2022 (8) TMI 433 - AT - Income Tax

Addition u/s 56/68 - Unexplained credit in capital account - advances received by assessee for sale of the property - HELD THAT - As it can be noticed that the assessee has explained the transactions entered with M/s Samarth Enterprises explaining the details of receipt of advance from it. The above said intended purchaser of the land has also confirmed the transaction to the AO in an independent enquiry made by him. The receipt of money was through banking channels only. The AO has not expressed any doubt on the identity of M/s Samarth Enterprises or its credit worthiness. The assessee has also given copies of notices sent to M/s Samarth Enterprises asking them to complete the transaction. The said party has also confirmed the transaction in an independent enquiry. Hence we find no reason to doubt the genuineness of the transaction entered by the assessee with M/s Samarth Enterprises. The question as to whether the assessee should wait for completion of the sale transaction or should forfeit the advance money as per the clause stated in MOU is the matter to be decided by the assessee and, in our view, the tax authorities cannot enter into the shoes of the assessee in this matter. The important point is that there was sufficient reason for the assessee in not completing the sale transaction. Further, the Act contains specific provision with regard to the manner of treatment to be given for advances forfeited in respect of a sale transaction. Hence, in the facts and circumstances of the case, the question of applying the provisions of sec. 56(2) do not arise. Tax authorities have given undue importance to the clauses of MOU and expressed the view as to how the assessee should have dealt with these transactions. Under the provisions of sec. 68, the initial onus placed upon the assessee is to prove three main ingredients, viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transactions. We notice that the AO has not expressed the view that the assessee has not discharged the initial onus placed upon it. The independent enquiry has been made by AO and the intended buyer has also confirmed the transaction and MOU. Hence, the registration or otherwise of MOU may not be relevant here, when the parties to the MOU have confirmed the execution of said agreement. Accordingly, we are of the view that the AO has not made out a case for assessing the amount u/s 68 of the Act, i.e., we are of the view that the assessee has discharged the onus placed upon him in respect of cash credit and the assessing officer could not disprove them. Under these set of facts, we are of the view that the addition made u/s 68 cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Validity and genuineness of the Memorandum of Understanding (MOU).
3. Applicability of Section 56(2) of the Income Tax Act.
4. Onus of proof under Section 68.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
The primary issue revolves around the addition of Rs. 2,11,99,999/- to the assessee's income under Section 68 of the Income Tax Act as unexplained cash credit. The assessee had credited this amount to his capital account, which the Assessing Officer (AO) treated as unexplained since the assessee did not initially provide details of the source. The AO completed the assessment under Section 144 based on best judgment and added the said amount as unexplained cash credit.

2. Validity and Genuineness of the Memorandum of Understanding (MOU):
The assessee explained that the amount represented an advance received from M/s Samarth Enterprises as part of a proposed sale of property. The MOU dated 23-09-2009 detailed the sale of property for Rs. 2,75,00,000/-, out of which Rs. 2,11,99,999/- was received as advance. The AO doubted the genuineness of the MOU since it was not registered and the property was not transferred to M/s Samarth Enterprises. However, the assessee provided evidence of the transaction, including RTGS receipts and confirmation letters from M/s Samarth Enterprises.

3. Applicability of Section 56(2) of the Income Tax Act:
The AO also held that the amount received could be taxable as a gift under Section 56(2) of the Act, considering that the transaction was not completed and the advance was not forfeited as per the MOU's terms. The assessee argued that the transaction was genuine and the sale was not completed due to non-payment of the remaining balance by M/s Samarth Enterprises. The Tribunal noted that the specific provisions of the Act regarding the treatment of forfeited advances should be considered, and in this case, the provisions of Section 56(2) were not applicable.

4. Onus of Proof under Section 68:
Under Section 68, the initial onus is on the assessee to prove the identity of the creditor, the creditworthiness of the creditor, and the genuineness of the transaction. The Tribunal observed that the assessee had discharged this onus by providing sufficient evidence, including confirmation from M/s Samarth Enterprises and bank transaction details. The AO did not dispute the identity or creditworthiness of M/s Samarth Enterprises but focused on the non-registration of the MOU and the non-completion of the sale. The Tribunal concluded that the AO had not disproved the assessee's claims and that the addition under Section 68 was not justified.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs. 2,11,99,999/- made under Section 68. The appeal filed by the assessee was allowed, emphasizing that the assessee had adequately explained the transaction and provided necessary evidence to support the genuineness of the advance received. The Tribunal also noted that the tax authorities should not interfere with the assessee's decision regarding the completion of the sale transaction or forfeiture of the advance.

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