2025 (1) TMI 647 - AT - Income Tax

Assessee fails to prove name lender status, short term capital gains treatment upheld despite third party ownership claims

Piyush M. Dobariya, Ajay Reghubhai Bharwad Gokul Nagar Versus Income Tax Officer, Ward-5 (4), Vadodara

ITAT Ahmedabad dismissed the appeal regarding short term capital gains treatment. The assessee claimed to be a name lender rather than the real owner of ... Short Term Capital Gain - real owner of capital asset - As argued additional documents are not entertained - as per DR assessee has not produced any materials in support of the expenses claimed towards conversion into non-agricultural purpose and payments made to farmers - CIT(A) held no iota of evidence in the form of documents placed before the Authorities that the assessee is a name lender not real owner and real owner is Shri Mansukhbhai Dobariya. HELD THAT:- As per the statement of Shri Mansukbhai Dobariya, he was operating as a Real Estate Agent for the company CLPL in procuring lands and purchased the properties in the name of his son Shri Piyush M Dobariya and Shri Ajay Reghubhai Bharwad are not within the provisions of law. As per the Indian Registration Act, if Shri Mansukbhai Dobariya purchases the land he could have engaged his son Shri Piyush M Dobariya and Shri Ajay Reghubhai Bharwad as his Power of Attorney Agent and registered the immovable properties then the contention of the assessee may hold it good but that legal proceeding has not been done in this case. The Conveyance Deeds makes it clear that the properties were purchased by Shri Piyush M Dobariya and Shri Ajay Reghubhai Bharwad in their individual capacities and sale of the same will certainly attract Capital Gains. There were no evidences placed by the assessee before any of the Lower Authorities regarding the expenses incurred by the assessee in converting the agricultural lands into Non-Agricultural lands. Thus the additional documents are without necessary evidences and invalid in the eyes of law. Thus the registered Sale Deeds makes it abundantly clear that the properties belongs to the two assessees here in. The assessees failed to produce expenses relating to the land as well as non-agricultural conversion expense and payments made to the farmers. In the absence of the same, we do not find any infirmity in the orders passed by the Lower Authorities in treating the sale as Short Term Capital Gain. Thus we do not find any merits in the submissions of the assessee. We are also in concurrence in the findings of the Ld. CIT(A) namely the alternative view of treating the transactions in the nature of adventure in trade. Therefore the Grounds raised by the assessee are devoid of merits. ISSUES: Whether the sale of immovable agricultural land, converted to non-agricultural land and sold by the assessee, constitutes a transfer of a capital asset attracting capital gains tax under the Income Tax Act, 1961. Whether the assessee was the real owner of the properties sold or merely a name lender holding the properties on behalf of another person, thereby affecting the taxability of the capital gains. Whether the additional evidences (letter and affidavit) submitted by the assessee during appellate proceedings should be admitted and considered under Rule 46A of the Income Tax Rules. Whether the transaction can alternatively be treated as an adventure in the nature of trade, resulting in business income liable to tax. Whether the expenses incurred in the purchase and conversion of agricultural land to non-agricultural land are allowable deductions. Whether delay in filing the appeal is excusable under the extension granted due to the COVID-19 pandemic. RULINGS / HOLDINGS: The sale of agricultural land, which was converted into non-agricultural land before sale, constitutes a transfer of a capital asset liable to capital gains tax under sections 45 and 48 of the Income Tax Act, 1961. The assessee was held to be the absolute owner of the land as per registered sale deeds and possession, and there is 'no iota of evidence in the form of documents' to establish that the assessee was merely a name lender or that the real ownership belonged to another person; therefore, capital gains tax is correctly chargeable in the hands of the assessee. The additional evidences filed by the assessee (letter and affidavit) were not admitted by the Commissioner of Income Tax (Appeals) as they did not satisfy the conditions specified under Rule 46A of the Income Tax Rules, and mere self-serving statements without corroborative documentary evidence cannot override registered deeds and possession. Alternatively, if the lands were purchased on behalf of the company, the transaction is in the nature of 'adventure in the nature of trade' and profits arising therefrom are taxable as business income. The assessee failed to produce evidence regarding expenses incurred for purchase and conversion of land; hence, such expenses were not allowed as deductions. The delay in filing the appeal was excused in view of the Supreme Court's suo-motu extension of time limits during the COVID-19 pandemic, rendering the appeal timely. RATIONALE: The Court applied the statutory provisions of the Income Tax Act, 1961, particularly sections 45 and 48 relating to capital gains arising from transfer of capital assets, and Rule 46A of the Income Tax Rules concerning admission of additional evidence during appellate proceedings. Precedents were relied upon to delineate the essential ingredients for capital gains chargeability: existence of a capital asset, transfer thereof, consideration received, and profit arising from the transfer. The Court emphasized the primacy of registered sale deeds and possession over unregistered, notarized, or self-serving documents, holding that ownership cannot be undermined without cogent documentary proof. The Court referred to established jurisprudence on 'adventure in the nature of trade' to treat transactions intended for resale after conversion as business income, citing relevant Supreme Court decisions. The rejection of additional evidences was grounded on the non-compliance with Rule 46A conditions, reflecting a strict approach to admitting new evidence post-assessment. The Court followed the Supreme Court's suo-motu order extending limitation periods during the COVID-19 pandemic to excuse delay in filing appeals, ensuring procedural fairness.