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Facts
The assessee filed a return of Nil income claiming a loss. The AO found an investment of Rs. 4,42,71,506/- in a property, treating it as unexplained investment under Section 69. The assessee claimed the sale deed was executed but no payment was made as the property was found to be government land, and thus the sale was void. The cheques issued were also not encashed.
Held
The Tribunal held that for a valid sale, there must be payment of sale consideration. Since no payment was made and the property title was disputed, the sale deed was void ab initio. Therefore, the addition made under Section 69 was not warranted as there was no actual investment or unexplained source.
Key Issues
Whether the addition made under Section 69 for unexplained investment is valid when the sale deed is void due to non-payment of consideration and dispute over property title?
Sections Cited
69, 250, 142(1), 234A, 234B, 234C
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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARARAJAN K.
ORDER
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 27/02/2024 in respect of the A.Y. 2017-18 on the following grounds of appeal:
1. The appellate order passed by the learned Commissioner of Income-tax [Appeals], NFAC, Delhi, passed under Section 250 of the Act dated 27/02/2024, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.
2. The appellant denies itself liable to be assessed on a total income of Rs. 4,51,69,506/-determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals], as against the loss returned and reported by the appellant of Rs. 9,40,050/-, on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer amounting to Rs. 4,42,71,506/- as unexplained investment under section 69 of the Act, on the facts and circumstances of the case.
4. The leaned Commissioner of Income-tax [Appeals] failed to appreciate that the appellant in its books has shown the said property on the asset side of its balance sheet since and the partner's capital account has been credited in the books, the source for investment in the property is duly explained and consequently the question of treating the same as unexplained investment under section 69 of the Act does not arise and the addition made on a wrong premise by the learned assessing officer and confirmed by the learned Commissioner of Income -tax [Appeals], requires to be deleted, on the facts and circumstances of the case.
5. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the provisions of section 69 of the Act is not applicable to the instant case, since the parameters for invoking the provisions of section 69 of the Act is absent and consequently the addition made by the learned assessing officer is arbitrary, based on suspicion, surmises, conjectures and without any proper basis and the addition made by the learned assessing officer under section 69 of the Act requires to be deleted, on the facts and circumstances of the case.
Without prejudice, to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant denies itself liable to be charged to interest under section 234 A, 234 B & 234 C of the Income Tax Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 A, 234 B & 234 C of the Act is also bad in law as the period, rate, quantum and method of calculation adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case.
7. The appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal urged above.
8. For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.”
2. The brief facts of the case are that the assessee filed their return of income Nil and claimed a loss of Rs. 9,40,050/-. The case was selected for scrutiny and notice u/s. 142(1) was issued. The AO on perusal of the return of income found that the appellant had invested in the property for a sum of Rs. 4,42,71,506/-. Thereafter, show cause notice seeking the details were issued by the AO. The AO also observed that the seller had informed that he has not received the sale consideration of Rs. 4,42,71,506/-. The assessee filed their reply to the show cause notice and explained that actually sale deed was executed on 22/06/2016 for purchasing the property from Mr. Michael Ruthnaswamy by giving the cheques of the partner. Thereafter, the assessee came to know that lands are not belonged to the seller but it is the Government land and enclosed the copy of the order dated 07/11/2014 issued by the Tahsildar, Bangalore East Taluk in which the properties in Survey Numbers 51, 57, 63/2 of Kasavanahalli Village, Varthur Hobli, Bangalore East Taluk was classified as Rajakaluve / Ditch Kharab Land and therefore the said lands belonged to the Government. On that basis, the Tahsildar directed the removal of the unauthorized encroachment made in the said survey numbers. Since the property purchased by the assessee falls in the survey no. 57 of Kasavanahalli Village, Varthur Hobli, Bangalore East Taluk the partner of the assessee had requested their bankers not to pass the cheques issued to the seller. Even though the partner had given the cheques for effecting the sale deed, in view of the dispute about the title of the land, the assessee was not interested in that property and therefore they have not made the payment by passing the cheques given in the name of the seller. Before that, the assessee while finalizing the accounts, had shown the said property as intangible assets in the balance sheet and credited the partners capital account since the partner had given his personal cheques.
But the fact remains that there is no transfer of property by way of the above said sale deed dated 22/06/2016 and the physical possession of the property was not handed over by the seller and also not received by the purchaser the assessee. In such circumstances, the assessee submitted that the entries were made wrongly in the accounts and therefore there is no investment in the property by the assessee. Insofar as the source for paying the sale consideration by the partner of the assessee, the assessee submitted that the partner had given only the cheques and the cheques were not encashed by the seller and therefore there is no question of doubting about the source of the said payment. In view of the said explanations, the assessee prayed to drop the proposals as contained in the show cause notice.
The AO considered the reply as well as the documents filed by the assessee but confirmed his proposals and estimated the investment made in the property as unexplained investment u/s. 69 of the Act. The Ld.AR at the time of hearing, filed a paper book and enclosed the written submissions and other documents including the order issued by the Tahsildar, Bangalore East Taluk and submitted that the addition made u/s. 69 of the Act is not correct. The Ld.AR further submitted that when there is no transfer of property and also when there is no consideration passed on to the seller, there would not be any valid sale and therefore based on the mere entries in the accounts that too prepared immediately after the end of the year, the addition made u/s. 69 on the value of the sale consideration is not correct. Further, based on the records, it is a fact that the sale deed executed on 22/06/2016 is void-ab-initio since there is no physical possession of the property by the seller to the purchaser and also no sale consideration has been given by the purchaser to the seller and therefore based on the entries in the accounts, the addition made u/s. 69 is not correct. The Ld.AR further submitted that at the maximum, it can be concluded that the entries in the accounts are not correct and on that basis, addition u/s. 69 could not be made.
The Ld.DR relied on the order of the lower authorities and submitted that the books of accounts reflected a different story and therefore prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
As seen from the various documents furnished by the assessee, the assessee intended to purchase property in Survey Number 57 of Kasavanahalli Village, Varthur Hobli, Bangalore East Taluk for a sale consideration of Rs. 4,42,71,506/- and to that effect, they also executed the sale deed on 22/06/2016. In the said sale deed, it was clearly averred that the sale consideration is to be paid in the following manner.
6. Therefore the sale consideration was paid by way of four cheques drawn on Union Bank of India, Jayanagar Branch, Bangalore dated 22/06/2016. Only on the basis of the said sale consideration, the sale deed was registered by the authority. We have also perused the order passed by the Tahsildar, Bangalore East Taluk, Krishnarajapuram, Bangalore – 560 036 in Case No: N.C.R/CR/.03/14-15 dated 07/11/2014 in which the Tahsildar had adjudicated that the lands in question in Survey Numbers 51,57 & 63/2 of Kasavanahalli Village are Rajakaluve Kharab land which is the Government land and therefore ordered to vacate the unauthorized encroachment on the said lands. Hence it is clear that the lands involved in the sale deed are the Government lands and on that basis, the Tahsildar had ordered to remove the encroachment in the said lands. We have also perused the schedule of the property mentioned in the said sale deed dated 22/06/2016 which is as follows:
7. When we compare the lands conveyed through the said sale deed with the order of the Tahsildar dated 07/11/2014, we found that the said lands are Government lands and therefore the seller Shri Michael Ruthnaswamy has no valid title on that date to transfer the said lands in favour of the assessee. When the seller is not having any clear title over the property, the alleged sale deed executed by him is also not a valid document in the eye of law. Further, the partner of the assessee who had given the cheques in favour of the seller towards the sale consideration, had also not cleared the cheques for want of title to the said property. In fact, there is no sale consideration passed on to the seller as stated in the sale deed dated 22/06/2016. Further, pursuant to the sale deed, the possession of the property was also not handed over to the assessee which is also one of the requirement as per the sale deed dated 22/06/2016. In view of the above said facts, even though there is a sale deed dated 22/06/2016, actually the sale consideration was not received by the seller and the possession was also not handed over to the assessee pursuant to the sale deed. In these circumstances, the reliance made by the authorities on the entries made in the accounts and on that basis, estimating the addition u/s. 69 of the Act is not correct.
We have also perused the bank statement of the partner filed by the assessee to show that the alleged cheques handed over to the seller was not at all enchased even after a period of one year. Therefore the said cheques are mere papers and could not be encashed by the seller since the validity period for the cheques were also over. We have also perused the bank statement of the assessee and satisfy ourselves that there is no payment of sale consideration by other means also. We also consider the confirmation letter given by the seller Mr. Michael Ruthunaswamy dated 20/08/2019 in which he had admitted that there was a dispute with BBMP and the matter also reached the court and therefore he has not encashed any of the four cheques given towards the sale consideration for the purpose of transferring the property situated in Sy.Nos. 57, Plot 3, 4 and 5, Shubh Enclave, Kasavanahalli Village, Varthur Hobli, Bangalore.
On the face of the records submitted by the assessee, we are of the view that the assessee had not made any investment in the said property situated at Sy.No. 57, Plot 3, 4 and 5, Shubh Enclave, Kasavanahalli Village, Varthur Hobli, Bangalore and therefore the addition made u/s. 69 of the Act is not warranted. Merely, based on the entries in the accounts, when there are other records available to show that the entries are wrong, the addition u/s. 69 could not be made. Admittedly, in this case, there is no investment as alleged by the authorities and also there is no unexplained source towards the same. Further, section 69 of the Act makes it clear that in order to attract the said provision, the following ingredients has to be satisfied. 1) The assessee should make the investments or incur expenses that are not recorded in the books of accounts. 2) The source of the funds used for this investments or expenses is not explained. 3) If the above two ingredients are satisfied, then only the addition u/s. 69 can be made.
In the present case, there is no dispute that the investments are recorded in the books of accounts and the assessee also offered the explanation based on the documents and therefore the invoking of section 69 to the facts and circumstances of the case is not correct. In the present case, there is no investment and there is no payment made by the assessee and in such circumstances, the addition made u/s. 69 is not correct. In support of our above finding, we also relied on the two judgments of the Hon’ble Supreme Court reported in (2009) 4 SCC 193 in the case of Kaliaperumal vs. Rajagopal & Anr and also in the case of Kewal Krishan vs. Rajesh Kumar & Ors. Etc. in Civil Appeal Nos. 6989-6992 of 2021 dated 22/11/2021.
The finding given by the Hon’ble Supreme Court in the first mentioned judgment is as follows:
8. Sale is defined as being a transfer of ownership for a price. In a sale there is an absolute transfer of all rights in the properties sold. No rights are left in the transferor. The price is fixed by the contract antecedent to the conveyance. Price is the essence of a contract of sale. There is only one mode of transfer by sale in regard to immovable property of the value of Rs.100/- or more and that is by a registered instrument. It is now well settled that payment of entire price is not a condition precedent for completion of the sale by passing of title, as Section 54 of Transfer of Property Act, 1882 (`Act' for short) defines `sale' as a transfer of ownership in exchange for a price paid or promised or part paid and part promised. If the intention of parties was that title should pass on execution and registration, title would pass to the purchaser even if the sale price or part thereof is not paid. In the event of non- payment of price (or balance price as the case may be) thereafter, the remedy of the vendor is only to sue for the balance price. He cannot avoid the sale. He is, however, entitled to a charge upon the property for the unpaid part of the sale price where the ownership of the property has passed to the buyer before payment of the entire price, under Section 55(4)(b) of the Act. Normally, ownership and title to the property will pass to the purchaser on registration of the sale deed with effect from the date of execution of the sale deed. But this is not an invariable rule, as the true test of passing of property is the intention of parties. Though registration is prima facie proof of an intention to transfer the property, it is not proof of operative transfer if payment of consideration (price) is a condition precedent for passing of the property. The answer to the question whether the parties intended that transfer of the ownership should be merely by execution and registration of the deed or whether they intended the transfer of the property to take place, only after receipt of the entire consideration, would depend on the intention of the parties. Such intention is primarily to be gathered and determined from the recitals of the sale deed. When the recitals are insufficient or ambiguous the surrounding circumstances and conduct of parties can be looked into for ascertaining the intention, subject to the limitations placed by Section 92 of Evidence Act.
Similarly, in the second judgment, the Hon’ble Supreme Court had observed as follows: “15. Section 54 of the Transfer of Property Act, 1882 (for short “the TP Act”) reads thus:
“54. “Sale” defined.—“Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Sale how made.—Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property. Contract for sale.—A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.” Hence, a sale of an immovable property has to be for a price. The price may be payable in future. It may be partly paid and the remaining part can be made payable in future. The payment of price is an essential part of a sale covered by section 54 of the TP Act. If a sale deed in respect of an immovable property is executed without payment of price and if it does not provide for the payment of price at a future date, it is not a sale at all in the eyes of law. It is of no legal effect. Therefore, such a sale will be void. It will not effect the transfer of the immovable property.”
In view of the law laid down by the Hon’ble Supreme Court, we have no hesitation to come to the conclusion that in order to be a valid sale, there should be a payment towards the sale consideration otherwise, the sale is not a valid sale and the deed becomes a dumb document and it cannot be acted upon. Further, there is no physical handing over of the property in the present case. Further, the sale consideration was not paid to the seller and therefore the requirement that the source should be explained would not arise in the present case.
In view of the above said facts and also in view of the law laid down by the Hon’ble Supreme Court, we are of the view that there is no investment as alleged by the authorities and also since there is no payment made by the assessee to the seller, there is no necessity for explaining the source. We are also satisfied that apart from the mistakes committed in the accounting, there is no iota of evidence to show that there is a transfer of property which can be treated as an investment and payments were also made pursuant to the transfer, in order to attract the provision u/s. 69 of the Act. In such circumstances we allow the appeal of the assessee by setting aside the addition made u/s. 69 of the Act .
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 06th January, 2025.