IT : Appellate Authority cannot give directions to Assessing Officer in relation to a third person, whose appeal is not pending before him
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[2013] 40 taxmann.com 113 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'F'
Vijay Kumar Sarda
v.
Dy. Commissioner of Income-tax, Circle -20(3)*
D. MANMOHAN, VICE-PRESIDENT
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
IT APPEAL NO. 3435 (MUM.) OF 2012
[ASSESSMENT YEAR 2003-04]
[ASSESSMENT YEAR 2003-04]
OCTOBER 4, 2013
Section 251, read with sections 69A and 150, of the Income-tax Act, 1961 - Commissioner (Appeals) - Powers of [Subject matter of assessment] - Assessment year 2003-04 - Whether Appellate Authority has powers to give appropriate directions to Assessing Officer only in regard to assessee before him and this power cannot relate to a third person, whose appeal is not pending before him - Held, yes - During assessment, Assessing Officer found that assessee's wife K purchased a property and paid certain sum to landlord for transfer of flat in her name - Several other persons got flats transferred in their names wherein they paid some amount to person who was holding tenancy rights - Assessing Officer opined that a certain sum must have been paid by assessee's wife for surrender of tenancy rights - He added a comparable sum in hands of assessee supposedly for giving said sum to his wife - Commissioner (Appeals), however, directed Assessing Officer to assess entire unaccounted payments in hands of assessee's wife by invoking provisions of section 150(1) - Whether direction given by first Appellate Authority directing Assessing Officer to assess entire unaccounted payments in hands of assessee's wife under section 150(1) was not in accordance with law - Held, yes [In favour of assessee]
FACTS
| ■ | The assessee's wife K purchased a property and paid a sum of Rs. 8.25 lakhs to the landlord for transferring the flat in her name. | |
| ■ | In the same building several other purchasers got the flats transferred in their names wherein they had paid some amount to the person who was holding tenancy rights apart from paying a stipulated sum to the landlord. The Assessing Officer observed that a sum of Rs. 16.51 lakh must have been paid for surrendering of tenancy rights and for handing over. | |
| ■ | K denied having paid any amount for surrender of tenancy rights. | |
| ■ | The Assessing Officer, assumed that she might have also paid a comparable amount for surrender of tenancy rights out of unaccounted source of income and further assumed that this payment would have been made from the unaccounted money of her husband, since she was only a housewife. Accordingly, a sum of Rs. 16.51 lakh was added in the hands of K's husband, the assessee herein. | |
| ■ | The Commissioner (Appeals) concluded that K had acquired the flat on payment of premium of Rs. 16.51 lakh and, hence, directed the Assessing Officer to assess the entire unaccounted payments in the hands of K by invoking provisions of section 150(1) for relevant assessment year. | |
| ■ | On appeal: |
HELD
| ■ | Under section 251 the first Appellate Authority has the powers to confirm, reduce, enhance or annul the assessment. He can also initiate penalty proceedings and in any other case he may pass such orders in the appeal as he thinks fit. | |
| ■ | While deciding the appeal the Appellate Authority may give appropriate directions to the Assessing Officer either in regard to the assessee in appeal before him or otherwise. However, these directions cannot travel outside the assessment year to which the appeal relates. In the same way the directions cannot relate to a third person, whose appeal is not pending before him. The policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage. | |
| ■ | In the instant case no addition was made in the hands of K though she had filed the return by specifying that she had purchased the property. At the same time, the Assessing Officer had taken a consistent stand that a sum of Rs. 16.51 lakh was paid for purchase of the said property but consciously took a view that she had no resources to make such payment and hence no addition could be made under section 69A. This finding had become final and thus was not in dispute before the Appellate Authority. | |
| ■ | In the appeal filed by assessee the only issue was as to whether he paid a sum of Rs. 16.51 lakh to the tenant on behalf of his wife K and it was not the case of either the Assessing Officer or the assessee that the payment was made by assessee's wife. Such being the case, an issue which was not before the first Appellate Authority could not be subject matter of consideration while disposing of an appeal, in exercise of the powers vested in the first Appellate Authority under section 251. | |
| ■ | The first ingredient is that there must be a finding that the income excluded from the total income of one person is the income of another person. The second ingredient is that the order must be one which has come to be passed after the other person was given an opportunity of being heard. The person concerned must be put on notice that the consequence of the income being held as her income is likely to adversely affect her tax liability. [Para 8] | |
| ■ | The Commissioner (Appeals) had not called for any record either from the Assessing Officer or from the affected parties before coming to the conclusion as to why the alleged payment was made from the undisclosed sources of income, more particularly when the Assessing Officer was firmly of the opinion that she would not have been in a position to pay such huge amount since she had no other income to make such payment. The expression 'may be deemed to be the income' under section 69A implies that even after coming to the conclusion that a sum of Rs. 16.51 lakh would have been paid for surrender of tenancy rights it is not automatic that such additions should be made under section 69A unless it was shown that she was capable of having so much of income in the year under consideration. The first Appellate Authority had not made any comment in that regard and, in fact, had not given any opportunity to K, which showed the fallacy in the direction given by him. [Para 9] | |
| ■ | Thus, the direction given by the first Appellate Authority directing the Assessing Officer to assess the entire unaccounted payments in the hands of K under section 150(1) was not in accordance with law. [Para 13] |
CASES REFERRED TO
Parashuram Pottery Work Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) (para 8), A.B. Parikh v. ITO [1993] 203 ITR 186 (Guj.) (para 8), Mrs. Banoo E. Cowasji v. CIT [1982] 138 ITR 686/10 Taxman 97 (MP) (para 10), Peico Electronics & Electricals Ltd. v. Dy. CIT [1994] 210 ITR 991 (Cal.)(para 11), CIT v. Banwari Lal & Sons (P.) Ltd. [2002] 257 ITR 518/123 Taxman 500 (Delhi) (para 12), Pennar Electronics (P.) Ltd. v. Dy. CIT[2010] 124 ITD 272 (Hyd.) (para 13) and Gauri Shankar Choudhary v. Addl. CIT [1998] 234 ITR 865 (Pat.) (para 13).
Vijay Kumar Sarda for the Appellant. S. Ghosh for the Respondent.
ORDER
D. Manmohan, Vice-President - This appeal by the assessee is directed against the order passed by the CIT(A)-31, Mumbai and it pertains to A.Y. 2003-04.
2. Facts necessary for disposal of the appeal are stated in brief. The assessee's wife, Smt. Kalpana Vijay Sarda purchased a property admeasuring 1050 sq.ft. in the building known as 'Laxmi Niwas' situated on Plot No. 49, of Rajasthan Co-operative Housing Society Ltd., J.B. Nagar, Andhery (E). According to Smt. Kalpana a sum of Rs. 8,25,000/- was paid to Shri Nandkishore Babulal, the landlord of the building for transferring the flat in her name.
3. It may be noticed that in the same building several other persons got the flats transferred in their names wherein they have paid some amount to the person who is holding tenancy rights apart from paying a stipulated sum to the landlord. Based on a Tax Evasion Petition the AO observed that a sum of Rs. 16,51,000/- must have been paid to the legal heirs of late Shri Jeevandas Bhaiya for surrendering of tenancy rights and for handing over the possession of the flat apart from payment of Rs. 8,25,000/- to Shri Nandkishore Babulal, the landlord of the building. It is not in dispute that payment of Rs. 8,25,000/- is declared but Smt. Kaplana denied having paid a sum of Rs. 16,51,000/- for surrendering of tenancy rights but the AO, based on the circumstantial evidence, assumed that she might have also paid a similar amount for surrender of tenancy rights out of unaccounted source of income and further assumed that this payment would have been made from the unaccounted money of her husband, since she was only a housewife. Accordingly a sum of Rs. 16,51,000/- was added in the hands of Smt. Kalpana's husband, the assessee herein. Aggrieved by the order of the AO the assessee challenged the addition of Rs. 16,51,000/- under section 69A of the Act by contending that the said flat was not purchased by him and there is no evidence on record to show that he has paid the impugned sum to the legal heirs of late Shri. Jeevandas Bhaiya for surrender of tenancy rights.
4. The learned CIT(A) observed that since Smt. Kalpana Vijay Sarda has acquired tenancy rights or purchased the flat in Laxmi Niwas as per agreement dated 21.06.2002, if at all any addition is to be made towards payment from undisclosed sources, the same should have been considered in the hands of Smt. Kalpana Vijay Sarda. It may be noted that the assessee herein highlighted that Smt. Kalpana Vijay Sarda has filed her returns of income and she was drawing salary income of Rs. 3,00,000/- per annum during A.Y. 2003-04. It is also shown that she was income tax assessee even in earlier years. Under these circumstances the learned CIT(A) observed, in para 3.2 of his order, that the relevant addition, if at all required, should have been made in the hands of Smt. Kalpana Vijay Sarda and not in the hands of the assessee. In other words, the addition made in the hands of the assessee was deleted on the ground that neither the said flat was acquired or purchased by the assessee nor was there any evidence to prove that the payment made to the outgoing tenant was sourced out of the unaccounted income of the assessee.
5. Though he set aside the issue, which was in dispute before him, the learned CIT(A) has gone a step further to observe that there is sufficient corroborative circumstantial evidence to prove the Smt. Kalpana Vijay Sarda has acquired the flat on payment of premium of Rs. 16,51,000/- and hence the AO was directed to assess the entire unaccounted payments in the hands of Smt. Kalpana, by invoking the provisions of section 150(1) of the Income Tax Act for the relevant assessment year. Aggrieved by this direction the assessee is in appeal before us.
6. Shri Vijay Kumar Sarda appeared as party in person and submitted that section 150(1) should not be invoked to revive an assessment which was already barred by limitation, more particularly when the party has not been given an opportunity of being heard, apart from the fact that the learned CIT(A) has no power to travel beyond the issue which is challenged before him. No doubt the powers of the Commissioner (Appeals) is wider in its amplitude whereby he can even enhance an assessment - but such powers are circumscribed in a way i.e. the enhancement can be limited to the assessee who is in appeal and when it affects a third party the Commissioner (Appeals) cannot arbitrarily direct the authorities to reopen the assessment at least without giving an opportunity to the effected person. He, therefore, submitted that under section 150(1) r.w.s. 251 of the Income Tax Act the CIT(A) is not competent to issue directions in the case of a third party.
7. On the other hand, the learned D.R. strongly relied upon the order passed by the CIT(A) and submitted that the learned CIT(A) was seized of the issue as to whether premium was paid for acquiring tenancy rights and having accepted in principle that premium was paid, based on sufficient corroborative circumstantial evidence, the CIT(A) was justified in directing the AO to consider the issue in the hands of the party who was the legal owner of the property. He thus justified the action of the learned CIT(A).
8. We have carefully considered the rival submissions and perused the record. Under section 251 of the Income Tax Act the first Appellate Authority has the powers to confirm, reduce, enhance or annual the assessment. He can also initiate penalty proceedings and in any other case he may pass such orders in the appeal as he thinks fit. The expression 'may pass such orders in the appeal' was subject matter of consideration by various Courts. While deciding the appeal the Appellate Authority may give appropriate directions to the AO either in regard to the assessee in appeal before him or otherwise. However, these directions cannot travel outside the assessment year to which the appeal relates. In the same way the directions cannot relate to a third person, whose appeal is not pending before him. The policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage, as observed by the Hon'ble Apex Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO[1977] 106 ITR 1. In the instant case no addition was made in the hands of Smt. Kalpana Vijay Sarda though she has filed the return by specifying that she has purchased the property. At the same time it is not in dispute that the AO has taken a consistent stand that a sum of Rs. 16,51,000/- was paid for purchase of the said property but consciously took a view that she has no wherewithal to make such payment and hence no addition can be made under section 69A of the Act. This finding has become final and this was not in dispute before the Appellate Authority. In the appeal filed by the assessee's husband the only issue was as to whether he paid a sum of Rs. 16,51,000/- to the tenant on behalf of his wife and it is not the case of either the AO or the assessee that the payment was made by assessee's wife. Such being the case, an issue which is not before the first Appellate Authority cannot be subject matter of consideration while disposing of an appeal, in exercise of the powers vested in the first Appellate Authority under section 251 of the Income Tax Act. In the case of A.B. Parikh v. ITO [1993] 203 ITR 186 the Hon'ble Gujarat High Court had considered identical issue with regard to extension of time limit by virtue of provisions of section 150(1) of the Income Tax Act and in that regard the Court observed that in order to issue such directions, which would amount to enhancing the assessment of a third party, such person must have been put on notice, as otherwise, it is not permissible to give such direction. The first ingredient is that there must be a finding that the income excluded from the total income of one person is the income of another person. The second ingredient is that the order must be one which has come to be passed after the other person was given an opportunity of being heard. The person concerned must be put on notice that the consequence of the income being held as her income is likely to adversely affect her tax liability.
9. In the instant case the learned CIT(A) has not called for any record either from the AO or from the affected parties before coming to the conclusion as to why the alleged payment was made from the undisclosed sources of income, more particularly when the AO was firmly of the opinion that she would not have been in a position to pay such huge amount since she had no other income to make such payment. The expression 'may be deemed to be the income' under section 69A of the Act implies that even after coming to the conclusion that a sum of Rs. 16,51,000/- would have been paid for surrender of tenancy rights it is not automatic that such addition should be made under section 69A of the Act unless it is shown that she was capable of having so much of income in the year under consideration. The first Appellate Authority has not made any comment in that regard and, in fact, has not given any opportunity to Smt. Kalpana Vijay Sarda, which shows the fallacy in the direction given by him.
10. In the case of Mrs. Banoo E. Cawasji v. CIT [1982] 138 ITR 686/10 Taxman 97 the Hon'ble Indore Bench of the Madhya Pradesh High Court observed that there was no provision of law under which the CIT(A), while deciding an appeal preferred by the assessee, can pass orders with regard to assessments made by the AO in the case of a third party.
11. In the case of Peico Electronics & Electricals Ltd. v. Dy. CIT [1994] 210 ITR 991 the Hon'ble Calcutta High Court observed that though the powers of the first Appellate Authority are co-terminus with that of the AO and has powers to enhance the assessment but that is confined to the assessee and a finding or direction, while disposing of the appeal, must be a finding necessary for giving relief in respect of the assessment year in question. In other words, the conclusion reached by the AO in the case of a third party should not be disturbed without giving such assessee an opportunity of being heard and when it is not a necessary finding or direction in the case of the assessee whose appeal is pending and the issue therein is subject matter of dispute before the CIT(A).
12. In the case of CIT v. Banwari Lal & Sons (P.) Ltd. [2002] 257 ITR 518/123 Taxman 500 at page 522 the Hon'ble Delhi High Court approved the findings of the Appellate Tribunal by observing as under: —
"Before closing, we would like to say a word about the direction of the learned Appellate Assistant Commissioner to the Income-tax Officer to bring the amount in question to tax under the head 'Income from house property' in the respective assessment years to which the income relates. This direction of the learned Appellate Assistant Commissioner has to be construed in the light of the decision of the Supreme Court in the case ofRajinder Nath v. CIT [1979] 120 ITR 14/2 Taxman 204. It was not at all necessary for the disposal of the assessee's appeal for this year to give such a direction and, therefore, the same could not be treated as a direction given by the learned Appellate Assistant Commissioner as contemplated in section 153(3)(ii)."
It deserves to be noticed that the expression 'in consequence of or to give effect to any finding or direction contained in an order under section 250 …..' is akin to the expression used in section 150(1) i.e. 'any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of an appeal'. In other words, in order to extend the time limit under section 148 of the Act, by taking aid of section 150 or 153 of the Act, the first Appellate Authority has to take into consideration the fact that the finding or direction should be relevant for the subject matter of dispute and, when it affects a third party, principles of natural justice demands that such third party should have been given an opportunity as otherwise such direction deserves to be set aside as invalid.
13. Similar view was taken by the ITAT Hyderabad Bench in the case of Pennar Electronics (P.) Ltd. v. Dy. CIT [2010] 124 ITD 272. At page 203 the ITAT Hyderabad Benches had taken support of the view taken by the Hon'ble Patna High Court in the case of Gauri Shankar Choudhary v. Addl. CIT [1998] 234 ITR 865 to observe that resort to sub-section (1) of section 150 of the Act can be taken only in cases where it becomes necessary to make assessment or reassessment or recomputation and such direction must relate to the assessee in question and not any direction or assessment made in appeal, reference or revision or any other assessee or any proceedings in which the assessee in question is not a party. Thus, on a conspectus of the matter, we are of the firm view that the direction given by the first Appellate Authority under section 150(1) is not in accordance with law. We order accordingly.
14. In the result, appeal filed by the assessee is allowed.
SBRegards
Prarthana Jalan
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