2021 (9) TMI 837 - AT - Income Tax

Capital gain - Dishonour of cheque for sale consideration - In the sale deed, there was condition that in case of dis- honoured of cheque, the sale deed shall become null and void automatically without any action and shall be deemed to be null and void - HELD THAT - Entire transaction has been recalled, the sale deed has been made null and void and the assessee has been also directed to refund the amount received from M/s Goel Flexible Packaging Pvt. Ltd. It is also the fact that the asset in sale is still in the possession of the assessee. On going through the entire factum of the issue, we hold that the decision of the revenue was based on the evidences before them and since the matter has been settled finally by the order of the Hon ble High Court, at this juncture, we have no hesitation to hold that no capital gains are taxable in the hands of the assessee as there was neither transfer of any capital asset nor absolute receipt of any amount. - Appeal allowed.

Issues Involved:
1. Confirmation of addition of ?12,99,95,547 as capital gain.
2. Validity of the sale transaction and its conditional nature.
3. Impact of cheque dishonor on the sale transaction.
4. Consideration of contemporary and conclusive evidence.
5. Adherence to principles of taxing real income.

Issue-wise Analysis:

1. Confirmation of Addition of ?12,99,95,547 as Capital Gain:
The assessee contested the confirmation of the addition of ?12,99,95,547 as capital gain by the Commissioner of Income-tax (Appeal). The assessee argued that the learned Commissioner erred in law and facts by confirming this addition without considering the conditional nature of the sale deed and the disputed matters associated with it.

2. Validity of the Sale Transaction and Its Conditional Nature:
The sale transaction involved the sale of land located at Khasra No. 962, Noor Nagar, Ghaziabad, UP. The sale deed was executed with M/s Goel Flexible Packaging Pvt. Ltd. for a consideration of ?13,15,00,000. However, the transaction was conditional upon the honor of post-dated cheques amounting to ?10 crore. Only one cheque of ?2 crore was honored, while the remaining cheques of ?8 crore were dishonored. The sale deed explicitly stated that in case of cheque dishonor, the sale deed would become null and void automatically.

3. Impact of Cheque Dishonor on the Sale Transaction:
The dishonor of cheques amounting to ?8 crore led to the sale deed becoming null and void as per its terms. The assessee retained possession of the land, and the matter was subject to court proceedings. The Assessing Officer, however, did not accept the assessee's contention and brought the amount as per the sale deed to capital gain tax, arguing that the receipt of money was immaterial once the sale deed was executed before the prescribed authorities.

4. Consideration of Contemporary and Conclusive Evidence:
The assessee argued that the Commissioner of Income-tax (Appeal) ignored contemporary and conclusive evidence filed before him and rejected them without proper reasoning. The assessee presented the order of the Hon’ble High Court in the case CS(OS) 229/2016 & IA No. 4931/2019, which clarified the conditional nature of the sale and the dishonor of cheques.

5. Adherence to Principles of Taxing Real Income:
The assessee contended that the Commissioner of Income-tax (Appeal) ignored the settled principles of taxing real income as laid down by the Hon’ble Supreme Court. The High Court's order indicated that the sale deed was null and void due to the dishonor of cheques, and the asset in question remained in the possession of the assessee. Thus, no capital gains were taxable as there was neither a transfer of any capital asset nor absolute receipt of any amount.

Conclusion:
The Tribunal concluded that the revenue's decision was based on the evidence available at the time. However, considering the High Court's order, which nullified the sale deed and mandated the refund of the amount received, it was held that no capital gains were taxable in the hands of the assessee. The appeal of the assessee was allowed, and the order was pronounced in the Open Court on 14/07/2021.

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