Facts of the Case

  1. The assessee, M/s Durable Properties, entered into an Agreement to Sell dated 09.01.2003 for the sale of its flat situated at Vasant Kunj, New Delhi.
  2. The purchaser, M/s Fair N. Square, agreed to purchase the property for a total consideration of ₹90 lakhs.
  3. An advance amount of ₹30 lakhs was paid by M/s Fair N. Square to the assessee.
  4. During assessment proceedings, the Assessing Officer treated the amount of ₹30 lakhs as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
  5. The Assessing Officer primarily relied upon the fact that notices issued to the purchaser could not be served and the purchaser could not be produced before him.
  6. The Commissioner of Income Tax (Appeals) deleted the addition.
  7. The Income Tax Appellate Tribunal affirmed the deletion, holding that the amount was received under a genuine Agreement to Sell and was liable to be treated in accordance with the provisions relating to forfeited advances.
  8. Aggrieved by the Tribunal's order, the Revenue preferred an appeal before the Delhi High Court.

Issues Involved

1. Whether the Assessing Officer was justified in making an addition of ₹30 lakhs under Section 68 of the Income Tax Act, 1961?

2. Whether the amount received as advance under a genuine Agreement to Sell could be treated as unexplained cash credit merely because the purchaser was not traceable at the given address?

3. Whether the findings of the Tribunal involved any substantial question of law warranting interference under Section 260A of the Income Tax Act, 1961?

Petitioner's Arguments (Revenue)

The Revenue contended that:

  • The Tribunal erred in law in deleting the addition of ₹30 lakhs made under Section 68 of the Income Tax Act, 1961.
  • The alleged creditor, M/s Fair N. Square, was not traceable at the address furnished by the assessee.
  • Notices issued by the department could not be served upon the purchaser.
  • Despite several opportunities, the assessee failed to produce the purchaser for examination before the Assessing Officer.
  • Consequently, the genuineness and creditworthiness of the transaction remained unverified and the addition under Section 68 was justified.

Respondent's Arguments (Assessee)

The assessee submitted that:

  • The amount represented an advance received under a valid and genuine Agreement to Sell.
  • The Agreement to Sell was duly executed and produced before the Assessing Officer.
  • Confirmation regarding the payment of advance had been furnished.
  • M/s Fair N. Square was a registered company and a regular income-tax assessee.
  • The Permanent Account Number (PAN) of the purchaser was supplied to the department.
  • Details of the purchaser's assessment ward, registration with the Registrar of Companies (ROC), and banking particulars were also provided.
  • The Agreement specifically provided that the advance amount would stand forfeited in the event of default by the purchaser.
  • The Assessing Officer had not challenged the authenticity or legality of the Agreement to Sell.

Court Findings / Court Order

The Delhi High Court upheld the orders of the CIT(A) and the Tribunal and observed as follows:

1. Identity of the Purchaser Established

The assessee had furnished:

  • PAN details of the purchaser.
  • Registration particulars with the Registrar of Companies.
  • Bank account details.
  • Assessment particulars under the Income Tax Act.

These documents sufficiently established the identity of M/s Fair N. Square.

2. Genuine Property Transaction

The Agreement to Sell was produced before the Assessing Officer and its authenticity was never questioned.

The Court noted that the Assessing Officer failed to establish that the Agreement was a sham or non-genuine document.

3. Non-Service of Notice Not Sufficient

The mere fact that notices under Sections 131 and 133(6) could not be served upon the purchaser could not, by itself, render the transaction non-genuine.

4. Forfeited Advance Covered by Specific Provision

The Tribunal rightly observed that forfeited advances arising from property transactions are specifically covered by the provisions of the Income Tax Act dealing with such receipts.

5. Pure Question of Fact

The Court held that the controversy involved only factual findings based on evidence already examined by the appellate authorities.

No substantial question of law arose for determination under Section 260A.

Final Order

The appeal filed by the Revenue was dismissed in limine.

Important Clarification

Mere Non-Availability of Purchaser Does Not Attract Section 68

Where:

  • Identity of the payer is established,
  • Documentary evidence supports the transaction,
  • PAN, ROC details and confirmations are furnished, and
  • The underlying agreement remains unquestioned,

an addition under Section 68 cannot be sustained merely because the purchaser is not available or notices remain unserved.

Genuine Advances Under Property Agreements

Amounts received as advances pursuant to genuine property transactions cannot automatically be treated as unexplained cash credits when adequate supporting evidence exists.

Scope of Appeal Under Section 260A

Findings of fact concurrently recorded by the CIT(A) and the Tribunal ordinarily do not give rise to a substantial question of law warranting interference by the High Court.

Sections Involved

  • Section 68 – Unexplained Cash Credits
  • Section 131 – Power Regarding Discovery, Production of Evidence, etc.
  • Section 133(6) – Power to Call for Information
  • Section 260A – Appeal to High Court
  • Section 51 (referred to by the Tribunal concerning forfeiture of advance money received in connection with transfer of a capital asset)

Link to download the order –https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:4373-DB/MMH07092010ITA8652010.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.