The Appellate Assistant Commissioner's power of enhancement under Section 31(3) of the Income-tax Act, 1922, is restricted to the subject-matter of assessment or sources of income considered by the Income-tax Officer from the taxability perspective.

Headnote:
INCOME TAX - Enhancement of assessment - Jurisdiction of Appellate Assistant Commissioner - Section 31(3) of the Income-tax Act, 1922 - Appellate Assistant Commissioner has no jurisdiction to assess a source of income not processed by the Income-tax Officer and not disclosed in the returns or assessment order - Power of enhancement restricted to subject-matter of assessment or sources of income considered by Income-tax Officer from taxability perspective.
Fact of the Case:

The assessee, an individual carrying on business in Jute, Cloth, and Films, claimed to have borrowed three sums of Rs. 2,50,000, Rs. 1,50,000, and Rs. 30,000 from three parties from Nepal. The Income-tax Officer added these amounts to the assessee's total income, considering them secret profits made by inflating the purchase of raw jute. The assessee appealed, and the Appellate Assistant Commissioner confirmed the addition and further added Rs. 4,05,000, representing the alleged transfer of Rs. 5,85,000 from Calcutta to Forbesganj branch on March 31, 1952. The Appellate Tribunal reduced the enhancement to Rs. 1,55,000. The High Court, on reference, held that the Appellate Assistant Commissioner had no authority to enhance the assessment.
Finding of the Court:

The Appellate Assistant Commissioner has no jurisdiction under Section 31(3) of the Income-tax Act, 1922, to assess a source of income not processed by the Income-tax Officer and not disclosed in the returns or assessment order. The power of enhancement under Section 31(3) is restricted to the subject-matter of assessment or sources of income considered by the Income-tax Officer from the taxability perspective.
Issues: Whether the Appellate Assistant Commissioner had the authority to enhance the assessment of the assessee by Rs. 1,55,000 for the assessment year 1952-53.
Ratio Decidendi: The Appellate Assistant Commissioner's power of enhancement under Section 31(3) of the Income-tax Act, 1922, is restricted to the subject-matter of assessment or sources of income considered by the Income-tax Officer from the taxability perspective. The Appellate Assistant Commissioner cannot travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-tax Officer, to find out new sources of income.
Final Decision: The appeal was dismissed, upholding the High Court's decision that the Appellate Assistant Commissioner had no authority to enhance the assessment.

Judgement

RAMASWAMI, J.:- This appeal is brought, by special leave, from the judgment of the Calcutta High Court dated March M, 1964 in Income-tax Reference No. 29 of 1961.

2. The respondent (hereinafter called the assessee ) is an individual carrying on business in Jute, Cloth and Films. The assessment year is 1952-53, the corresponding accounting year being the calendar year 1951 for all business except Katihar Cloth Importing Co. and the Jute Mills for which the accounting year is financial year ending March 31, 1952. During the year of account the assessee claimed that he had borrowed three sums of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000 from three parties from Nepal, Kharag Bahadur Nepali, Jiwanmal Santockchand and Sohanlal Subhkaran respectively. The Income-tax Officer added these amount to the total income of the assessee on the ground that the assessee had inflated the purchase of raw jute. The Income-tax Officer was not satisfied that these three were genuine loans but considered that they represented secret profits made by the assessee by inflating the purchase of raw jute. The income-tax Officer noted that the assessee had withdrawn at Calcutta on March 31, 1952, a sum of Rs. 5,30,000 from a Calcutta bank and had sent a sum of Rs. 5,85,000 to his Forbesganj branch on the same day to enable that branch to make payments including the repayment of Rs. 2,50,000 to Sri Kharag Bahadur one of the alleged creditors noted above. The Income-tax Officer discussed the impossibility of the amount having reached Forbesganj branch in Bihar on the very same day in order to enable discharge of the creditors there on March 31, 1952. In regard to this amount of Rupees 5,85,000 the Income-tax Officer observed as follows :

"On 31-3-52 the Calcutta Office has withdrawn Rs. 5,30,000 from the Bank and has sent Rs. 5,85,000 to Forbesganj. How the cash has reached Forbesganj (in remote corner in North Bihar) on the same day to enable the branch to make payments (including the sum of Rs. 2,50,000 to Kharag Bahadur is something difficult to understand even in these days of fast travel. Lloyds Bank in Calcutta would not have obliged the assessee by paying out cash before 10 A. M. on 31-3-52 and the only available train leaves in the night. The journey including the ferry trip over the broad gauges takes over 24 hours. Hence the entries in the book cannot be taken to be genuine."

The assessee took the matter in appeal to the Appellate Assistant Commissioner and contended that the Income-tax Officer should not have added the three items of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000, to the total assessable income. The Appellate Commissioner did not agree with this contention and confirmed the addition of Rs. 4,30,000. At the same time, the Appellate Assistant Commissioner noticed the fact of the alleged transfer of Rs. 5,85,000 from Calcutta to Forbesganj on March 31, 1952 and its credit in the accounts books of the latter branch on the same date. The Appellate Commissioner considered that the amount of Rupees 5,85,000 should also be included in the total income of the assessee, but before doing so he gave the assessee a deduction of Rupees 1,80,000 being the amount withdrawn earlier from the accounts of the two creditors, namely, Jiwanmal Santokchand and Sohanlal Subkharan and added the balance of Rupees 4,05,000. This addition by the Appellate Assistant Commissioner amounted to an enhancement of the income which the Incometax Officer had assessed. The assessee tools the matter in further appeal to the Appellate Tribunal which held that the Appellate Assistant Commissioner was justified in coming to the conclusion that the cash credits in the accounts were not explained satisfactorily and some of the payments made at Forbesganj branch on March 31, 1952 were not made from the remittance from Calcutta but from secret funds. The Appellate Tribunal pointed out that out of the payments claimed to have been made at Forbesganj payments to Kharag Bahadur

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