Unsigned land agreement cannot justify unexplained investment addition under Section 2(g) Indian Contract Act

ITAT Jaipur ruled in favor of the assessee regarding an unexplained investment addition of Rs. 5 lakh based on an unsigned land agreement. The tribunal held that an unsigned agreement constitutes merely an offer that was never accepted or executed, making it void under Section 2(g) of the Indian Contract Act, 1872. The AO failed to conduct independent inquiries to verify the transaction despite having the document for over two years. The tribunal emphasized that assessment cannot be based on suspicion or guesswork without material evidence, directing deletion of the addition.

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Issues Involved:
1. Sustaining an addition of Rs. 5,00,000/- as unexplained investment in land based on an unsigned agreement.

Issue-Wise Detailed Analysis:

1. Sustaining an Addition of Rs. 5,00,000/- as Unexplained Investment in Land Based on an Unsigned Agreement

The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which sustained an addition of Rs. 5,00,000/- as unexplained investment in land. This addition was based on an unsigned agreement found during a search operation.

Facts and Background:
- A search and seizure operation under section 132(1) of the Income Tax Act was conducted on 28.09.2017 at various premises of a business group, including the residential premises of the assessee.
- During the search, a copy of an agreement (ikrarnama) dated 30.08.2013 was found, indicating that the assessee had paid Rs. 5,00,000/- in cash as an advance for the purchase of agricultural land.
- The agreement was signed by the seller and two witnesses but not by the assessee.

Assessment Proceedings:
- The Assessing Officer (AO) issued a show cause notice asking the assessee to explain the source of the Rs. 5,00,000/-.
- The assessee contended that the agreement was merely a draft and was never executed.
- The AO rejected this explanation, noting that the agreement was found in the possession of the assessee and was signed by the seller and witnesses. The AO added Rs. 5,00,000/- to the assessee's income as unexplained investment under section 69 read with section 115BBE of the Income Tax Act.

Appeal to CIT(A):
- The CIT(A) upheld the AO's decision, emphasizing that the document, even if considered an acknowledgment of payment, required the assessee to explain the source of the payment.
- The CIT(A) cited section 292C of the Income Tax Act, which presumes the contents of documents found during a search to be true unless proven otherwise by the assessee.

Arguments by the Assessee:
- The assessee argued that the agreement was not signed by her and thus was not enforceable under the Indian Contract Act.
- The assessee relied on the judgment of the ITAT Delhi Bench in the case of Anil Bala Goyal Vs. DCIT, where a similar addition was deleted due to the absence of the buyer's signature on the agreement.

Tribunal's Analysis:
- The Tribunal noted that the agreement was found after four years of the search and was never signed by the assessee.
- The AO did not conduct any independent inquiries to verify the transaction from the seller or witnesses.
- The Tribunal emphasized that an unsigned agreement cannot be treated as executed and enforceable by law.
- The Tribunal referenced the Supreme Court's judgment in Dhakeshwari Cotton Mills Ltd., which held that assessments cannot be made on guesswork without material evidence.

Tribunal's Decision:
- The Tribunal found that the addition of Rs. 5,00,000/- was based on mere suspicion and conjecture without any corroborative evidence.
- The Tribunal allowed the appeal, directing the deletion of the addition of Rs. 5,00,000/-.
- The Tribunal followed the precedent set by the ITAT Delhi Bench in Anil Bala Goyal Vs. DCIT, where similar circumstances led to the deletion of an addition.

Conclusion:
- The Tribunal concluded that the unsigned agreement did not constitute sufficient evidence to sustain the addition of Rs. 5,00,000/- as unexplained investment.
- The appeal of the assessee was allowed, and the addition was deleted.

Order Pronounced:
- The order was pronounced in the open court on 05/09/2024.

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