Introduction
The Income Tax Appellate Tribunal (‘Tribunal’), Jabalpur Bench, made a significant decision in ACIT v. Rajul Constructions,[i] and discussed the application of s. 43CA of the Income-tax Act, 1961 (‘IT Act’). The Tribunal categorically stated that there is no provision in the IT Act or the General Clauses Act, 1897 that defines the word ‘agreement’. Additionally, no law requires the agreement for the contract of sale of immovable property to be necessarily in writing, for applying the law under s. 43CA of the IT Act, an oral agreement has the same value as a written and formal agreement. The Tribunal also noted that repeatedly having the same witnesses should not lead to an adverse inference against the assessee without any application of mind.
Brief Facts
The assessee, a builder and land developer, held plots as stock-in-trade during the assessment year (‘AY’) 2015-16. The booking of 40 plots sold by the assessee during the AY 2015-2016 was spread across multiple financial years: 15 plots in 2009-10, 10 plots in 2010-11, 6 plots in 2013-14, and 9 in 2014-15. The total sales for the relevant AY were reflected as Rs. 5,37,41,093/- in the profit and loss account.
The assessing officer (‘AO’) determined that the consideration received by the assessee for the plot sales was lower than the value assessed by the stamp valuation authority. Consequently, as per s. 43CA of the IT Act, the AO treated the stamp duty value as the full value of consideration received from the transfers. The AO held that unregistered sale agreements cannot be legally recognised. Additionally, in certain cases, the parties who made advance payments differed from those to whom the property was eventually registered. Based on these findings, the AO calculated the difference between the actual sale consideration and the properties’ market value to add to the assessee’s income under s. 43CA and alleged that the assessee’s actions displayed an attempt to evade tax.
Furthermore, an adverse conclusion was drawn by the AO based on the fact that the agreements were signed by the same persons, Shri R.S. Mishra, Shri Dilip Mishra and Shri Rajendra Tiwari as witnesses despite the change in the years over a prolonged period of 2009 to 2014. Thus, the AO added an amount of Rs. 4,91,69,153/- under s. 43CA of the IT Act.
Opposed to this addition, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (‘CIT(A)’), who deleted the addition. Aggrieved by the decision, the Revenue filed an appeal before the Tribunal, against which the assessee also filed a cross-objection. The assessee also filed another appeal seeking rectification in the order of the CIT(A) about the determination of the exact year of sale concerning the plots.
Held
The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection while allowing the assessee's appeal. The Tribunal held that the assessee was entitled to the benefit from s. 43CA(3) of the IT Act concerning plots booked in financial years 2009-10, 2010-11, and 2013-14. It also directed that the AO shall re-compute the profits, considering the complete details and registry regarding the sale of plots year-wise and accord the benefit of s. 43CA to the assessee.
The Tribunal relied on the Supreme Court (‘SC’) judgements in T.G Ashok Kumar v. Govindammal[ii], and Brij Mohan v. Smt. Sugra Begum[iii], which held that there is no legal requirement for an agreement or contract of sale of immovable property to be in writing, and that agreements can be oral agreements as well. Thus, the Tribunal rejected the discrepancies noted by the AO regarding the agreements. It further dismissed the AO’s apprehension towards the same witnesses signing over different years, noting that these witnesses were staff members of the assessee who were consistently available and working for the assessee during the relevant period.
Addressing the AO’s concerns about different parties making advance payments and registering the property, the Tribunal held that purchasers have the right to get the sale deed executed in their name or any other person’s name as per clause 4(b) of the sale agreement.
The Tribunal recognized that it is common business practice to change plots as per the availability and mutual agreement with customers. It addressed the issue of the non-appearance of advances in the balance sheet as of 31.03.2013, noting that the assessee firm had 199 plots, while Rajul Builder (proprietor Dilip Mehta) had 89 plots in the same Rajul City Colony. Both concerns booked plots at Rajul Builder’s office, and Dilip Mehta executed sale agreements for both. Advances initially recorded under Rajul Builder were transferred to Rajul Construction’s books when plots were changed, resulting in those advances not reflecting in the assessee’s balance sheet as of 31.03.2013. However, a reconciled plot-wise receipt of the advance and transfer details later reflected these transactions.
Our Analysis
This decision reaffirms the principle that law should not be turned into a tool of harassment. When assessing authorities fail to apply careful consideration in taxation cases, it leads to unnecessary, time-consuming litigation, which should be avoided given the already overburdened judicial system. This decision reinforced the taxpayer’s rights under s. 43CA(3) of the IT Act when conditions are met despite procedural irregularities. The decision also emphasized the recognition of business practices involving related firms and inter-company transactions during tax assessments.
All business and income factors should be thoroughly analysed at the time of assessment, and both independent and mutual consequences of actions should be considered. Concerns such as a staff member signing as a witness on multiple agreements alone should not be raised without other incriminating evidence. Similarly, common trade practices like changing plots and registering deeds with third parties should be recognized when examining facts before alleging tax evasion. Allegations should not be based on mere apprehension or hunch but on concrete facts. Otherwise, it only leads to a waste of time for all parties involved.
End Notes
[i] [2024] 159 taxmann.com 1261 (Jabalpur – Trib.) [dated: 03.01.2024]
[ii] (2010) 14 SCC 370
[iii] (1990) 4 SCC 147
Authored by Shivangi Bhardwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.