Advance refunded on cancellation of sale deal can’t be taxed under sec. 68 if revenue couldn’t prove its non-payment

Where due to cancellation of sale agreement of property, assessee returned amount of advance and in support of same he furnished copy of sale agreement, copy of cancellation of agreement, copy of PAN of intending purchaser and copy of acknowledgement of return of income of proposed purchaser, amount so returned could not be added to assessee's taxable income under section 68

HIGH COURT OF GUJARAT

Commissioner of Income-tax -I

v.

Hitesh Somani

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

Tax Appeal No. 336 of 2013

APRIL  25, 2013 

Section 68 of the Income-tax Act, 1961 - Cash credits [Advance received for sale of property] - Assessee received certain advance from 'M' for sale of its property - Sale transaction, however, did not materialise because assessee was not given NOC for transfer of property - Accordingly, said transaction was cancelled and money was returned - In support of above, assessee furnished copy of sale agreement, copy of cancellation of agreement, copy of PAN of intending purchaser and copy of acknowledgement of return of income of proposed purchaser - Whether since revenue failed to controvert material brought on record by assessee, amount in question could not be taxed as cash credit by invoking provisions of section 68 - Held, yes [In favour of assessee]

CASES REFERRED TO

CIT v. Ranchhod Jivabhai Nakhava [2012] 208 Taxman 35/21 taxmann.com 159 (Guj.) (para 4).

K.M. Parikh  for the Appellant.

ORDER

Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income-tax Appellate Tribunal dated 31-08-2012 raising following question for our consideration:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition u/s. 68 made on account of unexplained cash credit of Rs. 44,45,000/- by holding that by furnishing required documents, assessee has discharged the initial burden cast upon him u/s. 68 of the Act?"

2. Issue pertains to addition made by the Assessing Officer under Section 68 of the Income-tax Act, 1961 ('the Act' for short) on account of alleged unexplained cash credit of Rs. 44.45 lacs. Assessee carried the matter in appeal. CIT(A) confirmed the Assessing Officer's view upon which the assessee approached the Tribunal. The Tribunal, by the impugned judgment, allowed the assessee's appeal making following observations:

'9. We have heard the rival submissions and perused the material on record. The undisputed facts in the present case are that the assessee had received advance from Madhav Vidharbh Estate Pvt. Ltd., for sale of property. The deal could not materialize due to the fact that the society did not give NOC for transfer of property as the purchaser intended to use the property for commercial purposes. Accordingly the deal was cancelled and the money returned. The assessee had furnished the copy of the sales agreement, copy of the cancellation agreement, copy of PAN number of the intending purchaser, copy of the acknowledgement of return of income of the intending purchaser. In case of deposit from Riddhi Siddhi Pvt. Ltd., the assessee had submitted the copies of banakhat, copy of confirmation from the party, copy of the acknowledgement of return of income, copy of PAN number. The aforesaid facts have not been controverted by the Revenue nor has it proved that the documents submitted by the assessee are not genuine. By furnishing the aforesaid documents, the assessee has discharged the initial burden cast on it u/s. 68.

10. In case of CIT v. Ranchod Jivabhai Nakhava (supra) the Hon'ble High Court has held as under:—

"Once the assessee has established that he has taken money from the lenders who all are Income-tax assessee whose PAN have been disclosed, the initial burden u/s. 68 was discharged. Once the A.O. gets hold of the PAN of the lenders, it was hid duty to ascertain from the A.O. of those lenders whether in their respective returns they had shown existence of such amount of money and had further shown those amount of money had been lent to the assessee. If before verifying such facts from the A.O. of the lenders of the assessee, the A.O. decides to examine the lenders and asks the assessee to further have the genuineness and creditworthiness of the transaction, the A.O. does not follow the principle laid down u/s. 68."

11. In view of the aforesaid facts and respectfully following the decision of Hon'ble Gujarat High Court, we are of the view that the facts of the present case, since the assessee has discharged the initial burden cast on it, the addition made u/s. 68 is uncalled for. We accordingly delete the addition.'

3. From the above, it can be seen that assessee's case was that, it had received certain advances from one Madhav Vidharbh Estate Pvt. Ltd. for sale of its property. The bill, however, did not materialize since the assessee did not give NOC for transfer of property. The same was later on cancelled and money was returned. Additionally, the assessee had furnished the copy of the sale agreement, copy of the cancellation of the agreement, copy of PAN number of the intending purchaser and copy of acknowledgement of return of income of the proposed purchaser. In case of such deposits the assessee had produced a copy of confirmation from the party, copy of the acknowledgement of the return of income and also PAN number of said entity. Such facts were not controverted by the revenue nor contended that the documents produced by the assessee were not genuine.

4. In that view of the matter, in our opinion, the Tribunal correctly followed the decision of this Court in case of CIT v. Ranchhod Jivabhai Nakhava [2012] 208 Taxman 35/21 taxmann.com 159. No question of law arises. Tax appeal is dismissed.

Refer:[2014] 41 taxmann.com 152 (Gujarat)