ITAT Jaipur Quashes ₹28.83 Lakh Capital Gains Addition: Power of Attorney Holder Cannot Be Taxed as Deemed Owner

The intersection of property law and tax jurisprudence often creates complex disputes, particularly when tax authorities attempt to look beyond registered legal documents to infer beneficial ownership. A fundamental principle of law dictates that a Power of Attorney (PoA) is merely an instrument of agency, not a document that confers absolute title or ownership. This principle was recently reinforced by the Income Tax Appellate Tribunal (ITAT), Jaipur, in the landmark case of Roop Narayan Choudhary Vs DCIT.

In this significant ruling, the Tribunal dismantled the Assessing Officer's attempt to tax a PoA holder for Long Term Capital Gains (LTCG) arising from the sale of a property owned by his mother. The ITAT categorically held that executing a sale deed on behalf of a principal does not grant the attorney dominion over the sale proceeds, nor does it transform the agent into a "deemed owner" for the purposes of the Income Tax Act 1961.

This comprehensive analysis delves into the factual matrix, the procedural anomalies, the statutory provisions invoked, and the Tribunal's definitive stance on the boundaries of tax assessments concerning agency and ownership.

The Genesis of the Dispute: Multiple Reassessments

The factual background of the case reveals a convoluted assessment history for the Assessment Year (AY) 2012-13. The assessee initially filed his return of income declaring a total income of ₹12,64,270. Subsequently, the tax department subjected the assessee to a first round of reassessment. This initial reassessment was completed under Section 147 read with Section 143(3) of the Income Tax Act 1961, which resulted in the total income being assessed at an enhanced figure of ₹41,34,140.

The matter did not rest there. The revenue authorities initiated a second reassessment proceeding under Section 147 of the Income Tax Act 1961. The trigger for this second reopening was an alleged discrepancy regarding an immovable property transaction. The tax department possessed information indicating a significant difference between the stated sale consideration and the stamp duty value of a property transaction linked to the assessee.

In response to the notice issued under Section 148 of the Income Tax Act 1961, the assessee filed a return of income on 31.03.2019, once again declaring his total income at the original figure of ₹12,64,270. Following this filing, the Assessing Officer (AO) issued statutory notices under Section 143(2) and Section 142(1) of the Income Tax Act 1961. However, the assessee failed to respond to these notices or enter an appearance during the assessment proceedings. Consequently, the AO proceeded to frame an ex-parte assessment based on the material available on record.

The Assessing Officer's Stance: Constructing "Deemed Ownership"

The core of the AO's addition revolved around the application of Section 50C of the Income Tax Act 1961 and the controversial classification of the assessee as the "deemed owner" of the transacted property.

The property in question was originally purchased by the assessee's mother, Smt. Bhuri Devi, on 25.01.2005 for a consideration of ₹4,00,000. The registered sale deed clearly established her as the absolute owner. Later, a Power of Attorney was executed in relation to the land on 10.12.2018. Acting as the attorney for his mother, the assessee executed a sale deed dated 12.05.2011, conveying the property to his wife, Smt. Jhuman Devi, and his son, Shri Siddharth Narayan Choudhary.