Alleged on-money received cannot be taxed in the hands of assessee, a power of attorney holder – Assessee being power of attorney holder, cannot be treated as rightful owner of the income which has arisen on sale of a particular property as his action was only in a representative capacityAlleged on-money received cannot be taxed in the hands of assessee, a power of attorney holder – Assessee being power of attorney holder, cannot be treated as rightful owner of the income which has arisen on sale of a particular property as his action was only in a representative capacity

FACTS
In this case, the original assessment for A.Y. 2003-04 was completed u/s 143(3) r/w/s 147 assessing total income at Rs. 29,86,640 against a returned income of Rs. 47,120. The case of the A.O. was that the assessee was a power of attorney (PoA) holder of certain pieces of land on which construction was done and these were sold. He received on-money and that on-money has not been accounted for by the assessee. The A.O. recorded the statement of one Rasikbhai Patel who confessed that he paid Rs. 8,71,695 but documents were executed only for Rs. 1,32,500. On the basis of this statement, the A.O. harboured the belief that the difference of these two amounts, i.e., Rs. 7,39,195, was collected by way of on-money. He applied this rate to all the plots sold during the year and believed that the assessee has retained on-money which deserves to be assessed in the hands of the assessee. A similar exercise was done for the A.Y. 2004-05.

When the matter reached the Tribunal, it restored the matter back to the file of the A.O. with a direction to find out as to what was the arrangement between the landowners and the PoA holder and who has received the sale consideration; and whether the recipient of sale consideration has offered capital gains; after examining all these aspects and also after finding out what has happened in the hands of the owners, the A.O. should decide the issue afresh and pass necessary orders.

In the set-aside proceedings from which this appeal has arisen, the A.O. made reference to evidence collected in the first round of the assessment proceedings and added the undisclosed and unrecorded income by way of on-money to the total income of the assessee on the ground that the landowners have not filed their return of income for A.Y. 2003-04.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O. The assessee preferred an appeal to the Tribunal.

HELD
The Tribunal observed that both the authorities have failed to analytically examine the issue as per the direction of the ITAT in the first round. The A.O. was specifically directed to examine the understanding between the landowners and the assessee; whether it has been agreed that the landowners would receive only the amount mentioned in the sale deed. It noted that the A.O. has not recorded the statement of any of the landowners though he was given all the details. He recorded the statement of one of the purchasers in the first round but that is not a relevant evidence as that evidence can be taken for determination of quantum but cannot be used to determine who received that quantum. The Tribunal found the action of the A.O. in holding that since the landowners have not paid capital gains, on-money is to be taxed as income of the assessee to be illogical.

The Tribunal held that the law contemplates that the A.O. has to first determine in whose hand the income has to be assessed and who is the rightful owner. The assessee being a PoA holder, cannot be treated as the rightful owner of the income which has arisen on the sale of a particular property. His action was only in a representative capacity. It observed that it could have appreciated the stand of the A.O. if he had been able to bring on record the terms of agreement between the assessee as well as landowners specifying the distribution of amount between the assessee in his capacity as PoA holder vis-à-vis the actual owner. No such steps were taken in spite of the specific direction of the Tribunal in the first round. Considering all these aspects, the Tribunal held that there is no justification for sustaining addition in both the assessment years in the hands of the assessee. The appeal filed by the assessee was allowed.