IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on : 17.01.2013
+ ITA 1263/2011
CIT ..... Appellant
versus
MEERA GOYAL ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Karan Khanna, Sr. Standing Counsel with Ms
Asmita Kumar, Advocate.
For the Respondent : Mr Simran Mehta with Ms Inklee Roy and Ms
Yogita Sunaria, Advocates.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V. EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This appeal by the revenue is directed against the order dated
05.04.2011 passed by the Income Tax Appellate Tribunal, New Delhi in
ITA No.604/Del/2011 in respect of the assessment year 2007-08.
2. The respondent/ assessee has house property at 37, Friends Colony,
New Delhi. On 28.01.2007 the respondent entered into an agreement to
sell the said property to Shinestar Buildcon (P) Ltd. The sale
consideration of the property was agreed upon at `150 crores. Earnest
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money under the agreement was determined to be `36 crores. In respect
of the said earnest money of `36 crores the respondent/ assessee received
six cheques as under: -
Date Cheque No. Bank Amount
28.01.2007 022114 UTI Bank Ltd. 9,00,00,000/-
28.01.2007 022115 -do- 9,00,00,000/-
28.01.2007 022119 -do- 5,00,00,000/-
28.01.2007 022120 -do- 5,00,00,000/-
28.01.2007 022121 -do- 5,00,00,000/-
28.01.2007 022122 -do- 3,00,00,000/-
36,00,00,000/-
3. The balance amount was payable by 30.03.2007 and time was the
essence of the contract. Clause 3 of the said agreement provided that if
the purchaser failed to pay the balance consideration by that date, the
seller (respondent/ assessee) had the right to forfeit the earnest money and
the purchaser Shinestar Buildcon (P) Ltd. would have no claim on the
property whatsoever and the agreement to sell would stand terminated.
4. Shinestar Buildcon (P) Ltd. failed to pay the balance consideration
by 30.03.2007 and the respondent/ assessee sent a notice of forfeiture
dated 31.03.2007 and forfeited `18 crores out of the earnest money of
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`36 crores. The first two cheques mentioned in the table above
amounting to `18 crores were returned to Shinestar Buildcon (P) Ltd. as a
part of the settlement arrived at between the assessee and the said
Shinestar Buildcon (P) Ltd. However, the balance four cheques were
encashed and the sum of `18 crores was forfeited.
5. The forfeited amount of `18 crores was shown as advance received
from the property in the balance sheet of the respondent/ assessee and the
said sum of `18 crores had not been offered for taxation in the relevant
assessment year. The assessing officer did not accept this treatment of
the said sum of `18 crores and held that the entire transaction was a sham
transaction in which Shinestar Buildcon (P) Ltd. attempted to book bogus
losses. As a result, the assessing officer made an addition of `18 crores.
6. Being aggrieved, the respondent/ assessee preferred an appeal
before the Commissioner of Income Tax (Appeals) which was allowed.
At this juncture it would be relevant to note that prior to the assessment
being framed, directions under section 144A of the Income Tax Act, 1961
had been given by the Addl. Commissioner on a reference being made by
the assessee under that provision in relation to the proceedings for the
assessment year 2007-08. The directions given were, inter alia, as under:
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"In the light of above observation, forfeited amount is not
liable to be taxed as income or chargeable gain under the
provisions of the act till there is sale of property. The legal
position to this effect is supported from provisions of sec. 51
of the Income Tax Act, 1961 and various judgments referred
to above.
However, the Assessing Officer is required to ensure that as
and when the property is sold, the forfeited amount is
adjusted towards the cost of the property for the purpose of
computation of capital gain. Moreover, if the AO chooses to
treat the forfeited amount otherwise she may do so after
recording proper reasons in the body of the assessment order
and after meeting out the legal position on the issue."
7. The Commissioner of Income Tax (Appeals) held in favour of the
respondent/ assessee in view of the fact that the assessing officer had not
complied with the directions given by the Addl. Commissioner of Income
Tax under section 144A of the said Act. He also held that the said
directions were binding on the assessing officer and the assessing officer
had no authority to disregard the said directions.
8. Being aggrieved by the order of the CIT (Appeals) the revenue
preferred an appeal before the Income Tax Appellate Tribunal which has
also been dismissed. The Tribunal held as under: -
"6. We have heard the rival contentions and perused the
relevant records. We find that it is not disputed that there
was an agreement to sell between the assessee and M/s
Shinestar Buildcon P Ltd. and in terms of the agreement the
ITA 1263/2011 Page 4 of 6
assessee received `18 crores as earnest money.
Subsequently, the said earnest money was forfeited by the
assessee and the same was claimed as capital receipt.
Assessing Officer was not satisfied, therefore, a reference
was made to Addl. Commissioner of Income Tax, u/s 144 of
the IT Act. The Ld. Commissioner of Income Tax (Appeals)
has given a categorical finding that in respect of the issue of
forfeiture of earnest money, the Addl. Commissioner of
Income Tax, after taking into consideration the provisions of
section 51 of the IT Act and decision of the Hon'ble
Supreme Court in the case of Travancore Rubber and Tea
Company Ltd., issued directions that forfeited earnest money
is not liable to tax and the same is to be considered as charge
against the property and value of the property is to be
suitably adjusted for the purpose of computation of capital
gain, as and when the property is sold.
6.1 We find ourselves in agreement with the Ld.
Commissioner of Income Tax (Appeals) that the Assessing
Officer had to abide by the directions of the Addl.
Commissioner of Income Tax, which he has not done in this
case. Further, Ld. Commissioner of Income Tax (Appeals)
has given a finding that there was survey u/s 133A at the
premises of the assessee and no incriminating material which
has any adverse implication in relation to the genuineness of
the transaction was found. Thus, it is clear that the addition
was made on the basis of presumption. The earnest money
was received through banking channels and genuineness of
the receipt is not in dispute. We find ourselves in agreement
with the Ld. Commissioner of Income Tax (Appeals) that no
addition can be done on the basis of surmises and
conjectures. Hence, we do not find any infirmity in the Ld.
Commissioner of Income Tax (Appeals)'s direction that "as
directed by the Addl. Commissioner of Income Tax, earned
money so received and forfeited is to be adjusted against the
cost of property and capital gain is to be worked out on the
basis of the resultant cost as and when the property is sold.
Accordingly, we uphold the order of the Ld. Commissioner
ITA 1263/2011 Page 5 of 6
of Income Tax (Appeals) and decide the issue in favour of
the assessee."
9. Before us, the learned counsel for the appellant/ revenue sought to
invoke the provisions of section 56(2)(vi) of the said Act. However, we
find that this plea had not been raised before the Tribunal. Consequently,
we are not inclined to entertain this plea of the learned counsel for the
appellant. Even otherwise, before a plea based on section 56(2)(vi) of the
said Act can be taken, a foundation has to be laid that the transaction was
without any consideration. No such foundational plea had been taken
before the Tribunal. Apart from this, we find that the Tribunal has rightly
noted that the provisions of section 51 of the said Act would come into
play as it specifically covers this type of a transaction. Once the
transaction has been held to be genuine, there is no question of the
transaction being without any consideration. Consequently, we find no
merit in the revenue's appeal, much less any substantial question of law
for our consideration. The appeal is dismissed.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
JANUARY 17, 2013/hs
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