2014 (12) TMI 290 - AT - Income Tax

Tribunal Upholds Tax Additions & Disallowances in Sale Agreement Case

Smt. Anjana P. Oswal, Shri Jayantilal Tarachand Oswal Versus Asstt. Commissioner of Income Tax

The Tribunal upheld the additions and disallowances made by the lower authorities in the case. The registered sale agreement's terms prevailed over ... Addition of undisclosed sale consideration – Held that:- In the registered sale agreement, assessee’s share of sale consideration is 17,05,01,000/- and it is liable to be considered as the consideration accruing to the assessee- The MOUs relied upon by the assessee to justify adoption of a different sale consideration is of no-consequence, especially because neither the MOUs are registered and nor their terms and conditions find a mention in the recital of the registered sale agreement. Moreover, the MOUs envisage distribution of sale proceeds with one Mr. Vicky Shamsunder Bhutada, who is not stated to be a co-owner in the registered sale agreement - there is no credible explanation furnished by the assessee as to the reason for the difference in the shares in the sale consideration noted in the registered sale agreement and the MOUs - the income-tax authorities have appropriately considered the assessee’s share of sale consideration at ₹ 17,05,01,000/- on the basis of the registered sale agreement dated 10.08.2006. The plea of the assessee that the amount be considered to have been paid to the other persons for the services rendered by them for execution of the transaction - the other persons, who have received the differential amount have offered such amount as their incomes and therefore on this count also assessee deserves such a deduction – the plea of the assessee cannot be accepted because the finding of the lower authorities is that the MOUs have been found to be unreliable - There is no material or evidence on record to distract from the finding of the lower authorities. Disallowance on non-existing liability made – Held that:- The alternative plea setup by the assessee to the effect that the amount is be assessed to tax in AY 2010-11 is not justified - the verification exercise carried out by the AO, revealed that there was no legally enforceable liability on the assessee to have paid ₹ 1,05,00,000/- to M/s Manav Developers in the context of the agreement with M/s Manav Promoters Pvt. Ltd. which was cancelled - once, it is found that there was no legal obligation on the part of the assessee to pay such an amount, the consequences have to follow and the amount has been rightly assessed to tax – thus, the order of the CIT(A) is upheld – Decided against assessee. Issues Involved:1. Addition of Rs. 1,53,88,155 on account of undisclosed sale consideration.2. Disallowance of Rs. 1,05,00,000 on account of a non-existing liability.Detailed Analysis:1. Addition of Rs. 1,53,88,155 on account of undisclosed sale consideration:The assessee along with other co-owners sold land to M/s Sayaji Hotels for a total consideration of Rs. 21,88,01,000 as per the registered sale-deed dated 10.08.2006. The assessee received Rs. 17,05,01,000 but disclosed Rs. 15,51,12,845 in the return of income. The Assessing Officer (AO) questioned the differential amount and the assessee presented three Memorandum of Understandings (MOUs) to justify the discrepancy. These MOUs, dated 09.11.2005, 20.10.2006, and 23.11.2006, were between the assessee and four other persons, suggesting a different distribution of sale proceeds.The AO and CIT(A) rejected the MOUs since they were unregistered and contradicted the registered sale-deed, which stated that the buyer paid the consideration to the co-owners as per their respective shares. The MOUs also included payments to individuals not listed as co-owners in the sale-deed. Consequently, the AO treated Rs. 17,05,01,000 as the correct sale consideration, leading to an addition of Rs. 1,53,88,155 to the returned income.The Tribunal upheld this decision, emphasizing that the registered sale agreement's terms could not be overridden by unregistered MOUs, which lacked credibility and legal standing. The claim of diversion of income by overriding title based on the MOUs was also dismissed due to their unreliability.2. Disallowance of Rs. 1,05,00,000 on account of a non-existing liability:The assessee claimed an expenditure of Rs. 2,25,00,000 as compensation paid to M/s Manav Developers for cancelling an agreement to sell the land to them. The AO's verification revealed that M/s Manav Developers only received Rs. 1,20,00,000, not the additional Rs. 1,05,00,000, which was allegedly paid to Jayshree Kailas Wani for onward payment to M/s Manav Developers. M/s Manav Developers confirmed they did not receive the additional amount and had no claim over it.The AO disallowed the Rs. 1,05,00,000 expenditure, deeming it a non-existent liability, a decision affirmed by the CIT(A). The Tribunal agreed, noting that since there was no legal obligation to pay the amount, it was correctly disallowed. The alternative plea to assess the amount in a subsequent year was also rejected, as the liability never existed from the beginning.Conclusion:Both appeals were dismissed, affirming the additions and disallowances made by the lower authorities. The Tribunal emphasized the primacy of the registered sale agreement over unregistered MOUs and upheld the disallowance of non-existent liabilities.