2011 (3) TMI 1250 - AT - Income Tax

Unaccounted cash received on land transaction - Search and seizure - Held that - Even though the amount of Rs. 1.51 crores was received by the assessee in cash and the same was neither recorded in its books of account nor was there any evidence to show the refund thereof to the party except the self-serving statement made by the assessee and the said party, the fact which remains to be seen is that the said amount was received by the assessee against the transaction of land as per the memorandum of understanding found in the course of search. There was thus a conclusive evidence in the form of memorandum of understanding to show that the amount of Rs. 1.51 crore was received by the assessee in cash as earnest money o advance against the transaction of land - Decided in favor of the assessee

Summary

Issues Involved:

1. Addition of Rs. 1.51 crores as unaccounted cash.
2. Validity of treating the amount as income in the year of receipt.
3. Whether the amount was an advance or on-money.
4. Compliance with Section 69A of the Income-tax Act.
5. Evidence of refund of the amount.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1.51 crores as unaccounted cash:

The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) which deleted the addition of Rs. 1.51 crores made by the Assessing Officer. The addition was based on unaccounted cash received by the assessee in a land transaction. During a search and seizure action, a memorandum of understanding (MoU) dated November 27, 2003, was found, indicating the receipt of Rs. 1.51 crores in cash by the assessee. The Assessing Officer added this amount to the total income as it was not recorded in the books of account.

2. Validity of treating the amount as income in the year of receipt:

The Commissioner of Income-tax (Appeals) held that the amount received was earnest money or advance and could not be treated as income in the year under consideration since there was no transfer of land. The learned Departmental representative argued that the amount should be taxed in the year of receipt as it was on-money. However, the Tribunal upheld the Commissioner's view, citing the Bombay High Court decision in Hasmukhlal M. Parikh v. CIT and the Gujarat High Court decision in CIT v. Ashaland Corpn., which stated that profit accrues in the year of transfer, not receipt.

3. Whether the amount was an advance or on-money:

The assessee argued that the Rs. 1.51 crores was earnest money received as part of a proposed land sale, which was later refunded due to the cancellation of the transaction. The Commissioner of Income-tax (Appeals) agreed, noting that the amount was an advance and not income. The Tribunal supported this view, emphasizing that the transaction was not completed within the year under consideration, and thus the amount could not be treated as income.

4. Compliance with Section 69A of the Income-tax Act:

The Assessing Officer suggested that the addition was made under Section 69A, which deals with unexplained money. The assessee countered that the amount was an advance and not income. The Tribunal found that the conditions for invoking Section 69A were not met as the amount was received as earnest money and not retained by the assessee without explanation.

5. Evidence of refund of the amount:

The assessee claimed to have refunded the Rs. 1.51 crores, but lacked documentary evidence. Despite this, the Commissioner of Income-tax (Appeals) and the Tribunal concluded that the amount was an advance and not taxable in the year under consideration. The Tribunal noted that the MoU provided conclusive evidence of the nature of the transaction, supporting the assessee's claim.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the Commissioner of Income-tax (Appeals)'s decision to delete the addition of Rs. 1.51 crores. The amount was considered an advance against a land transaction and not taxable income in the year of receipt. The Tribunal relied on legal precedents to support its decision, emphasizing the importance of the year of transfer in determining taxable income.