ITAT Hyderabad: CIT(A) Cannot Sidestep Rule 46A; Section 43CA Applies When Property Is Treated as Stock-in-Trade
Case Reference
ITO Vs Narne Constructions Private Limited (ITAT Hyderabad)
Assessment Year: 2015-16
Order Date: 12th June, 2026
Background and Context
The Hyderabad Bench of the Income Tax Appellate Tribunal delivered a significant ruling addressing two interlinked procedural and substantive concerns — first, the improper admission of additional evidence by the CIT(A) without adhering to Rule 46A of the Income Tax Rules, 1962, and second, the failure to examine the applicability of Section 43CA of the Income Tax Act, 1961, even after concluding that the transferred property constituted stock-in-trade rather than a capital asset.
The appeal before the Tribunal was filed by the Revenue, challenging the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 12/09/2025, which had arisen from the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961, dated 28/12/2017.
Facts of the Case
Return Filing and Scrutiny
The assessee-company filed its return of income electronically for AY 2015-16 on 29/09/2015, declaring total income of Rs. 3,27,597/-. The case was subsequently picked up for scrutiny under Section 143(2) of the Act.
Property Transfers Under Examination
In the course of assessment proceedings, the Assessing Officer noted that the assessee-company had transferred two parcels of land to its group concerns during the year under review. The documented consideration for these transfers was as follows:
- Document No. 13845/14, dated 30/03/2013: Rs. 15,00,000/-
- Document No. 13844/14, dated 26/12/2012: Rs. 7,50,000/-
However, the registered values of the same properties, as determined by the Sub-Registrar's Office and registered on 24/09/2014, stood at Rs. 22,02,20,000/- and Rs. 11,01,10,000/- respectively — a stark divergence from the documented sale consideration.
Assessee's Position Before the AO
The assessee-company contended that the land in question had originally been acquired through SAGPA 4645/98 dated 22/06/1998. It was submitted that the transfers were made to two group entities — CIHIPL and SVPL — vide sale deeds bearing Document Nos. 13844/14 and 13845/14, for the purpose of consolidating land holdings and perfecting title. The assessee-company further argued that since the land had been treated as inventory by the receiving group companies and was to be developed and sold as part of a real estate project, no capital gains arose from these transactions.
AO's Findings and Addition Under Section 50C
The Assessing Officer rejected the assessee-company's explanation. He observed that:
- The assessee-company had originally acquired the land through a General Power of Attorney-cum-Agreement dated 22/06/1998 by paying Rs. 32.50 lakhs for obtaining vacant physical possession.
- The balance sheets of the group companies reflected the transferred properties as assets, indicating that actual transfers had taken place.
- Although the sale deeds were presented for registration on earlier dates, the effective registration occurred on 24/09/2014, falling squarely within the financial year relevant to AY 2015-16.
- The assessee-company had itself recognised the transaction during AY 2015-16.