SMT KOTYALA SUJATHA L/R OF KOTYALA KUMARA SWAMY,TADEPALLIGUDEM vs. THE INCOME TAX OFFICER, WARD-1, , TADEPALLIGUDEM

PER DUVVURU RL REDDY, Judicial Member :

This appeal filed by the assessee is against the order of the Ld. CIT(A), Vijayawada in Appeal No.151/CIT(A)/VJA/16-17, dated 30/09/2019 arising out of the order passed U/s 154 r.w.s 254 of the Income Tax Act, 1961 [the Act] for the AY 2004-05.

2 2. Brief facts of the case are that the assessee is an individual

engaged in the retail business of liquor. A survey U/s. 133A of

the Act was conducted in the business premises of the assessee

on 15/10/2003. During the course of survey, it was noted that

the assessee purchased land admeasuring 48,200 sq yds in

Visakhapatnam for a consideration of Rs. 98,91,000/- from Sri

M. Subba Reddy through 20 sale-cum-GPA agreements, which

were registered on 08/07/2003. On being asked to explain the

sources for the investment, the assessee stated during the survey

operation that no consideration was passed on to the vendor Sri

M. Subba Reddy. Subsequently, the assessee filed his return of

income for the AY 2004-05 on 24/12/2004 admitting a total

income of Rs.81,550/-. In the return of income the assessee

admitted a loss of Rs. 37,654/- from the business activity of

purchase and sale of sites in respect of the land acquired from

Sri M. Subba Reddy for a consideration of Rs. 98,91,000/-. In the

return of income it was also stated by the assessee that out of

the sites purchased from Sri M. Subba Reddy, two sites were sold

during the year 2004-05. During the course of assessment

proceedings, in the statement recorded from the assessee, the

assessee stated that Rs. 98,91,000/- was paid to the vendor Sri

M. Subba Reddy on the date of registration of the sale-cum-GPA

3 Agreements itself ie., on 08/07/2003. Regarding the sources for

such investment, the assessee explained that he paid the

purchase consideration out of the amounts received as advances

from 30 persons and produced the confirmation letters from

them. Thereafter, it was noticed by the Ld. AO that the 30

persons who stated to have been advanced to the assessee are

agriculturists having no other source of income except

agricultural income, the Ld. AO caused enquiries with the Income

Tax Inspector [ITI] and came to the conclusion that the

creditworthiness of the 30 persons worked out to not more than

63,03,790/-. Accordingly, the Ld. AO came to the conclusion

that the differential amount of Rs. 35,96,210/- [Rs. 98,91,000 –

Rs. 63,03,790] was paid by the assessee out of his unexplained

sources of income and the assessee was asked to explain the

source for the differential consideration amount of Rs.

35,96,210/-. In reply, the assessee contended that there is no

lapse on the part of the assessee as he discharged his onus of

establishing the creditworthiness of the 30 persons by submitting

their confirmation letters. However, the assessee accepted for

the addition of Rs. 35,96,210/- to buy peace with the Department

on a condition that there would not be any penal proceedings in

this regard. Accordingly, the Ld. AO made addition of Rs.

4 35,96,210/- U/s. 69 of the Act towards unexplained investment

being the differential consideration amount and passed the

assessment order U/s. 143(3) of the Act on 29/03/2005.

Thereafter, the assessee filed a rectification petition U/s. 154 of

the Act on 3/4/2006 wherein the assessee submitted before the

Ld. AO that the vendor Sri M. Subba Reddy has unilaterally

cancelled all the said GPA-cum-sale agreements (20 as cited

supra) on the ground that the vendor had not received any

consideration from the assessee and taken back the possession of

the property. It was also stated by the assessee that the said

cancellation deeds which were executed by Mr. M. Subba Reddy

on 12/01/2004 were registered before the Sub-Registrar on

29/11/2005. Therefore, it was contended before the Ld. AO that

because of the cancellation deeds the vendor has taken back the

possession of the property depriving the assessee’s title on the

property, there was no transaction in this regard and hence the

addition made by the Ld. AO towards unexplained investment

was liable to be deleted. The Ld. AO dismissed the rectification

petition filed by the assessee U/s. 154 vide order dated

17/4/2006 by holding that there was no mistake apparent from

the record. Aggrieved by the rectification order of the Ld. AO, the

assessee filed an appeal before the Ld. CIT(A), Rajahmundry. On

5 appeal, the Ld. CIT(A), Rajahmundry dismissed the appeal of the

assessee vide order dated 02/08/2007 by holding that in the

absence of any information or document in the record available

with the Department relating to any purported cancellation deeds

it cannot be said that there is a mistake apparent from the record

attributable to the order passed U/s. 143(3) of the Act, dated

29/03/2005. Aggrieved by the order of the Ld. CIT(A), the

assessee preferred an appeal before the Hon’ble ITAT,

Visakhapatnam. On appeal, the Tribunal has passed the order in

ITA No. 415/Viz/2007, dated 19/07/2010 wherein the Tribunal

has remitted the matter back to the file of the Ld. AO with a

direction to admit the cancellation deeds and to re-examine the

entire issue in the light of these documents. Giving effect to the

directions of the Hon’ble Tribunal, the Ld. AO passed a detailed

consequential order u/s. 154 r.w.s 254 of the Act on 30/12/2011

wherein the Ld. AO sustained the addition of Rs. 35,96,210/-

made in the original assessment order towards unexplained

investment. Against the consequential order of the Ld. AO, dated

30/12/2011, the assessee preferred an appeal before the Ld.

CIT(A), Vijayawada. On appeal, the Ld. CIT(A) discussed the

issues at length and dismissed the appeal of the assessee.

Aggrieved by the order of the Ld. CIT (A), the assessee is in

appeal before the Tribunal by raising the following grounds of

appeal:

“1. The order of the Ld. CIT(A) is erroneous both on facts and in law.

7 3. The main contention of the assessee is that while passing

the consequential order, the Ld. AO has not considered the

directions issued by the ITAT.

that on 08/07/2003, the assessee had entered into a registered

sale agreement-cum-GPA with one Mr. M. Subba Reddy for

purchase of 2400 sq yds and subsequently, the assessee also

entered into a registered sale agreement-cum-GPA for purchase of

48,200 sq yds and paid a sale consideration of Rs. 98,91,000/-.

The Ld. Assessing Officer considered the sources for such

investment by the assessee only to the extent of Rs. 63,03,790/-

and did not consider the differential consideration of Rs.

35,96,310/- and made addition towards unexplained investment

U/s. 69 of the Act. The Ld. AR further submitted that the land

owner (Vendor) received all the payments directly from various

parties and subsequently in the year 2004, the land owner

cancelled the agreement of sale-cum-GPA by stating that he has

not received any consideration. The Ld. AR further submitted

that the assessee, being unaware of this fact, filed a rectification

petition U/s. 154 of the Act, which was dismissed by the Ld. AO

and on appeal the Ld. CIT(A) also dismissed the appeal and

8 therefore the assessee filed an appeal before the Tribunal in the

first round of proceedings. On appeal of the assessee, the

Tribunal remitted the matter to the Ld. AO to examine the

cancellation deeds and decide the issue afresh. However, in the

consequential order passed giving effect to the directions of the

ITAT, the Ld. AO again has made the addition of Rs. 35,96,210/-

in the hands of the assessee which was sustained by the Ld.

CIT(A). He therefore pleaded that the addition made by the Ld.

AO and confirmed by the Ld. CIT(A) is not sustainable in law and

therefore the same may be deleted because while passing the

consequential order, the Ld. AO has not considered the directions

issued by the ITAT.

heavily relied on the orders of the Ld. Revenue Authorities. The

Ld. DR further submitted that the Ld. AO has examined the

cancellation deeds and in his order adhering to the directions of

the ITAT, the Ld. AO has categorically mentioned that the sale

agreements-cum-GPA were examined by him and there was no

creditworthiness of the 30 persons who stated to have paid total

consideration of Rs. 98,91,000/- to the vendor Mr. M. Subba

Reddy and there is no proof to establish that these 30 investors

9 have paid the amounts directly to the owner of the land. He

further submitted that the registered agreement of sale-cum-GPA

clearly established that the assessee had paid the amount of Rs.

98,91,000/-. The Ld. DR also further submitted that the

cancellation of the registered sale agreement unilaterally by

either of the parties of the Agreement has no value in the eye of

law. He further submitted that if at all a registered instrument is

to be cancelled, it should be done only by way of passing a

Decree by the Civil Court. The Ld. DR also submitted that in the

instant case, the land owner himself registered one cancellation

deed with the SRO by stating that the earlier sale agreements-

cum-GPA executed by him in respect of sale of property stand

cancelled which does not have any validity in the eye of law. The

Ld. DR further argued that the Ld. AO has clearly mentioned in

his remand report that he called for the 30 investors and made

enquiries through the Income Tax Inspector (ITI) and then only

came to the conclusion that creditworthiness of the 30 persons

worked out to not more than Rs. 63,03,790/-. Hence, the Ld. AO

concluded that the assessee has invested an amount of Rs.

35,96,210/- from his unexplained source of income. He further

submitted that when the assessee was asked to explain the

source of the said unexplained investment, it was stated by the

10 assessee that he has accepted for the addition of Rs. 35,96,210/-

in order to buy peace with the Department on a condition that no

other penal proceedings would be initiated against the assessee.

Therefore, the Ld. AO made the addition of Rs. 35,96,210/- U/s.

69 of the Act. On that addition, the assessee has not filed any

appeal before the First Appellate Authority but subsequently filed

a rectification petition U/s. 154 of the Act before the Ld. AO

which was dismissed by the Ld. AO. Therefore considering all the

above facts, the Ld. DR pleaded that since there is no error in the

orders of the Ld. AO and the Ld. CIT(A), the same may be upheld.

available on record as well as the orders of the Ld. Revenue

Authorities. This is the second round of proceedings before the

Tribunal. On perusal of the facts and circumstances of the case

in toto, it is an admitted fact that the assessee himself has

admitted on disclosure of income of Rs. 35,95,210/- by stating

that to buy peace he is accepting to make the addition and

subsequently the assessee retracted the same by filing the

rectification petition U/s. 154 of the Act before the Ld. AO by

relying on the registered cancellation deed dated 29/11/2005

executed by the owner of the land Mr. M. Subba Reddy. On this

11 aspect, the 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. Therefore, the question of passing of any

sale consideration by the assessee does not arise. Per contra, the

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.

Now, to the question before me is whether the land owner can

himself execute and cancel the agreement of sale-cum-GPA

and register the cancellation deed arbitrarily with the SRO?

The Specific Relief Act, 1963 vide Chapter-V, sections 31, 32 &

33 has laid down certain procedure with respect to cancellation

of Instruments. For the sake of reference, the relevant sections of 31,

32 and 33 of the Specific Relief Act, 1963 are extracted herein below for reference:

CHAPTER V CANCELLATION OF INSTRUMENTS

(1) Any person against whom a written instrument is void or voidable, and who has reasonable apprehension that such instrument, if left outstanding may cause him serious injury, may sue to have it adjudged void or voidable; and the court may, in its discretion, so adjudge it and order it to be delivered up and cancelled.

(2) If the instrument has been registered under the Indian Registration Act, 1908 (16 of 1908), the court shall also send a copy of its decree to the officer in whose office the instrument has been so registered; and such officer shall note on the copy of the instrument contained in his books the fact of its cancellation.

Where an instrument is evidence of different rights or different obligations, the court may, in a proper case, cancel it in part and allow it to stand for the residue.

(1) On adjudging the cancellation of an instrument, the court may require the party to whom such relief is granted, to restore, so far as may be any benefit which he may have received from the other party and to make any compensation to him which justice may require. (2) Where a defendant successfully resists any suit on the ground—

(a) that the instrument sought to be enforced against him in the suit is voidable, the court may if the defendant has received any benefit under the instrument from the other party, require him to restore, so far as may be, such benefit to that party or to make compensation for it;

(b) that the agreement sought to be enforced against him in the suit is void by reason of his not having been competent to contract under section 11 of the Indian Contract Act, 1872 (9 of 1872), the court may, if the defendant has received any benefit under the agreement from the other party, require him to restore, so far as may be, such benefit to that party, to the extent to which he or his estate has benefited thereby.

13 From the plain reading of section 31, 32 & 33 of THE SPECIFIC 7.

RELIEF ACT, 1963, it is clearly mentioned that any instrument which

has been registered under the Indian Registration Act, 1908 (16 of

1908) has to be cancelled by the Civil Court by way of Decree only

and then only the SRO can implement the cancellation of the

earlier instrument so registered with them. In the present case on

hand, 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 of Rs.

35,96,210/-, whatsoever the reason, and therefore the assessee

14 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, I do not find any 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.

Pronounced in the open Court on 11th January, 2024.

Sd/- (दु�वू� आर.एल रे�डी) (DUVVURU RL REDDY) �या�यकसद�य/JUDICIAL MEMBER

Dated : 11/01/2024 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- 1. �नधा�रती/ The Assessee – Smt. Kotyala Sujatha L/R of Kotyala Kumara Swamy, D.No. 4-48/2B, Opp. Vasavi Park, P & T Colony, Tadepalligudem, West Godavari District, Andhra Pradesh – 534 101. 2. राज�व/The Revenue – Income Tax Officer, Ward-1, Income Tax Office, Opp. Punjab National Bank, KN Road, Tadepalligudem, Andhra Pradesh- 534101. 3. The Principal Commissioner of Income Tax, 4.आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals), 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, Visakhapatnam 6.गाड� फ़ाईल / Guard file

आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam