GURRAM SATYAVATHI,KANDUKURU PRAKASAM vs. ITO, WARD-1, ONGOLE

PDF · subscribers
ITA 1290/HYD/2026Status: DisposedITAT Hyderabad25 August 2026AY 2020-2110 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the issue of whether the assessee was engaged in regular business activity of dealing in immovable properties requires further inquiry. It also directed the Assessing Officer to verify and allow the cost of construction if the property was indeed constructed by the assessee.

What were the facts?

The assessee sold immovable properties and offered the income as business income under Section 44AD. The Assessing Officer treated it as short-term capital gains, disallowing the cost of construction. The CIT(A) confirmed this treatment.

What were the issues?

Whether the income from sale of immovable property is business income or capital gains, and whether the cost of construction is allowable for capital gains computation.

Which sections of the Income-tax Act were involved?

Section 44AD,Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD

Pronounced: 25.08.2026

आदेश / ORDER

This appeal by the assessee is directed against the order dated 25.02.2026 of the learned CIT(A)-National Faceless Appeal Centre [in short "NFAC"], Delhi, for the assessment year 2020-2021.

2.

The assessee has raised the following grounds of appeal:

1.

“The order u/s 250dated 03-11-2025 passed by the Hon'ble Commissioner (Appeals) -NFAC, Delhi is not correct either in law or on facts and in both.

2.

The Learned First Appellate Authority is not justified in not appreciating the ground that the notice u/s.148 issued by the jurisdictional assessing officer is bad in law and hence subsequent assessment proceedings are equally bad in law.

3.

The Learned First Appellate Authority erred in confirming the addition of Rs.20,90,500/- by treating the income arising from sale of immovable property under the head Short Term Capital Gains, ignoring the fact that the said transaction formed part of the appellant's regular business activity in dealing with immovable properties and was rightly offered as business income.

4.

Without prejudice to the Ground No.3 above, the Learned First Appellate Authority is not justified in not granting cost of construction while computing Short Term Capital Gain towards the built-up-area constructed solely on the ground that details of cost incurred were not provided.

5.

The appellant craves leave to add, amend or alter any of the above ground grounds.”

3.

The learned Authorised Representative of the Assessee has submitted that the assessee is an individual engaged in the clothing business and construction activities and not maintaining any regular books of account. He has pointed out that the assessee has filed her return of income in response to notice u/sec.148 of the Income Tax Act [in short "the Act"], 1961 declaring total income of Rs.3,00,510/- under presumptive tax provisions of sec.44AD of the Act from purchase and sale of immovable property. He has further submitted that the assessee is a co-owner of property plot no.88, Boduppal, Malkajigiri District as well as plot no.70, Ameenpur (v) having 50% shares sold for a total consideration of Rs.63 lakhs and 50% of the assessee’s share comes to Rs.31,50,000/- on which the assessee has offered the tax @ 8% u/sec.44AD of the Act. The Assessing Officer has assessed the income from sale of these properties as short term capital gain and allowed only the cost of land as deduction without considering the cost of construction of these properties. Thus, the learned Authorised Representative of the Assessee has submitted that the addition made by the Assessing Officer by considering the income from sale of properties as short term capital gain is highly arbitrary and unjustified when the assessee has declared such income as business income. He has further submitted that the assessee is doing regular business activity in dealing with immovable properties. He has referred to various other properties purchased by the assessee to show that the assessee is engaged in the regular business activity of immovable property and therefore, the income arisen from sale of these properties is rightly declared by the assessee as business income. Alternatively, the learned Authorised Representative of the Assessee has submitted that the Assessing Officer has not allowed the cost of construction and particularly the index cost of construction. He has relied upon the order of Coordinate Bench ITAT, Hyderabad Tribunal in the case of Smt. Sampat Devi Sutaliya, Hyderabad vs. ITO, Ward-4(5), Hyderabad in ITA.No.660/ Hyd./2023 vide order dated 05.07.2024 and submitted that the Tribunal has adopted the reasonable rate of cost of construction of Rs.300/- per sq. feet for the assessment year 1986-1987 and therefore, applying the cost inflation index, the cost of construction be determined while computing the short term capital gain.

4.

On the other hand, the learned DR has submitted that the activity of sale of the immovable properties of the assessee are not in the nature of adventure or regular business activity. The assessee has not produced any documentary evidence to show that the assessee is in the business of real estate and therefore, the Assessing Officer has rightly assessed the income of the assessee as short-term capital gain instead of business income. He has relied upon the Orders of the authorities below.

5.

I have considered the rival submissions as well as relevant material on record. The assessee is an individual and has not filed any return of income u/sec.139 of the Act. On the basis of the information regarding the transaction of sale of properties by the assessee, the Assessing Officer issued notice u/sec.148 of the Act on 14.03.2024. In response to the notice u/sec.148, the assessee filed return of income declaring total income of Rs.3,00,510/- comprising of business income of Rs.2,89,161/- u/sec.44AD of the Act from sale of the properties. The Assessing Officer has given details of the properties sold by the assessee during the year having 50% share as under:

“During the year I have sold the properties and the details are as follows: i. Co-ownership House at Plot No. 88, Boduppal Village and Municipality, Medipaly mandal, Medchal Malkajgiri District sold on 15th April, 2019 (Half Share) Rs.19,00,000/- ii. Co-ownership House at Plot No. 70, Ameenpur Village and Mandal, Sangareddy District sold on 27th January, 2020 (Half Share) Rs. 12,50,000/-”

5.1. The Assessing Officer has decided this issue in Para no.4.8.1 as under:

“4.8.1: Issue of Sale of immovable property of Rs.31,50,000/- Assessee replied to SCN and furnished sale deed and purchase deed. On verification of Sale deed & purchase deed, it is noticed that the assessee has sold both the property with co-owner and her share is 50% in each property and purchased both the property with co-owner and her share is 50% in each property (Rs. 19,00,000/- + Rs. 12,50,000 totalling to Rs. 31,50,000/-).

Assessee has not filed Return of income u/s 139(1) though the income was more than the taxable income. Assessee filed Return of Income on 21.06.24 in response to notice u/s 148 by declaring income from Business of Rs. 2,89,161/-. Assessee has offered an income of Rs. 36,14,502/- as annual turnover/Receipts and offered 8% on the total turnover as presumptive profit u/s 44AD. Assessee claims that she is doing cloth business and construction activities frequently, and the sale of immovable property of Rs. 31,50,000/- (50% of her share) pertains to her business. Assessee stated that she constructed the building after obtaining approval from concerned municipal authorities and sold the property in semi construction stage to earn profit. However, the assessee has not furnished satisfactory explanation or relevant documentary evidence to substantiate her claim. Hence the assessee's claim is not acceptable. The claim of the assessee that the amount of Rs.31,50,000/- towards sale of immovable property to be treated as business income is not substantiated. On perusal of copy of sale deed it is verified that the share of the assessee is only 50% which comes to Rs. 31,50,000/- and on perusal of Bank Statement, the assessee has received the amount of Rs. 31,50,000/- on sale of immovable property.”

5.2. Thus, the Assessing Officer has denied the claim of business income for want of any documentary evidence to substantiate the claim. On appeal, the learned CIT(A) has confirmed the treatment of income as short term capital gain while passing the impugned order. It is pertinent to note that the assessee is admittedly not maintaining any books of account and even no other record is maintained regarding the business activity carried out by the assessee. Therefore, in the absence of any documentary evidence maintained by the assessee, the claim of the assessee cannot be accepted unless and until it is proved that the assessee is in regular and systematic activity of purchase, development and sale of real estate/immovable properties. Though the assessee claimed that she has also carried out such transactions of purchase and sale however, these are required to be verified from the relevant details and record. Therefore, in the facts and circumstances of the case, this issue whether the assessee is carrying out business activity of purchase, development and sale of immovable properties requires a deeper enquiry and examination of the relevant facts and record. Accordingly, this issue is remanded to the record of the Assessing Officer to consider the subsequent activities of the assessee to arrive at the conclusion whether activities carried out by the assessee are in the nature of business or trade or not ?

5.3. As regards the cost of construction to be allowed at the time of computing the short-term capital gain, if the assessee has carried out the construction of the property after acquisition of the same then, the cost of construction is an allowable deduction while computing the capital gain. Though the assessee has claimed that she has obtained permission/sanction of the plan for construction of the property, however, the Assessing Officer has stated in the order that the assessee has not produced any evidence in support of the claim. Accordingly, the Assessing Officer is directed to verify this fact. If the property was constructed prior to the sale, then cost of construction shall be allowed by applying the prevailing rate of cost of construction as semi-furnished as claimed by the assessee. Therefore, subject to the verification of the fact that the assessee has actually carried out the construction work of these properties, the same shall be allowed by taking a proper rate of construction and also in view of decision of the Tribunal as relied upon by the assessee.

6.

In the result, appeal of the Assessee is allowed for statistical purposes. Order pronounced in the open court on 25.08.2026

Sd/- VIJAY PAL RAO VICE PRESIDENT Hyderabad, Dated 25th day of August, 2026 VBP Copy to: GURRAM SATYAVATHI, C/O KATRAPATI & ASSOCIATES, 1-1298/2/B/3, SWOBHAGYA AVENUE 1 APTS, 1ST FLOOR, FLAT NO.105, ASHOK NAGAR, STREET NO.1, HYDERABAD-500020, TELANGANA 2 ITO, WARD-1, ROSHAN PLAZA, 8TH LINE, RAM NAGAR, ONGOLE-523001, ANDHRA PRADESH 3 THE PR. CIT, GUNTUR. 4 THE D.R., ITAT, HYDERABAD SMC-BENCH, HYDERABAD 5 GUARD FILE TRUE COPY Digitally signed VADREVU by VADREVU PRASADA RAO PRASADA ASSISTANT REGISTRAR / Date: I.T.A.T., HYDERABAD RAO 2026.08.25 12:35:13 +05'30'

More judgments on Section 44AD

All 2,222 judgments and leading authorities on Section 44AD →

Recent GST High Court judgments

Search GST case law →