RAJA GIRIDHAR KUMAR NIMMAGADDA,HYDERABAD vs. ACIT., CIRCLE 3(2), HYDERABAD

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ITA 287/HYD/2024Status: DisposedITAT Hyderabad16 January 2025AY 2016-178 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the principle of substance over form should apply. It observed that most payments for both purchase and sale were made through banking channels as per the unregistered agreements, which substantiated the assessee's claims and reflected the actual transactions. The Tribunal noted that Section 50C of the Act recognizes unregistered prior agreements, subject to payment of consideration through banking channels. Therefore, ignoring the unregistered agreements would lead to a distorted computation of capital gain, contrary to fair taxation. The reliance by the AO and CIT(A) on registered agreements without considering banking transactions and unregistered agreements was deemed incorrect. The Tribunal directed the AO to recompute the LTCG by considering the purchase cost at Rs. 2,35,65,595/- and sales consideration at Rs. 2,42,10,000/-, based on the unregistered agreements. The Tribunal also directed the deletion of the addition of Rs. 57,29,000/- made under Section 69A of the Act. No issue was expressly left undecided.

What were the facts?

The assessee, Raja Giridhar Kumar Nimmagadda, filed an appeal against the order of the CIT(A) NFAC, Delhi, for Assessment Year 2016-17. The Assessing Officer (AO) made an addition of Rs. 95,82,388/- on account of Long Term Capital Gain (LTCG) and Rs. 57,29,000/- as unexplained cash credit. The assessee had entered into unregistered agreements for purchase of land in 2007 and 2008, with a total purchase consideration of Rs. 4,71,31,190/- (assessee's share Rs. 2,35,65,595/-). Subsequently, the assessee entered into an unregistered agreement for sale of these lands in 2014 for Rs. 4,84,20,000/- (assessee's share Rs. 2,42,10,000/-). The AO rejected the unregistered agreements, relying on registered deeds which showed a lower sale consideration, and made additions. The CIT(A) upheld the AO's order.

What were the issues?

1. Whether the capital gains arising from the alienation of property, based on a Sale Agreement dated 24.11.2014, which was executed by PART PERFORMANCE referred to in Section 53A of the Transfer of Property Act, 1882 read with Section 2(47)(v) of the Income Tax Act, 1961, should be taxed for AY 2015-16 or AY 2016-17, and if the order for AY 2016-17 is void ab initio. 2. Whether the unregistered Sale Agreements dated 04.01.2007, 04.01.2007, 03.03.2008, and 03.03.2008, establishing a purchase consideration of Rs. 2,35,65,595/- (assessee's share), should be ignored as non est in law, and if the indexed cost of acquisition and resultant capital loss of Rs. 1,97,41,203/- should be rejected and substituted with a capital gain of Rs. 95,02,388/-. 3. Whether the AO erred in substituting the sale price of Rs. 1,84,81,000/- as reflected in the Regular Conveyance deeds dated 10.05.2015, instead of the actual sale price of Rs. 2,42,10,000/- disclosed in the ITR for AY 2006-17 (vide SCHEDULE CG) and authenticated by the Agreement of Sale dated 24.11.2014, making the addition of Rs. 95,82,388/- towards LTCG unsustainable. Assessee's Contentions: The assessee argued that the unregistered sale agreements reflected the actual transactions, as most payments for both purchase and sale were made through banking channels. The assessee contended that the AO wrongly rejected the purchase cost and sale consideration based on unregistered agreements and that the registered deeds did not capture the true nature of the transaction. The assessee relied on the principle of substance over form and Section 50C of the Act, which recognizes unregistered prior agreements if payment is made through banking channels. Revenue's Contentions: The Revenue relied on the orders of the revenue authorities and prayed for the dismissal of the appeal.

Which sections of the Income-tax Act were involved?

Section 53A,Section 2(47)(v),Section 143(3),Section 50C,Section 69A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad

Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA

For Appellant: Shri M. Madhusudan, C.A
Hearing: 24/12/2024

आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by Raja Giridhar Kumar Nimmagadda (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 01.02.2024 for the A.Y. 2016-17. 2. The assessee has raised the following grounds of appeal : “

1.

1. 1. The order of the Ld. CIT(A) NFAC, Delhi passed under Sec.250 dt. 1.2.2024 for the A.Y. 2016-17 may be erroneous both in law and also on facts of the case.

2. Taking cognisance of the fact that the property under consideration, viz.. was alienated by the assessee in favour of M/s Maytri constructions by means of PART PERFORMANCE referred to in Sec.53A of Transfer of property Act, 1882 read with Sec 2(47) (v) of the I.T. Act. 1961,the CAPITAL GAIN arising out of such transaction by virtue of the Sale Agreement dt.24.11.2014 which is authenticated by payments reflected in the Bank account, the Authorities ought to have noticed that the LTCG, referred to therein, may be liable to be brought to tax for the AY 2015-16 and not for the A.Y.2016-17 and hence the aforesaid Order dt, 24.12.2018 may be VOID AB INITIO.

3. As it being a 'legal issue', the claim that the assessment proceedings pertaining to charging LTCG under consideration may have to be initiated for the A.Y.2015-16 may be admitted and adjudicated in conformity with the provisions of law.

4.

Also considering, the fact that the UNREGISTERED Sale Agreements, Dt 4.1.2007. 4.1.2007, 3.3.2008, 3.3.2008 established the PURCHASE CONSIDERATION OF Rs..2,35,65,595/-(assessee's share therein), the same may not be liable to be IGNORED AS NON EST.IN LAW on the mere ground that the same was an UNREGISTERED DOCUMENT and hence the INDEXED COST OF ACQUISITION claimed by the appellant and the resultant CAPITAL LOSS of RS.1,97,41,203 may not be liable to be rejected and such loss may not be liable to be SUBSTITUTED with Capital gain of Ra.95,02,388/- as per the enacted law and also judge made law.

5. In the context of receipt of actual Sale price of Rs.2,42,10,000/- as disclosed in the ITR for the A.Y.2006-17 (vide SCHEDULE CG) and as authenticated by the Agreement of Sale, dt. 24.11.2014, the Ld. A.O. ought not have substituted the sale price of Rs.1,84,81,000/- as reflected in the Regular Conveyance deeds at. 10.5.2015 Documents No. 4447/2015, 4440/2015, 4449/2015 and 4450 / 2015) and thereby the addition of Rs.95,82,388/- towards L.T.C.G. may be superfluous and may not be SUSTAINABLE in the eyes of low.”

3.

The brief facts of the case are that the assessee is an individual, filed his Return of Income (“ROI”) for A.Y. 2016-17 on 31.03.2017 declaring total income of Rs.4,78,430/-. Subsequently, the case of the assessee was selected for scrutiny and the Learned Assessing Officer (“Ld. AO”) completed the assessment u/s.143(3) of the Income Tax Act, 1961 ("the Act") on 24.12.2018 making addition on account of Long Term Capital Gain (“LTCG”) of Rs.95,82,388/- and under the head ‘income from other sources’ towards unexplained cash credit of Rs.57,29,000/-.

4. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) accepting the view of Ld. AO, dismissed the appeal of the assessee.

5.

Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The Learned Authorised Representative (“Ld. AR”) submitted that, the assessee along with Smt. Muppavarapu Rajakumari (“co-owner”) entered into agreement for purchase of following lands through unregisterd agreement :

S. Name of the Vendor Extent of Sale Price Rs. Reference No. land (Acres) 1 Sri Malreddy Ram Reddy 1.07 1,15,83,500.00 Paper Book (Agreement dt.4.1.2007) pages 1 to 3. 2 Smt. Malreddy Anuradha 1.05 1,11,12,500.00 Paper Book (Agreement dt.4.1.2007) pages 26 to 27 3 Sri Sam Reddy Bal Reddy 1.07 1,22,50,600.00 Paper Book (Agreement dt.3.3.2008) pages 53 to 55 4 Smt. Sam Reddy Sarala 1.06 1,19,90,020.00 Paper Book (Agreement dt.3.3.2008) pages 80 to 82 Total 4,69,36,620.00 Regi. Charges 1,94,570.00 Total Cost 4,71,31,190.00 Assessee's share (50%) come to Rs.2,35,65,595/- As such, the total purchase cost of lands including the registration charges were Rs.4,71,31,190/- as per the unregistered agreement. He further submitted that, as per the unregistered agreement the purchase consideration include Rs.4,24,59,030/- towards settlement of land disputes and development cost of land and it was agreed that the land will get registered at Rs.44,77,590/-. Subsequently, all the four lands were registered in the name of the assessee and the co-owner through registered deed, the details of which are as under :

S.No. Doc No. Date of Reg. Amount (Rs.) 1 1309/2008 18.03.2008 11,31,455.00 2 1310/2008 18.03.2008 11,07,365.00 3 1744/2008 08.04.2008 11,31,430.00 4 1745/2008 08.04.2008 11,07,340.00 Total 44,77,590.00 Assessee's share (50%) comes to Rs.22,38,795/-.

The Ld. AR further submitted that, out of total purchase cost of land, only Rs.12,16,620/- was paid in cash and rest of the payments were made through banking channel, for which, the details of payments made to the vendor was filed by the Ld. AR before the bench.

5.1 On 24.11.2014, the assessee along with the co-owner entered into an unregistered agreement for sale of all the four lands with M/s. Mytri Constructions for a total consideration of Rs.4,84,20,000/- (assessee's share of 50% comes to Rs.2,42,10,000/-), out of which an amount of Rs.2,99,39,000/- was towards settlement of disputes of land and development cost of land. As per the unregistered agreement, it was agreed that the land will be registered at Rs.1,84,81,000/-. Accordingly, on 10.05.2015, all the four lands were transferred to M/s. Mytri Constructions through registered deed. The details of which are as under :

S.No. Reg. Doc. Date of Amount(Rs.) No. Document 1 4447/2015 10.05.2015 49,00,000.00 2 4448/2015 10.05.2015 42,00,000.00 3 4449/2015 10.05.2015 47,65,000.00 4 4450/2015 10.05.2015 46,10,000.00 Total 1,84,81,000.00 Assessee's share(50%) 93,40,500/- The Ld. AR also submitted that, out of the total sales proceeds, the assessee received Rs.4,10,91,000/- through banking channel and Rs.73,29,000/- could not be recovered by the assessee from the buyer. However, the assessee has offered the total agreed sale value of Rs.2,42,10,000/- (his share of 50% of Rs.4,84,20,000/-) for the purpose of taxation.

5.2 In the ROI, for the A.Y. 2016-17, the assessee worked out the LTCG on the sale of all the lands, on the basis of consideration paid / received as per unregistered purchase deed and sale deed. However, during the assessment proceedings, the Ld. AO rejected the working of the assessee, contending that the unregistered sale deeds are not reliable and are not valid in the eyes of law. The Ld. AO took the sale consideration of Rs.1,84,81,000/- as per the registered deed and allowed the index cost on the purchase of land on the basis of cost mentioned in registered deed. Accordingly, the Ld. AO worked out the LTCG at Rs.95,82,388/-. Further, the Ld. AO made an addition of Rs.57,29,000/- under the head ‘income from other sources’ as unexplained cash credit treating the excess amount received by the assessee as per unregistered deed, over the amount reflected in the registered deed on account of sale of land. The Ld. AR submitted that, the assessee on the basis of unregistered sale agreement had purchased the land and took the possession of the land on the date of agreement and have made most of the payments through banking channel. Therefore, the action of the Ld. AO in rejecting the purchase cost of land as per unregistered sale deed is not correct. Likewise, the assessee has sold the land on the basis of unregistered sale agreement and recovered most of the payment through banking channel. Hence, the action of the Ld. AO rejecting the sales consideration as per unregistered sale agreement is not correct. Therefore, the Ld. AR prayed before the bench to consider the purchase cost on the basis of unregistered purchase agreement and to consider the sale consideration on the basis of unregistered sale agreement, for the purpose of calculation of LTCG.

6.

Per contra, the Learned Department Representative (“Ld. DR”) relied on the orders of revenue authorities and prayed before the bench to dismiss the appeal of the assessee.

7.

We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. It is evident that the most of the payment for both purchase as well as sale were made through banking channel as per the unregistered agreements. The payments through banking channel substantiate the assessee’s claim with the unregistered agreements and reflect the actual transactions. We also observe that the principle of substance over form should apply in the present case. The registered purchase / sale agreements were executed merely for procedural compliance and do not capture the true nature of the transaction. Section 50C of the Act also recognise unregistered prior agreement subject to the condition that the payment of consideration is made through banking channel. Therefore, ignoring the unregistered agreements would lead to distorted computation of capital gain, which is against the principle of fair taxation. The reliance on the registered agreement by the Ld. AO and Ld. CIT(A), without considering the substantial evidence in the form of banking transactions and the unregistered agreement to sale / purchase are not correct. In our considered opinion, the assessee has provided sufficient documents to support the claim that the unregistered sale / purchase agreement reflect the actual transactions. Therefore, we make a direction to Ld. AO to recompute the LTCG by considering the purchase cost at Rs.2,35,65,595/- and sales consideration at Rs.2,42,10,000/- i.e. on the basis of the unregistered purchase / sale agreements respectively. We also

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