Nikhil Anilbhai Dave Vs ITO (ITAT Ahmedabad)
Sale Receipts Are Not All Profit: ITAT Deletes ₹9 Lakh Addition After Allowing Purchase Cost
Gross Receipts Cannot Be Taxed by Ignoring Documented Cost
The Ahmedabad Bench of the Income Tax Appellate Tribunal deleted an addition of ₹9,00,000 arising from a land transaction after finding that the CIT(A) had compared the assessee’s gross receipts with the profit disclosed without giving credit for the corresponding acquisition cost. The assessee had received ₹29,30,000, including TDS of ₹29,300, while ₹9,00,000 represented his documented share of purchase consideration. After deducting that cost, the net income was ₹20,30,000, which had already been accounted for and offered by the assessee. viewOrder-22-1
Reassessment and Surviving ₹9 Lakh Addition
The assessee, an individual deriving income from agricultural activities, commission and brokerage and profit on sale of land, originally filed his return on 25 August 2019 declaring income of ₹9,29,290. Following a notice under Section 148 dated 20 April 2023, he filed a return declaring ₹12,29,290 after withdrawing a ₹3,00,000 deduction claimed under Section 80GGC. Assessment under Section 147 was completed on 13 March 2025 at ₹41,29,990, including an addition of ₹29,00,700 as short-term capital gain on sale of land. viewOrder-22-1
The CIT(A) partly allowed the appeal and deleted ₹20,00,700, leaving ₹9,00,000 in dispute before the Tribunal. viewOrder-22-1
Section 133(6) Confirmation Established Gross Receipt, Not Profit
Information obtained from purchaser Smt. Sandhya Pareshbhai Mashar under Section 133(6) of the Income-tax Act showed that the assessee, as a consenting party, received ₹29,30,000 comprising ₹27,00,000 received on 14 November 2017, ₹2,00,700 received on 2 February 2019 and ₹29,300 deducted as TDS. viewOrder-22-1
The CIT(A) compared this ₹29,30,000 gross receipt with ₹20,30,000 offered by the assessee and sustained the ₹9,00,000 difference. The difficulty with that computation was that it did not give credit for the assessee’s acquisition cost.
₹9 Lakh Supported by Agreement and Sale Deed
The assessee demonstrated that he had acquired his interest in the land with other joint owners and had paid ₹9,00,000, comprising ₹6,00,000 to Ms. Meenaben Lalubhai and ₹3,00,000 to Ujjwal Harshadbhai. The agreement to sell dated 10 August 2017 formed part of the subsequent sale deed dated 5 February 2019. viewOrder-22-1
The transaction therefore reconciled to ₹29,30,000 gross receipts less ₹9,00,000 purchase cost = ₹20,30,000 net income. The assessee maintained that this ₹20.30 lakh had already been recorded in his books and declared as income. viewOrder-22-1
Tribunal Deletes ₹9 Lakh Addition
The Tribunal accepted the documentary reconciliation. It specifically recorded that the ₹9,00,000 purchase cost was supported by the agreement to sell and the relevant sale deed and therefore could not be disregarded while computing income from the transaction. Since the ₹20,30,000 net income had already been offered, the further ₹9,00,000 addition was unwarranted. The addition was accordingly deleted and the assessee’s appeal was allowed. viewOrder-22-1
The order also records at the outset that the delay in filing the appeal was condoned. viewOrder-22-1
Author’s Comments
The ruling highlights an important reconciliation principle: an amount confirmed by a purchaser or reflected through TDS represents the gross receipt; it does not, by itself, establish that the entire amount is taxable profit. Where the assessee demonstrates a genuine and documented acquisition cost attributable to that receipt, the cost must be taken into account while determining income.
The assessee described the land transaction as a business transaction and credited the profit to his profit and loss account as “Profit from Sale of Land”, whereas the assessment and appellate proceedings referred to short-term capital gain. viewOrder-22-1 The Tribunal’s operative finding, however, was directed to the ₹9 lakh documented purchase cost and the fact that ₹20.30 lakh net income had already been offered. The order should therefore not be treated as laying down a general proposition on whether comparable land transactions constitute business income or capital gains.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 10.11.2025 passed by the National Faceless Appeal Centre(NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2019-20.
2. The Assessee has raised the following grounds of Appeal: –
1. The Hon’ble CIT(A) has erred in points of law and on facts in confirming addition of Rs.9,00,000/- without appreciating the fact that the same has already been paid by the appellant to the confirming party wide its “Banakhat” executed on 01/08/2017, which is a part of the sale deed executed on 05/02/2019.
2. The appellant craves liberty to add, amend, alter, edit, delete, modify or change all or any of the grounds of the appeal at the time of or before hearing of the appeal.
3. The brief facts of the case are that the assessee is an individual deriving income from agricultural activities, commission and brokerage, and profit on sale of land. The assessee is assessed to tax by the Income Tax Officer, Ward-3(3)(2), Ahmedabad. The assessee filed his return of income under section 139(1) of the Income-tax Act, 1961 (“the Act”) on 25.08.2019, declaring total income of Rs.9,29,290/-. Subsequently, the Department issued notice under section 148 of the Act on 20.04.2023. In response thereto, the assessee filed a return of income under section 148 of the Act, declaring total income of Rs.12,29,290/- after withdrawing the deduction of Rs.3,00,000/- claimed under section 80GGC of the Act. The Assessing Officer issued various notices during the course of assessment proceedings, in response to which the assessee furnished the requisite details and documents. Thereafter, the Assessing Officer completed the assessment under section 147 of the Act on 13.03.2025, determining the total income of the assessee at Rs.41,29,990/-. The Assessing Officer made the following addition:
Addition:
(i) Short-term capital gain on sale of land — Rs.29,00,700/-
4. Aggrieved by the assessment order, the assessee preferred an appeal before the National Faceless Appeal Centre (NFAC), Delhi. The Ld. CIT(A), vide order dated 10.11.2025 has partly allowed the appeal of the assessee and deleted the addition of Rs.20,00,700/-. Consequently, the addition of Rs.9,00,000/- was sustained by the Ld. CIT(A).
5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal seeking deletion of the addition of Rs.9,00,000/- sustained as short-term capital gain on sale of land.
6. The Ld. Counsel for the assessee in his written submission submitted as under:
6. Addition of short-term capital gain of Rs. 900,000/- on sale of land.
6.1 The appellant’s first and only ground of appeal is about the confirmation of addition of Rs. 9,00,000/- by the CIT(A), without appreciating the fact that the same has already been paid by the appellant to the confirming party wide its “BANAKHAT” executed on 01/08/2017, which is a part of the sale deed executed on 05/02/2019.
6.2 During the assessment year, the appellant sold an immovable land which is in joint ownership with his brother. The appellant has treated said sale transaction as business transaction and accordingly profit earned from the same is shown as business profits and credited the same in the profit and loss account as “Profit from Sale of Land” (Refer Page No. 12).
6.3 Detailed working of the profit from sale of land is as below:
| Particulars | Amount | Amount |
|---|---|---|
| Total Sale consideration received from buyer of Rs.91,00,000 (Where in the Applicant hold ½ share in land) | 91,00,000 X ½ | 45,50,000/- |
| Less: Purchase Cost paid by the Appellant (as per clause 13 of sale deed) (Refer page No.28) | 50,40,000 X ½ | 25,20,000/- |
| Net Capital Gain | 20,30,000/- |
6.4 The Ld. CIT(A), in his order relied on the information called by the AO u/s. 133(6) of the Act. The same is reproduced here below;
“5.2.1 The A.O. had called for information from one of the purchasers namely Smt. Sandhya Pareshbhai Mashar. The said purchaser, in compliance with notice u/s 133(6) of the Act had, vide her reply dated 19.02.2025, conveyed that the appellant, as a consenting party, was paid total Rs.29,30,000 including TDS of Rs.29,300. As per her reply, amount of Rs. 29,00,700 was received by the appellant in two instalments. Rs.27,00,000 was received on 14.11.2017 and Rs. 2,00,700 received on 02.02.2019. Besides these two payments, TDS was also made for Rs.29,300 which the A.O. has not taken into account. Thus, including TDS credit, the appellant, as one of the consenting parties, was paid Rs.29,30,000 by purchasers.
The appellant has not clarified as to why he has not offered Rs. 9,00,000 (29,30,000-20,30,000). In view of the fact that the appellant had received Rs. 29,30,000 from the purchasers of the land and that the appellant had offered only Rs. 20,30,000 in his return of income, the addition is restricted to Rs.9,00,000 only instead of Rs. 29,00,700. The A.O. is directed to restrict the addition of short-term capital gains to Rs.9,00,000 only instead of Rs. 29,00,700.”
6.5 However, during the CIT(A) proceeding, the appellant has also submitted the ledger account of Pareshbhai M. Mashar & Sandhya Mashar (Refer Page No. 13). Where receipt of Rs. 29,30,000/- (Rs. 27,00,000 received on 14/11/2017, Rs. 2,00,700/- received on 02/02/2019 and Rs. 29,300/-shown as TDS) was clear and evident.
6.6 Ld. CIT(A) failed to appreciate the fact that the appellant had purchased the said land from Mr. Vinodbhai Lalubha along with the other joint owners Ms. Ilaben Harshadbhai, Ms. Meenaben Lalubhai and Mr. Ujjwal Harshadbhai in August 2017, and paid Rs. 900,000/- (½ of 18,00,000/-) to two of the joint owners i.e. Rs. 600,000/- to Ms. Meenaben Lalubhai vide cheque no. 228292 of Development Credit Bank, C G Road, Ahmedabad Branch and Rs. 300,000/- to Ujjwal Harshadbhai vide cheque no. 228292 of Development Credit Bank, C G Road, Ahmedabad Branch, and executed agreement to sale on 10/08/2017 with them. The same is mentioned in para 4 of the said agreement to sale, which is the part of the sale deed executed on 05/02/2019, where in the appellant is one of the confirming parties. (Refer Page No. 47).
6.7 Furthermore, on verification of para 13 and para 14 of the sale deed executed on 05/02/2019 (Page No 28 to 31), it is clear that, the appellant has received 29,30,000/- (Rs. 27,00,000 received on 14/11/2017, Rs. 2,00,700/- received on 02/02/2019 and Rs. 29,300/- shown as TDS) from the purchaser as against the same he has paid ½ of 18,00,000/- ie. Rs. 9,00,000/- to the sellers (Rs. 600,000/- to Ms. Meenaben Lalubhai and Rs. 300,000/- to Ujjwal Harshadbhai). Thus, from the above it is clear that he has earned Rs. 20,30,000/- (Rs. 29,30,000/- less Rs. 9,00,000/-) only. which the appellant has already recorded and shown in his books of accounts and declared as income at the time of filling of his return of income.
6.8 Based on the above facts, details and documents it is kindly request your honour to allow the appeal on this issue and delete the addition of Rs. 900,000/- confirmed by the Hon’ble CIT(A).
7. Have gone through the submission and perused the material available on record. The dispute is confined to the addition of Rs.9,00,000/- sustained by the Ld. CIT(A) on account of short-term capital gain arising from sale of land. It is undisputed that the assessee, along with other co-owners, had acquired the land pursuant to the agreement to sell dated 10.08.2017 and had paid an amount of Rs.9,00,000/- towards his share of the purchase consideration. The said agreement formed part of the sale deed executed on 05.02.2019. Further, as per the details available on record, the assessee received total consideration of Rs.29,30,000/-, including TDS of Rs.29,300/-, from the purchasers. Against the same, the assessee had incurred purchase cost of Rs.9,00,000/-. Thus, the net profit arising from the transaction worked out to Rs.20,30,000/-, which had already been accounted for and offered by the assessee in the return of income. The Ld. CIT(A) has sustained the addition of Rs.9,00,000/- by considering the gross receipts of Rs.29,30,000/- without giving appropriate credit for the purchase cost of Rs.9,00,000/- already incurred by the assessee. Since the said purchase cost is duly supported by the agreement to sell and the relevant sale deed, the same cannot be disregarded while computing the income arising from the transaction.
7.1 In view of the above facts and the documentary evidence available on record, it is presumed assessee has already offered the net income of Rs.20,30,000/- arising from the transaction. Therefore, the further addition of Rs.9,00,000/- sustained by the Ld. CIT(A) is not warranted. Accordingly, the addition of Rs.9,00,000/- is deleted and the ground raised by the assessee is allowed.
8. In the result, the appeal of the assessee is allowed.
The order pronounced in the open Court on 28.09.2026
