PCIT Vs J D Exim Pvt. Ltd. (Delhi High Court)
Summary: The Delhi High Court rejected the Revenue’s appeal under Section 260A of the Income-tax Act, 1961, challenging the ITAT order concerning Assessment Year 2016-17. The Assessing Officer had made an addition of Rs. 10 crores under Section 68, treating an advance received by the assessee as a colourable device.
The assessee had shown receipt of Rs. 10 crores in FY 2006-07 as advance consideration for sale of land, while stating that the transaction had not culminated at that stage. A sale deed was subsequently executed by the assessee’s power of attorney holder in FY 2013-14. According to the assessee, the execution came to its knowledge only in FY 2015-16 because the power of attorney holder had not informed it. The assessee thereafter reflected the transaction in its return, disclosed the capital gain and set it off against a capital loss.
During assessment proceedings, the Assessing Officer questioned the purchaser and learnt that the sale deed had been executed in FY 2013-14 and that the purchaser had recorded the transaction in its books in that financial year. The Assessing Officer concluded that the assessee had adopted a device to recognise the capital gain in AY 2016-17, when it had suffered a capital loss of Rs. 16 crores, enabling a set-off. He consequently treated the Rs. 10 crore advance as unexplained and added it under Section 68 in AY 2016-17.
The appellate authority deleted the addition, and the ITAT affirmed that view, holding that the Assessing Officer was not justified in making the addition in AY 2016-17 because the amount had actually been received by the assessee in FY 2006-07.
Before the High Court, the Revenue argued that the assessee had deliberately structured the transaction to obtain a set-off of capital gain against capital loss, and that the assessee had intentionally delayed disclosure of the land-sale transaction. On that basis, the Revenue sought to sustain the Section 68 addition.
The High Court accepted, for purposes of its reasoning, that the assessee may have adopted a device to avoid or circuitously obtain a set-off of capital loss against capital gain. However, the Court held that other and better modes or measures were available to the Assessing Officer for dealing with such alleged avoidance or colourable device. Recourse to Section 68 was not permissible in the circumstances, particularly because the assessee had admittedly received the Rs. 10 crore amount in FY 2006-07.
The Court emphasised that the Rs. 10 crores had admittedly been received in FY 2006-07 and that adding the amount in AY 2016-17 was unsustainable. It therefore found no error or infirmity in the orders of both appellate authorities and rejected the Revenue’s appeal.
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 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.
