Landowner faced ₹3.41 crore tax on a ₹6.82 crore sale he never made; ITAT Ahmedabad deletes addition

A landowner in Ahmedabad found himself facing an income-tax dispute over a property sale he said he had never made. The land had allegedly been sold for ₹6.82 crore in cash using a forged power of attorney and forged signatures. The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has now deleted a ₹3.41 crore capital gains addition after finding that the sale deed had already been declared void by a civil court and there was no evidence that the taxpayer received any part of the alleged sale proceeds.

The ruling was delivered in the case of Suraj Jayantilal Patel L/H of Late Jayantilal Joitaram Patel vs ITO, Ward 7(2)(1), Ahmedabad, ITA No. 528/Ahd/2026, on 21 April 2026.

The dispute goes back to 25 July 2014, when agricultural land at Hanspura Village, Ahmedabad, co-owned by Patel and others, was shown as having been sold for ₹6,82,53,000. According to the taxpayer, however, he had neither sold the land nor authorised anyone through a power of attorney to sell it.

The sale deed, the taxpayer told the tax authorities, had been executed using a forged POA and forged signatures. His PAN card was also not enclosed with the sale deed. The matter subsequently reached the civil court, where Patel challenged the transaction.

Civil court declared the sale deed void

The Principal Senior Civil Judge, Ahmedabad (Rural), Mirzapur, in an order dated 3 June 2020, declared the sale deed void. The ITAT noted that the civil court had found that the deed was executed through fraud and that the alleged consideration had not been paid.

The entire ₹6.82 crore sale consideration was claimed to have been paid in cash. But, importantly, the ITAT noted that no receipt showing that Patel had received the money was produced before the civil court. The tribunal also recorded that the buyers had subsequently appealed against the civil court’s order before the Gujarat High Court, where the title dispute remained pending.

Despite the civil court’s finding, the tax department reopened Patel’s assessment after its Investigation Wing received information about the land sale. Patel had filed his return for AY 2015-16 on 29 December 2015, declaring total income of ₹1.37 lakh.

The Assessing Officer (AO) treated Patel’s proportionate share of the alleged sale proceeds, ₹3,41,26,500, as long-term capital gains. Since the buyers’ appeal against the civil court order was pending, the AO made the addition on a protective basis. The assessment was completed under section 147 read with section 144B of the Income Tax Act.

Patel challenged the addition, first before the Commissioner of Income Tax (Appeals) and subsequently before the ITAT. His counsel, R B Patel, argued that there was no evidence that Patel had received any consideration and that the underlying sale itself had been declared void.

The Revenue argued that the ownership dispute had not reached finality because the buyers’ appeal was pending before the Gujarat High Court. It therefore supported the protective addition as a measure to safeguard the tax department’s interest.

ITAT says tax department had to establish receipt of money

The Ahmedabad bench, comprising Judicial Member Sanjay Garg and Accountant Member Narendra Prasad Sinha, rejected the Revenue’s position.

The tribunal noted that the sale deed had already been declared void by the civil court and that the record showed it was based on a forged POA and forged signature. It also highlighted the absence of Patel’s PAN card from the sale deed.

More importantly, the ITAT found that the AO had not examined the buyers regarding the alleged ₹6.82 crore cash payment. Nor had the Revenue brought any evidence showing that Patel actually received the money or that proceedings had been initiated against the buyers to examine the source of their investment.

The tribunal held that the mere pendency of the buyers’ appeal before the Gujarat High Court did not justify taxing Patel on a protective basis.

The ITAT also pointed out a separate problem with the AO’s computation. Even if the capital gain had been taxable, the AO could not simply treat Patel’s entire proportionate sale consideration of ₹3.41 crore as capital gain without allowing for the cost of acquisition. The land had been purchased in 2005, and that cost would have had to be considered.

Ultimately, the tribunal concluded that no capital gain arose in Patel’s hands because the sale transaction had been declared void. It therefore deleted the ₹3,41,26,500 addition and allowed the taxpayer’s appeal.