Sale of Property- unsigned agreement seized- Decided in favour of assessee

SARAL TALWAR (2015) 44 CCH 0391 HydTrib Jul 22, 2015

 It needs to be mentioned, assessee from the very initial stage of the proceeding has denied of receiving any cash amount from Mr. Suresh Chand Agarwal towards the sale of property. It is also evident that apart from the receipts and the unsigned document, there is no other evidence in the possession of the department to conclusively prove that the assessee has actually received the amount of Rs.2.66 crores from Mr. Suresh Chand Agarwal.

On a plain reading of Section 69A, it is very much evident that the said section can be invoked only in a case where the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery, article, which is not recorded in the books of accounts and further assessee offers no explanation with regard to such money, bullion, jewellery or explanation offered, is not found satisfactory by the A.O. In the present case, admittedly, apart from certain documents seized at the time of search and seizure operation at the premises of Mr. Suresh Chand Agarwal, the assessee actually was not found in possession of any money.

Moreover, the letter dated 19th November, 2009 is an unsigned document and seized from a third party. Therefore, neither it will have any evidentiary value nor much importance can be attached to it. Moreover, assessee has also disowned the document.

 Further, though the department has alleged that the assessee has accepted the signature in the receipts to be his but on a perusal of the statement recorded from assessee under section 131, it is very much evident that while expressing his ignorance about the contents of the receipts, what the assessee has stated is signature in the receipts closely matches his. He never stated that it was 100% his signature.

Though, Learned D.R. submitted before us that Mr. Suresh Chand Agarwal has made a statement before the department accepting the payment of Rs.2.66 crores to assessee and has also declared it as his undisclosed income, however, on perusal of record we find, this fact was neither discussed by the A.O. or by Ld. CIT(A) in their orders. Also, there is nothing on record to suggest that such statement of Mr. Agarwal was ever confronted to assessee or he was allowed to cross- examine Mr. Agarwal.

On the other hand, on going through the statement of assessee under section 131 of the Act, during the post search proceeding it is absolutely clear, assessee categorically denied of having received any thing in cash from Mr.Agarwal.

Even, accepting the contents of the receipts to be true, what it indicates is assessee and his wife have received certain amount towards part sale consideration for sale of their immovable property to Mr. Suresh Chand Agarwal in pursuance to an agreement of sale. Therefore, as the receipt of money is linked to transfer of an immovable property, the only way it can be brought to tax, if at all, is under the Head ‘Capital Gains’ provided, transfer is complete in all respects. Under no circumstances, it can be brought to tax under section 69A of the Act, much less under section 57 of the Act as proposed by learned D.R.

13. Having held so, now will proceed to examine, whether the amount allegedly received by the assessee from Shri Suresh Chand Agarwal towards sale of immovable property can be assessed under the Head “Capital Gains”. For this purpose, it will be relevant to look into some other documents which also form part of the seized material. Amongst them is a letter dated 22.01.2010 (probably date is wrong) which speaks of returning the amount of Rs.2,61,00,000 to Mr. Suresh Chand Agarwal by assessee and his wife. Of course, this document is again an unsigned one. There is an undertaking by the assessee and his wife for returning the amount of Rs.1,90,00,000 to Mr. Suresh Chand Agarwal. There is also a cancellation deed executed between the assessee and his wife with Mr. Suresh Chand Agarwal cancelling the agreement of sale for sale of the property. Sale consideration mentioned in the aforesaid cancellation deed is Rs.1,31,00,000. It also appears that the cancellation deed has been signed by all the parties. As per the said cancellation deed, one of the reason for cancelling the agreement of sale is, the market value of the property in the meanwhile has gone-up to Rs.3,21,00,000. One of the clause in cancellation deed also specifies that if the property is sold for less than the market value of Rs.3,21,00,000, the vendors will adjust a maximum amount of Rs.15 lakhs from the amount received by them towards part of the sale consideration from Mr. Suresh Chand Agarwal and refund the balance amount to him. Finally, there is a receipt dated 04.10.2010 executed by Shri Suresh Chand Agarwal acknowledging receipt of an amount of Rs.40 lakhs from assessee and his wife. Thus, from the aforesaid documents forming part of seized material, it is clear that the transaction of sale of property by the assessee and his wife to Mr. Suresh Chand Agarwal ultimately did not materialize.

This is further corroborated from the fact that the property in question was ultimately sold to a third party namely Mrs. B. Sarada Kalyani vide registered sale deed executed on 30.04.2011 for a consideration of Rs.145 lakhs.

In fact, Shri Suresh Chand Agarwal is a witness to the aforesaid registered sale deed. Learned A.R. has also brought to our notice that, assessee has declared such transaction in A.Y. 2012-2013 and the A.O. in assessment order passed under section 143(3) has accepted the capital loss shown by assessee. On consideration of aforesaid facts, it is to be understood, though assessee might have received the part sale consideration of Rs.2.66 crores from Mr. Suresh Chand Agarwal, but the said amount automatically will not become his income unless the sale is finalized. At best, it can be treated as advance received by the assessee towards sale of his property. This fact is further corroborated from the cancellation deed dated 04.10.2010 and other seized material including the undertaking which indicate that the assessee is required to return back the money received from Mr. Suresh Chand Agarwal. Seizure of receipt executed by Mr.Suresh Chand Agarwal acknowledging receipt of Rs.40 lakhs from assessee to a great extent proves such fact. That being the case, cash received by the assessee from Mr. Suresh Chand Agarwal, cannot be the income of the assessee as the assessee has to return back the money to Mr. Suresh Chand Agarwal since the transaction did not materialize.

14. Reading of the assessment order as well as order of Ld. CIT(A) gives an impression that department has selectively relied upon the seized material while making the addition. While department has relied upon the unsigned letter dated 19.09.2010 and the receipts, it has completely ignored the agreement of sale, cancellation agreement and the undertaking by assessee and his wife to return back the money to Mr. Suresh Chand Agarwal, receipt executed by Mr.Suresh Chand Agarwal, which were also part of the seized material. Keeping aside for the moment assessee’s claim that he never received the amount of Rs.2.66 crores and also assuming that the contents of the unsigned letter dated 19.09.2010 and receipts are correct, however, on consideration of the entire seized material as a whole, the situation which emerges is, though the assessee might have received an amount of Rs.2.66 crores from Mr. Suresh Chand Agarwal towards part sale consideration of the property but he was supposed to return back the money to Mr. Suresh Chand Agarwal once the transaction did not materialize and agreement of sale was cancelled. Therefore, the amount of Rs.2.66 crores being a debt due to Mr. Suresh Chand Agrwal cannot be treated as income of assessee and his wife. Moreover, it is neither expected nor believable that inspite of the fact that the transaction fell through and property was ultimately sold to a third party, Mr. Suresh Chand Agarwal would have given up his right over such a substantial amount of money and kept quite without recovering it from the assessee. One cannot visualize such a situation as it is beyond human probability and normal human conduct. Therefore, even assuming that assessee might have received the amount of Rs.2.66 crores from Mr. Suresh Chand Agarwal towards sale of property, it must be equally true that assessee has refunded back the money to Mr. Suresh Chand Agarwal on cancellation of agreement of sale. Receipt executed by Mr. Suresh Chand Agarwal, copy of which is at page No.23 of the paper book bears testimony to this fact. Therefore, the amount in question cannot be brought to tax even under the Head ‘Capital Gain’ as the sale is not complete. Thus, looked at from any angle the amount of Rs.1,33,00,000 is not taxable at the hands of the assessee. Accordingly, we direct the A.O. to delete the addition. This ground is allowed.

15. However, before parting we must observe, as per cancellation agreement assessee and his wife can retain a maximum amount of Rs.15 lakhs from the advance received from Mr. Suresh Chand Agarwal, if the property is sold at a price lesser than the market value of Rs.3,21,00,000. Admittedly, as per registered sale deed assessee has received consideration of Rs.1,45,00,000 on sale of the property in question to Smt. Sarada Kalyani. Therefore, if the department can establish on record that assessee, in fact, has retained a part of the advance received from Mr. Suresh Chand Agarwal, such amount can be deducted from the cost of acquisition in terms with section 51 of the Act while computing capital gain in the assessment year in which asset was transferred.

16. In view of our decisions in the preceding paragraphs on the merits of the additions made by A.O., the other grounds, including the additional ground raised by assessee on the legal issue of validity of proceeding initiated under section 153C are of mere academic interest, hence not required to be adjudicated upon.

17. In the result, appeals of the assessee are partly allowed.