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TMI Blog2024 (11) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. There is no dispute as to the creditworthiness of Unitech and that it had paid the amount of Rs. 67.5 crores to the Assessee. There are no attendant circumstances, which would suggest that the Assessee had camouflaged its taxable income as an advance against the sale of property. It is material to note that Unitech has also not reflected the payment as an expense and has derived no tax advantage by making a payment of Rs. 67.5 crores to the Assessee. The transaction is, thus, tax neutral. Both the parties (Unitech as well as the Assessee) have claimed that the said amount was paid and received as an advance for purchase of the subject property. The AO has found fault with the documentation as the stamp paper had been issued prior to the date of the Agreement as typed on the non-judicial stamp paper. Whilst in some cases the finding to the said effect may be of significant relevance in determining the genuineness of the transaction, but may not be dispositive in other cases. Whether a flaw in documentation is indicative of a subterfuge must necessarily be determined bearing in mind other attendant facts of the case. In a case where the attendant facts and material indicates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 3. The Assessee had filed its return of income for AY 2010-11 declaring a total income of Rs. 11,145/-. The said return was initially processed under Section 143(1) of the Act. However, thereafter, the same was picked up for scrutiny and a notice under Section 143 (2) of the Act was issued on 25.08.2011. The balance sheet of the Assessee for the relevant previous year reflected M/s Unitech Ltd. (hereafter Unitech) as a creditor for an amount of Rs. 67.50 crores. In the aforesaid context, the AO issued a notice under Section 143 (2) of the Act calling upon the assessee to furnish details of the transactions with Unitech, which had resulted in an outstanding amount of Rs. 67.50 crores as reflected in its books of accounts. In response to the same, the Assessee furnished certain details including confirmation of balance by Unitech. The AO issued a notice dated 07.12.2012 under Section 133 (6) of the Act to Unitech. In response to the said notice, Unitech s Authorized Representative (AR) appeared before the AO and explained the nature of the transactions. 4. According to the Assessee, it had received a sum of Rs. 67.50 crores from Unitech as an advance against sale of certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether in the given facts, the sum of Rs. 67.50 crores reflected as outstanding in the final books of accounts of the Assessee is liable to be included in the total income of the Assessee chargeable to tax, as unexplained credit under Section 68 of the Act. FACTUAL CONTEXT 11. Before proceeding further, it would be necessary to briefly note the facts as obtaining in the present case. 12. As noted above, a sum of Rs. 67.50 crores was shown outstanding as on 31.03.2010 in the books of accounts of the Assessee. The Assessee had explained that the said amount was received from Unitech as a part consideration for the sale of certain lands in the State of Maharashtra. The transactions had not been consummated as Unitech had not paid the balance amount. 13. The AO issued a notice dated 07.12.2012 under Section 133 (6) of the Act to Unitech. Pursuant to the said notice, Unitech s Authorised Representative (AR) appeared before the AO and furnished the details explaining the nature of transaction as under: Nature of transaction of Rs. 67.50 crores:- 1. M/s Unitech ltd. has paid an advance of Rs.67.50 crores for purchase of lands situated at Village Savroli Dhamini, Taluka Khanpur, Dist. Raiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the said Agreement till 31st March aggregating to Rs.67.50 crores has been disclosed under the head Sundry Creditors copy of account duly confirmed by M/s Unitech Ltd. is being enclosed herewith. 15. The Assessee explained that it had received an amount of Rs. 67.50 crores through banking channels. It explained that the said sum was transferred online by Unitech through RTGS (Real Time Gross Settlement) in the following manner: Date Amount (in crore) 18.03.2010 17.00 19.03.2010 24.00 22.03.2010 16.50 22.03.2010 10.00 Total 67.50 16. The AO embarked upon an investigation as to the engrossing of the Agreement to Sell on the non-judicial stamp paper. The rear of the stamp paper reflected that it was sold to Unitech by one Mr. Sandeep Kumar, Stamp Vendor, License No. 584, Parliament Street, New Delhi. 17. The AO sought information from the Delhi Treasury, Tis Hazari Court, Delhi with regard to issuance of the stamp paper (Stamp Paper bearing No. S739345). The Delhi Treasury, Tis Hazari Court, Delhi informed the AO that the stamp paper in question (Stamp Paper bearing No. S739345) was issued to stamp vendor Mrs. Veena Malhotra, License No.374 on 22.03.2012 and her vending place is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement to Sell which was executed on a plain paper was also mentioned in the Agreement to Sell as transcribed on the judicial stamp paper. The Assessee explained that, in fact, the Agreement to Sell on the non-judicial stamp paper was executed in the year 2012 and the date as mentioned remained unnoticed. 23. It is apparent from the above, that there is no dispute as to the following facts: (a) That Unitech had paid an aggregate sum of Rs. 67.50 crores to the Assessee during the previous year relevant to the AY 2010-11. (b) The said sum of Rs. 67.50 crores was received by the Assessee in four tranches Rs. 17 crores on 18.03.2010; Rs. 24 crores on 19.03.2010; Rs. 16.50 crores on 22.03.2010; and, Rs. 10 crores on 22.03.2010 through banking channels. (c) That an Agreement to Sell was typed on a non-judicial stamp paper of Rs. 100/-, sometime after 22.03.2012. (d) The Agreement to Sell was signed by the AR of Unitech \ and the Assessee. (e) In terms of the said agreement, Unitech had agreed to purchase tracks of land in Taluka Khalapur, Distt. Raigad, Maharashtra for a total consideration of Rs. 135 crores. (f) The said agreement was also witnessed by one official of Unitech and one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate sum of Rs. 67.50 crores was remitted by Unitech through banking channels to the Assessee during the previous year relevant to the AY 2010-11. Concededly, there is no dispute that Unitech had the wherewithal, at the material time, to make the said payment. 29. In view of the above, the condition as mentioned in the first limb of Section 68 of the Act, which contemplates the situation where the assessee offers no explanation as to the nature and source of the amount found credited, is not satisfied. The Assessee has clearly explained the source of the fund and there is no dispute regarding the same. It had also explained the nature of the receipt as being an advance against the transaction for sale and purchase of the subject property. The only aspect to be examined is whether the Revenue s contention that the explanation provided by the Assessee was unsatisfactory, is sustainable. 30. In Commissioner of Income Tax v. P. Mohanakala (2007) 291 ITR 278 the Supreme Court had explained the scope of Section 68 of the Act in the following words: 16. The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from horse races as unexplained credit under Section 68 of the Act. In that case, the assessee claimed that she had won an amount of Rs. 3,11,831/- during the previous year 1970-71 relevant to assessment year 1971-72. The said winnings were aggregate of winnings on thirteen occasions, out of which ten were from jackpots and three were from treble events. Similarly, in the previous year 1971-72, the assessee had won races on two occasions from jackpot. Further, the assessee had never claimed any loss in races and had shown only winnings. The winnings from horse races were at the material time not within the net of tax. In the given facts, the two members of the Settlement Commission did not accept the assessee s explanation and came to the conclusion that what was apparent was not real and the assessee s claim was found to be contrived and not genuine for various reasons including that his knowledge of racing was meagre. The jackpot could be won on rare occasions, but in the present case, the assessee had won a number of jackpots in three out of four seasons and at different centres. The court found the same to be contrary to statistical theories and probability. Further, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of tickets or for losses. (v) In view of the exceptional luck claimed to have been enjoyed by the appellant, her loss of interest in races from 1972 assumes significance. Winnings in racing became liable to income tax from 1-4-1972 but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, if the claim of winnings in races was false and what were passed off as such winnings really represented the appellant's taxable income from some undisclosed sources. 10. The majority opinion concludes that it would not be unreasonable to infer that the appellant had not really participated in any of the races except to the extent of purchasing the winning tickets after the events presumably with unaccounted funds. 11. The Chairman of the Settlement Commission, in his dissenting opinion, has laid emphasis on the fact that the appellant had produced evidence in support of the credits in the form of certificates from the racing clubs giving particulars of the crossed cheques for payment of the amounts for winning of Jackpots etc. The Chairman has rejected the contention regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. 36. It is settled law that the credit in the books of accounts may be taxed under Section 68 of the Act if the AO on the basis of evidence and material on record can reasonably infer that the assessee s explanation regarding the transaction reflected as credit in his books, is a subterfuge and the transaction as disclosed, is not genuine. 37. Having stated the above, it is also necessary to observe that the AO is not required to examine the commercial expediency of the transaction and supplant its view in place of the transacting parties. The AO is required to give a wide latitude to the commercial discretion of the contracting parties to enter into a transaction. And, unless the AO finds, on the basis of cogent material, that the transaction is a subterfuge and is not genuine, the AO must accept the same. 38. In view of the present case, there is no dispute as to the creditworthiness of Unitech and that it had paid the amount of Rs. 67.5 crores to the Assessee. There are no attendant ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2 hectares situated at Taluka Khalapur, District Kaigad, State of Maharashtra. The land proposed to be sold is duly reflected in the balance sheet of the appellant company. The fact that land was purchased by the appellant company during the year ended 31.03.2004 was also confirmed by Addl. DIT (Inv.) who reported that the same was purchased in Aug, 2003 for a consideration of Rs. 48.44 lacs. Both the parties have confirmed that the Appellant Company agreed to sell and M/s Unitech Limited agreed to purchase the said land and all rights, interests and title therein, for a total consideration of Rs.135.00 crores, out of which one-half amounting to Rs.67.50 crores was agreed to be paid as an advance. It was confirmed by both the parties that the said understanding was reduced to writing in the form of an Agreement to Sell which was executed into between the Appellant Company and M/s Unitech Limited on 12.03.2010. Pursuant thereto; advance consideration of Rs.67.50 crores was received by the Appellant Company from M/s Unitech Limited and which was transferred online through RTGS. Appellant submitted that subsequently, in order to guard against any significant movement in the market ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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