PCIT Vs J D Exim Pvt Ltd (Delhi High Court)
Even Suspected Colourable Device Cannot Justify Section 68 Addition in Wrong Year: Delhi High Court Deletes ₹10-Crore Addition
The assessee had received an advance of ₹10 crore in FY 2006-07 towards the proposed sale of land. The sale deed was subsequently executed by its power-of-attorney holder in FY 2013-14, allegedly without informing the assessee. On becoming aware of the transaction in FY 2015-16, the assessee disclosed the capital gain in AY 2016-17 and set it off against a capital loss of approximately ₹16 crore.
The AO suspected that the assessee had deliberately postponed disclosure of the capital gain to secure the set-off and treated the ₹10-crore advance as an unexplained cash credit under Section 68 in AY 2016-17.
The Delhi High Court held that even if the transaction appeared to be a device for obtaining a capital-loss set-off, Section 68 could not be invoked to tax in AY 2016-17 an amount admittedly received in FY 2006-07. Any suspected tax avoidance had to be addressed through other legally permissible measures relating to the correct assessment year.
The Court observed that adding a receipt nearly ten years after the year of its actual receipt was contrary to the statutory framework. It therefore upheld the orders of the CIT(A) and ITAT deleting the ₹10-crore addition and dismissed the Revenue’s appeal.
List of Cases Discussed / Relied Upon
- PCIT Vs J D Exim Pvt Ltd — Delhi High Court — ITA 669/2026. Principal/current case; no self-link inserted.
- CIT Vs Vishal Export Overseas Ltd — Gujarat High Court — ITA No. 2471 of 2009. An exact dedicated destination was not independently verified; therefore, the case is retained unlinked.
- CIT Vs Kailash Jewellery House — Delhi High Court — ITA No. 613/2010. An exact dedicated
- DCIT Vs Kundan Jewellers Pvt Ltd — ITAT Mumbai — ITA No. 1035/Mum/2022 dated 29.05.2023. An exact dedicated
- ACIT Vs Hirapanna Jewellers — ITAT Visakhapatnam — 128 taxmann.com 291. An exact dedicated therefore, the case is retained unlinked.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
CM APPL. 54952/2026 (delay of 454 days in re-filing)
1. The present application has been filed by the appellant seeking condonation of 454 days delay in re-filing the appeal.
2. For the reasons stated in the application, the same is allowed and the delay of 454 days in re-filing the appeal stands condoned.
3. The application stands disposed of, accordingly.
CM APPL. 54953/2026 (Exemption)
4. Allowed, subject to just exceptions.
5. Application stands disposed of.
CM APPL. 54951/2026 (delay of 21 days in filing)
6. The present application has been filed by the appellant seeking condonation of 21 days delay in filing the appeal.
7. For the reasons stated in the application, the same is allowed and the delay of 21 days in filing the appeal stands condoned.
8. The application stands disposed of, accordingly.
ITA 669/2026.
9. By way of the present appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as ‘the Act of 1961’), the appellant has challenged the order dated 28.11.2024 passed by the Income Tax Appellate Tribunal (hereinafter referred to as ‘ITAT’) in Appeal No. 8765/DEL/2019 for Assessment Year (AY) 2016-17, whereby the appeal filed by the Revenue against the order dated 26.08.2019 passed by the Commissioner of Income Tax (Appeals)-5, New Delhi [hereinafter referred to as ‘CIT(A)’], allowing the assessee’s appeal was rejected.
10. The facts, shorn of unnecessary details are that the Assessing Officer (AO)while framing the assessment for AY 2016-17, made an addition of Rs. 10 crores under Section 68 of the Act of 1961, considering the amount of advance received by the assessee to be a colourable device.
11. The backdrop facts were, that in the year 2006-07 the assessee had shown a sum of Rs. 10 crores to have been received as an advance as consideration for sale of his land, claiming that the transaction had not culminated.
12. As the facts have come on record, a sale deed was executed by his power of attorney holder in Financial Year (FY) 2013-14, which according to 2016-17) because his power of attorney holder did not inform the assessee about the factum of execution of the sale deed. The assessee, therefore, reflected the transaction of his return of income and showed capital gain, but since there was a capital loss, the long term capital gain arising on the land was set off.
13. During the course of assessment proceedings, when the AO questioned the purchaser about the factum of the sale deed and the transaction, then he learnt that the sale deed had been executed in FY 2013-14 and that the purchaser had booked the transaction in his books of accounts in FY 2013-14.The AO therefore took a view that the assessee had adopted a device to show the aforesaid gain in the AY 2016-17, being the year in which he had suffered a capital loss of Rs. 16 crores so as to get a set-off of this capital gain, which had accrued on account of sale of the land and the transaction qua which he had entered into an agreement to sell in the FY 2006-07.
14. In the backdrop of this factual scenario, the AO was of the view that the advance of Rs. 10 crores which the assessee had taken was unexplained advance and thus he added such amount in the year under consideration (2016-17) under Section 68 of the Act of 1961. The said addition was disallowed by the Appellate Authority and said view has been affirmed by the Tribunal by holding that the AO was not justified in making addition of the amount of Rs. 10 crores in the year under consideration, as said amount was received by the assessee in the FY 2006-07.
15. Mr. Shlok Chandra, learned Senior Standing Counsel for the Department vehemently argued that the assessee had adopted a device or a ploy to structure his transaction in a way to get set-off of the capital gain intentionally did not disclose the transaction of sale of the land for two years. And, therefore, the AO was justified in making addition of Rs. 10 crores under Section 68 of the Act of 1961.
16. Having heard learned counsel for the appellant and upon perusal of the record, we are of the view that maybe the assessee had adopted a device to avoid or to circuitously availing set-off of capital loss against the capital gain, which he had earned two years earlier. But for dealing with such situation or case, there were other and better modes or measures available with the AO. For the purported avoidance or colourable device, taking recourse to Section 68 of the Act of 1961, within the statutory framework was not permissible, more particularly, when the assessee had admittedly received the amount of Rs. 10 crores way back in the FY 2006-07.
17. Admittedly, the amount of Rs. 10 crores was received by the respondent/assessee in the FY 2006-07 and, therefore, adding that amount in the year under consideration (2016-17) is against anybody’s comprehension. Such addition cannot be sustained.
18. We do not find any error or infirmity in the order(s) passed by both the Appellate Authorities. The present appeal is, therefore, rejected.
