The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has clarified that a confirming party in a property transaction is liable for capital gains tax only on the amount actually received, not the entire sale consideration. This ruling underscores the importance of evidence-based taxation and limits the scope of additions made solely on the basis of departmental databases.
Background & Facts
The Dispute
The appellant, Mahadevbhai K. Bharwad, was served with a notice under Section 148 of the Income-tax Act, 1961 for the Assessment Year (AY) 2018-19. The Assessing Officer (AO) initiated proceedings based on information from the Insight Portal under the Non-Filer Monitoring System (NMS), which indicated that the appellant had sold an immovable property for Rs. 3,47,95,000. However, the appellant disclosed only Rs. 20,20,202 as his share of the sale consideration in his return of income filed in response to the notice.
Key Facts
- The appellant did not file a return of income for AY 2018-19 initially.
- Information regarding the property sale was received through the Insight Portal on NMS.
- The appellant filed a return of income declaring Rs. 2,18,110, including capital gains of Rs. 20,20,202 from the property transaction.
- The AO observed a discrepancy between the declared amount (Rs. 20,20,202) and the total sale consideration (Rs. 3,47,95,000).
- Despite issuance of notices under Sections 142(1) and 143(2), the appellant failed to comply with the AO’s requests for clarification.
Procedural History
- Notice under Section 148 issued to reopen assessment.
- Return of income filed on [date not specified] declaring Rs. 2,18,110.
- Notices under Sections 142(1) and 143(2) issued during assessment proceedings.
- Assessment completed under Section 147 r.w.s. 144 and Section 144B on date not specified, making an addition of Rs. 3,27,74,798.
- Appeal filed before Ld. CIT(A) (NFAC, Delhi) on date not specified.
- Ld. CIT(A) dismissed the appeal ex-parte for non-prosecution on 15.07.2025, confirming the AO’s addition.
- Present appeal filed before ITAT Ahmedabad on date not specified.
The Parties' Positions
Appellant’s Contention
- The appellant argued that he was merely a confirming party in the registered sale deed and not the sole owner or principal transferor of the property.
- His entitlement was restricted to Rs. 20,20,202, which was already disclosed in the return of income.
- No material was produced by the Revenue to establish that he received any amount beyond Rs. 20,20,202.
- The addition was made solely on the basis of the total transaction value reflected in the Insight Portal, without evidence of actual receipt.
Respondent’s Contention
- The Revenue supported the orders of the lower authorities, arguing that the appellant failed to comply with statutory notices during assessment proceedings.
- The AO was justified in drawing an adverse inference and completing the assessment based on the information available on record.
Relief Sought
The appellant sought deletion of the addition of Rs. 3,27,74,798, arguing that it was unsustainable in the absence of evidence proving receipt of the entire sale consideration.
The Legal Issue
The central question before the ITAT was whether the AO was justified in taxing the differential amount of Rs. 3,27,74,798 in the hands of the appellant, who was merely a confirming party and had disclosed only Rs. 20,20,202 as his share of the sale proceeds.
Arguments Presented
For the Appellant
- The appellant contended that he was not the owner or co-owner of the property and was only a confirming party in the transaction.
- He had already disclosed Rs. 20,20,202, the amount actually received by him, in his return of income.
- The addition was made without any evidence to show that he received the entire sale consideration.
- Reliance was placed on the registered sale deed, which showed multiple executants/owners and limited the appellant’s liability to his actual receipt.
For the Respondent
- The Revenue argued that the appellant failed to comply with statutory notices, justifying the AO’s adverse inference.
- The AO relied on the information available in the Insight Portal, which reflected the total sale consideration of Rs. 3,47,95,000.
- The absence of compliance during assessment proceedings warranted the addition.
The Court's Analysis
The ITAT examined the registered sale deed dated 10.11.2017, which revealed that the appellant was merely a confirming party and not an owner or co-owner of the property. The deed indicated that the appellant received Rs. 20,20,202, which was already disclosed in his return of income. The Tribunal noted the following key points:
"The explanation furnished by the assessee is that he was not the owner of the land and was joined as a confirming party in the transaction. According to the assessee, he received a sum of Rs.20,20,202/- in connection with the transaction, which has already been disclosed in the return of income filed pursuant to the notice issued u/s 148 of the Act."
The ITAT observed that the AO proceeded solely on the basis of the information available in the Insight Portal, which showed the total transaction value of Rs. 3,47,95,000. However, the Revenue failed to produce any evidence to establish that the appellant received any amount beyond Rs. 20,20,202. The Tribunal further noted that the sale deed listed six sellers and five confirming parties, and the total amount of Rs. 1,73,97,574 was distributed among them. Since the appellant had already offered the amount received by him to tax, and no material was brought on record to prove receipt of a higher amount, the addition of Rs. 3,27,74,798 was unsustainable.
The Tribunal emphasized that capital gains tax liability arises only on the amount actually received by the assessee, and not on the total sale consideration reflected in departmental databases. The addition was held to be infructuous in the absence of evidence proving the appellant’s receipt of the differential amount.
The Verdict
The ITAT allowed the appeal of the assessee and deleted the addition of Rs. 3,27,74,798. The Tribunal held that the appellant, being a confirming party, was liable to tax only on the amount actually received by him (Rs. 20,20,202), which had already been disclosed in his return of income. No further addition was warranted in the absence of evidence establishing receipt of the differential amount.
What This Means For Similar Cases
Evidence-Based Taxation Is Mandatory
- The judgment reinforces that capital gains tax liability cannot be imposed merely on the basis of departmental databases or information portals.
- The Revenue must produce concrete evidence to establish that the assessee received an amount beyond what was disclosed.
- Practitioners should emphasize the need for documentary proof, such as sale deeds, bank statements, or affidavits, to substantiate claims of actual receipt.
Confirming Parties Have Limited Liability
- The ruling clarifies that confirming parties in property transactions are liable only for the amount they actually receive, not the entire sale consideration.
- This principle applies even if the total transaction value is reflected in departmental records.
- Assessees should ensure that their role in the transaction (owner, co-owner, or confirming party) is clearly documented to avoid unwarranted additions.
Non-Compliance Does Not Justify Adverse Inference Without Evidence
- While non-compliance with statutory notices may lead to adverse inferences, such inferences cannot substitute for evidence.
- The Tribunal rejected the AO’s reliance on the total transaction value in the absence of proof that the appellant received the differential amount.
- Practitioners should argue that adverse inferences must be supported by material evidence, not merely procedural defaults.
