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Facts
The assessee, a civil contractor, filed his return of income claiming no capital gains. However, the AO initiated proceedings based on an agreement of sale, leading to the estimation of capital gains. The assessee argued that no sale was completed due to ongoing legal disputes, and therefore, no capital gains were realized.
Held
The Tribunal noted that the assessee's claim of no sale was not adequately substantiated before the AO, though evidence was produced before the CIT(A). Considering the ongoing litigations and the need for detailed verification, the Tribunal set aside the lower authorities' orders.
Key Issues
Whether capital gains tax is leviable when an agreement for sale exists but the sale is not completed due to ongoing legal disputes, and the assessee has not provided adequate evidence to the AO.
Sections Cited
143(2), 54F, 54
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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 22/06/2023 in respect of the A.Y. 2016-17 and raised the following grounds: “The property in question has not been sold, and as such, no capital gains have been realized. Contrary to the presumption made in the assessment, there has been no transfer of ownership of the property. The earlier representative, responsible for assisting with the assessee’s tax return filings, seems to have mistakenly Agreement of Sale as a Sale Deed, which led to an erroneous declaration of capital gains. The sale has not been completed, and therefore, no capital gains should have been recognized or taxed. Both properties (Nos. 4 & 11) are currently embroiled in active legal disputes, which have prevented the sale of the properties. The advance received from the Notarized Agreement of Sale dated October 27, 2014, has been specifically allocated to cover the legal expenses involved in resolving these disputes. Given these ongoing legal matters, the properties remain unsold, and there has been no finalization of the sale transaction. The following cases are pending in courts concerning the two properties:: CCM 62 - 0.S 5760/16, 0.S 7135/16, Misc 106/17 CCM 73 - 0.S 26439/2019 11th ACMM - CC 54730/15, CC 50625/2018 Karnataka High Court - RFA 1096/2016 Due to these unresolved legal matters, the sale of the properties has not occurred, and any declaration of capital gains is premature and incorrect. In light of the above facts, I respectfully request that the additions made under Section 54 of the Income Tax Act, concerning the alleged capital gains, be removed. The property has not been sold, and there is no realized capital gain to be taxed. To substantiate the claims made above, I am submitting the following documents: Bank Statement: Demonstrating that there have been no transactions related to the sale of the properties. Annexure-01 Property Tax Paid Challan: Indicating that the properties remain under the assessee's ownership. Annexure-02 Khata Copy: Showing that the properties are still registered in the assessee's name, further affirming that no sale has occurred. Annexure-03”
The brief facts of the case are that the assessee is a civil contractor and filed his return of income on 26/03/2018. The case was selected for scrutiny under CASS. Notice u/s. 143(2) was issued on 11/08/2018 and 17/09/2018. The AO also sought for the copy of the return of income filed along with the computation of income and the documentary evidence for the deduction claimed u/s. 54F of the Act. The assessee had not responded to the said notices and therefore a show cause notice was issued. Even for the said show cause notice, the assessee had not responded. Therefore a final show cause notice was issued on 21/12/2018. The assessee appeared on 29/12/2018 and submitted copies of sale deed as proof of cost of acquisition. The assessee had not produced any details for the deduction claimed u/s. 54 of the Act. Therefore the AO had computed the income from capital gains.
As against the said order, the assessee filed an appeal before the Ld.CIT(A). In the said appeal, the assessee took a different stand that there was no sale of any capital asset and his representative had filed return of income wrongly showing the capital gains. The assessee also submitted that the AR of the assessee might have considered the agreement for sale as deed of sale of capital assets and also enclosed the encumbrance certificate from which the assessee pointed out that the property is still in the name of the assessee and therefore there is no capital gains arising out of the said property.
The Ld.CIT(A) considered the said grounds and the documents filed before him and he concluded that, the AR of the assessee had produced the copy of the sale deed as proof of cost of acquisition and the assessee had not substantiated his claim by producing his bank accounts to show that no such transaction was happened. The Ld.CIT(A) further held that the assessee had not substantiated the claim that there was no sale by way of any statements denying the said transactions from the parties in the sale deed. Therefore the Ld.CIT(A) had upheld the order of the AO.
The assessee challenged the said order before this Tribunal with a delay of 498 days.
6. The assessee also filed an application to condone the said delay. The assessee submitted that he is a layman with limited knowledge of tax laws and procedures and therefore he has no knowledge about the order passed by the Ld.CIT(A). The assessee also submitted that he had responded manually before the Ld.CIT(A) but subsequent to the transfer of the case to the Faceless Appeals, he does not know the procedure and therefore not followed up the case. The assessee submitted that he came to know about the order passed by the Ld.CIT(A) only when he has received the recovery notice on 14/10/2024 and thereafter he tried to contact the counsel for filing the appeal and finally, the appeal was filed on 10/01/2025 with a delay of 498 days. The assessee submitted that this delay is neither wilful nor wanted but due to the lack of knowledge, this delay has happened and submitted that the assessee is having a case on merits and if the delay has not been condoned and the appeal has not been decided on merits, great prejudice would be caused to him, on the other hand, no prejudice would be caused to the respondent if the delay has been condoned and the appeal is decided on merits.
We have considered the submissions made by the assessee and also the fact that the assessee is a layman and he has no knowledge about the e- proceedings and also considering the fact that the assessee had initially responded to the appeal notices manually, in the interest of justice, we are inclined to condone the said delay of 498 days and proceeded to decide the appeal on merits.
At the time of hearing, the Ld.AR submitted that the assessment made by the AO assuming that the assessee had earned capital gains is not correct since the assessee had not at all sold any property during the relevant A.Y. and also produced the bank statements, revenue records and other documents to show that there is no transfer of property and therefore there is no question of any capital gains would arise. The Ld.AR also filed form 15 and 16 to show that there is no transfer in respect of the said property owned by the assessee. The Ld.AR therefore submitted that by AR who appeared before the AO had misconstrued the sale agreement as the sale deed and declared the capital gains while computing the income. The Ld.AR therefore prayed that the entire assessment is not based on the facts and prayed to allow the appeal filed by the assessee.
The Ld.DR relied on the orders of the lower authorities and submitted that the AR of the assessee only produced the sale deed before the AO and therefore the plea now raised before the Ld.CIT(A) and before this Tribunal cannot be accepted as a genuine one and prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
We have perused the assessment order from which we came to know that the AO had issued a notice on the allegation that there is a capital gains arises in the case of the assessee for which the assessee had also responded through his AR and submitted a copy of the sale deed and also filed a computation of income. Insofar as the claim made u/s. 54 of the Act, the assessee was not able to file any details for the above said deduction and therefore the AO had estimated the capital gains based on the records available before him. While approaching the Ld.CIT(A), the assessee took a different stand that there was no sale of any capital assets and therefore there is no claim made u/s. 54 of the Act. In support of his claim, the assessee had produced the property tax receipts as well as the encumbrance certificate issued by the authorities to show that the property is still in the name of the assessee and therefore there could not be any liability under the provisions of the capital gains. The Ld.CIT(A) had not accepted the claim made by the assessee for the reason that there was no denial of the parties in the sale deed and he arrived a conclusion that nobody would sign the documents involving such huge amounts. The Ld.CIT(A) further held that there was a sale deed and money having been transacted, it cannot be
Before us, the assessee had produced the bank statements for the period from 01/04/2015 to 31/03/2016 and also the property tax receipts issued in the name of the assessee in respect of the property 155/1, Nagawara for the period 2017-18 to 2024-25 which are all issued in the year 2024. We have also perused the encumbrance certificate issued by the authorities which is in the vernacular language. The bank statements furnished by the assessee would not show any transactions involving the transfer of the property. Similarly, property tax receipts issued by the BBMP from the period from 2017-18 to 2024-25 would establishes the fact that the property at 155/1, Nagawara stood in the name of the assessee and no mutation has been effected in the revenue records of the BBMP. We have also perused the encumbrance certificate issued by the authorities in which it was alleged that there is no entry of any encumbrance. We have also considered the submissions of the assessee that there are several litigations pending before the various courts. In such circumstances we are of the view that the issue requires a detailed verification based on the documents furnished before us. The above said documents were not produced before the AO but it was produced before the Ld.CIT(A) but the Ld.CIT(A) had not accepted the said documents and confirmed the assessment.
As seen from the various records produced by the assessee, we cannot simply brush aside the arguments made by the assessee that there is no transfer of any property in the hands of the assessee to attract the provisions of the capital gains. But anyhow this matter requires a further investigation and in the event, the authorities had found that there is a transfer, then definitely the provisions of capital gains would attract. But unfortunately, the assessee had not furnished any details before the AO. We, therefore of the view that the issue requires reconsideration in the hands of the AO. We, therefore, set aside the orders of the lower authorities and remit this issue to the file of the AO for denovo consideration and in the AO had satisfied that there is no transfer of property, there would be no liability under the provisions of the capital gains. We also direct the assessee to cooperate with the AO and finalise the issue without seeking any unnecessary adjournments. We also permit the assessee to produce the relevant documents and other evidences to show that there is no transfer of property involved during the AY.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 14th October, 2025.