ITAT Clarifies Taxability of Capital Gains in Case of Duplicate and Misclassified Property Sale Deeds

Background and Case Overview

The case Suribabu Pallanti Vs ITO came up before the Income Tax Appellate Tribunal, Visakhapatnam Bench, concerning AY 2016-17. The dispute centered on additions made by the Assessing Officer (AO) on account of alleged undisclosed sale consideration from multiple immovable property transactions.

The assessee had filed a return of income declaring Rs.3,94,000/-. The case was selected for limited scrutiny through CASS, specifically to verify:

  • Large cash deposits in bank accounts, and
  • Purchase and sale of immovable properties during the relevant financial year.

During assessment, the AO concluded that the assessee had not fully disclosed capital gains on certain sale deeds and proceeded to treat part of the sale consideration as undisclosed income. The matter finally reached the ITAT, which examined, in depth:

  1. Whether certain sale deeds were wrongly considered in the incorrect assessment year;
  2. Whether there was duplication of the same transaction due to the existence of original and amended deeds; and
  3. How capital gains should be computed where the assessee was only a co-owner of the property.

Additionally, the appeal itself was filed with a delay of 191 days, and the Tribunal first had to determine whether such delay deserved condonation.

Procedural History

Assessment Stage

  1. The AO identified that the assessee had thirteen registered sale transactions of immovable properties during the relevant period, aggregating to Rs.76,61,000/-.
  2. According to the AO, only ten transactions, totaling Rs.56,24,000/-, had been accounted for in the assessee’s return and books.
  3. The AO treated the balance Rs.20,37,000/- linked to three sale deeds (Sl. Nos. 11 to 13 in his tabulation) as undisclosed sale proceeds and added the entire amount to income.

Since no satisfactory explanation was furnished at the assessment stage, the AO completed the assessment under Section 143(3) of the Income Tax Act 1961 on 18/12/2018 by making additions on account of capital gains from the three disputed properties.

First Appeal before CIT(A)

The assessee took the matter before the Commissioner of Income-tax (Appeals). The key submissions placed before the CIT(A) included:

  • Duplication of a sale transaction:
    The assessee argued that one sale had been recorded twice – once through an original deed and again through a subsequent amended deed, both having the same consideration of Rs.3,75,000/- (Sl. Nos. corresponding to Document No.2327 and Document No.2361).

  • Wrong assessment year selection:
    A sale deed reflected under Document No.3923 dated 17/08/2016 was treated as a transaction for the year under consideration, even though it pertained to the subsequent year. Conversely, another deed, Document No.3495 dated 23/07/2015, which related to the year under consideration, had been left out of the AO’s working.

  • Co-ownership issue:
    In respect of Document No.2360 dated 25/05/2015, the assessee contended that the property was jointly owned by five persons and only his 1/5th share could be subjected to capital gains tax, not the entire sale value of Rs.9,12,000/-.

The CIT(A) recorded that, despite opportunities, the assessee did not actively pursue the appeal by way of detailed submissions or further supporting documents beyond the Statement of Facts.

Even so, the CIT(A):

  • Directed the AO to verify the assessee’s contentions regarding:

    • Duplication of transactions between Document No.2327 (original) and Document No.2361 (amended); and
    • The alleged mismatch of year between Document No.3495 (original) and Document No.3923 (amended in later year),

    and to allow relief if the assessee’s contention was found factually correct.