2025 (2) TMI 1240 - AT - Income Tax

Unregistered agreement for sale admissible for specific performance; Section 53A TPA limits protection; additions deleted on merits

ITAT (Chandigarh) held that an unregistered agreement for sale cannot be rejected solely for non-registration; the Registration Act does not mandate ... Reopening of assessment - purchase of immovable property - genuineness of an un-registered agreement denied simply for the reason that it was not registered - HELD THAT:- The Contract Act does not contemplate that agreement would be registered. Section 17 of the Indian Registration Act do contemplates that as and when an immovable property having value of more than Rs. 100/- is being transferred, then such immovable property could be transferred by way of a Registered Sale Deed. This Act nowhere provides that Agreement is also required to be registered. If proviso to Section 49 of the Indian Registration Act is looked into, then this proviso empowers the parties to produce such Agreement in evidence in a suit for specific performance. An unregistered Agreement is a valid document for tendering as an evidence in a civil suit filed for specific performance of contract. The only demerits in an unregistered agreement is that by virtue of such agreement if possession is being taken by the vendee from vendor, then vendee will not be able to protect his possession with the help of Section 53A of Transfer of Property Act because agreement is unregistered. But there is no bar to enforce such unregistered agreement under the Specific Relief Act for persuading the parties for fulfillment of the agreement. Therefore, it is an erroneous approach at the end of the CIT(A) for just ignoring the Agreement to Sell . This unregistered agreement was acted upon and assessee has made repayment of these advances after sale of his properties. Therefore, I am satisfied that impugned addition is not sustainable. Re-opening of assessment - Since revenue was possessing specific information about alleged unexplained investment, therefore, AO has rightly formed a prima facie opinion about escapement of income but on merit, assessee has explained the source of such investment. Thus, re-opening of assessment is upheld but additions on merits are deleted. Assessee appeal is partly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the genuineness and evidentiary value of an unregistered Agreement to Sell can be denied solely because it was not registered. 2. Whether the reopening of assessment was valid where the Assessing Officer acted on information (AIR/CIB/NMS) indicating purchase of immovable property and formed a prima facie opinion of escapement of income. 3. Whether additions made by the Assessing Officer in the reopened assessment (cost of plot, stamp duty, registration fee) are sustainable where the assessee produces documentary evidence of repayment of advances and sale deeds showing source of funds. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity and evidentiary value of an unregistered Agreement to Sell Legal framework: The Indian Registration Act (Section 17) requires registration for instruments transferring immovable property by sale; the proviso to Section 49 permits production of unregistered agreements in evidence in suits for specific performance. The Transfer of Property Act Section 53A protects possession where there is a registered agreement; lack of registration affects protection under Section 53A. The Specific Relief Act permits enforcement of contracts (including specific performance) even where agreement is unregistered, subject to statutory constraints. Precedent Treatment: No judicial precedents were cited or relied upon in the text; the Tribunal assessed statutory provisions directly. Interpretation and reasoning: The Court/Tribunal reasoned that the Registration Act does not mandate registration of an agreement to sell; registration is required for transfer instruments (sale deeds). The proviso to Section 49 shows legislative recognition that unregistered agreements may be produced in evidence in specific performance suits, indicating legal validity for evidentiary and enforcement purposes. The Tribunal distinguished the limited consequence of non-registration (inability to invoke Section 53A to protect possession) from a blanket disqualification of the agreement's genuineness or evidentiary worth. The fact that the unregistered Agreement to Sell was acted upon (advance received and later repaid) and that sale deeds were produced showing the source of repayment reinforced the Tribunal's acceptance of the agreement's genuineness. Ratio vs. Obiter: Ratio - An unregistered Agreement to Sell cannot be rejected merely because it is unregistered; it retains evidentiary value and can be relied upon to explain transactions and sources of funds. Obiter - The observation that the vendee cannot protect possession under Section 53A when the agreement is unregistered is explanatory of consequences but not essential to the core holding. Conclusion: The Tribunal held that the assessing authorities erred in denying the agreement's genuineness solely on the ground of non-registration; the unregistered Agreement to Sell and attendant documentary evidence (sale deeds showing repayments) were sufficient on the merits to rebut the addition based on alleged unexplained investment. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of reopening of assessment Legal framework: Reopening under Section 147/148 requires formation of a prima facie belief by the Assessing Officer that income has escaped assessment, ordinarily supported by information or material indicating such escapement (e.g., AIR/CIB/NMS data). Precedent Treatment: No specific authority was cited; the Tribunal applied standard legal principles concerning formation of prima facie opinion based on available information. Interpretation and reasoning: The Tribunal noted the AO possessed specific information from AIR/CIB/NMS showing acquisition of immovable property and calculated the assessee's share and contribution. On that material, the AO formed a prima facie opinion of escapement and recorded reasons to reopen the assessment. The Tribunal found the formation of the belief to be justified on the available information; however, the validity of reopening is distinct from the correctness of resultant additions on merits. Ratio vs. Obiter: Ratio - Reopening was upheld because the AO had specific information warranting formation of prima facie opinion. Obiter - Remarks contrasting reopening validity with ultimate merit determination (i.e., that reopening does not automatically validate additions) elucidate procedure but are not the central holding. Conclusion: The Tribunal sustained the legality of the reopening of assessment but proceeded to decide the merits of the claimed unexplained investment. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Sustainment of additions in reopened assessment where evidence of source of repayment is produced Legal framework: Additions in income-tax assessments must be supported by material that either proves unexplained income or fails establishment of bona fide source; taxpayers may rebut additions by adducing contemporaneous or cogent documentary proof showing the source of funds (e.g., sale deeds, registers, bank transactions). Precedent Treatment: None cited; Tribunal applied evidentiary principles and statutory scheme. Interpretation and reasoning: The AO, having reopened, made additions totaling Rs. 22,90,104 (cost share, stamp duty, registration fee) on account of alleged unexplained investment. The assessee produced an unregistered Agreement to Sell showing advance received (Rs. 20 lakhs) and subsequent sale deeds of multiple properties evidencing sale proceeds used to repay that advance during the same year. The Tribunal found that (a) the Agreement, though unregistered, was acted upon; (b) documentary sale deeds corroborated the source of funds and repayments; and (c) the mere non-registration of the agreement was not a valid reason to reject the explanation on merits. Consequently, while reopening was lawful, the substantive additions were not sustainable in view of the evidence provided by the assessee. Ratio vs. Obiter: Ratio - Production of sale deeds corroborating repayment and the fact that an unregistered agreement was acted upon sufficiently rebut additions based on alleged unexplained investment; therefore, additions must be deleted. Obiter - Observations on technical consequences of non-registration for Section 53A protection are ancillary. Conclusion: The Tribunal deleted the additions on merits despite upholding the reopening; the addition of Rs. 22,90,104 was held unsustainable in light of the assessee's documentary proof of source and repayment. Cross-References and Outcomes 1. Issues 1 and 3 are interlinked: the legal treatment of an unregistered Agreement to Sell (Issue 1) directly informed the rejection of the AO/CIT(A)'s reason for sustaining additions (Issue 3). 2. Issue 2 is separable: the Tribunal upheld the procedural validity of reopening but clarified that procedural correctness does not relieve the revenue of demonstrating substantive merit where the assessee furnishes credible documentary evidence. Final Disposition: Reopening of assessment upheld; additions on merits deleted; appeal partly allowed.