Case Note & Summary
The case involves an appeal by the Revenue against the judgment of the Bombay High Court which dismissed its appeal and confirmed the order of the Income Tax Appellate Tribunal (ITAT) deleting an addition of Rs. 15,94,06,500/- made by the Assessing Officer (AO). The dispute pertains to Assessment Year 2009-10. The assessee, Glowshine Builders & Developers Pvt. Ltd., entered into a development agreement dated 06.05.2008 with M/s Kirit City Homes Pvt. Ltd. for sale of development rights in a property at Vasai for a total consideration of Rs. 15,94,06,500/-. The consideration was received as per the agreement. However, during assessment, the AO noticed that this income was not disclosed in the profit and loss account. The assessee responded that the transaction was offered to tax in AY 2008-09 reflecting a consideration of Rs. 5,24,27,354/- and that a rectification deed dated 30.05.2008 had been executed reducing the consideration from Rs. 15,94,06,500/- to Rs. 5,24,27,354/-. The AO rejected the rectification deed as a colourable device and added the difference of Rs. 10,69,79,146/- as undisclosed income. The ITAT deleted the addition, and the High Court upheld the ITAT's order. The Supreme Court allowed the Revenue's appeal, holding that the rectification deed lacked commercial substance and was executed to evade tax. The Court restored the AO's addition and directed the Revenue to examine whether the reduced amount was correctly offered to tax in AY 2008-09.
Headnote
A) Income Tax - Rectification Deed - Validity - Reduction of Consideration - The assessee entered into a development agreement for sale of development rights for Rs. 15,94,06,500/- but later executed a rectification deed reducing the consideration to Rs. 5,24,27,354/- without any commercial justification. The Assessing Officer added the difference as undisclosed income. The Supreme Court held that the rectification deed was a colourable device to evade tax and lacked commercial substance, and the addition was justified. (Paras 1-10) B) Income Tax - Assessment Year - Offer of Income - The assessee claimed that the reduced consideration was offered to tax in AY 2008-09, but the transaction pertained to AY 2009-10. The Court held that income must be offered in the correct assessment year and the assessee cannot shift income to a different year to avoid tax. (Paras 11-15) C) Income Tax - Burden of Proof - Rectification Deed - The assessee failed to provide any evidence of mutual mistake or commercial rationale for the rectification deed. The Court held that the burden lies on the assessee to prove the genuineness of such a deed, and in the absence of evidence, the original consideration prevails. (Paras 16-20)
Issue of Consideration
Whether the assessee can reduce the agreed consideration of Rs. 15,94,06,500/- to Rs. 5,24,27,354/- by executing a rectification deed without any commercial substance, and whether the addition made by the Assessing Officer was rightly deleted by the ITAT and High Court.
Final Decision
Supreme Court allowed the appeal, set aside the impugned judgment of the High Court and the order of the ITAT, and restored the addition made by the Assessing Officer. The Court directed the Revenue to examine whether the reduced amount of Rs. 5,24,27,354/- was correctly offered to tax in AY 2008-09.
Law Points
- Rectification deed cannot be used to reduce agreed consideration without commercial substance
- Income from undisclosed transaction must be offered to tax in correct assessment year
- Burden on assessee to prove genuineness of rectification deed
