2018 (8) TMI 968 - AT - Income Tax

Long Term Capital Gain (LTCG) on sale of property - determination of ownership - Power of attorney (POA) holder of the non-resident assessee - Held that - the copy of the purchase agreement, Power of Attorney and the Sale Deeds of those immovable properties were duly produced by the assessee before the Ld. AO during the assessment proceedings. It appears from those documents that nowhere it is mentioned the assessee is the real owner of the property or the consideration money has been received by the assessee. It is clearly evident that those properties are not belonged to the assessee and therefore capital gain arising from those properties cannot be taxed in the hands of the assessee solely on the ground that the person being the real owners have not filed their income-tax returns. With utter surprise we note that in spite of having the information about the residential address of those two NRIs in India, the AO had not taken any initiative to make an enquiry about the genuineness of the whereabouts of the said vendors with intend to impose tax on capital gain upon them. On the other hand, CIT(A) has made the assessee responsible to discharge its onus so as to justify the action of the AO to take recourse to the provisions of section 5(2)(a) or (b) of the Act. We, therefore fail to appreciate the stand taken by the first appellate authority who has acted in such lackadaisical manner and without any cogent document against the assessee while confirming the addition made by the AO. Order of additions set aside - Decided in favor of assessee.

Summary

Issues:
Challenge to addition of Long Term Capital Gain (LTCG) on sale of property by the assessee without considering evidence of being a constituted Attorney for NRIs and challenging tax liability under section 5 of the Income Tax Act, 1961.

Detailed Analysis:

1. Issue of LTCG Addition:
The assessee challenged the addition of LTCG on the sale of property by claiming to have acted as a constituted Attorney for NRIs through Power of Attorney. The AO added the LTCG to the assessee's income without verifying the residential addresses of the NRIs or confirming if the consideration amount was received by the assessee. The CIT(A) upheld the AO's decision without questioning the ownership of the properties by the NRIs or confirming the receipt of consideration in the assessee's account.

2. Verification of Documents:
The documents presented by the assessee, including purchase agreements, Power of Attorney, and Sale Deeds, clearly indicated that the properties did not belong to the assessee. The purchase agreements named the NRIs as the original owners, and the consideration amounts were credited to their accounts. The AO failed to investigate the genuineness of the transactions or the receipt of consideration by the NRIs, making the addition to the assessee's income unjustified.

3. Role of the Assessee:
The assessee acted as a constituted Attorney for the NRIs in the sale transactions, as evidenced by the executed Power of Attorney and sale deeds. The AO's failure to inquire about the NRIs' residential addresses or investigate the receipt of consideration from the purchasers led to the erroneous tax liability imposed on the assessee. The CIT(A) dismissed the appeal without proper scrutiny, shifting the onus to the assessee unjustly.

4. Judicial Decision:
The Tribunal found the AO and CIT(A) negligent in verifying the authenticity of the transactions and the ownership of the properties. Despite having information about the NRIs, no steps were taken to investigate the transactions thoroughly. The Tribunal, considering all aspects, deleted the addition made by the authorities, emphasizing that burdening the assessee further would be unjust and arbitrary.

In conclusion, the Tribunal allowed the appeal of the assessee, highlighting the authorities' failure to conduct proper investigations and imposing tax liability without sufficient evidence, ultimately leading to the deletion of the addition in question.