Facts of the Case

The Revenue challenged the order concerning receipt of ₹67.50 crores by the respondent-assessee from M/s Unitech Limited. The Revenue did not dispute:

  • Identity of the payer
  • Creditworthiness
  • Actual transfer of funds

However, the dispute centered on the “genuineness” of the transaction, as the assessee claimed the amount was received pursuant to an agreement to sell land in Raigad, Maharashtra.

The Revenue rejected this explanation citing:

  • Alleged sham and bogus backdated agreement to sell
  • Failure to produce executants of the agreement
  • Discrepancy between declared value and circle rate
  • Large portion of payment received in advance

Issues Involved

  1. Whether addition under Section 68 can be made when:
    • Identity, creditworthiness, and actual transaction are not disputed, but
    • The nature and explanation of the transaction is disbelieved
  2. Whether “genuineness” under Section 68 extends beyond mere transfer of funds to include commercial substance of the transaction

Petitioner’s Arguments (Revenue)

  • The agreement to sell was not genuine and was a fabricated explanation
  • The transaction lacked commercial credibility due to:
    • Backdating
    • Non-production of parties
    • Undervaluation compared to circle rate
  • Therefore, despite actual money transfer, the amount should be treated as unexplained cash credit under Section 68

Respondent’s Arguments (Assessee)

  • The transaction involved actual receipt of funds through proper banking channels
  • Identity and creditworthiness of payer (Unitech Ltd.) were undisputed
  • Once these elements are satisfied, Section 68 should not apply merely on suspicion about explanation

Court’s Findings / Order

  • The Court noted a peculiar legal issue:
    • Transaction (money transfer) is genuine
    • But explanation of its nature is disputed
  • The Court observed lack of direct judicial precedent on:

Whether Section 68 addition is justified when only the explanation is disbelieved, but transaction itself is real

  • Accordingly, the Court:
    • Issued notice for further examination
    • Kept the question open for detailed adjudication

Important Clarification by the Court

  • “Genuineness” under Section 68 may involve two dimensions:
    1. Actual transaction (money flow)
    2. Substance and explanation of transaction
  • Even if money flow is accepted, disbelief of explanation may still trigger Section 68 inquiry, but the legal position requires deeper examination

Section Involved

  • Section 68 of the Income Tax Act, 1961 – Unexplained Cash Credits

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8098-DB/SKN20122018ITA9782018.pdf

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