Forfeiture of Advance Money Due to Buyer’s Non-performance is a Non-taxable Capital Receipt u/s 51: ITAT

Case Details: ACIT v. Ahmad Ansari Imtiyaz - [2023] 152 taxmann.com 36 (Delhi-Trib.)

Judiciary and Counsel Details

• • B.R.R. Kumar, Accountant Member & Yogesh Kumar US, Judicial Member
  • Kanv Bali, Sr. Dr. for the Appellant.
  • Ms Prem Lata Bansal, Sr. Adv. for the Respondent.

Facts of the Case

Assessee, an individual, entered into an agreement to sell property comprised of a land and factory building with a company for a total sale consideration of Rs. 25 crores and received Rs. 6 crores as advance sale consideration by way of bank demand draft. However, the buyer failed to pay the balance sale consideration even after issuing a legal notice. The assessee forfeited the advance money received and claimed the same as capital receipt.

Assessing Officer (AO) opined that section 51 provides for the taxation of advance money forfeited to the extent of the property’s acquisition cost. Taxability of excess money received by the assessee over and above the cost of acquisition or Witten Down Value (WDV), as the case may be, was neither covered under section 51 nor covered under the head “salary” or “profit & gains of business or profession.” Accordingly, AO assessed such sum under the head income from other sources.

ITAT Held

The Tribunal held that the amount of Rs. 6 crores received by the assessee would not fall within the ambit of section 56(2). Money has been received in pursuance of the agreement to sell, which could not be materialized due to the non-performance of the contract by the buyer. Therefore, it cannot be said that the assessee received the amount without consideration.

Income from other sources chargeable in section 56 does not provide taxation of forfeited capital receipt till the assessment year 2014-15. 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 to invoke provisions of section 56(2)(vi).

AO never doubted the transaction’s genuineness, and no deficiencies were found in the agreement to sell. The assessee received the sale consideration via a demand draft from the bank. Without any contradictory evidence, it can be concluded that the transaction and the buyer’s authenticity have been proven.

Therefore, the said additions are required to be deleted.

List of Cases Reviewed

• • Commissioner of Agricultural Income-tax v. Kailas Rubber & Co. Ltd. [1966] 60 ITR 435 (SC) (para 13)
  • Travencore Rubber & Tea Co. Ltd. v. CIT [2000] 109 Taxman 250/243 ITR 158 (SC) (para 14)
  • CIT v. Meera Goyal [2013] 30 taxmann.com 128/214 Taxman 298/[2014] 360 ITR 346 (Delhi) (para 15) followed