2019 (2) TMI 222 - AT - Income Tax

Tribunal upholds deletion of short term capital gain, deems transaction genuine. Revenue appeal dismissed.

ITO, Ward – 5 (3) (1), Ahmedabad Versus Smt. Dharaben Mitesh Shah

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 92,90,500/- as short term capital gain made by the AO. It found the Banachitthi ... Addition of Short term Capital gain - assessee claimed that the sum was received by M/s NPPL in pursuance to the Banachitthi dated 06-09-2010 - Held that:- The impugned transaction was duly confirmed by the director of NPPL in the statement recorded u/s 131 of the Act. The director of NPPL duly admitted the fact in the statement recorded under section 131 of the Act that the impugned transaction was duly disclosed in its books of accounts. Thus hold that the payment was made to NPPL as per the Banachitthi dated 06-09-2010 which was enforceable under the provisions of law. Therefore, the payment made to NPPL cannot be said as a colorable device used by the assessee to escape the tax liability. Hence we do not find any reason to interfere in the order of Ld CIT(A). Thus the ground of appeal of the Revenue is dismissed. Issues Involved:1. Legality and enforceability of the Banachitthi.2. Validity of the addition of Rs. 92,90,500/- as short term capital gain.3. Assessment of the transaction as a colorable device to evade tax.Detailed Analysis:1. Legality and Enforceability of the Banachitthi:The primary issue revolves around the Banachitthi, an agreement between the assessee and M/s. Nikshal Properties Pvt. Ltd. (NPPL). The Assessing Officer (AO) questioned its legal enforceability because it was executed on plain paper, not notarized, and not registered under the Indian Registration Act, 1908. The AO argued that the Banachitthi lacked evidentiary value. However, the Commissioner of Income-Tax (Appeals) [CIT(A)] and the Tribunal found that the Banachitthi was enforceable under the provisions of law. The Tribunal cited Section 49 of the Indian Registration Act, which allows unregistered documents to be received as evidence of a contract. Additionally, precedents from the Gujarat High Court and the Supreme Court supported the enforceability of such agreements.2. Validity of the Addition of Rs. 92,90,500/- as Short Term Capital Gain:The AO added Rs. 92,90,500/- to the assessee's income, considering it as short term capital gain from the sale of two plots. The AO did not accept the assessee's claim that this amount was received by NPPL as part of the sale transaction. The CIT(A) and the Tribunal, however, observed that the transaction was genuine and duly reflected in the books of accounts. The director of NPPL confirmed the receipt of Rs. 92,90,000/- for each plot through banking channels, and the transaction was disclosed in NPPL's books. The Tribunal concluded that the assessee had submitted all necessary documents, and the AO did not find any defects in these documents. Therefore, the addition made by the AO was deleted.3. Assessment of the Transaction as a Colorable Device to Evade Tax:The AO contended that the transaction was a colorable device to reduce the tax burden, as NPPL made an advance payment of Rs. 1,00,000/- in cash and later received a significant profit. The CIT(A) and the Tribunal disagreed, noting that the transaction was confirmed by NPPL and reflected in their books. The Tribunal emphasized that the payment was made through banking channels, and the Banachitthi was enforceable under the law. The Tribunal also referred to previous judgments that supported the validity of unregistered agreements for collateral purposes. Consequently, the Tribunal held that the transaction was not a colorable device, and the addition by the AO was not justified.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 92,90,500/- made by the AO. The Tribunal found that the Banachitthi was legally enforceable, the transaction was genuine, and there was no evidence to suggest it was a colorable device to evade tax. The appeal of the Revenue was dismissed.