ITAT Chandigarh Deletes ₹78 Lakh Capital Gains Addition — Nominee Cannot Be Taxed as Beneficial Owner
Overview of the Dispute
The Income Tax Appellate Tribunal, Chandigarh Bench, rendered a significant ruling in Ashok Kumar Vs ITO (ITAT Chandigarh) concerning Assessment Year 2013-14, wherein it set aside a capital gains addition of ₹78,00,000/- that had been framed during reassessment proceedings initiated under Section 147 read with Section 144 and Section 144B of the Income-tax Act, 1961. The Tribunal's decision firmly establishes that where an assessee holds property merely as a nominee or conduit — without enjoying any real economic benefit — the resulting gain on sale cannot be brought to tax in the nominee's hands.
Before proceeding to the substantive merits, the Tribunal addressed a preliminary procedural issue. The assessee had filed the appeal with a delay of 30 days. Upon consideration of the condonation application and the supporting medical records placed on record, and noting the absence of any objection from the Departmental Representative, the Tribunal condoned the delay and admitted the appeal for adjudication on merits.
Background and Factual Matrix
Original Return and Initiation of Reassessment
The assessee filed his original return of income for Assessment Year 2013-14 on 20.11.2013, declaring a total income of ₹10,53,530/-, which was processed under Section 143(1) of the Income-tax Act, 1961. The matter did not rest there. The Department subsequently received information indicating that during Financial Year 2012-13, the assessee had participated in a property sale transaction worth ₹1,41,00,000/- without making any corresponding disclosure of capital gains in his return. This prompted the initiation of reassessment proceedings under Section 147 of the Act.
The Assessing Officer noted that the assessee was engaged in real estate brokerage and commission activities. During the course of reassessment, notices under Section 148 and Section 142(1) were issued, calling upon the assessee to explain the nature and source of the transaction and to furnish full details relating to the sale, capital gain computation, and relevant documentation.
The Property Transaction in Question
The subject property was House No. 804, Phase-3B1, Mohali. According to the documents on record, this property was sold vide a registered sale deed bearing Vasika No. 4053 dated 30.01.2013 in favour of one Shri Ishwar Grewal for a total consideration of ₹1,41,00,000/-. The property had previously been registered in the assessee's name through a registered sale deed dated 04.05.2009 (Vasika No. 997), reflecting a purchase consideration of ₹63,00,000/-.
On the basis of these registered instruments, the Assessing Officer computed long-term capital gains of ₹78,00,000/- — being the difference between the sale consideration of ₹1,41,00,000/- and the recorded purchase consideration of ₹63,00,000/- — and added the same to the assessee's income.
The Assessee's Explanation: A Nominee Arrangement
Genesis of the Arrangement
The assessee advanced a detailed explanation tracing the true genesis of the entire property transaction. According to him, his cousin brother, Shri Ravinder Goyal, had advanced a sum of approximately ₹1.40 crore to one Shri Rajwant Singh and others in the year 2006. The amounts were not repaid, and cheques issued towards repayment were dishonoured.