Farida Holdings Pvt. Ltd. Vs PCIT (ITAT, Chennai Bench)
Section 68 Has No Time Machine—Opening Lease Advances Of ₹7.65 Crore Cannot Be Taxed In A Later Year Through
Search assessment examines old lease advances
The assessee-company filed its return for AY 2019-20 declaring income of ₹21,23,700.
A search u/s 132 was conducted in the Farida Group on 23.08.2022. Consequent to the search & Explanation 2 to section 148, proceedings u/s 147 were initiated by issuing notice u/s 148 on 22.03.2023.
During the reassessment, the AO specifically called for details of lease advances received from the lessees. The assessee furnished its books, financial statements & lease agreements executed with:
- Farida Shoes Pvt. Ltd., from whom lease advance of ₹4.65 crore had been received; &
- India Shoes Export Pvt. Ltd., from whom lease advance of ₹3 crore had been received.
The aggregate lease advance was therefore ₹7.65 crore.
The documents showed that the advances had been received in earlier financial years & appeared during the relevant year merely as opening liabilities brought forward in the balance sheet.
AO taxes deemed rent—not the opening advances
After examining the documents, the AO did not doubt the existence of the lease arrangements or invoke section 68 against the lease advances.
