2025 (9) TMI 742 - AT - Income Tax

Unregistered sale agreements backed by bank payments determine LTCG under Section 50C; Section 69A addition deleted

ITAT (Hyderabad) allowed the appeal, holding that unregistered sale/purchase agreements supported by bank payments reflect the true transactions and must ... Addition on account of Long Term Capital Gain (“LTCG”) - as per the unregistered agreement the purchase consideration include settlement of land disputes and development cost of land - Addition under the head ‘income from other sources’ towards unexplained cash credit - HELD THAT:- As most of the payment for both purchase as well as sale were made through banking channel as per the unregistered agreements. The payments through banking channel substantiate the assessee’s claim with the unregistered agreements and reflect the actual transactions. We also observe that the principle of substance over form should apply in the present case. The registered purchase / sale agreements were executed merely for procedural compliance and do not capture the true nature of the transaction. Section 50C of the Act also recognise unregistered prior agreement subject to the condition that the payment of consideration is made through banking channel. Therefore, ignoring the unregistered agreements would lead to distorted computation of capital gain, which is against the principle of fair taxation. The reliance on the registered agreement by the AO and CIT(A), without considering the substantial evidence in the form of banking transactions and the unregistered agreement to sale / purchase are not correct. Assessee has provided sufficient documents to support the claim that the unregistered sale / purchase agreement reflect the actual transactions. Therefore, we make a direction to AO to recompute the LTCG by considering the purchase cost and sales consideration i.e. on the basis of the unregistered purchase / sale agreements respectively. We also direct the AO to delete the addition made u/s.69A - Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether unregistered sale and purchase agreements, supported by payments through banking channels and possession/part-performance, can be treated as the true consideration for computing long-term capital gain (LTCG) instead of the values recorded in later registered conveyance deeds. 2. Whether the Assessing Officer's substitution of sale consideration as per registered deeds and corresponding disallowance of indexed cost based on registered purchase deeds was justified where unregistered agreements and bank evidence showed higher actual consideration. 3. Whether an addition under section 69A (unexplained cash credit) in respect of amounts exceeding consideration recorded in registered conveyance deeds is sustainable where the assessee produced unregistered agreements and banking evidence for the higher amounts claimed to have been received. ISSUE-WISE DETAILED ANALYSIS - Issue 1 & 2 (treated together): Admissibility and evidentiary value of unregistered agreements and banking evidence for computing LTCG Legal framework: Capital gains are computed on actual consideration received/credited for transfer; registered conveyance deeds are prima facie documentary evidence of transaction values for stamp/registration purposes, but tax law recognises substance over form and permits consideration other than that stated in registered documents if supported by credible evidence. Section 50C (as referred by the Tribunal) recognises prior unregistered agreements subject to payment by banking channels in appropriate circumstances. Precedent treatment: The order does not cite or overrule any specific judicial precedents; instead it applies the general evidentiary principle of substance over form and administrative recognition (via s.50C reference) of prior unregistered agreements when payment is by banking channel. Therefore the Tribunal follows established evidentiary reasoning rather than distinguishing or overruling prior case law. Interpretation and reasoning: The Tribunal examined the record and found substantial payments made through banking channels corresponding to amounts stated in the unregistered purchase and sale agreements. The Tribunal concluded the registered deeds were executed largely for procedural compliance and did not reflect the true commercial bargain (i.e., the registered values were not the complete reflection of consideration). Given the bank transfers and agreement terms, the unregistered agreements more accurately reflected the substance of the transactions. The Tribunal expressly invoked the maxim substance over form and noted that section 50C recognises prior unregistered agreements when consideration is paid through banking channels, supporting reliance on unregistered agreements for tax computation. Ratio vs. Obiter: Ratio - where unregistered agreements are supported by substantive evidence of payment through banking channels and part-performance/possession, they can be treated as the real consideration for computing LTCG and the Assessing Officer should not mechanically substitute values appearing in registered deeds. Obiter - general remarks on distortion of fair taxation if unregistered agreements are ignored and broad policy observations about procedural compliance versus true transaction may be considered obiter reinforcing the ratio. Conclusion: The Tribunal directed recomputation of LTCG using the purchase cost of Rs. 2,35,65,595 (assessee's share) and sales consideration of Rs. 2,42,10,000, as per the unregistered agreements supported by bank payments. The Tribunal held the Assessing Officer's reliance solely on registered deeds for substitution of consideration was incorrect. ISSUE 3: Validity of addition under section 69A (unexplained cash credit) for excess amounts over registered deed values Legal framework: Section 69A permits treating unexplained money credits as income where the assessee fails to explain the source; however, such additions cannot be sustained if the assessee furnishes credible explanation and documentary evidence establishing the source, receipt, or genuineness of the amounts. Precedent treatment: The Tribunal did not refer to specific precedents but applied accepted principles that banking evidence and contractual documents can explain receipts and negate unexplained cash credit additions under s.69A. Interpretation and reasoning: The Tribunal found that the assessee produced bank evidence showing receipt of substantial sums through banking channels consistent with the unregistered sale agreement and demonstrated inability to recover a portion (shortfall) from the buyer. Given these explanations and supporting documentation, the addition under s.69A for Rs. 57,29,000 as unexplained cash credit was not warranted. The Tribunal treated the AO's characterization of the excess as unexplained cash as unsustainable in light of documentary evidence. Ratio vs. Obiter: Ratio - where receipts are substantiated by bank records and correlative contractual documentation, an addition under s.69A is not tenable. Obiter - remarks about the impropriety of mechanically treating amounts as unexplained solely because registered deeds show lower consideration are ancillary to the ratio. Conclusion: The Tribunal deleted the addition of Rs. 57,29,000 made under section 69A and directed the Assessing Officer to give effect to the deduction of that addition when recomputing taxable capital gain based on the unregistered agreements and bank payments. Cross-references and procedural direction Where issues of consideration and cost are interlinked, the Tribunal treated them together: recomputation was ordered by directing the Assessing Officer to adopt the purchase and sale figures arising from unregistered but substantively supported agreements for computing LTCG and to delete the s.69A addition. The Tribunal emphasised documentary bank evidence and the principle of substance over form as the controlling factors.