ITO Vs Sharadchandra Ramanlal Bhatt (ITAT Ahmedabad)
Section 50C Addition Cannot Be Shifted to Earlier Seller Once Subsequent Purchaser Is Treated as Owner
Background of the Case
These cross appeals concerned the person in whose hands capital gains arising from a land transaction could be assessed and the treatment of a separate receipt of ₹10 lakh.
The Revenue challenged the CIT(A)/NFAC’s deletion of an addition of ₹3,39,79,750. The assessee challenged the confirmation of ₹10 lakh as commission income and also raised legal objections to reassessment.
Both appeals arose from the CIT(A)’s order dated 1 August 2025.
The Tribunal heard them together and rejected the Revenue’s attempt to attribute the subsequent property transaction to the assessee. It also restricted the commission income to ₹5 lakh, after recognising the assessee’s investment component.
Purchase and Subsequent Sale by Ashit Shah
The Tribunal recorded that Ashit Shah had purchased the land from the assessee for ₹10 lakh and subsequently sold it for ₹2,13,73,500.
Ashit Shah had offered the capital gains arising from that transaction to tax and claimed exemption under Section 54F.
His assessment proceedings had separately reached the Tribunal, which held the reopening under Section 148 in his case to be invalid.
In the present proceedings, the Revenue nevertheless disputed the treatment of Ashit Shah as owner. Its appeal ground stated that the assessee had not handed over possession of the land to him.
The Revenue sought restoration of the substantial addition made in the assessee’s hands.
Revenue Relies on Higher Property Value
The Department’s contention was that the land sold for approximately ₹2.14 crore was, in reality, valued at approximately ₹3.39 crore.
The issue therefore involved the possible application of Section 50C, which substitutes the relevant stamp duty value in computing capital gains where its statutory conditions are satisfied.
However, before examining any valuation substitution, it was necessary to identify the person to whom the subsequent transfer and its capital gains belonged.
The Tribunal resolved the Revenue’s appeal on that foundational question.
Section 50C Must Be Examined in the Correct Person’s Hands
The Tribunal proceeded on the basis that Ashit Shah was treated as the owner of the land.
It held that, even if the approximately ₹3.39 crore valuation were to be considered under Section 50C, the matter would arise in Ashit Shah’s hands.
The assessee could not be treated as owner for computing capital gains from that subsequent sale or for applying Section 50C to it.
Accordingly, the Tribunal declined to restore the ₹3,39,79,750 addition deleted by the CIT(A).
The Revenue’s appeal was dismissed.
The Tribunal’s observation identifying the appropriate person did not itself determine an additional liability in Ashit Shah’s separate proceedings.
Separate Dispute Concerning ₹10 Lakh
In the assessee’s appeal, the remaining substantive dispute concerned ₹10 lakh treated by the CIT(A) as commission income.
The authorised representative explained that the assessee had invested ₹5 lakh towards purchase of the property, which was subsequently sold by Ashit Shah.
The assessee had received a total of ₹10 lakh.
It was therefore argued that the receipt could not be treated entirely as commission without accounting for the investment already made.
The representative also submitted that capital gains relating to the ₹5 lakh investment had already been offered to tax in AY 2012-13 and requested that the remaining ₹5 lakh be treated as commission income.
Commission Income Restricted to ₹5 Lakh
The Tribunal accepted that the assessee’s ₹5 lakh investment had to be considered against the total receipt of ₹10 lakh.
It consequently directed that only the balance ₹5 lakh be treated as commission income.
The relief thus arose from recognition of the investment component within the gross receipt. The Tribunal did not hold that the entire ₹10 lakh was non-taxable or accept the assessee’s original challenge in full.
The assessee’s appeal was accordingly partly allowed.
Reassessment Objections Left Undecided
The assessee had also challenged reopening on several grounds, including borrowed satisfaction, absence of appropriate approval under Section 151 and reopening beyond four years without failure to disclose material facts fully and truly.
The Tribunal did not adjudicate those legal grounds, treating them as infructuous.
The reassessment was therefore not quashed in this order, and the decision should not be cited as accepting those jurisdictional objections.
Author’s Comments
The principal ruling concerns correct attribution of the property transaction. Once the subsequent purchaser was treated as owner, the capital gains consequences of his sale could not be shifted to the earlier seller merely by invoking a higher valuation.
The order does not dispense with Section 50C or decide that the higher valuation was incorrect. It identifies whose transaction could attract its examination.
The commission finding is similarly confined to the facts and the assessee’s submission: ₹5 lakh represented the recognised investment component, leaving ₹5 lakh assessable as commission.
The outcome was therefore deletion of the substantial property-related addition in the assessee’s hands, with a limited commission amount remaining taxable.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
These cross appeals, one by the Revenue and the other by the assessee, arise out of the order dated 01.08.2025 passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)” in short] under section 250 of the Income-tax Act, 1961 [“the Act” in short] for Assessment Year 2012-13.
2. Since both the appeals emanate from the same appellate order, involve common facts and interconnected issues, they were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.
3. The Revenue has raised following grounds of appeal:-
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3,39,79,750/- without appreciating the fact that Shri Ashit Shah was never the owner of the land as the assessee did not hand over the possession of the land to Shri Ashit Shah.”
4. The assessee as taken following grounds of appeal:-
“1. On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in upholding the reopening of assessment without appreciating that the reopening was resorted only on the basis of information of DCIT Investigation and without independent application of mind.
2. On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in upholding the reassessment without appropriate satisfaction u/s 151 of the income tax act.
3. On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in upholding the reassessment u/s 148 without appreciating that the same was beyond the period of four years and there was no failure on part of assessee to disclose fully and truly all material facts.
4. On the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in making an addition of Rs. 10,00,000/- towards commission income under income from other source without appreciating that said income was already offered for taxation since it was a capital gain.”
5. The Revenue’s appeal pertains to deletion of addition made by the Assessing Officer of Rs.3,39,79,750/-. The facts on record reveal that a person namely Shri Ashit Shah had purchased the land for Rs.10,00,000/- from the assessee and sold it for Rs.2,13,73,500/-, and offered the capital gains to tax and claimed exemption u/s 54F of the Act. The matter in the case of Shri Ashit Shah travelled up to Tribunal and the Tribunal held that the reopening u/s 148 was invalid in the case of Shri Ashit Shah. The Revenue’s contention was that the land sold by the assessee of Rs.2,13,73,500/- was in reality valued at Rs.3.39 crores. Keeping these facts on record, since Shri Ashit Shah is treated as owner of the land, even if the value of Rs.3.39 crores is to be considered u/s 50C, it should be in the hands of Shri Ashit Shah, but the assessee cannot be tagged as the owner for the purpose of computation of capital gains or for the purpose of Section 50C. The matter rests with Shri Ashit Shah
6. With regard the amount of Rs.10,00,000/- confirmed by the Ld. CIT(A), against which the assessee is in appeal, the Ld. Counsel for the assessee submitted that the assessee had incurred an amount of Rs.5,00,000/- for the purchase of property which was later sold by Shri Ashit Shah and the assessee had received Rs.10,00,000/-. It was pleaded that, out of Rs.10,00,000/-, an amount of Rs.5,00,000/-, which was invested by the assessee Shri Sharadchandra R. Bhatt, be considered as the amount of investment. The Ld. Counsel submitted that the capital gains arising from the investment of Rs.5,00,000/- in the purchase of the property had already been offered to tax in AY 2012-13 and submitted that the remaining Rs.5,00,000/- may be treated as commission income. Since the assessee has received a total amount of Rs.10,00,000/-, after considering Rs.5,00,000/- which he had invested for the purchase of property which was subsequently sold as capital asset, we direct that the balance amount of Rs.5,00,000/- shall be treated as commission income.
7. The legal ground raised by the assessee is not being adjudicated upon, having become infructuous.
8. In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed.
Order dictated and pronounced in the open Court on 12.10.2026
