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Issues Involved:
1. Whether the addition of Rs. 10,79,00,000 as unaccounted income from the sale of land should be upheld. 2. Whether the memorandum of understanding (MOU) constituted a legally binding agreement for the sale of land. 3. Whether the possession of the land was transferred to the buyer. 4. Whether the income from the alleged sale accrued to the assessee under the mercantile system of accounting. Issue-wise Detailed Analysis: 1. Addition of Rs. 10,79,00,000 as Unaccounted Income: The Assessing Officer (AO) added Rs. 10.79 crores to the assessee's income based on a seized document (A-186) and a statement from a director admitting receipt of Rs. 21 lakhs. The AO argued that the evidentiary value of the seized documents was unquestionable and the onus was on the assessee to disprove them, which the assessee failed to do. The AO also noted that the assessee's transactions were mostly in cash and could not be verified due to non-cooperation. The Commissioner of Income-tax (Appeals) upheld this addition, stating that the sale was confirmed by the director's statement and the terms of the MOU. 2. Legality of the Memorandum of Understanding (MOU): The assessee argued that the MOU dated May 27, 2004, was not a registered agreement but merely a memorandum subject to several conditions. The MOU stipulated payment terms over three years and required the vendor to obtain various clearances. The assessee contended that the deal was canceled, and the Rs. 21 lakhs received was returned. The Tribunal observed that the MOU was not a legally enforceable document for transferring immovable property as it was not registered and did not transfer title or ownership. 3. Transfer of Possession: The Tribunal found that there was no evidence of possession being transferred to the buyer, Kartik J. Patel. The property remained with the assessee, as evidenced by attachment orders from the Tax Recovery Officer. The Tribunal noted that the Revenue Department did not examine Kartik J. Patel, who allegedly paid the substantial amount. The Tribunal concluded that the possession of the property was not handed over, and the Rs. 21 lakhs received was returned the next day. 4. Accrual of Income under Mercantile System: The Tribunal discussed the applicability of section 5 of the Income-tax Act, which states that income is taxable when it accrues or arises. The Tribunal emphasized that an enforceable legal right to receive income must exist for it to be taxable. Since the MOU did not result in a transfer of property and the conditions were not fulfilled, the income did not accrue to the assessee. The Tribunal held that the provisions of section 2(47) read with section 53A of the Transfer of Property Act were not met, and therefore, the transfer did not occur. Conclusion: The Tribunal concluded that the total consideration of Rs. 10.79 crores did not accrue to the assessee as the MOU was not a binding agreement, the possession was not transferred, and the Rs. 21 lakhs received was returned. The Tribunal allowed the appeal, exonerating the assessee from the levy of tax on the alleged unaccounted income. Order: In the result, the appeal of the assessee is allowed. Order signed, dated, and pronounced in the court on September 30, 2011.
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