AO cannot introduce a new addition while giving effect to appellate order: ITAT Chennai

ITO Vs Kaipathur Venkatakrishnan (ITAT Chennai)

The case concerned the validity of an addition of ₹5 crore made by the Assessing Officer (AO) as “Income from Other Sources” while passing an order giving effect to an earlier order of the Income Tax Appellate Tribunal (ITAT). The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], who had deleted the addition. The assessee also filed a cross-objection.

The assessee had originally filed the return of income for Assessment Year 2008-09 declaring total income of ₹1,07,640. Subsequently, the assessment was reopened under Section 148, and an assessment under Sections 143(3) read with 147 was completed on 18 March 2014. During the proceedings, it was noticed that the assessee and his father had been involved in the sale of immovable property, and gains arising from the transaction had not been offered to tax. The assessee had admitted receiving ₹5 crore, representing his alleged 50% share of the sale consideration. Since the assessee was not considered a joint owner and his name had been included in the transaction merely as a matter of caution, a protective assessment was made in his hands.

Substantive assessment had been made in the hands of the assessee’s father. The CIT(A) had earlier deleted the protective addition in the assessee’s case, and the order giving effect to that appellate decision revised the assessee’s income back to ₹1,07,640.

The Revenue’s appeal before the Tribunal was initially dismissed. Subsequently, a combined order dated 4 September 2024 was passed by the Tribunal after considering related proceedings involving the assessee’s father. The Tribunal noted that the Supreme Court, by order dated 4 May 2022, had upheld the Madras High Court’s decision cancelling the sale deed executed in 2007. Since the sale deed stood cancelled, the Tribunal held that there was no transfer of property in the eyes of law, and consequently, no liability to Long-Term Capital Gains tax arose.

While giving effect to the Tribunal’s order, the AO granted relief in respect of the Long-Term Capital Gains addition. However, the AO proceeded to add ₹5 crore as “Income from Other Sources,” reasoning that although the transfer had been held void ab initio, the Tribunal had not disputed that the assessee had received ₹5 crore as his share of the sale consideration. Based on this reasoning, the AO revised the assessed income and raised a fresh tax demand.

The assessee challenged this addition before the CIT(A). The CIT(A) observed that the Tribunal had neither directed nor intended that ₹5 crore should be taxed as income from other sources. The addition had not formed part of the original assessment under that head, nor had it been sustained in earlier appellate proceedings. According to the CIT(A), the AO’s role while passing an order giving effect to an appellate order was confined to implementing the directions contained in that order. By introducing a new source of income, the AO had exceeded his jurisdiction. Accordingly, the CIT(A) deleted the addition.

The Revenue appealed before the Tribunal, contending that the receipt and retention of ₹5 crore remained undisputed and should therefore be taxable as income from other sources, especially since there was no evidence of refund following the cancellation of the sale deed.

The Tribunal rejected the Revenue’s contentions. It observed that the original dispute had related solely to the taxability of the transaction as Long-Term Capital Gains. The assessment in the assessee’s hands had been protective in nature. Neither the original assessment order nor the earlier appellate orders had made any addition of ₹5 crore as income from other sources. Further, the Tribunal’s earlier order dated 4 September 2024 contained no finding or direction regarding such taxability.

The Tribunal reiterated the settled principle that, while giving effect to an appellate order, the AO is strictly confined to implementing the directions issued therein and cannot travel beyond their scope. By treating the amount of ₹5 crore as income from other sources, the AO had introduced an entirely new issue and exceeded the jurisdiction available in proceedings meant only to give effect to the Tribunal’s decision.

The Tribunal also referred to the decision of the Allahabad High Court in S.P. Kochhar v. ITO [1984] 145 ITR 255, which held that when a matter is remanded or directions are issued by the Tribunal, the Assessing Officer’s authority remains restricted to the subject matter of the appeal and the directions contained therein. The Assessing Officer cannot consider issues that were not part of the appellate proceedings.

Applying this principle, the Tribunal held that the addition of ₹5 crore as income from other sources fell outside the scope of the Tribunal’s earlier order. Therefore, the CIT(A) had rightly deleted the addition, and the Revenue’s appeal was dismissed.

With respect to the assessee’s cross-objection challenging the reopening of assessment, the Tribunal observed that those grounds did not arise from the subject matter of the present proceedings. Finding no merit in the cross-objection, it dismissed the same.

Accordingly, both the Revenue’s appeal and the assessee’s cross-objection were dismissed.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the Revenue and the cross objection filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 09.10.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2008-09.

2. The appeal filed by the Department is delayed by 30 days. The AO has filed an affidavit stating therein the reasons for belated filing of this appeal. On perusal of the reasons stated in the condonation petition, we are of the view that there is sufficient cause for late filing of this appeal and no latches can be attributed to the Department. Hence, we condone the delay in filing this appeal and proceed to dispose off the appeal on merits.

3. We shall first adjudicate the appeal filed by the Revenue. The solitary issue raised by the Revenue is whether the First Appellate Authority (FAA) is justified in deleting the addition of Rs.5,00,00,000/-The AO had made addition of Rs.5,00,00,000/- while giving effect to the consolidated order of the Tribunal dated 04.09.2024 in ITA No.1458/CHNY/2018 & ITA No.1537/CHNY/2018. The relevant narration of facts and the reasoning of the AO in making the addition of Rs.5,00,00,000/- reads as follows:-

1. The assessee, an individual, had filed the return of income for AY 2008-09 on 31.07.2008 admitting a total income of Rs.1,07,640/-. The case was reopened u/s 148 and the assessment u/s 143(3) r.w.s 147 was completed on 18.03.2014 making addition of Rs.74,09,91,105/- under the head LTCG. The total income was assessed at Rs.74,10,98.744/- raising a demand of Rs.28,88,01,808/-.

2. During the course of assessment proceedings it was seen that the assessee had sold immovable property along with his father and had failed to admit the gains thereon. The assessee admitted to have received a sum of Rs.5 crore as his share (50%) in the sale consideration. Since the assessee was not a joint owner and his name was included only as abundant caution, protective assessment was made in assessee’s hands on 18.03.2014 assessing income at Rs.74,10,98,744/-.

3. Since the substantive assessment made in the hands of the assessee’s father was upheld, the CIT(A) in his order in ITA No.72/CIT(A)-12/2014-15 dated 16.02.2018 deleted the above addition made. The order giving effect to the CIT(A) order was passed on 28.03.2018 and income was revised to Rs. 1,07,640/-.

4. Against the CIT(A) order, Department filed appeal before the ITAT. The Tribunal upheld the C’IT(A) order in its order in ITA No.1537/CHNY/2018 dated 13.02.2019. Since the assessee’s father appeal was pending before the ITAT on the same issue, Department filed miscellaneous petition before the ITAT which was accepted.

5. The ITAT in its combined order in ITA NO.1458/Chny/2018 (Ass) & ITA No.1537/Chny/2018 (Rev) dated 04.09.2024 has dismissed the Department’s appeal. In this case the the Hon’ble Supreme Court vide order dated 04.05.2022 in Civil Appeal Nos.2752 &2753 of 2022 upheld the order of Hon’ble Madras High Court in WP No.33462 of 2014 cancelling the sale deed No.2179 of 2007 dated 05.07.2007 registered under SRO, Alandur ITAT held that since there was no transfer of property the consequential Long Term Capital Gains does not arise and dismissed the appeal filed.

6. However the ITAT has not denied that the assessee received a sum of Rs.5 crore as his share in the sale consideration in the impugned transaction. Since the transfer has been held void abinitio, the sum of Rs.5 crore is treated as ‘Income under the head Other Sources’ and brought to tax. Accordingly, the order giving effect to the ITAT is passed and the income is revised as under:

4. Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The FAA deleted the addition of Rs.5,00,00,000/- by observing as under:-

“6.2 The facts of the case are clear from the detailed submission of the appellant. In brief, the issue is that the matter of appeal travelled up to the Hon’ble ITAT. The Hon’ble ITAT dismissed the appeal of the department. Earlier the Ld. CIT (appeal) had deleted the addition made to the income of the appellant. While giving effect to the order of the Hon’ble ITAT, the Ld. AO reduced the relief which had been allowed earlier by the Ld. CIT(A). However he proceeded to make an addition of Rs. 5 crores by stating that the Hon’ble ITAT had not denied that the appellant received the sum of Rs. 5 crores. Although it is an order giving effect to appeal order of the Hon’ble ITAT, it has been passed in a manner as if it is an assessment order. The basic appeal is against this addition. It has been claimed that the Ld. AO had no jurisdiction for making this addition. Such addition can be made only in order u/s 143(3) or 147 only. It has therefore been requested to delete the addition. I have gone through the entire matrix of the facts. From the order of the Hon’ble ITAT there is no word that they had intended to make the addition of Rs. 5 crores. This addition had neither been made by the AO in the original assessment nor by the Ld. CIT(A) in the appeal order. The Hon’ble ITAT has not stated anything regarding the same in its order. Therefore the AO has no occasion or jurisdiction to raise this issue afresh while giving appeal effect. In the appeal effect order the AO is supposed to just execute the directions of the Hon’ble ITAT. He has no authority to go beyond that. By resorting to make such an addition he has clearly gone beyond his authority for which there is no justification. As such the same is liable to be deleted and the appellant deserves relief from the same. The appeal of the appellant is therefore allowed and this addition is directed to be deleted.”

5. Aggrieved by the above order of FAA, the Revenue has filed the present appeal before the Tribunal raising the following grounds:-

The order of the Ld.CIT(A) is contrary to the facts and circumstances of the case.

2. The Ld. CIT(A) erred in law and on facts in holding that the Assessing Officer had no occasion or jurisdiction to make the addition of Rs. 5 Crores as “Income from Other Sources” in the order giving effect to the Hon’ble ITAT’s order u/s 254 dated 17.10.2024.

3. The Ld. CIT(A) failed to appreciate that the core issue in the proceedings was the taxation of gains arising from the transfer of immovable property, including the receipt of sale consideration by the assessee.

4. The Ld. CIT(A) failed to appreciate that the Hon’ble ITAT’s order did not deny the assessee’s receipt of Rs.5 Crores as his 50% share in the sale consideration, nor did it mention any refund of such amount to the buyer despite the cancellation of the sale deed by the Hon’ble Supreme Court vide order dated 04.05.2022 and thus the AO was well within jurisdiction to tax the retained amount as income from other sources.

5. The Ld. CIT(A) erred in law and on facts in observing that the addition of Rs.5 Crores was neither made in the original assessment order nor in the CIT(A)’s earlier order, which is factually incorrect as the reopening u/s 148 was precisely on the basis of the assessee’s failure to disclose the transfer and receipt of consideration and this 5 Crores was part sale consideration admitted by the assessee.

6. The Ld. CIT(A) failed to appreciate that the ITAT’s dismissal of the department’s appeal was solely on the ground of no ‘transfer’ post SC cancellation, but the undisputed receipt and retention of Rs. 5 Crores by the assessee renders it taxable as income from other sources, especially when no evidence of refund was placed on record.

7. The Ld. CIT(A) erred in law and on facts in holding that the Hon’ble ITAT did not intend to make the addition of Rs.5 Crores ignoring the ITAT’s failure to provide treatment of the sale consideration received, which was the core issue for reopening the case.

8. The Ld. CIT(A) erred in law and on facts in deleting the addition without examining the merits of taxability of Rs.5 Crores as “Income from Other Sources” which represents consideration received in a transaction which was retained by the assessee without refund after the Honble Supreme Court’s decision.

9. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored.

6. The Ld.DR relied on the grounds raised.

7. The assessee has filed a paper-book enclosing therein the case laws relied on, the consolidated order of the Tribunal in ITA No.ITA No. 1458 & 1537/Chny/2018, etc. The Ld.AR reiterated the submissions made before the FAA.

8. We have heard rival submissions and perused the material on record. In the instant case, substantive assessment was made in the hands of the deceased father of the assessee. The protective assessment was made in the hands of the assessee. The Tribunal, vide its combined order dated 04.09.2024 in ITA Nos.1458/CHNY/2018 and 1537/CHNY/2018, while adjudicating the substantive assessment in the case of the assessee’s deceased father, took note of the judgment of the Hon’ble Supreme Court dated 04.05.2022, whereby Sale Deed No.2179 of 2007 registered before SRO, Alandur was cancelled. Accordingly, the Tribunal held that, since there was no transfer of property in the eyes of law, no consequential Long Term Capital Gains could arise, and thereby, partly-allowed the appeal filed by deceased father. In the case of the assessee, where the assessment was made on a protective basis, the Tribunal dismissed the Revenue’s appeal by observing as under:-

“28. We have heard both the parties and perused the records. And since we have noted that the action of the AO adding LTCG (on protective basis) in the hands of assessee (Shri K. Venkatakrishnan) was in respect of sale-deed registration No.2179/2007 dated 05.07.2007 of immovable property registered at Sub-Registrar, Alandur, which registration has been cancelled/expunged by the Hon’ble Supreme Court as noted (supra) and therefore, the substantive addition confirmed by Ld.CIT(A) in the hands of late father Shri legal K. S. Deendayalu Reddy has been ordered to be deleted on principle in the maxim “sublato Fundmento Credit opus” meaning in case a foundation is removed, the super-structure falls. Therefore, on the very same reasoning, when the substantive addition itself will not survive in the eyes of law, fate of protective addition will be same. Therefore, the impugned action of the Ld.CIT(A) is upheld on the aforesaid reasons and hence, we dismiss the appeal of the Revenue.”

9. As rightly pointed out by the FAA, the AO, in the original assessment order, had not made any addition of Rs.5,00,00,000/-under the head “Income from Other Sources”. The issue involved in the original assessment proceedings was confined to the question whether the transfer of the asset was liable to Long Term Capital Gains tax or not. Further, the assessment in the hands of the assessee was made only on a protective basis. The FAA, in the original appellate proceedings, had deleted the addition and had not sustained the same on a substantive basis in respect of the alleged receipt of Rs.5,00,00,000/-. Moreover, the Tribunal, in its order dated 04.09.2024, had not rendered any finding or issued any direction as to whether the said amount could be brought to tax as “Income from Other Sources”. Therefore, the AO had no jurisdiction to introduce a completely new issue while passing the order giving effect to the Tribunal’s directions. It is a settled principle of law that, while passing an order giving effect to the directions of the Tribunal, the AO is confined strictly to implementing such directions and cannot travel beyond the scope of the order of the Tribunal. By treating the amount of Rs.5,00,00,000/- as “Income from Other Sources”, the AO clearly exceeded the jurisdiction vested in him.

Hence, we find that the FAA was fully justified in deleting the said addition.

10. On identical facts, the Hon’ble Allahabad High Court in the case of S.P. Kochhar vs. ITO reported in [1984] 145 ITR 255 (Allahabad) had observed as follows:-

“15…………When the remand is made by the Tribunal the position is different. The powers of the Tribunal are confined to the subject-matter of appeal as constituted by the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal. Thus, when the Tribunal allows the appeal and sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to such subject-matter only. He cannot take up the questions which were not the subject-matter of appeal before the Tribunal. This will be so even though no specific direction has been given by the Tribunal. If a specific direction is given, then there is no scope whatsoever for the ITO to travel beyond those directions or restrictions.”

11. In the present case, admittedly, the Tribunal, in its order dated 04.09.2024, had not made any observation with regard to the receipt of Rs.5,00,00,000/- and had deleted the addition towards Long Term Capital Gains which had been made on a protective basis in the hands of the assessee. It has also been submitted by the Ld. AR that, in the case of the deceased father, the Revenue had not made any substantive addition in respect of the amount of Rs.5,00,00,000/- (as income from other sources). Therefore, since the AO while passing the order giving effect to the Tribunal’s order, made a fresh addition which was beyond the scope of the Tribunal’s directions, we find no infirmity in the order of the FAA deleting the same. Accordingly, the order of the FAA is upheld.

CO No.13/CHNY/2026

12. We find that the grounds raised in the Cross Objection pertain to the reopening of assessment, which does not arise from the subject matter of the present proceedings. In view of the above, we find no merit in the cross objection. Accordingly, the same is dismissed.

13. In the result, the appeal filed by the Revenue and the cross objection preferred by the assessee are dismissed.

Order pronounced in the open court on 2^nd June, 2026 at Chennai.