership of the money. He also offered the same as his income in the return filed by him and the said amount has already been taxed in his hands. He stated that no appeal has been preferred by Shri Venkatesh Dutt on the issue of assessability of this amount of Rs. 135 lakhs in his hands. Shri Venkatesan furthermore stated that so far as the assessee is concerned, he is mainly an agriculturist and derives income by way of share of profit from various firms and was not engaged in any personal business. It would, therefore, be inconceivable to place the ownership of the money in the hands of the assessee. On the other hand, Shri Venkatesh Dutt, son of the assessee was in the high-flying business of film financing for quite some time. He was also engaged in the business of discounting bills and cheques. He had to face some troubles from the bank authorities on account of some cheque issued by him being bounced. That is why he tried to shift part of his unaccounted money to the name of his father through the intermediary name of Shri Fernandez. Shri Venkatesan, reiterated that the assessee had all along been taking a consistent stand that he knew nothing about source of the money and that his son alone had arranged for it and also knew about the matter. Shri Venkatesan thus argued that in the face of all these facts it would not be proper to hold the assessee as the owner of the money and to foist the deemed income on the assessee. In support of his claim Shri Venkatesan relied on the two decisions of the Patna High Court in the case of Addl. CIT v. Bahri Bros. (P.) Ltd. [19851 154 ITR 244 and Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344. He furthermore placed reliance on the decision of the ITAT, Poona Bench in the case of Suresh Kalmady to stress his point that so far as the assessee is concerned, he had already discharged his onus by pointing out that it was his son who had provided the loan and hence the assessee could not be held to be liable for any adverse inference on the ownership of the money.
11. Shri Puniha, the Departmental Representative, on the other hand, drew our attention to the basic fact of the case that the search and seizure operation was undertaken by the Department in the premises of the assessee on the basis of the information that the assessee had made an excise bid of Rs. 1.64 crores. He furthermore pointed out the various references to the assessee in the depositions of both Shri Fernandez and Shri S.D. Wodeyar given to the Department at the first time. Shri Puniha argued that on finding that both Shri Fernandez and Shri S.D. Wodeyar had retracted their earlier versions of having lent the money to the assessee, Shri Venkatesh Dutt came out with a Sattlement petition before the CIT and filed his return of income under the Amnesty Scheme. According to Shri Puniha, this was done simply to bail the assessee out of the embarrassing situation of being confronted with the liability on account of the credit entries. Shri Puniha furthermore pointed out that at this stage, the assessee stated in his deposition that his son only knew about the matter, whereas his son deposed that he would not be able to say anything without consulting his father. This, according to Shri Puniha, was the outcome of the precarious position to which the assessee had been put by the denial of Shri Fernandez and Shri S.D. Wodeyar and that ultimately, the son of the assessee Shri Venkatesh Dutt tried to come to the rescue of the assessee by owning up the entire amount in his own assessment and in doing so, he claimed huge amounts of losses and expenses.
12. Shri Puniha strongly argued that the return filed by Shri Venkatesh Dutt under the Amnesty Scheme cannot grant any indemnity to a third party like the assessee. He placed strong reliance on the two decisions of the Supreme Court in the case of Jamnaprasad Kanhaiyalal v. CIT [1981] 130 ITR 244 and of ITO v. Rattan Lai [1984] 145 ITR 183, in which it has clearly been laid down that under the Voluntary Disclosure Scheme, the immunity will be available only to the declarant and that the immunity cannot extend to the income actually accruing to another person although the declarant might have shown the said income in his own hands. Shri Puniha furthermore drew our attention to the observations of Supreme Court made at page 259 of the above-mentioned decision in Jamnaprasad Kanhaiyalal’s case (supra) to the effect that in a case like this there cannot be any question of double taxation of the same income inasmuch as the “situation is of the assessee’s own making in getting false declarations filed in the names of the creditors with a view to avoid a higher slab of taxation”.
12.1 Shri Puniha furthermore argued that the facts of the present case show that self-serving evidences were created by the son of the assessee subsequent to the investigation made by the Department simply to bail out his father, as has been discussed in detail by the CIT(A) in his appellate order. Shri Puniha also pointed out that the two decisions of the Patna High Court as relied upon by the learned Counsel for the assessee related to cases where the creditors were third parties not having any direct relationship with the assessees. He argued that in such cases only the onus of the assessee ends up by proving the identity and the credit-worthiness of the lenders. He drew our attention to the discussion made by Their Lordships of the Patna High Court at page 345 of the decision in Sarogi Credit Corpn.’s case [supra) as below :
If the credit entry in the books of the assessee stands in the name of the assessee or the assessee’s wife and children, or in the name of any other close relation or an employee of the assessee, the burden lies on the assessee to explain satisfactorily the nature and source of the entry. But if the entry does not stand in the name of any such person having a close relation or connection with the assessee, but in the name of an independent party, the burden will still lie on him to establish the identity of that party and to satisfy the Income-tax Officer that the entry is real and not fictitious.
Shri Puniha argued that in the instant case, since the ultimate person claiming to be the creditor happened to be the son of the assessee, there was a much greater burden on the assessee to prove to the hilt the genuineness of the transaction.
12.2 Shri Puniha furthermore argued that even from the point of view of the preponderance of probability, it would appear that it could not have been possible for the son of the assessee to lend such a huge amount of money to his father inasmuch as at that point of time, he was under severe financial constraint and was being pressed by the bank to pay off all his debts to the bank and that his reputation in the market and also his other properties were in great peril on account of his inability to clear off the dues of the bank. Shri Puniha thus finally concluded that it seems much more plausible that the money under consideration was assessee’s own money brought by him as credit entry in the name of other persons and should therefore be taxed in his hands.
13. Shri Venkatesan, learned Counsel for the assessee gave a number of replies to the arguments of Shri Puniha at this stage to which we shall advert to during the course of our own discussions and findings on the issue.
14. So far as the legal position on this issue is concerned, we completely agree with the learned DR that because of the special relationship between the assessee and the finally stated creditor being his son, the degree of onus on he part of the assessee would be of much higher order than what would have been required in an ordinary case concerning a third party. In this case, because of subsequent denials made by Shri Fernandez and also Shri S.D. Wodeyar and furthermore on account of owning up of the money by Shri Venkatesh Dutt, the original story about the loan having been given by Shri Fernandez gets completely washed away. The issue, therefore, before us is to come to a conclusion as to whether the money belonged to the assessee himself or was really provided by Shri Venkatesh Dutt as claimed by him. We take due note of the submissions of Shri Venkatesan in this case that although the assessee used to be the leader of a consortium of excise bidders taking part in the auction processes inasmuch as the assessee was being held in high esteem by the other persons in the consortium, the assessee however, was not carrying on any business in his personal name and that even whatever business would ultimately come on the assessee out of bids made by the consortium, would be carried on by the different partnership firms, of which the assessee, of course, was a partner. The assessee was deriving merely share income from the different partnership firms and there is no indication anywhere that there was a possibility of the assessee having earned huge sum of unaccounted money in his individual capacity. On the other hand, the assessee was also carrying on agricultural operations to a very large extent and was earning substantial income from such operations. It is an admitted fact that the son of the assessee was in the film financing business for quite some time and can be considered to have earned considerable amounts of money therefrom. In the assessment order of Shri K. Venkatesh Dutt, the AO has made a clear mention of this fact. Furthermore, Shri Venkatesh Dutt was also engaged in the operation of discounting of bills and cheques through the partnership firm M/s. Intercorp Associates. It is also a fact that huge amounts running into crores, had been transacted by him in this process and that finally, in February 1985, cheques amounting to Rs. 3.50 crores were drawn by Shri Venkatesh Dutt on Oriental Bank of Commerce, New Delhi, which was discounted with the Shivajinagar Branch of State Bank of India. This cheque actually bounced although sufficient quantity of cash money had already been withdrawn by the discounting of the Cheque from State Bank of India, Shivajinagar Branch. On account of having been in the film financing business and also in the business of discounting bills and cheques in a very large manner, it may be presumed that Shri Venkatesh Dutt had earned considerable amounts of cash money which had not been reflected in his books of account. Furthermore, he was also in trouble as the bank was pressing for the dues to it and it has been learnt that even the CBI people were also around Shri Venkatesh Dutt at that time. We, therefore, find sufficient force in the argument of the counsel for the assessee that as a natural course which any prudent man would have adopted at this stage, Shri Venkatesh Dutt tried to shift part of his unaccounted money to his father’s bank account through the name of Shri Fernandez. It is required to be remembered in this connection that Shri Venkatesh Dutt happens to be the only son of the assessee and, hence, there is no question of anybody else co-sharing in the estate of his father. As regards the argument put forward by Shri Puniha that at the relevant time Shri Venkatesh Dutt must have been almost a pauper and was being chased by both the bank as well as the CBI, and, therefore, should have tried to meet the demand of the bank by whatever resources he had instead of trying to put money in his father’s bank account. Shri Venkatesan drew our attention to the depositions given by Shri Venkatesh Dutt during the course of the search and seizure proceedings at his premises to the effect that a total amount of Rs. 4,05,61,767 was being owed by the various debtors of M/s. Intercorp Associates to the said firm and also that Shri Venkatesh Dutt himself was owning several properties at different places. We also take due note of the assertion made by Shri Venkatesan that ultimately the entire money under consideration found its destination to the firm M/s. Intercorp Associates, the assets and liabilities of which were again taken over by Shri K. Vankatesh Dutt in due course. This strongly indicates that the money had originally come from Shri Venkatesh Dutt and after serving the purpose in the hands of the assessee, went back to the original source. The fact that the assessee has all along been taking a consistent stand that he knew nothing about the source of the money or the mode of transactions and that every thing was known to his son only, also lends strong credence to the case of the assessee that the money actually belonged to Shri Venkatesh Dutt. Furthermore, although in his earlier depositions, Shri Fernandez had referred to the assessee, finally however, in his declaration given during the course of the search at his premises, Shri Fernandez clearly stated that he had not met Shri K.S. Dattatreya, assessee, for two years. The earlier versions of Shri Fernandez might be considered as false but whatever he stated during the course of search and seizure proceedings at his premises must be considered as confessions made by him and strong credence is required to be given to such versions. The statement that, he had not seen Shri Dattatreya for the last two years, given by him, during the course of his depositions therefore seems to be true. This also indicates that even the arrangement of the loan through Shri Fernandez had also been made by Shri Venkatesh Dutt and not by the assessee himself.
14.1 Therefore, from the facts and the statements of various parties, it appears to us that the version of the assessee and of his son that the entire money amounting to Rs. 135 lakhs belonged to Shri Venkatesh Dutt and represented unaccounted income of various businesses carried on by him in the film financing line as well as in bill discounting line, is a quite plausible one and seems also to be believable. On the other hand, simply because of the fact that the money ultimately got credited in the bank account of the assessee, for a temporary period (at last the money found its ultimate destination to Shri Venkatesh Dutt only as discussed above), it cannot be said that the money represented the unaccounted income of the assessee especially when there are no indications even, not to speak of any evidence, about such a stand.
14.2 It is also a fact that the same amount has already been taxed in the hands of Shri Venkatesh Dutt. A perusal of the assessment order in his case clearly shows that the AO started with the amount of Rs. 135 lakhs shown as credit entries in the bank account of Shri K.S. Dattatreya and arrived at the total income of Shri K. Venkatesh Dutt only after considering the allowances and disallowances of various claims put forward by Shri Venkatesh Dutt. Since the AO himself allowed some of the claims of Shri Venkatesh Dutt, presumably after being satisfied about the genuineness of such claims, it cannot be said now that Shri Venkatesh Dutt contrived and managed to get the amount assessed in his hands at a much lower figure by claiming huge losses and allowances which were non-genuine. It is the same AO who completed the assessment of the assessee and Shri Venkatesh Dutt on the same day and the amount of Rs. 135 lakhs was assessed in the hands of Shri K. Venkatesh Dutt not on a protective basis. The reliance placed by the learned DR on the judgment of the Supreme Court in Jamnaprasad Kanhaiyalal’s case (supra) and as mentioned above, would therefore be of no use inasmuch as in the instant case, the same AO was aware of the pros and cons relating to the assessment proceedings of both the assessee and his son and the conscious act on the part of the AO in choosing to assess the amount of Rs. 135 lakhs in the hands of Shri Venkatesh Dutt in a substantive manner would certainly preclude him from assessing the same amount once more in the hands of the present assessee.
15. Finally, therefore, in view of all these matters as discussed above, firstly that the facts clearly indicate that the availability of the amount under consideration was more probable in the hands of Shri Venkatesh Dutt than in the hands of the assessee and, subsequently, that the AO also chose to assess the same amount in the hands of Shri Venkatesh Dutt after being fully aware of the facts of the case, it must be held that there is no point in assessing the amount as undisclosed income of the assessee Shri K.S. Dattatreya. The assessee can be considered to have discharged even the stronger onus of proving the source of the money claimed to be from his son (the facts and circumstances of the case as detailed above clearly bear out the version of the assessee) and hence, although the credits appeared in the bank account of the assessee, in our view, the assessee cannot be held to be liable to be assessed in respect of this amount by application of the provisions of Section 68. We, therefore, by reversing the orders of the lower authorities, delete the addition of Rs. 135 lakhs in the hands of the assessee.
16. Let us now come to the question of enhancement of Rs. 40 lakhs as made by the CIT(A). Although it may be a favourable case for the Department, on merits, that on account of clear denial by Shri Rajanna, the amount was liable to be assessed as the income of the assessee, yet on the facts of the case, we are of the view that the CIT(A) did not have any jurisdiction to make this enhancement. The assessee did not show this amount in the return of income filed by him or in any of the accompanying statements. In the assessment order also, the AO did not make any mention of or even reference to this credit item of Rs. 40 lakhs standing in the name of Shri Rajan Patel or Shri B. Rajanna, whatever may be his actual name. The learned Counsel for the assessee has relied on the decision of the Supreme Court in the case of CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1976] 66 ITR 443 in support of his claim that inasmuch as this particular issue was not the subject-matter of appeal, the CIT(A) had no power to make enhancement on this issue. Our attention has also been drawn to the discussions made at pages 1513 and 1514 of the Treatise on Income-tax, authored by Kanga & Palkhiwala, 8th edition. Shri Puniha.the DR has claimed, by filing a copy of a letter addressed by the AO to the assessee asking for explanation regarding various credit entries including this amount also that the matter must be considered to be arising out of the proceedings in which the order appealed against before the CIT(A) was passed. Shri Puniha, thus argues that the decision of the Supreme Court, as relied upon by the learned Counsel for the assessee being in respect of the provisions of the 1922 Act, would not apply to the present case. On the other hand, he has drawn our attention to the Explanation attached to Section 251, which was not there in the 1922 Act.
16.1 The fact that the Assessing Officer had asked for explanation from the assessee about this particular credit entry, cannot be denied. However, it is also an admitted fact that the matter relating to this particular credit entry was neither declared nor disclosed by the assessee in the return of income filed by him nor mentioned in the assessment order. The Explanation to Section 251 reads as below :
Explanation : In disposing of an appeal, the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) by the appellant.
Kanga & Palkhivala state at page 1514 (supra) of their book :
The above propositions which were laid down under the 1922 Act are not in any manner affected, and the CIT (Appeals)’s power of enhancement is not in any manner enlarged, by the Explanation to this section which did not find a place in the 1922 Act. The Explanation merely gives statutory effect to principles judicially established under that Act.
It would appear from above that the Explanation attached to Section 251 in the 1961 Act does not change the position materially from what it was under the 1922 Act and cannot therefore be having much significance. We have, therefore, to depend on the propositions emerging from the judgments of the Supreme Court (although relating to the relevant provisions under 1922 Act) in the cases of CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 and Rai Bahadur Hardutroy Motilal Chamaria [supra) to the effect that the CIT (Appeals) has no jurisdiction to travel beyond the subject-matter of the assessment or beyond the record, i.e., the return of income and the assessment order; and his power of enhancement relates only to that income which has been subjected to the process of assessment. In this connection, we would like to refer to the judgment of the Karnataka High Court in the case of Sterling Construction & Trading Co. v. ITO [1975] 99 ITR 236 at page 242 in which the Karnataka High Court followed the dictum of the Supreme Court by quoting the same from the above-mentioned two decisions :
The principle that emerges as a result of the authorities of the court is that the Appellate Assistant Commissioner has no jurisdiction under Section 31 (3) of the Act, to assess a source of income which has not been processed by the Income-tax Officer and which is not disclosed either in the returns filed by the assessee or in the assessmer order, and, therefore. Appellate Assistant Commissioner cannot, travel, beyond the subject-matter of the assessment. In other words, the power of enhancement under Section 31(3) of the Act is 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.
16.2 We would also like to refer to the judgment of the Madhya Pradesh High Court in the case of CIT v. Nirbheram Daluram [1981] 127 ITR 491, dealing with a matter arising out of the provisions of the 1961 Act. In this judgment, the M.P. High Court, by making a reference to the Explanation to Section 251(2) of the 1961 Act, held as below :
The Explanation empowers the AAC to ‘consider and decide any matter arising out of the proceedings in which the order appealed against was passed’. In our opinion, the words ‘any matter arising out of the proceedings’ are not wide enough to include a matter which could have been raised before or considered by the ITO but was not raised before him or considered by him. These words, in our opinion, mean any matter which was processed by the ITO or was raised before him for being processed. The proceedings before the ITO are limited to the matters expressly or impliedly raised by the assessee and the ITO and the proceeding done by him of these matters. The Explanation does not authorise consideration of any matter by the AAC which was not raised or processed before the ITO.
16.3 From an examination of the abovementioned judgments we feel that even the Explanation to Section 251(1) means by the expression “any matter arising out of the proceedings” only such matters which were either specifically disclosed by the assessee in the return of income filed by him or any accompanying statements, or mentioned by the Assessing Officer in the assessment order. The present matter, as has been discussed above, does not fall within either of the categories. We are, therefore, of the opinion that the present matter does not arise out of the assessment proceedings in the instant case which was appealed against before the CIT (Appeals). The CIT (Appeals), therefore, in our view, did not have any power to consider the present issue and make an enhancement of Rs. 40 lakhs on account of credit entry in the name of Shri Rajan Patel. We, therefore, strike down the enhancement as illegal and invalid.
17. The assessee has also challenged the levy of interest under Section 217. Although initially, the assessee tried to pursue the matter by placing reliance on the judgment of the Bombay High Court in the case of Patel Aluminium (P.) Ltd. v. ITO [1987] 165 ITR 99 yet, Shri Venkatesan, learned Counsel for the assessee, was fair enough to admit later on that the said judgment would not apply to the present case. Ultimately, he prayed for only consequential relief in respect of the interest under Section 217. Since consequential relief has got to be allowed automatically, the appellate ground in this regard is being dismissed.
18. In the result, the appeal filed by the assessee is partially allowed to the abovementioned extent.