PAN Cannot Override Legal Ownership- ITAT Blasts Revenue for Taxing Individual Instead of HUF/Trust

Deepan Pulin Mehta Vs ITO (ITAT Ahmedabad)

PAN Cannot Override Legal Ownership- ITAT Blasts Revenue for Taxing Individual Instead of HUF/Trust

In this case, Assessee was taxed on alleged capital gain of Rs.33,24,000/- on sale of an immovable property. He did not file return, as he consistently stated that the property did not belong to him in his individual capacity but was owned by his HUF & a Trust as per the Will of his late father. The Will clearly bequeathed 50% of the property to Assessee’s HUF & 50% to a family Trust. The sale deed itself named the HUF & the Trust as the sellers, & sale consideration was received directly in the bank accounts of HUF & Trust. All documentary evidence – Will, sale deed, bank statements – were furnished.

However, AO rejected these evidences solely on the ground that PAN of the individual was quoted during registration, & held the sale to be made by the Assessee in his personal capacity. CIT(A) astonishingly agreed that the property legally belonged to HUF & Trust, yet still confirmed the addition only because Assessee had not filed return in HUF capacity. CIT(A) even admitted that Assessee signed as Karta/Trustee but used individual PAN, & still confirmed the addition in individual hands.

Tribunal came down strongly on the Revenue’s approach. Tribunal held that PAN is merely an identification tool, not evidence of ownership. When legally recognized ownership documents such as Will, sale deed & bank statements clearly establish that property belonged to HUF & Trust, taxing the individual is absurd & illogical. Tribunal observed that the authorities ignored clinching evidence & rested the entire addition on a flimsy technicality of PAN usage, which reflects a “sad & unbecoming manner” of assessment. Tribunal held that no capital gain arose in individual’s hands, hence no income can be taxed in his case. Accordingly, Tribunal deleted the entire addition of Rs.33,24,000/- & allowed the appeal.

Legal ownership prevails over PAN quoted in sale deed. Property belonged to HUF & Trust, not individual. Capital gain cannot be taxed in individual’s hands. Addition deleted. Appeal allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “CIT(A)”), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi dated 07.11.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2010-11.

2. The grounds of appeal raised by the assessee are as under:

“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has grievously erred in confirming the addition of Rs. 33,24,000/-, without considering the submission of the appellant filed to him during the course of appellate proceedings and has illegally and incorrectly decided the issue against the appellant. The Hon’ble Bench is prayed to delete such illegal addition of Rs. 33,24,000/- as made confirmed by the ld. CIT(A).

2. On the facts and in the circumstances of the case and in law, the order of the ld. CIT (A) confirming the addition of Rs. 33,24,000/- as made by the AO is bad in law ab-initio as the sale deed was executed by DEEPAN PULIN MEHTA HUF, a separate legal entity and the consideration thereof was received by DEEPAN PULIN MEHTA HUF and not the appellant. In view of this, the Hon’ble Bench is prayed to delete such illegal addition of Rs. 33,24,000/- as made by the AO.

3. The appellant craves leave to add, alter or amend any of the aforesaid ground or grounds if necessary.”

3. The solitary issue in the present appeal relates to addition made to the income of the assessee on account of alleged sale of an immovable property by the assessee for a total consideration of Rs.33,24,000/-, which was not returned to tax. The assessee was noted to have not filed any return of income for the impugned year and the AO had information of the sale of an immovable property by the asessee, basis which he reopened the case of the assessee by issuing notice u/s.148 of the Act. Orders of the authorities below reveal that the assessee repeatedly denied making any sale of immovable property in his own name stating that the sale was made by assessee’s HUF and not in his individual capacity. The assessee explained that originally the property in question belonged to the assessee’s father Sh. Pulin Kanhialal Mehta. That Pulin Kanhialal Mehta died on 28.12.2004 and through will dated 07.03.2004, 50% of the property was bequeathed to the asessee’s HUF i.e. Deepan Pulin Mehta HUF, and 50% to his trust, namely, Pulin Kanhialal Mehta Trust. That the entire property owned by the assesse’s trust and assessee’s HUF was sold for a consideration of Rs.30,50,000/- and 50% of the sale proceed was deposited in the account of the assessee’s HUF and the balance 50% in the account of the assessee’s trust. Copy of the will of the assessee’s father, Pulin Kanhialal Mehta evidencing the impugned property bequeathed to the assessees HUF and also trust; copy of the sale deed of the property reflecting the assessee’s HUF and the trust as sellers of the property, even copy of the bank statement of the assessee’s HUF and trust reflecting the receipt of sale consideration therein, was filed. However, the AO noted that while registering the sale of property the PAN of the assessee in his individual capacity was furnished and not the PAN of the assessee’s HUF. The entire case of the AO holding the property to have been sold by the assessee in his individual capacity and not by his HUF, rests solely on the fact of the PAN of the assessee in his individual capacity being used for registration of the sale, rejecting all documentary evidences filed by the assessee showing the sale to have been made by his HUF and trust. The findings of the AO in this regard are contained at para 3.1 of his order as under:

“(1) During the course of assessment, in order to verify the facts of the case, third party verification was carried out and details of immovable property transaction of the assessee was gathered from the Sub-Registrar, Vadodara-4, Gorwa.

(2) Verification of the documents, so obtained from the Sub-Registrar reveals that the immovable property situated at RS No.668/1, City Survey No.648/6, TP Scheme No.61, Final Plot No.128/1/6 has been sold vide registration no.12935 dt.09.11.2009 for total sale consideration of Rs. 30,50,000/- and the jantri value of the said property was calculated at Rs. 33,24,000/-.

(3) In depth scrutiny of the papers further reveals that for sale of immovable property PAN-AGTPM2117R has been used/quoted, which belongs to the assessee, Shri Deepan Pulin Mehta.

(4) Before discussing further the case in hands, it is inevitable to consider the main purpose to link all transactions of a person, an assessee to his/her assigned PAN. The PAN of the assessee connects various documents and transactions of the assessee to his/her payment of taxes, assessment, tax demand, tax arrears and so on. The PAN also facilitates retrieval and matching information related to investment, loans and other business activities of taxpayers. As a result, instances of tax evasion can be detected.

(5) As per Rule 114B, it is mandatory to quote PAN for sale/purchase of immovable property for an amount exceeding Rs.5 lacs (Revised limit being sale/purchase exceeding Rs. 10 lacs wef 01.04.2016)

(6) Point 4 and 5 above makes it crystal clear that entire mandate and intention of the statute for making quoting of PAN and quoting of correct PAN in immovable property transaction is to bring gains arising out of such transaction to tax. It is also a fact that the Departmental framework works on the basis of PAN and every assessee and transactions undertaken are assigned him/her based on the PAN used in the transaction.

(7) Coming to the case in hand, it is admitted by the assessee that for the sale of property-in-question, the PAN of the assessee has been used. Nowhere from the submission of the assessee, it is brought forward that sale proceeds of the impugned transaction has been taxed in the hands of the HUF and/or Trust.

(8) The assessee has also not provided PANs of either HUF or Trust, who are alleged transacting parties claimed by the assessee.

(9) The assessee has not provided any rational reason/s for using/quoting his PAN for immovable property transaction.

(10) The assessee has not provided any working of capital gain in his hands considering that the property-in-question is a property acquired in inheritance.”

4. The Ld. CIT(A), we find, has acknowledged the veracity of the explanation furnished by the assessee of the impugned property being bequeathed by will of the assessee’s father’s HUF to the assessee’s HUF and assessee’s trust. He has acknowledged the impugned property being owned by the HUF and trust and in the capacity of the Karta and trustee. Even the Ld. CIT(A) has not disputed the fact that the sale deed mentioned the assessee’s HUF and assessee’s trust as the sellers of the property, but, however, he has confirmed the addition reiterating the reasoning & logic of the AO.

5. We have noted that the Ld. CIT(A) has appreciated the contentions of the assessee of the impugned property not being owned by him in his individual capacity and has held that the assessee ought to have filed return of income in the capacity of Karta of HUF for the impugned year declaring long term capital gains therein on sale of the impugned property but the assessee has not done anything of the said nature. His findings in this regard are contained at para 4.4 and 4.4.1 of his order as under:

“4.4 I have gone through the facts of this case ground of appeal, statement of facts assessment order and the submissions of the appellant. Remand report submitted by the AO has also been perused. As per the will of Late Sri Pulin K. Mehta (karta of Pulin K. Mehta) he bequeathed 50% of the HUF property to Deepan Pulin Mehta HUF and 50% of it to his trust namely Pulin Kanhiyalal Mehta Trust. In the instant case there are three entities, (1) Deepan P Mehta (Individual) (2) Deepan P. Mehta HUF (being Karta of the HUF) and (3) Pulin Kanhiyalal Mehta Trust (trustee of the trust). As per the will, the impugned property was owned by the HUF and Trust and the appellant in the capacity of the Karta and Trustee can only transfer the property and should be signed in the capacity of either Karta of HUF or Trustee of Trust on the sale deed executed before the SRO. However, the appellant had signed in the capacity of Individual and the PAN of the individual was given to the SRO

4.4.1 Further, the appellant need to file the return of income in the capacity of Karta of HUF and Trustee of Trust for the A.Y. 2010-11 by declaring the Long term capital gain. However, the appellant has not offered to tax the sale proceeds in the hands of HUF and Trust. The AO has given a detailed report in this regard. The AO has elaborately discussed the objections of the appellant in the remand report. Based on the remand report and in view of the above discussions, I have no reason to interfere with the observations of the Assessing officer and accordingly, the addition made by the AO is upheld. All the grounds raised in this appeal are dismissed.”

It is clearly evident from the above facts relating to the sale of the property in question, which we find has not been controverted by the Revenue and is established as a matter of fact by various documents submitted by the assessee, that the property was owned by the assessee’s HUF and the assessee’s trust and not by the assessee in his individual capacity. The will of assessee’s father bequeathing the impugned property to the assessee’s HUF and assessee’s trust; the sale deed of the impugned property reflecting the assessee’s HUF and assessee trust as sellers and the bank account of the assessee’s HUF and assessee trust reflecting receipts on sale of the impugned property clearly establish the above facts, which as we have pointed out above has not been dislodged or disputed by the Revenue authorities. In the light of the same, there is no dispute and there can be no dispute of the impugned property not having been sold by the assessee in his individual capacity and no question, therefore, of any capital gain being subjected to tax in his hands. It is absurd to say the least and highly illogical for the Revenue authorities to have ignored all these clinching evidences in favour of the assessee and rested their case on a flimsy ground or basis, that while registering the sale deed, the PAN no. of the assessee in his individual capacity was mentioned. How PAN, which is a mere identity number of assesses issued by the Revenue department, be more relevant for establishing ownership of property as opposed to legally recognized ownership documents filed by the assessee, we fail to understand. It is a sad reflection on the manner in which the authorities below have acted, not becoming of officers whose duty it is to correctly assess incomes of assesses, and who are rigorously trained for the purpose.

6. Be that so, the entire addition made in the hands of the assessee of capital gains amounting to Rs.33,24,000/- is held not sustainable on facts and is directed to be deleted.

7. In the result, appeal filed by the assessee is allowed.

This Order pronounced on 08/10/2025