PCIT Vs J.D. Exim Pvt. Ltd. (Delhi High Court)
Summary: The Delhi High Court considered whether an advance of ₹10 crore received by the assessee in FY 2006-07 could be treated as unexplained under Section 68 in AY 2016-17. The assessee had received the amount towards sale of land, while the sale deed was subsequently executed by his power of attorney holder in FY 2013-14. According to the assessee, he became aware of the execution only in FY 2015-16 and accordingly disclosed the transaction in AY 2016-17, offering the resulting capital gain and setting it off against available capital loss. The AO regarded the arrangement as a colourable device and made a ₹10 crore addition under Section 68. The CIT(A) deleted the addition, and the ITAT affirmed that decision because the amount had actually been received in FY 2006-07. The High Court upheld those concurrent findings and dismissed the Revenue’s appeal. The Court observed that even if the assessee had adopted a device to obtain a capital-loss set-off, Section 68 could not be invoked in AY 2016-17 for an amount admittedly received in FY 2006-07.
Core Issue / Main Ground: Whether an amount of ₹10 crore admittedly received by the assessee as advance in FY 2006-07 could validly be treated as an unexplained cash credit under section 68 in AY 2016-17, merely because the subsequent sale transaction was completed in a later year and the Assessing Officer alleged that the transaction was structured as a colourable device to obtain set-off of capital loss against capital gain.
Facts: The assessee had received ₹10 crore in FY 2006-07 as advance towards sale of land. The sale deed was subsequently executed by the assessee’s power of attorney holder in FY 2013-14. The assessee stated that it became aware of the execution only in FY 2015-16 and accordingly disclosed the transaction in AY 2016-17, offering the resultant capital gain. Since a capital loss was also available in that year, the capital gain was set off against such loss.
AO’s Finding: The AO considered the arrangement to be a colourable device adopted to bring the capital gain into AY 2016-17 and secure the benefit of set-off. He therefore treated the earlier advance of ₹10 crore as unexplained and made an addition under section 68 in AY 2016-17.
CIT(A) and ITAT Finding: The CIT(A) deleted the addition, holding that the ₹10 crore had admittedly been received in FY 2006-07 and could not be assessed under section 68 in AY 2016-17. The ITAT affirmed the deletion, holding that the AO could not make the addition in a year different from the year in which the amount was actually received.
High Court Finding and Observation: The Delhi High Court upheld the concurrent findings and dismissed the Revenue’s appeal. The Court observed that even assuming that the assessee had adopted a device to obtain set-off of capital loss against capital gain, recourse to section 68 was not permissible for that purpose. If the Department considered the transaction to be a colourable device, other appropriate statutory provisions were available to deal with it. The Court emphasised that the ₹10 crore had admittedly been received in FY 2006-07 and, therefore, its addition in AY 2016-17 was unsustainable.
Cases Relied Upon: The High Court affirmed the earlier decision of the ITAT Delhi in DCIT v. M/s J.D. Exim Pvt. Ltd., ITA No. 8765/DEL/2019, order dated 28.11.2024, which had deleted the section 68 addition. The extracted High Court judgment does not specifically rely upon any other precedent on the substantive section 68 issue.
Outcome: Revenue’s appeal dismissed. The ₹10 crore addition under section 68 was deleted, and the orders of the CIT(A) and ITAT were upheld.
Ratio / Main Proposition: Section 68 is year-specific. A credit admittedly arising in an earlier year cannot be brought to tax under section 68 in a subsequent year merely because a connected transaction is completed later or the Revenue alleges tax-motivated structuring. An allegation of colourable device cannot authorise the AO to shift the year of taxability or invoke section 68 contrary to its statutory framework.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
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 Tax Act, 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 the assessee, came to his knowledge in FY 2015-16 (i.e., Assessment Year 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 against a capital loss. He added that the assessee waited for two years and 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.
