ITAT Deletes Capital Gains Addition: Agreement to Sell Alone Does Not Amount to Transfer

Ganpatbhai Mayajibhai Baria Vs ITO (ITAT Ahmedabad)

ITAT Deletes Capital Gains Addition: Agreement to Sell Alone Does Not Amount to Transfer

The Ahmedabad ITAT deleted an addition of ₹56.98 lakh made as undisclosed capital gains, holding that the mere execution of a Banakhat (agreement to sell) does not result in a “transfer” under section 2(47) of the Income-tax Act unless the conditions of section 53A of the Transfer of Property Act are satisfied. The assessee, along with other co-owners, had entered into a notarized agreement to sell agricultural land in March 2018, but the registered sale deed and related settlement agreement were executed only on 21.10.2020.

The Assessing Officer treated the assessee’s alleged share of ₹56.98 lakh as undisclosed capital gains for AY 2018-19 on the basis of the Banakhat and an assumption that part of the consideration had been received in cash. The Tribunal, however, found that the agreement to sell neither transferred ownership nor established delivery of possession during the relevant year. It observed that the transaction ultimately culminated only in 2020 and therefore, if any capital gains arose, they could be considered only in the year in which the registered transfer actually took place.

The Tribunal further noted that the addition was based merely on a presumption of cash consideration without any corroborative evidence of actual receipt. It also took note of the fact that in the case of a similarly placed co-owner, the transaction had already been held not taxable in AY 2018-19. Accordingly, the addition was deleted in full. Having granted relief on merits, the Tribunal did not adjudicate the legal grounds challenging the validity of the reassessment proceedings.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “CIT(A)” for short) dated 04.11.2025, passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” for short], for Assessment Year (AY) 2018-19.

2. The assessee has raised following grounds of appeal :-

“Defect in reassessment proceeding under section 148A:

1) The Ld. Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO of issuing notice 148A based on material found during the search and not issuing notice under section 153C.

2) The Ld. Commissioner of Income Tax (Appeals) has grossly erred in fact and in law in confirming the action of issuing a notice by Jurisdictional Assessing Officer (‘JAO) and not by Faceless Assessing Officer (‘FAO’).

3) The Ld. Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the approving authority who has granted approval for issuance of the notice under section 148 and order under section 148A(d) of the Act in a mechanical manner without verifying any material to check the facts.

Without prejudice to the above:
Violation of Principle of Natural Justice:

4) The Ld. Commissioner of Income Tax (Appeals) erred in fact and in law in passing the order against the principle of natural justice without dealing all the issues raised by the appellant in the submission.

5) The learned CIT(A) erred in fact and in law in passing an appellate order without granting personal hearing as mandated under clause 12 of Faceless Appeal Scheme despite the fact that the request for personal hearing through video conferencing was requested by the Appellant vide submission dated 29.09.2025.

Without prejudice to the above:
Addition u/s 48:

6) The Ld. Commissioner of Income Tax (Appeals) erred in fact and in law in confirming addition of Rs. 56,98,305/- as a capital gain based on Banakhat ignoring facts as payment was not received and transfer has not happened in the AY 2018-19.

7) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in dismissing the ground of appeal relating to section 2(47) of the Income-tax Act, 1961, without considering the submission as not satisfying the conditions prescribed therein.

8) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the facts as in case of a co-owner, FAO has treated as there is no transfer as per section 2(47) in AY 2018-19 and hence does not become taxable in the AY 2018-19.”

3. Brief facts of the case are that the assessee is an individual and co-owner of agricultural land situated at Village Vavdi Bujarg, Taluka Halol. During the year under consideration, the assessee along with other co-owners had executed a notarized agreement to sell dated 16.03.2018 in favour of Shri Jigneshkumar Ashwinbhai Shah for total consideration of Rs.6,91,18,150/-. The Assessing Officer, based on information available, reopened the assessment u/s 147 of the Act. During reassessment, the Assessing Officer, on the basis of the Banakhat, the subsequent registered Samjuti Karar and the sale deed executed on 21.10.2020, inferred that a part of the sale consideration had been received in cash by the co-owners. Accordingly, the assessee’s alleged share of Rs.56,98,305/- was treated as undisclosed capital gain and added to his income.

4. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) who confirmed the action of the Assessing Officer.

5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before us.

Addition of Rs.56,98,305/- on account of Undisclosed Capital Gain

6. On merits, the Ld. AR submitted that there was no transfer of capital asset during A.Y. 2018-19. The Ld. AR contended that the banakhat dated 16.03.2018 did not confer possession or ownership rights and hence does not fall within section 2(47) of the Act. The Ld. AR further submitted that the actual transfer occurred only on 21.10.2020 when sale deed was executed and possession was handed over. Therefore, capital gains, if any, cannot be taxed in A.Y. 2018-19. The assessee also relied on the case of co-owner wherein similar addition was not sustained on identical facts.

7. The Ld. DR, on the other hand, supported the orders of lower authorities and submitted that agreement value clearly indicates higher consideration and subsequent documents show suppression of consideration. Since the assessee failed to produce complete evidence including bank statements, the addition was rightly made.

8. We have heard the rival contentions and perused material available on record. We find that mere execution of Banakhat does not constitute transfer u/s 2(47) of the Act unless conditions of section 53A of Transfer of Property Act are satisfied. In the present case, the banakhat dated 16.03.2018 is only an agreement to sell. It does not establish transfer of ownership or possession during A.Y. 2018-19. The subsequent Samjuti Karar and registered sale deed were executed on 21.10.2020, which clearly indicates that the transaction was modified and ultimately culminated in 2020. Thus, the transfer, if any, took place only in A.Y. 2021-22 and not in A.Y. 2018-19. Further, the addition is based on presumption of cash consideration without any corroborative evidence of actual receipt during the year. In absence of evidence of transfer or receipt, the addition cannot be sustained. The principle of consistency is also relevant, as in the case of similarly placed co-owner, the transaction has been treated as not taxable in A.Y. 2018-19 on identical facts. We, therefore, hold that the addition of Rs. 56,98,305/- is unsustainable in law and the same is hereby deleted.

9. Since we have deleted the addition on merits and granted substantive relief to the assessee, adjudication of the legal grounds challenging the validity of the reassessment proceedings u/s 147/148 of the Act has become merely academic and, therefore, does not call for separate adjudication.

10. In the result, the appeal of the assessee is allowed.

The order pronounced in the open Court on 12.06.2026