Ravi Boraiah Vs ITO (ITAT Bangalore)
Builder Took Half the Sale Proceeds, but AO Taxed the Whole Amount: ITAT Orders Fresh Examination
A property sale came to the Department’s attention because the landowner had not filed a return. The sale deed reflected consideration of ₹58 lakh, and the AO assessed almost the entire amount as long-term capital gains. The landowner’s case, however, was that he had contributed the land under a joint venture arrangement, the other parties had funded construction, and half the sale proceeds belonged to them. When the CIT(A) dismissed his appeal for non-prosecution without deciding that claim, the Bangalore Tribunal sent the entire matter back to the AO for a fresh examination.
How the addition arose
Ravi Boraiah had not filed an income-tax return for AY 2015–16. The Department received information about the sale of immovable property and initiated reassessment proceedings after passing an order under section 148A(d). The assessee did not file a return in response to the section 148 notice and did not comply with several subsequent notices.
The AO consequently completed a best judgment reassessment on 24 February 2023 under section 147 read with sections 144 and 144B. He assessed long-term capital gains of ₹57,19,021 and determined total income at that amount.
The assessee appealed, but there was no appearance in response to three notices from the CIT(A). The CIT(A) dismissed the appeal for non-prosecution. Thus, the assessee’s explanation of the transaction and his objections to the capital gains computation remained unexamined on appeal.
The landowner’s case: sale proceeds had to be shared
In the statement of facts filed before the CIT(A), the assessee explained that he had entered into a joint venture agreement with two other parties for development of a site at J.P. Nagar, Bengaluru. Under the arrangement, he contributed the land for construction of a three-storeyed building, while the other parties funded the construction. The sale proceeds were to be shared equally.
According to the assessee, the developed property was sold for ₹58 lakh, of which ₹29 lakh was transferred to the other parties under the agreement. He therefore contended that only the remaining ₹29 lakh accrued to him. His appeal also challenged the failure to consider the cost of the land and amounts spent on improvements when computing capital gains.
The assessee maintained that he had furnished the sale deed, purchase deed and relevant bank statement in partial response to a notice during assessment proceedings and had sought more time to submit further documents. He said that the joint venture arrangement and the transfer of the other parties’ share had not been properly considered.
These were claims requiring verification. The Tribunal did not find, as a concluded fact, that ₹29 lakh alone was taxable in the assessee’s hands. Nor did it decide whether the arrangement amounted to diversion of income by overriding title, a ground the assessee had raised. Those questions were left for the fresh assessment.
Could the CIT(A) dismiss the appeal for non-prosecution?
The Tribunal held that the CIT(A)’s approach was unsustainable. An appellate authority must decide the appeal on its merits, even if the appellant fails to appear. Absence at the hearing does not permit the CIT(A) simply to dispose of an income-tax appeal for non-prosecution without adjudicating the grounds. The principle is also discussed in CIT(A) Cannot Dismiss Appeal for Non-Prosecution as Law Requires Decision on Merits.
The assessee’s representative also pointed to the particulars in Form 35, contending that the assessee had not consented to receive appeal notices by email. The Tribunal recorded the contention and found that the assessee had not been afforded a proper opportunity of hearing before the lower authorities. Its decision did not turn on a final ruling about the validity of any particular emailed notice; the decisive problem was that the substantial dispute had not received a proper examination.
Why the case went back to the AO
The Tribunal considered whether the appeal should be restored to the CIT(A). It concluded that such a remand would serve little purpose because the underlying facts also needed examination at the assessment stage. With the consent of both sides, it restored the entire matter to the AO.
The assessee was directed to substantiate the taxability and quantum of the capital gains with relevant evidence. The AO must verify the details and decide the matter afresh in accordance with law. The appeal was therefore allowed for statistical purposes—a procedural outcome that gives the assessee a fresh hearing, rather than immediate deletion of the addition.
Author’s comments
The case contains two separate lessons. First, a CIT(A) must decide an appeal on merits; failure to attend hearings does not turn an assessment into an unanswerable demand. Secondly, success in obtaining a remand is only the beginning when the dispute depends on a joint venture agreement and the flow of sale proceeds.
On remand, the assessee will need to establish the terms of the agreement, the respective contributions to development, the entitlement of each party, the actual payment of ₹29 lakh, and the correct cost and other deductions in the capital gains computation. The description of a payment as the builder’s “share” does not by itself settle its tax treatment. The AO must examine the transaction as a whole and determine what accrued to the landowner and how his capital gains should be computed. That is precisely the enquiry the Tribunal has now directed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal, relating to assessment year 2015–16, filed by Borahia Ravi [ the Assessee/ Appellant] is directed against the appellate order dated 18 December 2025 passed by the National Faceless Appeal Centre, Delhi (the learned CIT(A)). By that order, the assessee’s appeal against the reassessment order dated 24 February 2023, passed by the Income Tax Assessment Unit under section 147 read with sections 144 and 144B of the Income-tax Act, 1961 (the Act), was dismissed for non-prosecution.
2. The Assessee has raised the following grounds of appeal:
1. The order passed by the learned Commissioner of Income tax (Appeals) under section 250 of the Income tax Act, 1961 confirming the assessment order passed under section 147 read with sections 144 and 144B is bad in law and on facts and liable to be quashed.
2. The learned authorities below erred in treating the entire sale consideration of Rs.58,00,000 as income of the Appellant, without appreciating that the Appellant had entered into a registered Joint Venture Agreement providing for 50 and 50 sharing of sale proceeds.
3. The learned Assessing Officer failed to appreciate that only 50 percent of the sale consideration accrued to the Appellant and the remaining portion belonged to the builder under the Joint Venture arrangement and therefore the addition of the entire amount is arbitrary and unsustainable.
4. The learned authorities failed to appreciate the principle of diversion of income by overriding title and erred in taxing income that never accrued to the Appellant.
5. The learned Assessing Officer erred in not allowing cost of construction and OR improvement while computing the capital gains, resulting in excessive and incorrect computation of income.
6. The learned Commissioner of Income tax Appeals erred in dismissing the appeal without adjudicating the grounds on merits and without granting reasonable opportunity of being heard.
7. The initiation of penalty proceedings under section 271(1)(c) 270A (as applicable) is premature, unjustified and unsustainable in law.
8. The Appellant craves leave to add, alter, amend OR withdraw any of the above grounds at the time of hearing.
3. Briefly, the assessee did not file a return of income for assessment year 2015–16. Upon receiving information that the assessee had sold immovable property during the year without offering the resulting capital gains to tax, the case was reopened by issuing notice under section 147 of the Income-tax Act after an order was passed under section 148A(d). The assessee did not comply, failed to file a return in response to the notice under section 148, and disregarded seven notices. Consequently, the learned Assessing Officer passed an order under section 144 on 24 February 2023, adding long-term capital gains of ₹5,719,021 and determining the total income at the same amount.
4. The assessee challenged the order before the learned CIT(A), who dismissed the appeal for non-prosecution after the assessee failed to comply with three notices.
5. We heard Shri Sanjay B Chikamath, Chartered Accountant, for the assessee, and Shri Pradeep S, SR DR learned Additional Commissioner of Income Tax for the Revenue.
6. We find that the assessee did not appear before either the learned Assessing Officer or the learned CIT(A), who therefore dismissed the appeal for non-prosecution. Before the learned CIT(A), however, the assessee submitted in statement of facts that he had entered into a joint venture agreement with two other parties to develop a site. Under the agreement, the appellant contributed the land for constructing a three-storeyed building at J.P. Nagar, Bangalore, while the other parties agreed to fund the construction; the sale proceeds were to be shared equally. The assessee stated that, before the learned AO, in partial response to the notice dated 13 October 2022, he had furnished the sale deed, purchase deed, and bank statement for the relevant year and sought additional time to submit further documents. According to the assessee, the joint-venture property was sold for ₹58 lakh, of which ₹29 lakh was transferred to the other parties under the joint development agreement. Thus, only ₹29 lakh accrued to the appellant. The assessee further stated that the land was purchased in 2006 for ₹39,303 and that approximately ₹3 lakh was spent on improvements. Although these details were available to the learned Assessing Officer, the learned Assessing Officer made an addition of ₹59 lakh, and the learned CIT(A) did not consider the information.
7. The learned authorised representative acknowledged the assessee’s non-appearance before the learned CIT(A) but referred to Form No. 35 and submitted that the assessee had not consented to receive notices by email. Notices issued by email would therefore be inconsistent with the particulars stated in that form.
8. On perusal of the above facts and the orders of the lower authorities, it is clear that the assessee was not afforded a proper opportunity of hearing before either the learned Assessing Officer or the learned CIT(A).
9. The learned CIT(A) could not dismiss the appeal for non-prosecution, as section 251 of the Act requires the appeal to be decided on its merits even in the assessee’s absence. The order of the learned CIT(A) is therefore unsustainable. Further, because the assessee was also denied an adequate opportunity before the learned Assessing Officer, remanding the matter to the learned CIT(A) would serve no useful purpose.
10. Accordingly, in the interest of justice and with the consent of both parties, we restore the entire matter to the file of the learned Assessing Officer. The assessee shall substantiate, with all relevant evidence, the taxability and the quantum of the capital gains. The learned Assessing Officer shall verify and examine the details and decide the matter afresh in accordance with law.
11. In the result, the assessee’s appeal is allowed for statistical purposes.
Order pronounced in the open court on 28th September, 2026.
