ITAT Restores Matter After AO Failed to Verify Property Transaction Nature

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) remanded a matter involving long-term capital gains (LTCG) addition after finding inconsistencies in the nature of immovable property transactions and lack of proper factual verification by the Assessing Officer (AO). A Bench comprising Judicial Member Suchitra Kamble and Accountant Member Narendra Prasad Sinha held that the assessment required fresh examination as the records did not conclusively establish whether the assessee had purchased or sold the disputed properties during the relevant year.

“The AO had flip-flopped between making addition u/s 56(2)(x) or u/s 50C of the Act.”

The assessee, Raghvendrasinh Dharmendrasinh Chudasama, had not filed his return of income for AY 2020-21. Based on information regarding purchase and sale transactions of immovable properties, the case was reopened under Section 147 after passing an order under Section 148A(d). During assessment proceedings, the AO made an addition of Rs.5.07 crore towards LTCG under Section 50C on the basis of stamp duty valuation of certain properties. A further addition of Rs.12.92 lakh was also made towards short-term capital gains.

Before the Tribunal, the assessee contended that the transactions in question related to purchase of properties and not sale. It was further submitted that the sale deeds dated 19.09.2019 were subsequently cancelled through registered cancellation deeds dated 15.07.2024. The assessee argued that no capital gains could therefore arise in his hands.

The Revenue, however, pointed out that no such plea had been raised before the AO and that the assessee himself had earlier claimed indexed cost of acquisition in relation to the properties. It was also argued that no supporting evidence regarding cancellation of sale deeds had been produced before the lower authorities.

The Tribunal observed that the assessment records reflected both purchase and sale entries for the same properties on the same date and for identical consideration, which itself required proper verification. It further noted that although the AO initially proposed addition under Section 56(2)(x), the final assessment order proceeded under Section 50C without conclusively determining the true nature of the transactions. The Tribunal held that :

“The addition as made u/s 50C of the Act was without proper verification of the fact as to whether the transactions were for purchase or for sale of the properties.”

Therefore, the ITAT set aside the matter to the file of the jurisdictional AO for fresh adjudication after verifying all relevant facts and evidences, including the cancellation deeds and flow of consideration. The Bench clarified that it had not expressed any opinion on the correctness of the assessee’s claim and directed the assessee to place all supporting material before the AO during the set-aside proceedings.

The appeal was allowed for statistical purposes.

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