Fake Sale Deed Backfires: ITAT Hits Assessee with Rs. 3.25 Cr LTCG

Despite selling property valued at Rs. 3.28 crore, the assessee failed to file a return for AY 2011–12. A show cause notice was issued under Section 148, and a reassessment was started under Section 147 based on Annual Information Return (AIR) data. The assessee responded by declaring only Rs. 27,310, stating that the property had been sold to family members in 2005 and that she had only served as a Power of Attorney (POA) holder, receiving no personal proceeds from the said sale.

The AO rejected this claim, treating the sale as a colorable device, and taxed the entire sale consideration under Section 50C. The CIT(A) while deciding the appeal upheld the addition. Aggrieved, the assessee filed the present appeal before the ITAT.

Central Issue: Whether the assessee was the property’s true and legal owner at the time of its 2011 sale and was thus liable to long-term capital gains tax under Section 50C, or if they were merely a confirming party acting under a Power of Attorney without getting any money from the sale?

Tribunal Held: The ITAT upheld the reassessment, stating that the assessee’s failure to file a return justified reopening under Section 147.  It was determined that the 2005 sale deed was a colourable device designed to evade taxes, given that the sale was to close family members. The Tribunal observed that the assessee was listed as both the seller and the confirming party and that the buyer had paid her Rs. 97 lakh directly, according to her ledger entries. Furthermore, the High Court acknowledged her as the property’s legitimate owner during liquidation proceedings of Motorola.

The Tribunal came to the conclusion that the assessee’s assertion that they only acted under POA and did not receive any funds was unfounded. Consequently, it dismissed the appeal and upheld the addition of Rs. 3.25 crore as long-term capital gains under Section 50C.

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