Venkataramappa Shaila Vs ITO (ITAT Bangalore)
BDA Replaced the Site, Not Necessarily the Holding Period—ITAT Restores LTCG Claim &; ₹46.40 Lakh Confirming-Party Payment
Summary:
The controversy
The assessee, Mr. Venkataramappa Shaila, was a non-filer for AY 2016-17. Based on risk-management information indicating TDS on the sale of immovable property, proceedings were initiated u/s 148A, followed by notice u/s 148.
In response, the assessee filed a return declaring short-term capital gain of ₹48,600 and income from other sources of ₹2,050.
The AO found that the property had been sold for ₹60 lakh, whereas its apparent purchase cost was only ₹21,400. The assessee claimed deduction of ₹46.40 lakh paid to Mr. P.S. Srinivasaiha, described as a confirming party, and brokerage of ₹5 lakh paid to Mr. Jagadish.
The AO rejected both claims and computed short-term capital gain at ₹55,78,600. Deduction u/s 80C was also disallowed, and the total income was assessed at ₹55,79,432 u/s 147 r.w.s. 144B.
Confirming party appeared in the sale deed
Before the CIT(A), the assessee furnished the sale deed, purchase documents, an agreement to sell, a declaration regarding payment of ₹46.40 lakh, bank details of the confirming party & his own bank statement showing brokerage payment.
The CIT(A) nevertheless rejected the claim, observing that neither the sale deed nor any enforceable agreement satisfactorily established the assessee’s obligation to pay ₹46.40 lakh to the confirming party. The brokerage deduction was rejected on similar reasoning.
Before the ITAT, the assessee relied upon an agreement dated 25 July 2014 involving Mr. P.S. Srinivasaiha. It was pointed out that paragraph 17 of the ultimate sale deed dated 11 May 2015 specifically recorded that Mr. Srinivasaiha, as an agreement holder of the vendor, had consented to the sale and signed as a consenting witness.
The assessee argued that there would have been no reason to include such a recital if the confirming party possessed no enforceable interest in the property.
The real acquisition allegedly began in 2003-04
The assessee’s more fundamental contention was that the property sold in FY 2015-16 was not an independently acquired asset originating in November 2014.
According to him, he had entered into an agreement to acquire the original immovable property during FY 2003-04 for a total consideration of ₹40 lakh, calculated at ₹465 per sq. ft. for 8,600 sq. ft. He initially contributed ₹20 lakh.
Owing to financial constraints and registration-related difficulties, the remaining payments and documentation were facilitated through associates, including Mr. Srinivasaiha.
The original land was subsequently acquired by the Bangalore Development Authority. As compensation for the acquisition, an alternative site was allotted to the assessee in October 2014.
The assessee argued that the BDA acquisition did not extinguish his pre-existing rights. It merely converted the right in the original property into a right to receive an alternative site. Therefore, the site allotted in FY 2014-15 represented a substitution of the original rights acquired in FY 2003-04.
If this factual chain was established, the property sold for ₹60 lakh could give rise to long-term rather than short-term capital gain.
Even the assessee had returned it as STCG
The difficulty was that both the AO and the assessee’s own return filed in response to notice u/s 148 proceeded on the footing that the property had been acquired in FY 2014-15 and generated short-term capital gain.
The long-term capital-gain claim, founded upon rights allegedly originating in FY 2003-04, was advanced with supporting documents at a later stage. Several documents were also in the local language and had not been properly verified by the AO.
The Revenue therefore argued that the claim could not be accepted without examining the original agreements, acquisition proceedings, alternative-site allotment & the rights of the alleged confirming party.
The Revenue also emphasised that the assessee had failed to furnish the confirming party’s PAN, despite being asked to do so. A recital in the sale deed describing someone as an agreement holder could not, by itself, establish the deductibility of ₹46.40 lakh.
ITAT’s ruling
The ITAT found that the documents now produced indicated that the assessee’s rights might have originated in FY 2003-04. However, this aspect required detailed factual verification.
The Tribunal therefore restored the entire matter to the AO. The assessee was directed to establish the complete sequence beginning with acquisition of the original property, its acquisition by BDA, the grant of an alternative site, and the ultimate sale.
The assessee was also required to establish the precise legal right of Mr. Srinivasaiha and the nature & necessity of the ₹46.40 lakh payment made to him.
Since the assessee had furnished the party’s address, bank statement & proof of payment, the AO was permitted to invoke s.131 and directly examine the recipient if necessary.
The brokerage payment of ₹5 lakh to Mr. Jagadish was also restored for verification. After examining the evidence, the AO was directed to determine afresh whether the transaction resulted in LTCG/LTCL or STCG/STCL and compute the assessee’s total income accordingly.
The appeal was allowed for statistical purposes.
Author’s comments
The order does not hold that the alternative site automatically inherits the holding period of the original land. It merely recognises that the period may not invariably begin from the date on which the substitute property was formally allotted.
The decisive question is the continuity of the capital asset or underlying right. If the original enforceable right was acquired in FY 2003-04 and the BDA allotment merely substituted one property interest with another, the earlier holding period may become relevant. The documentation must establish an unbroken legal chain.
Similarly, payment to a confirming party is not deductible merely because it passed through a bank. The assessee must prove the party’s subsisting right, the commercial or legal necessity of obtaining consent & the nexus between payment and transfer.
The case is a useful reminder that capital gains are computed from the real history of the rights transferred, not merely the latest document in the chain.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
1. This appeal in ITA No. 934/Bangalore/2026 has been filed by Shri Venkata Ramapa Shaila, [the assessee/appellant], for assessment year 2016–17 against the appellate order dated 3 March 2026 passed by the National Faceless Appeal Centre, Delhi, through the learned CIT(A). By that order, the reassessment under section 147 read with section 144 of the Income-tax Act, 1961, determining the assessee’s total income at ₹5,580,615, was upheld.
2. Briefly stated, the assessee was a non-filer of the income-tax return for the relevant assessment year. Based on specific information/risk-management inputs of the Central Board of Direct Taxes indicating TDS under section 194 on sale consideration of immovable property of ₹16 lakh, a notice under section 148A(b) of the Income-tax Act, 1961 was issued on 4 February 2023, requiring the assessee to show cause why notice under section 148 should not be issued. As the assessee did not furnish any information, an order under section 148A(d) was passed and notice under section 148 was issued on 16 March 2023. In response, the assessee filed a return on 18 March 2023 declaring short-term capital gain of ₹48,600, income from other sources of ₹2,050, and claiming deduction under section 80C. The Assessing Officer noted from the sale deed that the assessee received sale consideration of ₹60 lakh on which tax was deducted at source. He further observed that the property had been purchased for ₹21,400, and that the assessee claimed payments of ₹46,40,000 to Shri P. Srinivasaiha and brokerage of ₹5 lakh to Shri jagdish. Although the assessee furnished the names, addresses, email IDs and bank details of the confirming party and the broker, the PAN details were not provided. The Assessing Officer held that the property purchased on 28 November 2014 and sold on 11 May 2015 resulted in short-term capital gain. He denied deduction for the payment to the confirming party and brokerage, and computed short-term capital gain at ₹55,78,600. Deduction under section 80C was also disallowed. Accordingly, by assessment order dated 19 February 2024 passed under section 147 read with section 144B, the total income was assessed at ₹55,79,432.
3. Aggrieved by the assessment order, the assessee filed an appeal before the learned CIT(A), who passed the appellate order on 6 February 2026 after considering the written submissions uploaded by the assessee. Before the CIT(A), the assessee produced the sale deed, purchase documents, agreement to sell executed in favour of the confirming party, and a declaration regarding payment of ₹46,40,000 to the confirming party. The assessee also furnished the confirming party’s bank account details and his own bank statement showing payment of ₹5 lakh towards brokerage, and relied on several judicial precedents. The learned CIT(A) held that, in the absence of any clause in the sale deed or any other agreement regarding payment of ₹46,40,000 to the confirming party, the Assessing Officer was justified in disallowing that claim. For similar reasons, the claim for deduction of brokerage was also rejected. Accordingly, the assessee’s appeal was dismissed.
4. Aggrieved by the order, the assessee has filed the present appeal. Shri Chiradeep R.H., learned advocate, referred to the grounds of appeal and submitted that the assessee has filed a 92-page paper book. He stated that the agreement of sale placed at pages 48 to 50 of the paper book was executed on 25 July 2014 at Bangalore between the assessee and Shri P.S. Srinivasaiha, under which Shri Srinivasahia was treated as the confirming party and the assessee as the vendor. Although the property was ultimately sold by sale deed dated 11 May 2015 and the deed does not separately disclose a confirming party, paragraph 17 of the sale deed records that Shri P.S. Srinivasan, as agreement holder of the vendor, gave his consent to the sale and signed the deed as a consenting witness. It was argued that, if Shri Srinivasan had no interest in the property, there would have been no reason to include such a recital in the sale deed. The learned counsel submitted that the assessee could not furnish before the lower authorities the details establishing Shri Srinivasan’s rights in the property. He contended that, on a holistic reading of the relevant agreements, the gain should be treated as long-term capital gain, not short-term capital gain. Further, if the assessee establishes Shri Srinivassaiha right in the property, the payment of ₹46,40,000 made to him should be allowed as a deduction while computing the capital gain. Since the relevant documents are in the local language, the assessee requested an opportunity to substantiate both the long-term capital gain claim and the deduction for the amount paid to Shri P.S. Srinivasan.
5. The learned Departmental Representative relied on the orders of the lower authorities and submitted that, when the Assessing Officer called for the PAN details of the confirming party, the assessee did not furnish them. Therefore, the deduction of ₹46,40,000 could not be allowed at this stage. Regarding the assessee’s claim that the gain should be treated as long-term capital gain rather than short-term capital gain, he submitted that the documents now produced by the assessee, being in the local language, were never placed before the Assessing Officer. Accordingly, the matter should be restored to the Assessing Officer for proper verification of whether the transaction resulted in long-term or short-term capital gain. He further submitted that the assessee had not produced the PAN of the confirming party either before the lower authorities or before the Tribunal. Although paragraph 17 of the absolute sale deed refers to the confirming party, such a reference by itself does not justify allowing deduction of ₹46,40,000 under the Income-tax Act. He therefore contended that there is no infirmity in the orders of the lower authorities.
6. We have carefully considered the rival submissions and perused the orders of the lower authorities. The assessee states that he originally entered into an agreement to purchase immovable property during financial year 2003–04 for a total consideration of ₹40 lakh, calculated at ₹465 per sq. ft. for 8,600 sq. ft., and initially contributed ₹20 lakh. Owing to later financial constraints and registration-related issues, the remaining payments and documentation were facilitated through associates, including Shri P.S. Srinivasaiha and others. The assessee further submits that, after the original land was acquired by the Bangalore Development Authority, he was allotted an alternative site in October 2014 as compensation. On this basis, the assessee contends that the original rights were acquired in financial year 2003–04 and that the property sold in assessment year 2016–17 for ₹60 lakh under the absolute sale deed should give rise to long-term capital gain, not short-term capital gain. It is also submitted that both the Assessing Officer and the assessee, while filing the return in response to notice under section 148 of the Income-tax Act, 1961, treated the gain as short-term capital gain due to an incorrect computation of the holding period. According to the assessee, the acquisition of the original land in financial year 2006–07 by the Bangalore Development Authority did not extinguish his rights but converted them into a right to receive an alternative site by way of compensation. The site allotted in financial year 2014–15 therefore represented substitution of the earlier rights, and the lower authorities erred in treating the gain as short-term capital gain. We find that the assessee now claims acquisition of rights from financial year 2003–04, whereas the Assessing Officer, as well as the assessee in the return filed in response to notice under section 148, proceeded on the basis that the property was acquired in financial year 2014–15, resulting in short-term capital gain. The documents now produced indicate that the assessee’s rights may have originated in financial year 2003–04; however, this aspect requires verification.
7. In view of the above, we restore the entire issue to the file of the learned Assessing Officer. The assessee shall substantiate the sequence of acquisition of the original land, the sale of the impugned property, and the right of Shri P. Srinivasaiha , to whom ₹46,40,000 was paid. Where the assessee has furnished details such as address, bank statement, and proof of payment from his bank account, the learned Assessing Officer may, if required, invoke section 131 of the Income-tax Act, 1961, for verification. The Assessing Officer shall also examine the brokerage payment of ₹5 lakh made to Shri Jagadish, and the assessee is directed to substantiate the same. Thereafter, the Assessing Officer shall decide afresh whether the transaction resulted in long-term capital gain/loss or short-term capital gain/loss in the assessee’s hands and determine the total income after granting the assessee a reasonable opportunity of being heard.
8. In the result, the appeal is restored to the file of the learned Assessing Officer and is allowed for statistical purposes.
Order pronounced in the open court on 07th September, 2026
