2024 (1) TMI 606 - AT - Income Tax

Unexplained investment - contention of the assessee is that the land owner cancelled the initially registered sale agreement-cum-GPA (dated 08/07/2003) by executing a registered cancellation deed dated 29/11/2005 before the SRO on the ground that he has not received any sale consideration under the original sale agreement-cum-GPA, thus the question of passing of any sale consideration by the assessee does not arise - contention of the Revenue is that any registered instrument can be cancelled only by way of a Decree of the Civil Court and it cannot be cancelled arbitrarily by either of the parties of the registered agreement and cannot get registered with the SRO unless there is a direction by way of Decree from the Civil Court - whether the land owner can himself execute and cancel the agreement of sale-cum-GPA and register the cancellation deed arbitrarily with the SRO? HELD THAT - There is no Decree obtained from the Civil Court by the Land Owner with regard to cancellation of the earlier agreement and therefore, the registered cancellation of the sale deed with the SRO is not valid in the eye of law. Further, on perusal of the material available on record, it is clear that there is no cogent material before me to evidence and suggest that without passing the consideration, the land owner registered an agreement of sale-cum-GPA in favour of the assessee. But, the recitals are very clear that the vendor has received the sale consideration and executed the document. Therefore simply cancelling the registered agreement of sale-cum- GPA by way of a registered deed of cancellation is not enough to come to a conclusion that the assessee has not paid the consideration to the land owner. Moreover, the assessee himself admitted before the Ld. AO for making an addition whatsoever the reason, and therefore the assessee is precluded to say that he has not paid any amount to the land owner and hence there is no any unexplained investment made by the assessee. Moreover, the Ld. AO has considered the creditworthiness of the 30 investors and the assessee got relief to the extent of Rs. 63,03,790/-. Apart from this, the assessee has also failed to establish the creditworthiness of the 30 investors. In these circumstances, no merit in the argument of the Ld. AR and at the same time the arguments of the Ld. DR holds good. Therefore, as per the discussion in the foregoing paragraphs of this order, I am of the considered opinion that there is no infirmity in the order of the Ld. AO as well as the Ld. CIT(A) and hence no interference is required in their orders. Thus, all the grounds raised by the assessee are dismissed.

Summary

Issues Involved:

1. Validity of the rectification petition under Section 154 of the Income Tax Act.
2. Consideration of unexplained investment under Section 69 of the Income Tax Act.
3. Adherence to ITAT directions in the consequential order.
4. Validity of the cancellation deed executed unilaterally by the vendor.

Summary:

1. Validity of the Rectification Petition under Section 154:
The assessee filed a rectification petition under Section 154 of the Income Tax Act, contending that the vendor had unilaterally canceled the sale agreements, thus nullifying the transaction. The Assessing Officer (AO) dismissed the petition, stating there was no apparent mistake from the record. This decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] and the ITAT remitted the matter back to the AO for re-examination of the cancellation deeds.

2. Consideration of Unexplained Investment under Section 69:
The AO added Rs. 35,96,210/- as unexplained investment under Section 69, concluding that the assessee could not substantiate the source of funds for the land purchase. The assessee argued that the land purchase consideration was paid by 30 individuals, but the AO found their creditworthiness lacking. Despite the assessee's acceptance of the addition to avoid penal proceedings, the AO and CIT(A) upheld the addition.

3. Adherence to ITAT Directions in the Consequential Order:
The ITAT directed the AO to re-examine the issue considering the cancellation deeds. However, in the consequential order, the AO maintained the addition, stating that the cancellation deeds were not valid as they were executed unilaterally without a civil court decree. The AO's decision was based on the lack of creditworthiness of the 30 individuals and the assessee's admission during the initial assessment.

4. Validity of the Cancellation Deed Executed Unilaterally by the Vendor:
The tribunal examined whether the unilateral cancellation of the sale agreement by the vendor was legally valid. According to Sections 31, 32, and 33 of the Specific Relief Act, 1963, any registered instrument can only be canceled by a civil court decree. The tribunal concluded that the unilateral cancellation deed registered by the vendor without a civil court decree was not valid in the eyes of the law. Consequently, the tribunal found no merit in the assessee's argument that no consideration was paid.

Conclusion:
The tribunal upheld the AO's and CIT(A)'s orders, dismissing the assessee's appeal. The tribunal found that the rectification petition under Section 154 did not reveal any apparent mistake, the unexplained investment addition under Section 69 was justified, the AO adhered to ITAT's directions in the consequential order, and the unilateral cancellation deed was legally invalid. Thus, all grounds raised by the assessee were dismissed.