2021 (5) TMI 637 - AT - Income Tax

Addition of amount as on-money on sale of land - HELD THAT - From the very beginning, the stand of the assessee is that he was a power of attorney holder of the land-owners. Whatever act has been done, they were done in the capacity as representative of the original owner. If cheque amount is being taken by the owner, then it is to be assumed that on-money is also to be taken by the owners, unless there is evidence to prove otherwise. Faced with this situation, in the first round, the Tribunal has specifically directed the AO to examine understanding between the land-owners and the assessee; whether it has been agreed upon that land-owners would only receive the amount mentioned in the sale deed. The AO has not recorded statement of any of the land owners. He was given all the details. He has recorded the statement of one of the purchasers in the first round; but that is not a relevant evidence; that evidence can be taken for the determination of quantum, but who has received that quantum, that evidence cannot be used. A perusal of the assessment order would indicate that the ld.AO behaved in a very illogical manner by observing that if the land owners are not paid the capital gain on-money, then the assessee should pay. The law contemplates that the AO has to first determine in whose hand income has to be assessed; who are the rightful owner. The assessee being a power of attorney holder, cannot be treated as rightful owner of the income, which has arisen on sale of a particular property. His action was only in the representative capacity. We could appreciate the stand of the AO if he was able to bring on record the terms of agreement between the assessee as well as land owners specifying the distribution of amount between the assessee in the capacity as power attorney holder vis- -vis the actual owner. No such steps were taken by the AO; more so when specifically directed by the Tribunal in the first round of litigation. Taking into consideration all these aspects, we are of the view that there is no justification for sustaining addition - Decided in favour of assessee.

Summary

Issues:
Addition of on-money on sale of land in assessment years 2003-04 and 2004-05.

Analysis:
In the present case, the assessee appealed against the order of the ld.CIT(A) confirming the addition of on-money received on the sale of land in the assessment years 2003-04 and 2004-05. The AO contended that the assessee, acting as a power of attorney holder, had received on-money which was not accounted for. The Tribunal remitted the issue back to the AO for fresh decision, emphasizing the need to determine the arrangement between the land owners and the power of attorney holder. The AO issued a show cause notice to the assessee, who argued that the land owners had not filed returns as there was no tax liability, and the addition of on-money should not be shifted to their hands. The AO, however, made the addition in the hands of the assessee on a substantive basis. Penalty proceedings were initiated under section 271(1)(c) for concealing income.

In the subsequent assessment proceedings, the Tribunal noted that the authorities had failed to analyze the issue as directed earlier. The assessee maintained that as a power of attorney holder, actions were taken on behalf of the land owners. The Tribunal emphasized the importance of determining the rightful owner of the income generated from the sale of the property. It was crucial to establish the terms of agreement between the assessee and the land owners regarding the distribution of sale proceeds. As the AO failed to provide evidence or record statements from the land owners, the Tribunal concluded that there was no justification for sustaining the addition of on-money in the hands of the assessee. Consequently, the appeals were allowed, and the additions for both assessment years were deleted.

Therefore, the Tribunal's decision focused on the need for a thorough examination of the relationship between the power of attorney holder and the land owners to determine the rightful recipient of the sale proceeds. Without concrete evidence or agreements specifying the distribution of funds, the Tribunal held that the addition of on-money in the hands of the assessee was unwarranted.