The assessee had inducted capital in the firm in which she was a partner. During reassessment proceedings u/s. 147 of the IT Act, the assessee explained the source of the amounts received as gifts through banking channels and also produced the gift deeds. The statements of the two donors were also recorded u/s. 131. However, the AO held that the gifts were not genuine and added the amounts u/s. 68 of the Act as undisclosed income.

The Tribunal held that the additions made by the Assessing Officer u/s. 68 could not be sustained. Thereafter, the Tribunal added the said amount as the income of the assessee u/s. 69A.

On appeal by the assessee, the Allahabad High Court reversed the decision of the Tribunal and held as under:

  1. The use of the word “thereon” in section 254(1) of the IT Act reflects that the Tribunal has to confine itself to the questions which arise or are subject matter in the appeal and it cannot travel beyond that.
  2. The HC observed that the power to pass such order as the Tribunal thinks fit can be exercised only in relation to the matter that arises in the appeal and it is not open to the Tribunal to adjudicate any other question or issue, which is not in dispute and which is not the subject matter of the dispute in appeal.
  3. The HC held that when the amounts could not have been added u/s. 68, the Tribunal was not competent to make the addition u/s. 69A. Therefore, the order of the Tribunal was vitiated in law.  The Matter remanded to the Tribunal.

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