Lalchand Narayan Bhakt Vs ITO (ITAT Pune)
No Forfeiture, No Tax: Advance Can’t Be Income u/s 56(2)(ix), Section 51 Steps In When 56(2)(ix) Fails: Pune ITAT Relief
The Pune ITAT allowed the Assessee’s appeal and deleted the addition of ₹25 lakh treated as forfeited advance and taxed as “Income from other sources”. The case arose from a survey u/s 133A in a third party’s premises, where Essar Pavti / Bharana Pavti documents indicated receipt of ₹2 crore as advance against a proposed land transaction. The AO invoked Section 2(47)(v) and made a protective addition of ₹1 crore as LTCG, alleging part-performance of transfer.
The CIT(A)/NFAC, while rejecting capital gains, sustained ₹25 lakh (50% share of ₹50 lakh received during the year) by treating it as forfeiture taxable u/s 56(2)(ix).
The Tribunal held that for taxation u/s 56(2)(ix), forfeiture is sine qua non, which was not established. There was no forfeiture clause in the agreement, the land continued in the assessee’s name, and civil/criminal litigation was still sub-judice. Relying on SC in Balbir Singh Maini and the statutory scheme, the Tribunal held that the amount received was only an advance, squarely governed by Section 51, to be adjusted against cost of acquisition when the property is ultimately sold, and cannot be taxed presently. Consequently, the entire addition was deleted.
FULL TEXT OF THE ORDER OF ITAT PUNE
