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.
