AO Exceeded Jurisdiction By Taxing Sale Consideration as Other Sources Income: ITAT Deletes ₹5 Crore Addition [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) held that an AssessingOfficer cannot make a fresh addition while giving effect to an ITAT order if the addition is beyond the tribunal’s directions.

The case concerned Shri Kaipathur Venkatakrishnan, an individual assessee. The original reassessment was made on a protective basis in his hands in connection with alleged long-term capital gains arising from sale of immovable property.

The substantive assessment was made in the hands of the assessee’s deceased father. Later, the Supreme Court, by order dated 04.05.2022, upheld cancellation of the sale deed dated 05.07.2007 registered before SRO, Alandur.

In its earlier consolidated order dated 04.09.2024, the ITAT held that since there was no transfer of property in the eyes of law, no long-term capital gains could arise. The tribunal also dismissed the revenue’s appeal in the assessee’s protective assessment.

While giving effect to the ITAT order, the AO treated ₹5 crore allegedly received by the assessee as his share in sale consideration as “Income from Other Sources”. The First Appellate Authority deleted the addition, holding that the AO had travelled beyond his jurisdiction. The revenue filed appeal before the ITAT.

The revenue counsel argued that the ITAT had not denied the assessee's receipt of Rs. 5 crore. They argued that since the sale deed was cancelled and there was no evidence of refund to the buyer, the amount could be taxed as income from other sources.

The assessee’s counsel argued that the AO had no jurisdiction to introduce a new addition while passing an appeal effect order. They submitted that the original issue was only long-term capital gains and the ITAT had given no direction to tax Rs. 5 crore under any other head.

The two-member bench comprising George George K. (Vice President) and Inturi Rama Rao (Accountant Member) observed that the original assessment did not contain any addition of Rs. 5 crore as income from other sources. The tribunal observed that the ITAT’s earlier order did not give any finding or direction to tax the amount under the head “Income from Other Sources”.

The AO was required only to give effect to the tribunal’s directions and could not introduce a completely new issue. The tribunal relied on S.P. Kochhar v. ITO and upheld the deletion of Rs. 5 crore. The revenue’s appeal and the assessee’s cross-objection were dismissed.

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