Form 26AS Reporting Alone Cannot Justify ₹2.45 Crore Capital Gains Addition: ITAT Surat

Hiteshkumar Mohanlal Desai Vs Assessment Unit (ITAT Surat)

Summary: The Income Tax Appellate Tribunal, Surat Bench, considered an appeal filed by Hiteshkumar Mohanlal Desai against the confirmation of a long-term capital gains addition of ₹2,45,32,692 for Assessment Year 2018-19. The assessee jointly owned non-agricultural land measuring approximately 12,363 square metres at Village Kachigam, Nani Daman, with his three brothers. The co-owners had entered into a registered development agreement with M/s Param Corporation for total consideration of ₹24 crore. During the relevant financial year, the assessee received ₹25 lakh from the developer and declared long-term capital gains of ₹23,47,626 in the return filed in response to reassessment proceedings. However, the developer had reported ₹2,86,25,000 against the assessee in its TDS return and deducted tax of ₹2,86,250, which was reflected in Form 26AS. Treating the larger reported amount as consideration attributable to the assessment year, the Assessing Officer recomputed the capital gains and made an addition of ₹2,45,32,692. The CIT(A) upheld the addition.

The assessee contended that the developer’s TDS reporting did not establish accrual of the entire reported consideration during the relevant year. He had claimed TDS credit of only ₹25,000 corresponding to the actual receipt of ₹25 lakh and carried forward the remaining TDS credit of ₹2,61,250. Further amounts received from the developer were accounted for in subsequent assessment years, and the corresponding capital gains had been offered in the returns for AYs 2019-20 to 2022-23. The assessee furnished copies of those returns and details of the receipts. It was also submitted that the other co-owners had adopted the same treatment and that the Income Tax Department had accepted their assessments under section 147. The grounds of appeal additionally challenged the reopening of assessment, the finding of transfer under section 2(47), the applicability of section 45(5A), the taxation of hypothetical income and the treatment of TDS credit.

The Tribunal examined the actual receipts, the TDS credit claimed, the returns filed for subsequent years and the assessment orders relating to the co-owners. It found that the assessee had received ₹25 lakh in the relevant year and had offered the related capital gain. Although Form 26AS reflected a substantially higher amount, the assessee had not claimed the entire corresponding TDS credit during that year. The remaining TDS had been carried forward, and the subsequent receipts and related capital gains had been reported in later assessment years. Those returns had not been shown to have been disturbed by the Department. The Tribunal also observed that the other co-owners, whose assessments had been completed under section 147, had followed the same approach and received identical treatment from the tax authorities. Having regard to these facts and the consistency of treatment, the Tribunal held that the addition of ₹2,45,32,692 was unsustainable and directed its deletion. The assessee’s appeal was allowed. The operative reasoning rested on the evidence of receipts, their treatment across assessment years and the accepted assessments of the co-owners, rather than a separate detailed adjudication of every legal objection raised in the grounds of appeal.

Cases Discussed

• CIT Vs Kelvinator of India Ltd. (Supreme Court) – (2010) 320 ITR 561 (SC). Cited in the assessee’s grounds to challenge reopening under section 147 on the basis of alleged absence of tangible material and change of opinion.
• CIT Vs Balbir Singh Maini (Supreme Court) – (2017) 398 ITR 531 (SC). Cited by the assessee in challenging the finding that a transfer had taken place under section 2(47)(v)/(vi). The Tribunal did not separately decide the appeal by applying this ruling.
• E.D. Sassoon & Co. Ltd. Vs CIT (Supreme Court) – (1954) 26 ITR 27 (SC). Cited in support of the assessee’s contention concerning accrual of income and the real income principle.
• CIT Vs Shoorji Vallabhdas & Co. (Supreme Court) – (1962) 46 ITR 144 (SC). Cited in support of the contention that hypothetical income should not be subjected to taxation.
• CIT Vs Excel Industries Ltd. (Supreme Court) – (2013) 358 ITR 295 (SC). Cited by the assessee in connection with accrual and the real income principle.

FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER

Feeling aggrieved by the order of first appeal dated 18.07.2025 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“Ld. CIT(A)”], which in turn arises out of the assessment-order dated 27.03.2023 passed by learned Assessment Unit of Income-tax Department [“Ld. AO”] u/s 147 r.w.s. 144B of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2018-19, the assessee has filed this appeal on following grounds:

“1. Reopening of Assessment

The Ld. CIT(A) erred in law and on facts in upholding the reopening of assessment u/s 147, ignoring that there was no tangible material to form a belief that income had escaped assessment and that the reopening was based on mere change of opinion and suspicion, contrary to the ratio laid down in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC).

2. Erroneous finding of “transfer”

The Ld. CIT(A) erred in confirming the addition of 2,45,32,692 as capital gains by erroneously holding that there was a transfer u/s 2(47)(v)/(vi), ignoring that juridical possession of the land remained with the appellant until full payment and that no rights akin to ownership were transferred, as clarified by CIT v. Balbir Singh Maini (2017) 398 ITR 531 (SC).

3. Non-applicability of Section 45(1)

The The authorities below erred in invoking section 45(1) when the transaction was covered by section 45(5A) of the Act, which defers capital gains taxation to the year in which the completion certificate is issued by the competent authority.

4. No accrual of income – Real Income Theory

The authorities erred in law in taxing hypothetical income in violation of sections 4 and 5 and the settled “real income theory” propounded in E.D. Sassoon & Co. Ltd. v. CIT (1954) 26 ITR 27 (SC), CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC), and CIT v. Excel Industries Ltd. (2013) 358 ITR 295 (SC).

5. TDS credit mismatch not determinative of accrual

The Ld. CIT(A) erred in treating the gross amount in Form 26AS as taxable income in the same year, without appreciating that TDS credit is regulated by section 199 and rule 37BA and does not determine the year of accrual.

6. Receipts already taxed in subsequent years

Without prejudice, the addition results in double taxation since the receipts have already been offered to tax in the respective years of actual receipt in the appellant’s returns for AYs 2019-20 to 2025-26.

7. Violation of principles of natural justice

The Ld. CIT(A) erred in upholding the addition without properly considering the appellant’s submissions, evidence, and the binding judicial precedents cited, rendering the order bad in law.”

2. The background facts leading to the present appeal are that the assessee-individual did not file any return of income for AY 2018-19. The Ld. AO, taking into account certain information available with him, issued notice dated 22.03.2022 u/s 148 (after completion of the procedure prescribed u/s 148A) for making assessment u/s 147. In response thereto, the assessee filed return of income declaring total income of Rs. 23,93,740/- which included long-term capital gain of Rs. 23,47,626/- arising in respect of a non­agricultural land admeasuring about 12,363 sq. metres, bearing Survey No. 357/2, situated at Village Kachigam, Nani Daman. The said land was jointly owned by assessee and his three brothers and a Registered Development Agreement [“RDA”] was entered into by all co-owners (including assessee) with M/s Param Corporation [“developer”] in respect thereof for a consideration of Rs. 24 crores. During the previous year relevant to AY 2018-19 under consideration, the assessee claims to have received a sum of Rs. 25,00,000/-from developer. However, the developer deducted TDS of Rs. 2,86,250/- in assessee’s account with reference to an amount of Rs. 2,86,25,000/- and furnished the corresponding details in its TDS return, which got reflected in assessee’s Form 26AS in income-tax database. The assessee, however, claimed credit of TDS of Rs. 25,000/-, relatable to the receipt of Rs. 25,00,000/-, against the tax liability of AY 2018-19 under consideration and carried forward the balance TDS of Rs. 2,61,250/- to subsequent years. However, while completing assessment, the Ld. AO adopted Rs. 2,86,25,000/-as the consideration attributable to the year under consideration; recomputed the long-term capital gain and made an addition of Rs. 2,45,32,692/-. Aggrieved, the assessee preferred an appeal before Ld. CIT(A) but did not get any relief. Still aggrieved, the assessee has come in present appeal before us.

3. We have heard learned Representatives of both sides and carefully considered their submissions as also the documents held on case record to which our attention has been drawn.

4. Ld. AR for assessee at first submitted that the RDA entered into between the co-owners and the developer was for a total sum of Rs. 24 crore and during the year under consideration, the assessee received only Rs. 25,00,000/- from developer although the developer had deducted TDS taking into account the sum of Rs. 2,86,25,000/-. Therefore, the assessee, in the return of income filed to department, rightly declared taxable capital gain taking into account consideration of Rs. 25,00,000/- received during the year and also claimed credit of TDS of Rs. 25,000/- relatable to the sum of Rs. 25,00,000/-. The assessee did not claim any credit of balance TDS of Rs. 2,61,250/- in current year, instead the same was carried to subsequent years. Thereafter, the assessee received further sums from the developer from time to time in subsequent years and accordingly offered respective portions of taxablecapital gain in subsequent AYs 2019-20 to 2022-23. The details of incomes offered by assessee in different years alongwith the copies of income-tax returns filed to Income-tax Department, were submitted to the Ld. AO during assessment-proceeding and the same are available on Page 11 of assessment-order as under:

The copies of income-tax returns filed by assessee for respective years are also available at Pages 138-158 of assessee’s Paper-Book. The year-wise incomes offered by assessee, as per above details, have been duly accepted by Income-tax Department.

5. Further, Ld. AR submitted, the practice of offering income in different years on the basis of receipts from developer, has also been followed by other co-owners and the same has been duly accepted by income-tax authorities in the assessments of co-owners completed u/s 147. The assessee has placed the copies of the assessment-orders of co-owners in Paper-Book, the relevant pages are scanned and re-produced below for an immediate reference:

6. Therefore, when the treatment given by assessee has been duly accepted by Income-tax authorities across different assessment years in assessee’s own case as also in the assessments of co-owners framed u/s 147, there is no reason for deviating in AY 2018-19 under consideration in the case of assessee and thereby making the impugned addition of Rs. 2,45,32,692/-. Ld. AR requested to delete the impugned addition made by Ld. AO.

7. Ld. DR for Revenue relied upon the orders of the lower authorities.

8. We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record to which our attention has been drawn. The issue involved in the grounds raised by assessee is with respect to the quantum of consideration to be adopted for computing the long-term capital gain arising from the transaction under the RDA entered into with M/s Param Corporation. The material on record shows that during the year under consideration, the assessee actually received a sum of Rs. 25,00,000/- from the developer and, accordingly, declared the capital gain relatable to such receipt in the return of income. Though the developer reflected a substantially higher amount of Rs. 2,86,25,000/- while deducting tax at source and the corresponding TDS was reflected in Form 26AS, the assessee did not claim credit of the entire TDS in the year under consideration. The assessee claimed credit of Rs. 25,000/- only, relatable to the receipt of Rs. 25,00,000/- in current year, and the balance TDS of Rs. 2,61,250/- relatable to the receipts made in subsequent years, was carried forward to subsequent years.

9. We find that the assessee has furnished the particulars of further receipts from the developer in the subsequent AYs 2019-20 to 2022-23 and correspondingly offered the relatable capital gain in those years. The copies of returns of income placed on record demonstrate that such income was offered in the respective years and the same has not been shown to have been disturbed by the Department.

10. We further find force in the submission of Ld. AR that the property in question was jointly owned and that the other co-owners also followed the same method of offering capital gain in respective years of receipt. The assessment-orders passed in the similar proceedings of section 147 in the cases of co-owners for AY 2018-19, as re-produced in earlier para, also show that the identical treatment given by the co-owners has been accepted by tax authorities. Thus, the assessee’s case is at parity with the cases of other co-owners.

11. Therefore, we are of the considered view that the impugned addition of Rs. 2,45,32,692/- made by the Ld. AO is not sustainable. The said addition is, accordingly, deleted. The grounds raised by the assessee are allowed.

12. In result, this appeal is allowed.

Order pronounced by putting up on notice board as per proviso to Rule 34(4) of ITAT Rules, 1963 on 29/09/2026