Cancellation of sale deed of a property

When you purchased the property, whether the same was registered? If yes, then it shall be treated as Purchase and after two years when you are returning back the same it would be treated as Sale, hence capital gain would arise. If your holding period is more than 24 months then it would be LongTerm CG and hence indexation provision would apply. Further, it's recommended to disclose the Gain/Loss from the property in your return, fill ITR-2 provided all other conditions are met.

Yes, you has report the transaction to tax department, as you purchased the property and also execute the sale deed of the same property to the same person, receipts and payments transaction, stamp duty charges and legal fees all this expenses incurred, you has to show in to your books of accounts and have to paid Capital Gain Tax accordingly.

In context of Income tax Act, the transaction shall be treated as sale of property.

Even if there is no capital gain/loss, you will have to calculate the notional gain/loss and disclose the same accordingly.