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Income Tax Appellate Tribunal, [ DELHI BENCH: ‘A’ NEW DELHI ]
Before: SHRI B.R.R. KUMAR & SHRI YOGESH KUMAR US
PER YOGESH KUMAR US, JM
This appeal is filed by the Revenue against the order dated 30.11.2017 of the ld. Commissioner of Income Tax (Appeals)-10 (hereinafter referred to CIT (Appeals) New Delhi, for assessment year 2014-15.
The Revenue has raised the following substantive grounds of appeal :- "1) On the facts and circumstances of the case, the Ld. CIT(A) ignored the fact that since the excess money of Rs.6 Crores could not be taxed under the head of Capital Gain as there was no transfer of any asset as contemplated u/s 2(47) of the Income Tax Act, 1961 and hence the same has to be taxed under the head of income 1fom other sources u/s 56(2(ix) r/w section 56(1) as the sale of the property could not materialize. 2) On the facts and circumstances of the case, the Ld. CIT(A) ignored the fact that since assessee had not substantiated the genuineness and creditworthiness of the Buyer i.e. V A Realcom which had credited an sum of Rs.6 Ahmad Ansari Imtiyaz, ND Crores in the account of the assessee, making the transaction a colorable device to evade taxes. 3) On the facts and circumstances of the case, the Ld. CIT(A) ignored the fact that book value of the asset in the books of accounts of the assessee was amounting to Rs.l,08,86,303/- and the assessee had forfeited an amount of Rs.6 Crores which is way more than the total book value of the asset under consideration and hence claiming depreciation on the asset is illogical."
Brief facts of the case are that, the assessee had entered into agreement to sale with VA Realcom Pvt. Ltd. (Buyer) for the Property No. D-22/5 Okhla Industrial Area-II on 07/12/2013. For total sale consideration of 25 crore wherein the assessee received advance sale consideration of Rs. 6 crore by way of bank demand draft. Since, the buyer failed to pay the balance sale consideration of Rs. 19 crore even after issuing legal notice, the advance money of 6 crore was forfeited by the assessee. The A.O. brought to assess the amount of Rs. 4,91,13,697/- (6,00,00,000/- (-) 1,08,86,303/-) as income from other sources invoking of Section 56 (2) (vii) of the Act. The A.O. was of the opinion that the excess receipt of Rs. 4,91,13,697/- over and above Rs. 1,08,86,303/- cannot be treated as capital receipt. He was of the opinion that Section 51 of the Income Tax Act provides for taxation of advance money forfeited to the extent of cost of acquisition/WDV of the property. The A.O. was of the opinion that the taxability of excess money received by the assessee over and above the cost of acquisition/WDV is neither covered u/s 51 of the Act, nor covered under the head “salary” or “Profit & Gains of Business/Profession” and It cannot even be taxed under the head income from other sources u/s 56(2)(vii) of the Act. Accordingly, the assessed a sum of Rs. 4,91,13,697/- under the head income from other sources and further disallowed depreciation of Rs. 3,60,903/- claimed by the assessee on building.
As against the assessment order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) relied on the Supreme Court Judgment in the Ahmad Ansari Imtiyaz, ND case of Travencore Rubber & Tea Company Ltd. Vs. CIT (2000) 243 ITR 158 (S.C) and deleted the addition made by the A.O. vide order impugned dated 30.11.2017.
As against the order of the Ld.CIT(A) the Revenue has preferred the appeal on the grounds mentioned above.
The Ld. DR relied on the order of the A.O. and submitted that the Ld. CIT(A) has committed an error in deleting the additions.
Per contra, the Ld. Counsel for the assessee submitted that it is well settled law that any amount received against the sale of „capital asset‟ is a „capital in nature‟ not a „revenue receipt‟, hence can be subjected to „capital gain‟ only and it cannot be taxed under the head “income from other sources”. Further submitted that, the „income from other sources‟ chargeable in Section 56 (2)(ix) of the Act does not provide taxation of forfeited capital receipt till Assessment Year 2014-15.
We have heard the parties perused the material available on record and gave our thoughtful consideration.
Ground No. 1 raised by the revenue is with regard to excess money of Rs. 6 crores could not be taxed under the head “Capital Gain” as there were no transfer of any asset as contemplated u/s 2(47) of the Act, therefore, the same has to be taxed under the head “income from other sources” u/s 56(2)(ix) read with section 56(1) of the Act.
It is not in dispute that assessee had entered into agreement to sell of the property as buyer VA Realcon Pvt. Ltd on 07.12.2013 for a total sell consideration of Rs. 25 crores and an amount of Rs. 6 crores was received as advance/ part payment by way of 4 demand drafts issued by IDBI Bank. Since, the buyer failed to pay the balance amount in complying with the conditions of the agreement, an amount of Rs. 6 crores paid as advance sale consideration was forfeited by the assessee. As per the Ahmad Ansari Imtiyaz, ND opinion of the AO section 51 applies only to the amount received by the assessee towards advance money/ part payment to the extent of cost of acquisition/ WDV of the asset and not the amount over and above thereof. Therefore, only the amount of Rs. 1,08,86,303/- out of amount of Rs. 6 crores was reduced it from cost of acquisition/ WDV of the asset and treated the balance amount as income from other sources u/s 56(2)(vii) of the Act. The ld CIT(A) while deleting the addition relied on the ratio laid down in the case of CIT Vs. Meera Goyal (2014) 360 ITR 346 (Del) thereby deleted the addition made by the AO.
In our opinion, amount of 6 crores received by the assessee will not fall within the ambit of section 56(2) of the Act which read as under:-
"56(2) in particular and without prejudice to the generality of the provisions of sub-section(1), the following income shall be chargeable to income tax under the head "income from other sources" namely - vii. Where an Individual or a Hindu Undivided Family receives in any previous year, from any person or persons on or after the first day of October 2009 (a) any sum of money without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum".
Admittedly money has been received in pursuance to the agreement to sell which could not be materialized due to non performance of contract by the buyer. Therefore, it cannot be said that the amount was received by the assessee without any consideration.
In CIT vs Kailas Rubber & Company Limited (1966) (60 ITR 435) (SC), Supreme Court have held that any amount received against Sale of Capital Asset is a Capital Receipt and not a Revenue Receipt, hence can be subjected to Capital Gain only, it cannot be taxed under the head "income from other sources". Income from other sources chargeable in section 56 of the Act does not provide taxation of forfeited capital receipt till AY 2014-15.
Ahmad Ansari Imtiyaz, ND 14. Supreme Court in Travencore Rubber & Tea Co. Ltd. vs CIT (2000) 243 ITR 158 (SC) have held that in the instant case there were negotiation for transfer of the rubber trees in question, which did not fructify in sale. The amount forfeited referred only to the capital asset of the assessee and were directly related to the sale of such capital asset. The Tribunal had correctly held that the advance money for sale of Tubber trees formed part of the capital asset of the assessee and that the sale, if materialized, would have resulted in a gain eligible to capital gain tax, provided there was a gain arising out of the same.
Delhi High Court in the case of CIT vs Meera Goyal (2014) 360 ITR 346 (Del) have observed that earnest money of 18 Cr forfeited by the assessee as provided in the agreement to sell dated 28.01.2007 received from the purchaser, Shinestar Buildcon Pvt. Ltd. who failed to pay the 'balance consideration by 30.03.2007, is a I capital receipt not liable to tax. Provisions of section 51 would come into play in these circumstances as it specifically covers this type of transaction, once the transaction had been held to be genuine, there is no question of the transaction being without any consideration so as to invoke provisions of section 56(2)(vi) of the Act. The judgement of the Jurisdictional High Court is squarely applicable to the present case.
Thus, we do not find any error/ infirmity in the approach of the ld CIT(A) in deleting the addition made by the A.O. and we find no merit in the Ground No.1 of the Revenue. Accordingly, ground No. 1 is dismissed.
The department in ground No. 2 claimed that the assessee has not proved the genuineness and creditworthiness of the buyer ie: VA Realcom. It is found from the assessment order that at no pint of time the AO had doubted the genuinity of the transaction and no deficiency had been pointed out in the agreement to sell. Admittedly the amount has been received by the assessee as sale consideration by way of demand draft issued by the bank. Even during the appellate proceedings the ld CIT(A)
Ahmad Ansari Imtiyaz, ND has specifically made observation regarding genuineness of the transaction which read as under:- it is observed from available records including the impugned order that the relevant Agreement to Sell and receipt of the advance of 6 Cr by the appellant during the relevant PY from the buyer of its property has not been in doubt. The advance has come through banking channels. Further in view of the buyer's failure to honour the Agreement to Sell, the advance of 6 Cr was forfeited by the appellant.
In the absence of any contrary evidence it cannot be said that the transaction i.e. agreement to sell entered into by the assessee and the buyer is not proved and the buyer is genuine. Therefore, in our opinion the order of the ld CIT(A) in deleing the said addition requires no interference. Accordingly the Ground No. 2 of the Revenue is dismissed.
Insofar as depreciation of Rs. 3,60,930/- is concerned, it is admitted fact that the assessee has claimed the property D-22/5, Okhla Industrial Area, Phase-II, New Delhi as fixed asset. The value of the property as on 01.04.2013 being opening balance, was bifurcated as under:- Factory Land Rs. 72,77,271/- Factory Building Rs. 36,09,032/- Assessee had claimed depreciation at 10% totaling to 3,60,903/- on the value of building and had not claimed depreciation on land. Factory building was a business asset which is being used by the assessee for carrying on business and therefore, depreciation is allowable.
Admittedly, the agreement to sell was entered by the assessee with the buyer and even the advance of Rs. 6 crores was received and forfeited, but ultimately the said amount of Rs. 6 crores has been forfeited due to failure on the part of the buyer. The premises was continued to be used by the assessee for its business purposes. Therefore, in our opinion the depreciation is allowable to the assessee, therefore, we find no error in Ahmad Ansari Imtiyaz, ND the order of the ld CIT(A) on the said issue. Accordingly we dismiss the Ground No.3.
In view of the above discussions we find no merit in the appeal of the revenue. Accordingly, appeal of the revenue is dismissed.
Order pronounced in the open court on :23/03/2023.