2025 (8) TMI 1433 - AT - Income Tax

Undisclosed capital gains addition deleted after conveyance showed NIL consideration and alleged payment found sham

Sunil Kumar Versus Income Tax Officer, Ward 1 (4), Faridabad.

Sunil Kumar Versus Income Tax Officer, Ward 1 (4), Faridabad. - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the sum stated as consideration in a conveyance deed executed between spouses can be treated as income (capital gains) in the hands of the transferor where the transferor asserts that no monetary consideration was actually received. 2. Whether a conveyance deed specifying a monetary consideration is conclusive proof of receipt of that consideration for income-tax purposes, absent independent corroborative evidence of payment. 3. Whether reopening assessment under section 147 for alleged undisclosed capital gains on such inter-spousal transfer was justified where the assessee filed bank statements and other material showing no receipt and the return was initially filed. 4. Whether tax authorities erred in making an addition without further examination of the alleged recipient-spouse's position or possible family-settlement/gift explanation. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Treatment of stated consideration in conveyance deed as income (capital gains) where transferor asserts no receipt Legal framework: The transaction involves transfer of immovable property and potential capital gains under the Income Tax Act; the Assessing Officer treated the stated sale consideration as income on the basis that the conveyance deed records receipt of entire sale consideration. Precedent treatment: The Court/Tribunal in the judgment relies on statutory assessment practice principles rather than citing specific precedent; it treats evidentiary proof of actual receipt as relevant to taxing capital gains. Interpretation and reasoning: The Tribunal accepted the assessee's consistent plea that no monetary consideration was received and placed weight on contemporaneous material - the vendor's bank statements, the vendee's affidavit, the fact that the sub-registrar noted 'NIL' consideration/amount paid by vendor to vendee in the conveyance registration record, and the existence of a later family settlement. The Tribunal found that the mere presence of a consideration figure in the conveyance deed is not by itself conclusive of actual receipt where supporting documentary evidence negates payment. The Tribunal also noted that when a transfer between spouses could legitimately occur by family settlement or gift, the presence of a sale deed with a stamped consideration may be a facilitative formality (e.g., for stamp duty/revenue-records) and not proof of revenue receipt. Ratio vs. Obiter: Ratio - Where contemporaneous bank records, affidavit of the recipient, and registrar's entry indicate no payment, a stated consideration in a conveyance deed cannot be mechanically treated as income (capital gains) without further corroboration. Obiter - Remarks about compelled transfers due to ill-health and family disputes are explanatory but ancillary. Conclusions: The addition of the stated consideration as capital gains was unreasonable in absence of evidence of actual receipt; deletion of the addition was warranted. Issue 2 - Conclusivity of conveyance deed recital of consideration for income-tax assessment Legal framework: Documentary recitals in conveyance deeds are material but subject to verification for tax purposes; the tax authority must establish actual receipt to bring the amount to tax as capital gains. Precedent treatment: The Tribunal treated deed recitals as raising a prima facie case but not as determinative where independent evidence contradicted the recital. Interpretation and reasoning: The Tribunal held that the recital that 'entire sale consideration has been received by the assessee' is not absolute proof if other contemporaneous records (bank statements, affidavit of transferee, registrar's notation) indicate otherwise. The authorities should have pursued further inquiry, including examination of the transferee's position, rather than relying solely on the deed's recital to make the addition. Ratio vs. Obiter: Ratio - Recitals in instruments create a rebuttable presumption; they do not substitute for evidential proof of receipt. Obiter - Observations that registration formalities or stamp-duty considerations may explain inflated or nominal recitals. Conclusions: The Tribunal concluded that deed recital alone cannot sustain an addition where documentary evidence rebuts receipt; further inquiry into the transferee's funds or direct evidence of payment is required before taxing the recital amount. Issue 3 - Legitimacy of reopening assessment under section 147 and procedural adequacy Legal framework: Reopening under section 147 requires belief of income escaping assessment; procedural compliance includes opportunity to file explanations under section 142(1) and issuance of show-cause/final notice. Precedent treatment: The Tribunal evaluated the reopening and subsequent ex parte framing of assessment in light of the assessee's inability to comply earlier due to health and pandemic; it focused on whether substantive evidence supported the addition made after reopening. Interpretation and reasoning: The Tribunal acknowledged that reopening and issuing a final show cause were undertaken, but emphasized that the Assessing Officer framed an ex parte assessment without properly reconciling or probing the documentary evidence submitted by the assessee (bank statements, affidavit) and without examining the transferee-spouse where material indicated no payment. The Tribunal viewed the AO's action of charging the entire stated consideration as capital gains as not supported by prudent inquiry, particularly where the assessee had provided records and the sub-registrar's notes indicated no payment. Ratio vs. Obiter: Ratio - Reopening alone does not permit making additions contrary to contemporaneous documentary evidence without adequate inquiry; procedural reopening must be followed by substantive verification. Obiter - Comments on pandemic and ill-health as reasons for initial non-compliance are explanatory and factual. Conclusions: The reopening and subsequent addition were not sustained because the Authorities failed to undertake adequate verification in the face of evidence negating receipt; deletion of the addition follows. Issue 4 - Duty to examine the transferee/spouse and to consider family-settlement/gift explanations Legal framework: In assessments involving transactions between related parties, tax authorities may require examination of both sides of the transaction and consider alternative explanations such as gift or family settlement. Precedent treatment: The Tribunal criticized the tax authorities for not examining the transferee-spouse despite her affidavit and noted that treating the transferee as an independent assessee for inquiry was appropriate but was not undertaken. Interpretation and reasoning: The Tribunal found it unjustified to impute concealment of capital gains where (a) the transfer could legitimately arise from family settlement or gift; (b) the transferee deposed by affidavit that no consideration was paid; and (c) bank records did not show corresponding receipts. The Tribunal held that the AO ought to have pursued inquiry into the spouse's funds and status, and considered family settlement documentation filed later (settlement dated 30.10.2018) rather than treating the sale recital as conclusive. Ratio vs. Obiter: Ratio - Authorities are required to examine the transferee and relevant family-settlement/gift explanations before treating inter-spousal conveyance with a stated consideration as taxable transfer. Obiter - Suggestion that asserting family settlement after assessment may be looked at cautiously is ancillary. Conclusions: Failure to examine the transferee and to consider non-sale explanations rendered the addition unsustainable. Overall Disposition The Tribunal allowed the appeal and deleted the addition of the stated consideration as capital gains, concluding that the tax authorities erred in treating a recital of consideration in the conveyance deed as conclusive proof of receipt without adequate corroborative enquiry and contrary contemporaneous documentary evidence indicating no receipt; the proper course would have been further inquiry into the transferee and consideration of family-settlement/gift explanations.