Section 68 Addition Unsustainable Where Sale Receipt Already Declared and Subjected to Tax: ITAT Delhi
Overview of the Dispute
The Income Tax Appellate Tribunal, Delhi Bench, has ruled against the Revenue in the matter of DCIT Vs HB Estate Developers Limited, dismissing the Department's appeal challenging the deletion of an addition of Rs. 2,81,87,500 made under Section 68 of the Income Tax Act, 1961, for Assessment Year 2010-11.
The central question before the Tribunal was whether a receipt from the sale of stock-in-trade — already recorded in the books of account, disclosed in the return of income, and subjected to tax — could be treated as an unexplained cash credit and taxed again under Section 68 of the Act.
Background and Factual Matrix
Initial Return Filing and Assessment
HB Estate Developers Limited filed its return of income for Assessment Year 2010-11 declaring a total income of Rs. 3,68,25,018. The case was processed and an assessment order was passed under Section 143(3) of the Income Tax Act, 1961 on 25/03/2013, fixing the assessed income at Rs. 9,76,94,690.
Reopening of Assessment
The case was subsequently reopened and a notice under Section 148 of the Act was issued. Following reassessment proceedings, an order was passed under Section 147 read with Section 143(3) of the Act on 29/12/2017. In this reassessment order, the Assessing Officer made an addition of Rs. 2,81,87,500 under Section 68 of the Act, treating the amount as an unexplained cash credit.
Nature of the Underlying Transaction
The facts underlying the disputed addition are as follows:
- In an earlier year, the assessee company had booked five units measuring 2,000 sq. ft. each in an IT Park at Gurgaon, developed by Parsvnath Developers Ltd.
- The booking/registration amount paid at the time of booking was Rs. 24,37,500.
- During the Assessment Year 2010-11 under consideration, the assessee sold the booking rights in respect of these properties to Signature Max Propbuild Pvt. Ltd. for a total consideration of Rs. 2,81,87,500.
- The entire sale consideration of Rs. 2,81,87,500 was reflected as sales in the company's financial statements and return of income.
- The resultant profit arising from this transaction — amounting to Rs. 2,57,50,000 — was duly offered for taxation at the applicable highest rate.
- The P&L Account of the assessee showed total sales of Rs. 3,50,62,500 on the income side and an increase/decrease in stock of Rs. 57,45,310 on the expense side, within which the above figures were subsumed.
The Assessing Officer's Position
The Assessing Officer proceeded to make the addition based on specific information suggesting that the amount was received through companies that were allegedly managed and controlled by entry operators. The AO's contention was that the genuineness of the transaction and the creditworthiness of the payer, Signature Max Propbuild Pvt. Ltd., had remained unexplained, thereby rendering the credit liable to be assessed under Section 68 of the Act.
The AO, however, did not reject the assessee's books of account, nor did the AO formally reject the sales recorded therein before proceeding to make the impugned addition.