AO Cannot Tax Entire Sale Consideration as Capital Gain Without Allowing Cost of TDR: Bangalore ITAT

Udaya Kumar Chillakuru Vs ITO (ITAT Bangalore)

The Bangalore ITAT held that while the assessee was entitled to deduction of the purchase cost of TDR rights under Section 48, the assessee’s repeated non-cooperation before the AO and CIT(A) justified restoration of the matter back to the AO subject to payment of costs. The Tribunal observed that once documents evidencing purchase of TDR rights were produced, the entire sale consideration could not be blindly taxed as capital gains without allowing the acquisition cost.

The assessee had sold TDR rights for ₹72.90 lakh but failed to respond to notices issued during reassessment proceedings initiated u/s 147/148. Since no supporting documents were furnished before the AO, the entire sale consideration was treated as short-term capital gains without granting deduction u/s 48. The CIT(A) also confirmed the addition after granting only one hearing opportunity and passed a non-speaking order merely reproducing the AO’s findings.

Before the ITAT, the assessee produced the purchase deed showing acquisition of TDR rights for ₹68.61 lakh and contended that the cost of acquisition ought to have been deducted while computing capital gains. The Tribunal accepted that the documents now produced prima facie established the purchase cost and therefore the capital gain had to be recomputed after examining those documents.

At the same time, the ITAT criticised the assessee for not cooperating with the tax authorities despite repeated notices and noted that the assessee himself contributed to the situation. The Tribunal therefore restored the matter to the AO for fresh adjudication, directed the assessee to furnish all relevant documents, and imposed a cost of ₹10,000 payable to the Prime Minister’s National Relief Fund, failing which the assessee would not get the benefit of the remand order.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 22/09/2025 in respect of A.Y. 2015-16.

2. The brief facts of the case are that the assessee is an individual and not filed his return of income. The AO based on the information that the assessee had sold an immovable property for a consideration of Rs. 72,90,252/- had initiated proceedings u/s. 147 of the Act. Notice u/s. 148A(b) was issued and thereafter an order u/s. 148A(d) was made. Notice u/s. 148 was also issued. The assessee had not responded to any of the notices and also not filed any return of income. The AO thereafter issued a show cause notice u/s. 144 and a final show cause notice on 27/02/2023. The assessee had not responded and therefore the AO had treated the sale of the immovable property as short term capital gains and assessed accordingly. The AO had not granted the deduction u/s. 48 of the Act since the assessee had not furnished any details.

3. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) issued a hearing notice on 04/09/2025 and the assessee had not appeared for the said notice and therefore the Ld.CIT(A) had confirmed the addition made by the AO.

4. As against the said order, the present appeal has been filed before this Tribunal.

5. At the time of hearing, the Ld.AR submitted that the assessee had not received the hearing notice from the Ld.CIT(A) and therefore without following the principles of natural justice, the Ld.CIT(A) had dismissed the appeal. The Ld.AR further submitted that the Ld.CIT(A) had dismissed the appeal by a non-speaking order even though the assessee had raised several grounds. The Ld.AR therefore prayed that an opportunity may be granted. The Ld.AR also filed a paper book enclosing the written submissions, computation of income and the purchase of TDR and sale of TDR deeds.

6. The Ld.DR submitted that the assessee had neither appeared before the AO nor before the Ld.CIT(A) and therefore the orders of the lower authorities are in order and prayed to dismiss the appeal filed by the assessee.

7. We have heard the arguments of both sides and perused the materials available on record.

8. In the present appeal, the assessee had sold the TDR rights to a third party which was purchased by him on 25/10/2014 for a consideration of Rs. 68,61,490/-. This fact was evidenced from the document now submitted by the assessee. Therefore as per section 48, the purchase cost of TDR has to be deducted from the sale consideration of the TDR and the balance should be taxed as capital gains. But unfortunately, the assessee had not appeared before the AO and produced the documents before him. Therefore, the AO had no other way except to treat the sale consideration as the capital gains.

9. The assessee before us produced the copy of the purchase deed as well as the sale deed in respect of the TDR and therefore the capital gain should be arrived based on the said documents. The assessee had not produced the said documents before the AO and therefore the AO had no opportunity to examine the said document and to arrive the capital gains.

10. We have also considered the Ld.CIT(A)’s order and the grounds of appeal raised by the assessee. In the order, the Ld.CIT(A) had merely extracted the findings of the AO and concluded that the order of the AO is in order. It is the case of the assessee that he has not received the hearing notice. We also noticed that the Ld.CIT(A) had granted a single opportunity and thereafter decided the appeal in the absence of the assessee. The Ld.CIT(A) had also not considered the averments made in the grounds and not passed a speaking order. In such circumstances, we are in agreement with the assessee that the assessee had not been provided a reasonable opportunity by the Ld.CIT(A). In fact, the assessee is also not co-operated with the AO in finalizing the assessment in spite of several notices issued to him. In such circumstances, we deem it fit to set aside the orders of the lower authorities and remit this issue to the file of the AO for fresh consideration in accordance with law. The assessee is also directed to furnish the relevant documents before the AO and assist him to arrive a correct computation of income. We, further direct the assessee to pay a cost of Rs. 10,000/- towards the Prime Minister’s National Relief Fund since the assessee had not co-operated with the department within a period of 90 days from the date of receipt of this order. If the assessee had not remitted the said cost, the assessee will not get the benefit of this order.

11. In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the open court on 22^nd May, 2026.