2023 (10) TMI 26 - AT - Income Tax

ITAT rules against taxpayer in property ownership dispute, upholds addition to income

The ITAT ruled in favor of the Revenue, determining that M/s. Govind Reality Pvt. Ltd. was not the deemed owner of the property based on an unregistered ... Capital gain - unregistered agreement - transfer of capital asset u/s 2(47) - real owner - deemed owner - revenue claims that M/s Govind was not owner of land in view of decision of Balbir Singh Maini [2017 (10) TMI 323 - SUPREME COURT] because the agreement between assessee and M/s Govind was not registered - whether M/s Govind could be said to be owner of land on the basis of unregistered agreement with assessee? HELD THAT:- Dispute that the term “capital asset” is used in Income tax Act for taxation under “Income from Capital Gain” head and so the section 2(47) defining “transfer” is also relevant for that particular head; it is not at all relevant to ‘Income from Business” head. Therefore, in the present case, the CIT(A) has committed a serious error in placing reliance on section 2(47)(vi)/Explanation to section 2(47) and thereby hold M/s Govind as deemed owner. CIT(A) has diverted his mind to a wrong provision of law and diverted himself from the ratio decided in Balbir Singh Maini. In the present case, the controversy between parties is precisely for “Income from Business” head and that too whether or not M/s Govind can be said to be owner of land on the basis of unregistered agreement. In our considered view, the answer is a clear “No” as per decision of Hon’ble Supreme Court decision in Balbir Singh Maini. Although we have confined to what has been wrongly adjudicated by CIT(A), we would like to add here that even for the purpose of Capital Gain head also, after decision of Hon’ble apex court in Balbir Singh Maini, there is no sale or transfer of immovable property by an unregistered agreement. It is true that M/s Govind has declared the income but a simple glance of the financial statements of assessee and M/s Govind makes it clear to any person of common sense that the audited P&L A/c of assessee shows a net profit of Rs. 37,02,451/- and the audited P&L A/c of M/s Govind shows a net profit of Rs. 1,16,82,835/- [on gross receipts of Rs. 23,85,10,980/- including the shared amount of Rs. 3,50,06,136/-]. That means, had there been no sharing of Rs. 3,50,06,136/-, M/s Govind would have suffered a substantial loss but for the sharing of consideration, the income figures of both parties i.e. assessee as well as M/s Govind are balanced. In these circumstances, there is a prima facie merit in the conclusion taken by AO and emphasised by Ld. DR. The above discussion brings us to conclude that M/s Govind cannot be treated as owner of the land on the basis of impugned unregistered agreement dated 26.02.2011 as per Hon’ble Supreme Court’s decision in Balbir Singh Maini. Therefore, we are inclined to uphold the order of AO and reverse the order of first-appeal. Ordered accordingly. The revenue’s appeal is allowed. Enhancement on account of interest income was an off-shoot of the acceptance of agreement by CIT(A) - While adjudicating Revenue’s appeal in earlier part of this order, we have not accepted the transfer of ownership on the basis of said agreement to M/s Govind. Therefore, the necessary outcome shall be that the addition of interest made by CIT(A) cannot sustain. Hence, we are inclined to delete the enhancement made by CIT(A). The assessee’s appeal is allowed. Issues Involved:1. Whether M/s. Govind Reality Pvt. Ltd. was the deemed owner of the impugned property.2. Validity and effect of the unregistered agreement dated 26.02.2011 between the assessee and M/s. Govind Reality Pvt. Ltd.3. Whether the sale consideration of Rs. 4,70,06,136/- should be treated in the hands of the appellant (assessee).4. Enhancement of income by Rs. 6,40,109/- by CIT(A) on account of interest income.Summary:Issue 1: Deemed Ownership of M/s. Govind Reality Pvt. Ltd.The Revenue challenged the CIT(A)'s decision that considered M/s. Govind Reality Pvt. Ltd. as the deemed owner of the property based on an unregistered agreement dated 26.02.2011. The CIT(A) had concluded that M/s. Govind Reality Pvt. Ltd. was the deemed owner and thus, the sale consideration received on the sale of the property should be taxed in the hands of M/s. Govind Reality Pvt. Ltd. The ITAT, however, found this conclusion flawed, emphasizing that the unregistered agreement could not confer ownership under the Transfer of Property Act, as per the Supreme Court's decision in CIT vs. Balbir Singh Maini. The ITAT held that M/s. Govind Reality Pvt. Ltd. could not be treated as the owner of the land based on the unregistered agreement.Issue 2: Validity of the Unregistered AgreementThe AO had added Rs. 3,50,06,136/- to the assessee's income, arguing that the unregistered agreement with M/s. Govind Reality Pvt. Ltd. was not valid, and thus, the entire sale consideration should be treated as the assessee's income. The CIT(A) had deleted this addition, but the ITAT reversed the CIT(A)'s decision, holding that the unregistered agreement had no effect in law for the purposes of Section 53A of the Transfer of Property Act, following the Supreme Court's ruling in Balbir Singh Maini. Therefore, the ITAT upheld the AO's addition of Rs. 3,50,06,136/- as the business income of the assessee.Issue 3: Treatment of Sale ConsiderationThe ITAT concluded that the sale consideration of Rs. 4,70,06,136/- should be treated in the hands of the assessee, as M/s. Govind Reality Pvt. Ltd. could not be deemed the owner of the property based on the unregistered agreement. The ITAT found that the assessee's attempt to attribute Rs. 3,50,06,136/- to M/s. Govind Reality Pvt. Ltd. was an effort to evade tax, given the close relationship between the entities and the unrealistic financial transactions presented.Issue 4: Enhancement of Income by CIT(A)The CIT(A) had enhanced the assessee's income by Rs. 6,40,109/- on account of interest income, based on the unregistered agreement. Since the ITAT did not accept the validity of the transfer of ownership to M/s. Govind Reality Pvt. Ltd. based on the unregistered agreement, the enhancement of income by the CIT(A) could not be sustained. The ITAT thus deleted the enhancement made by CIT(A).Conclusion:The ITAT allowed the Revenue's appeal, reinstating the addition of Rs. 3,50,06,136/- to the assessee's income, and allowed the assessee's appeal by deleting the enhancement of Rs. 6,40,109/- made by CIT(A). The judgment emphasized the invalidity of unregistered agreements in conferring ownership and the importance of adhering to legal provisions for tax purposes.