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Mohsin Himmati Vs ADIT (ITAT Hyderabad)
Father’s Bank-Funded Payments Allowed as Cost of Acquisition — ITAT Hyderabad Grants Full LTCG Relief
The Hyderabad Bench of the ITAT allowed the assessee’s appeal for AY 2023-24, holding that payments made by the father of the assessee towards purchase of property, duly supported by bank statements, constitute valid cost of acquisition and cannot be disallowed while computing long-term capital gains.
Key findings of the Tribunal:
Facts of the case: The assessee (a non-resident) sold an immovable property for ₹2.31 crore. The property was purchased in 2017 for ₹1.54 crore, paid entirely by the assessee’s father in three instalments (₹25 lakh, ₹77.20 lakh and ₹52.20 lakh), claimed as gifts.
- AO & DRP’s partial disallowance: While ₹25 lakh was allowed, the remaining ₹1.29 crore was disallowed by the DRP on the ground that the opening bank balance of the father as on 01-09-2014 was not explained, due to non-furnishing of earlier bank statements.
- Admission of additional evidence: The ITAT admitted complete bank statements of the father for the missing period, holding that the evidence went to the root of the controversy and was crucial for adjudication.
- Source of funds fully explained: On verification, the Tribunal found that the father had an opening bank balance of over ₹18.74 crore, from which the impugned payments were made directly to the seller through banking channels.
- Payments directly linked to purchase deed: The sale deed clearly reflected that the amounts of ₹77.20 lakh and ₹52.20 lakh were paid towards the very same property.
- No adverse inference in year of sale: Once source and utilization were proved, the payments could not be denied as cost of acquisition in the year of sale. If at all, any enquiry could only relate to the year of payment, not the year of capital gains.
- Relief granted: The Tribunal directed the AO to allow the full cost of acquisition and recompute long-term capital gains accordingly.
Accordingly, the assessee’s appeal was allowed in full, granting substantial relief on LTCG computation.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Shri Mohsin Himmati (“the assessee”), feeling aggrieved by the assessment order passed by the Learned Assessing Officer, Hyderabad (“ Ld. A.O”) under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (“the Act”) for the A.Y 2023-24, dated 12.09.2025.
2. The assessee has raised the following grounds of appeal:
3. The brief facts of the case are that the assessee is a non-resident individual who filed his return of income for the AY 2023-24 on 28.07.2023 under section 139(1) of the Income Tax Act, 1961 (“the Act”), declaring a total income of Rs.3,37,79,244/-, which included long-term capital gain of Rs.43,22,882/-. During the year under consideration, the assessee had sold an immovable property for a sale consideration of Rs.2,31,12,000/-. During the course of assessment proceedings, the Ld. AO observed that the said immovable property was purchased by the assessee on 31.05.2017 for a consideration of Rs.1,54,40,000/-. The purchase consideration of the said property was paid by the father of the assessee, Shri Ali Hemati, in three instalments of Rs.25,00,000/-, Rs.77,20,000/- and Rs.52,20,000/-. The assessee claimed that the said payments were made by his father on behalf of the assessee as gifts. The Ld. AO was not satisfied with the explanation furnished regarding the source of payments made by the father of the assessee and accordingly did not allow the cost of acquisition while computing long-term capital gains. The entire sale consideration of Rs.2,31, 12,000/- was treated as long-term capital gain by the Ld. AO in the hands of the assessee. Accordingly, a draft assessment order under section 144C(1) of the Act dated 20.02.2025 was passed by the Ld. AO determining the total income of the assessee at Rs.5,25,78,361/-.
4. Aggrieved with the order of the Ld. AO, the assessee filed objections before the Learned Dispute Resolution Panel (“Ld. DRP”). The Ld. DRP, while partly accepting the objections, allowed Rs.25,00,000/- as cost of acquisition and rejected the balance payments of Rs.77,20,000/- and Rs.52,20,000/- on the ground that the opening balance in the bank account of the father of the assessee as on 01.09.2014 was not explained due to non-furnishing of bank statements for the period from 09.06.2013 to 01.09.2014. Pursuant thereto, the Ld. AO passed the final assessment order under section 143(3) read with section 144C(13) of the Act on 12.09.2025 assessing the total income of the assessee at Rs.4,95,36,082/-.
5. Aggrieved by the final assessment order of the Ld. AO, the assessee is in appeal before the Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the solitary issue arising in the present appeal is the denial of deduction of Rs.77,20,000/- and Rs.52,20,000/- as part of the cost of acquisition of the immovable property sold by the assessee. In this regard, the Ld. AR invited our attention to the bank statement of the father of the assessee for the period from 01.09.2014 to 16.09.2014 placed at page no. 172 of the paper book and submitted that as on 01.09.2014, the father of the assessee had an opening balance of Rs.18,74,82,197.18. Out of the said balance, payments of Rs.77,20,000/- on 09.09.2014 and Rs.52,20,000/- on 13.09.2014 were made towards the purchase of the impugned property. He further submitted that the Ld. DRP, in para no. 5.5.4 of its directions, denied the said payments solely for the reason that bank statements for the period from 09.06.2013 to 01.09.2014 were not furnished. To address this objection, the assessee has filed the complete bank statements for the said period as additional evidence before the Tribunal along with a petition for admission of the additional evidence, which conclusively explain the source of funds (page nos. 12 to 27 of the additional evidence paper book). The Ld. AR also invited our attention to the purchase deed of the immovable property placed at page nos. 124 to 149 of the paper book to demonstrate that the impugned payments were made directly to the seller towards purchase consideration. Finally, the Ld. AR submitted that the father of the assessee was having sufficient balance in his bank account and the payments towards the purchase cost of the immovable property has been made out of the said available bank balance. Accordingly, the Ld. AR prayed before the Bench to allow the payment of Rs.77,20,000/- and Rs.52,20,000/- as deduction from the sales consideration of the immovable property for the purpose of calculation of capital gain.
6. Per contra, the Learned Departmental Representative (“Ld. DR”) relied on the orders of the lower authorities. He submitted that the assessee failed to substantiate the source of payments of Rs.77,20,000/- and Rs.52,20,000/- before the Ld. AO as well as before the Ld. DRP. She further objected to the admission of additional evidence, contending that the bank statements now filed were not produced before the lower authorities and that no sufficient cause was shown for such failure.
7. We have considered the rival submissions and carefully examined the material placed on record. At the outset, we find that the additional evidence filed by the assessee consists of bank statements of the father of the assessee for the period from 09.06.2013 to 01.09.2014. The only reason for disallowance by the Ld. DRP, as recorded in para no. 5.5.4 of its directions, was the absence of bank statements for this very period, resulting in non-explanation of the opening balance as on 01.09.2014. Thus, the additional evidence goes to the root of the matter and is crucial for adjudicating the issue in controversy. Accordingly, in the interest of substantial justice and in exercise of powers under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, we admit the additional evidence filed by the assessee.
8. On merits, it is an admitted position that the payments of Rs.77,20,000/- and Rs.52,20,000/- were made by the father of the assessee towards the purchase of the immovable property. On perusal of the additional bank statements, we find that the opening balance available in the bank account of the father of the assessee as on 01.09.2014 stands duly explained and substantiated. The impugned payments have been made out of the said explained balance. We have also gone through the copy of the purchase deed of the immovable property placed at page nos. 124 to 149 of the paper book and on perusal of the same, we find that the payments of Rs.77,20,000/- and Rs.52,20,000/- were made directly to the seller towards purchase consideration of the very same property. Once the source of funds and the utilization thereof for acquisition of the property are duly proved, the said payments cannot be denied as cost of acquisition while computing long-term capital gains. Further, the payments were made during the financial year relevant to Assessment Year 2015–16 and, therefore, if at all any adverse inference was to be drawn, the same could have been examined only in that year and not in the year of sale of the property. In view of the present facts and circumstances of the case, we hold that the assessee is entitled to deduction of Rs.77,20,000/- and Rs.52,20,000/- as part of the cost of acquisition. Accordingly, we direct the Ld. AO to allow the same and recompute the long-term capital gains.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 9th January 2026.
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