ITAT Surat Deletes ₹2.45 Crore Capital Gains Addition in Instalment Sale

A recent Income Tax Appellate Tribunal ruling, reported by Mint, clarifies why a mismatch between the money a property seller actually receives and the amount a developer reports in Form 26AS should not automatically create a tax demand. The Surat bench deleted a ₹2.45 crore capital gains addition after the taxpayer showed that the higher figure in Form 26AS did not reflect cash received in that year. This matters for anyone selling property through development agreements, because a TDS entry can trigger scrutiny even when bank receipts tell a different story. (Source: Mint)

What happened

The taxpayer jointly owned about 12,363 square metres of non-agricultural land in Kachigam, Nani Daman, with his three brothers. The four co-owners entered into a registered development agreement with Param Corporation for a total consideration of ₹24 crore. In financial year 2017-18, the taxpayer said he received only ₹25 lakh, but the developer deducted TDS of ₹2,86,250 against a reported ₹2.86 crore, and that amount appeared in his Form 26AS. (Source: Mint)

After reassessment, the assessing officer treated the entire ₹2.86 crore as consideration for that year and made an addition of ₹2.45 crore. The Commissioner of Income Tax (Appeals) upheld the addition. The ITAT found that the taxpayer had declared capital gains on the ₹25 lakh actually received, carried forward ₹2,61,250 of TDS credit, and disclosed later receipts in returns for assessment years 2019-20 to 2022-23. His three brothers followed the same method, and the tax department had accepted their treatment, so the tribunal deleted the addition. (Source: Mint)

Our analysis

The core issue is that Form 26AS records tax deducted at source against a PAN, but the entry is driven by what the payer reports, not necessarily by what the recipient received. In development agreements, a builder may report a larger amount for TDS purposes even when payment is staggered, creating a gap between tax records and bank receipts. If an assessing officer relies mechanically on that higher figure, a seller can face a large capital gains addition even though the cash has not changed hands. (Source: Mint)

The tribunal's decision was not a broad statement that capital gains are taxed only when money is received. Mint notes that the ruling rested on specific facts: the taxpayer showed actual receipts, offered the remaining amounts to tax in later years, and the co-owners' identical treatment had already been accepted. In our view, this signals that documentation and consistency across related taxpayers can be decisive in such disputes, but it does not replace the normal rules for when capital gains arise on a property transfer.

For ordinary investors, the practical lesson is that higher entries in Form 26AS can trigger demands even if they do not reflect cash received. Those with development agreements, joint ownership, or staggered sale proceeds are most exposed, and the ability to explain the gap depends heavily on keeping year-wise records. (Source: Mint)

What this could mean for you

• Property sellers with instalment payments may face a tax demand if the payer's TDS return shows an amount larger than the cash actually received in a year, so reconciling Form 26AS with bank statements and agreements becomes important. (Source: Mint)
• Joint owners of land or property are likely to benefit from all co-owners following the same method of reporting receipts each year, because that consistency carried weight in this ruling.
• Taxpayers with TDS mismatches in Form 26AS should expect the tax department to ask why the reported figure differs from the income declared, and may need to show year-wise returns and TDS certificates. (Source: Mint)

What to watch next

• How assessing officers handle similar reassessment cases where Form 26AS figures exceed actual receipts. (Source: Mint)
• Whether subsequent-year disclosures made by such taxpayers remain settled or are reopened later by the tax department.
• Whether other ITAT benches follow this reasoning, given that the tribunal cautioned against treating it as a general rule.

Bottom line

This ruling is a reminder that a higher Form 26AS entry is not proof that a landowner received the entire amount in that year, but the outcome rested on strong documentation and consistent co-owner treatment. In our read, it gives property sellers a clearer sense of the evidence they may need, without changing the broader tax treatment of capital gains. (Source: Mint)