Property Transferred to Mother Through Sale Deed Is A Sale And Not Gift, Taxable As Capital Gain: ITAT

The Rajkot Bench of the Income Tax Appellate Tribunal (ITAT) has held that the property transferred by the assessee to his mother for consideration of Rs. 5 lakh is liable to be brought under the ambit of capital gain.

The two-member bench of Suchitra Kamble (Judicial Member) and Waseem Ahmed (Accountant Member) has directed the AO to refer the matter to the Department Valuation Officer (DVO) to determine the value of the property in accordance with the provisions of Section 50C of the Income Tax Act.

The appellant or assessee is an individual who has not filed a return of income for the year under consideration. The AO received information that the assessee has sold an immovable property via a sale deed with a document value of Rs. 5 lakhs and a Jantrai value of Rs. 7,31,600 only. Therefore, the AO reopened the assessment by issuing a notice under Section 148. But the assessee has not filed any return of income in response to the notice issued under Section 148. Several notices under Section 142(1) were issued, and a final show-cause notice was issued but not complied with by the assessee.

The AO finalised the assessment by making an addition of Rs. 7,31,600, which is the Jantari value of the immovable property transferred by the assessee.

The assessee filed an appeal with the CIT(A) and questioned the legality of the reasons recorded for initiating the proceedings under Section 148 or 147. The assessee contended that the AO relied only on the information received from third parties without having any other material on record. Hence, it is borrowed satisfaction.

The assessee submitted that the business operated under the name and style of M/s Jay Corporation until FY 2002–03 and was regularly filing returns of income. However, due to the marriage crisis, he separated from his family, suffered huge losses in business, and became deeply in debt as a result. The land was originally purchased by his sister in 1996 for the construction of a family house, and he inherited it after his sister died unexpectedly. However, his father, in order to protect the property from the creditor of the assessee, made a proposal to transfer the impugned property in the name of his (the assessee's) mother. The property was transferred to his mother through a sale deed instead of a gift deed, as advised by the civil advocate. Thus, the assessee claimed that there was no actual transfer of property falling under the ambit of Section 45.

The CIT(A) dismissed the assessee's appeal, noting that the land was transferred via a registered sale deed and that the payments were mostly made by check.

The tribunal held that the property was transferred by the assessee to his mother by way of a sale deed, in which the consideration for the transfer of the property in dispute was duly recorded. There was nothing mentioned in the sale deed justifying the position of the assessee, i.e. the transfer was in the nature of a gift or without consideration.

Case Title: Shri Jay Atulbhai Mody Versus ITO

Citation: ITA No. 240/Rjt/2017

Date: 16/11/2022

Counsel For Appellant: R.M. Rindani

Counsel For Respondent: Sanjay Punglia

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