Section 68 Applies Even to Customer Advances: Pune ITAT Remands Real Estate Developer’s ₹15.95 Crore Addition

Carcanet Infra Projects Private Limited Vs ITO (ITAT Pune)

Section 68 Applies Even to Customer Advances: Pune ITAT Remands Real Estate Developer’s ₹15.95 Crore Addition

The Pune ITAT held that customer advances received by a real estate developer are not automatically immune from scrutiny under Section 68 and that the assessee must establish the identity, genuineness and creditworthiness of the parties from whom such advances are received.

The assessee, engaged in construction and development of plots, had received fresh advances of ₹15.95 crore during AY 2018-19. The Assessing Officer treated the amount as unexplained cash credits under Section 68 because the assessee failed to furnish complete details and supporting documents to establish the creditworthiness of the customers. The CIT(A) upheld the addition, observing that Section 68 does not distinguish between personal loans, business advances or customer advances, and therefore the statutory burden remained on the assessee.

Before the Tribunal, the assessee argued that the amounts represented advances from customers for purchase of plots/flats and that payments were received through banking channels. It also filed voluminous additional evidence, including agreements with customers. The Tribunal agreed with the CIT(A) that Section 68 can apply even to customer advances shown as liabilities in the balance sheet, and that the assessee must prove the creditworthiness of the persons making such payments.

However, considering that substantial additional evidence had been produced and that the CIT(A) had not obtained a remand report on those documents, the ITAT granted the assessee another opportunity. The matter was restored to the CIT(A) for fresh adjudication after examining the agreements, customer details and other evidence and after obtaining a remand report from the Assessing Officer.

Accordingly, while affirming the principle that Section 68 can be invoked in respect of customer advances, the Tribunal set aside the appellate order and restored the matter for fresh examination. The appeal was therefore allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal at the instance of assessee pertaining to the Assessment Year 2018-19 is directed against the order dated 25.06.2025 of National Faceless Appeal Centre, Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of the Assessment Order dated 19.03.2021 passed u/s.143(3) r.w.s.143(3A) & 143(3B) of the Act.

2. Assessee has raised following grounds of appeal :

“1. On facts and circumstances prevailing in the case and as per provisions and schemes of the Act, it be held that the First Appellate Authority erred in upholding the addition made by the Learned Assessing Officer (“Ld.AO”) of Rs.15,95,75,897/- on account of advances received from customers during the year under consideration as unexplained credits under section 68 of the Act. The addition so made is not according to provisions of the Act. The addition made be deleted. The Appellant be granted just and proper relief in this respect.

2. The Appellant prays to be allowed to add, amend, modify, rectify, delete, and raise any grounds of appeal at the time of hearing.”

3. Facts in brief are that the assessee is a Private Limited company engaged in the business of Construction and Development of plots. Return of income for A.Y. 2018-19 e-filed on 30.03.2019 declaring income of Rs.9,44,850/-. Case selected for Scrutiny through CASS for the reason “Income from Real Estate Business”. After validly serving the statutory notices u/s.143(2) and 142(1) of the Act, ld. Assessing Officer during the course of assessment proceedings on observing that the assessee has shown advances in the balance sheet, details of the advances were called for. Ld. Assessing Officer observed that in the balance sheet advance of Rs.75,92,64,762/- is appearing. When details were called for about the Name and Address, PAN/Advance/Loan amount taken, Agreement Date, Copy of Agreement Date, Copy of Agreement Deed and balance amount to be received, assessee furnished the list of advances on 24.02.2021 based on which ld. Assessing Officer observed that the advances received during the year only amount to Rs.15,95,75,897/-. However, assessee failed to submit the details as asked in the questionnaire. Ld. Assessing Officer observed that the assessee failed to submit business activities/source of income along with documentary evidence, bank statement, Income Tax Return, balance sheet and also failed to prove the genuineness and creditworthiness of the parties. Ld. Assessing Officer thereafter invoked section 68 of the Act and made addition for unexplained cash credit at Rs.15,95,75,897/- and assessed the income at Rs.16,05,20,750/-.

4. Aggrieved assessee preferred appeal before ld.CIT(A) and filed written submissions, placed various judicial pronouncements and also submitted that section 68 of the Act is not applicable on the advances received from the customers for purchase of Flat/House from the assessee. However, ld.CIT(A) dismissed the assessee’s appeal observing as follows :

“6. The grounds of appeal, assessment order and the submission by the appellant has been considered. The only issue of contention is treatment by AO of the so claimed advances received of Rs.15,95,75,897 as unexplained credit. In other words it has to be seen whether the amount shown as advances received in the books of the appellant is hit by provision of section 68 or not. It is the trite law, also evidenced in the case laws cited by appellant that to discharge the burden of proving that cash credit are genuine, assesse has to establish the

1. Identity of the creditors

2. Capacity/credit worthiness of the creditor &

3. Genuineness of the transaction.

It is undisputed fact that appellant has received in his books during the year amount of Rs. 15,95,81,558/-. Now appellant has provided Name, PAN, Address and mode of transaction with respect of his customers (as per its claim) from whom alleged advances were received. On being asked by AO, the appellant had submitted copy of land purchase agreement entered by 121 customers out of total 139 customers. It has also submitted its Bank statement to show that all advances received from these customers are credited into its bank account. Finally, it is submission of the appellant that in all cases, it had established “identity” of customers; the “agreements” are establishing “genuineness” of the transactions. So far as creditworthiness of the creditors/customers are concerned, the appellant has implicitly conceded the same is lacking but it had been claimed by the appellant that it is duty of AO to issue summon/notices to these parties in order to verify the same. Alternatively, it had been argued that advances received against the plot is business transactions for the appellant and not “unsecured loan” and hence, it is not the obligation of the appellant to establish the creditworthiness of the customers.

7. It is apparent that there is not much dispute regarding facts of the case. It is also an admitted fact that appellant had not been able to establish the capacity/creditworthiness of the so called customers. As already stated it is a trite law that primary burden is on appellant to establish the capacity of the person which is being claimed as source of the (cash) credit appearing in the books of the appellant.

The case laws cited by appellant are also stating this proposition only. Appellant had to discharge this primary onus by submitting IT Returns/ Confirmations/ Asset liability statements/ Banks Statements etc. It is clear that appellant had failed to discharge this primary onus. There is no force in appellant’s claim that AO should summon/issue notices to these persons to verify their capacity; primary onus has to be discharged by the appellant by submitting its evidence in respect of its claim and this onus will shift on AO only when evidences filed by appellant look unsatisfactory to the AO. Here appellant has not crossed the primary barrier.

8. There is also not much force in alternate argument of the appellant that rigours of section 68 (of establishing identity, creditworthiness & genuineness) doesn’t apply in its case because the advances received by is are akin to business transaction. First of all the sum credited in appellant’s books are not revenue receipts, they are advances received. Secondly, Sec 68 doesn’t distinguish between personal advance/loan and business advance/ loan”. Rigours of section 68 will be always present in respect of such transaction.

It is apparent that appellant has not been able to discharge its onus of establishing capacity/creditworthiness of the parties from whom the advances have been claimed to be received. Considering the above, I don’t find any fault in AO’s action of treating amount of Rs. 15,95,75,897/- as unexplained credit u/s 68 of the Act.

The appeal is dismissed.”

5. Now the assessee is in appeal before this Tribunal.

6. Ld. Counsel for the assessee has filed two sets of paper book of which one contains 162 pages and another contains 1186 pages in which it is claimed that details of the advances received along with the copies of agreements have been furnished. Legal paper book has also been filed. Ld. Counsel for the assessee has contended that firstly section 68 of the Act cannot be invoked on the advances received from customers for purchase of Flat and secondly all the details have been furnished in which the payments have been received through banking channel and therefore the impugned addition deserves to be deleted.

7. On the other hand, ld. Departmental Representative supported the finding of ld.CIT(A).

8. We have heard the rival contentions and perused the record placed before us. The assessee is aggrieved with the finding of ld.CIT(A) confirming the addition made by the Assessing Officer u/s.68 of the Act for unexplained cash credit for the advances received during the year. We observe that the assessee is in the business of Real Estate and during the year Revenue recognised from sale of Flat is Nil and the assessee has only shown the other income from interest and discount received is being shown. Further, during the year assessee has made purchases of Rs.86,54,832/- and the construction and development expenses incurred are at Rs.3,88,77,300/-. During the course of assessment proceedings, ld. Assessing Officer while examining the audited balance sheet observed that the advances from customers as on 31.03.2018 is shown at Rs.75,92,64,762/-. Thereafter, on receiving the list of advances from the assessee it was finally figured out that during the year fresh advances are received at Rs.15,95,75,897/-. Before the Assessing Officer, assessee could only produce the list of such advances but all the other documents which are required to verify the Identity, Creditworthiness of the cash creditors and genuineness of the transactions could not be placed resulting into the impugned addition. Before ld.CIT(A) assessee has furnished few more details namely, Name, PAN, Address, Mode of Transaction but copies of land purchase Agreements could not be filed for all the customers. Ld.CIT(A) was not satisfied with the creditworthiness of the so-called customers since it is the primary onus on the assessee to discharge the burden as provided u/s.68 of the Act. We also observe that ld.CIT(A) held that rigours of section 68 of the Act establishing the Identity, Creditworthiness and Genuineness apply in the given case for the advances received by the assessee as they are akin to business transactions. Ld.CIT(A) also rightly held that alleged sum credited in the books of account are not Revenue Receipts and section 68 does not distinguish between personal advance/loan and business advance/loan. Therefore, we affirm the view of ld.CIT(A) that section 68 of the Act is applicable on the advances received from customers shown as liability in the Balance Sheet.

9. So far as merits of the case are concerned, we note that ld.CIT(A) is not satisfied with the creditworthiness of the customers who have given advances to the assessee. Before us, assessee has filed voluminous paper book running into 1186 pages with copies of agreements with various parties and he also stated that since the documents are too voluminous it is not practically possible to file all these details. We note that suspicion in the given case has arisen because there is no Revenue shown by the assessee during the year under appeal as well as in the preceding year. The construction and development expenses are claimed to be going on for past many years without booking any revenue as the project is undergoing. Ld. Counsel for the assessee submitted that the assessee was receiving such advances for past many years and still the project for which the advances have been received could not complete for a long time. It has also been claimed that in various cases advances have been repaid and the allotments have been given to other parties. Under these given facts and circumstances where huge amount of advance is given for past many years we find that the assessee could not demonstrate with evidence that the advance received during the year has culminated into sales in the subsequent period. However, partial details are available with the assessee in support of its grounds. Considering the factual matrix and the fresh details submitted by the assessee, we are of the considered view that assessee deserves one more opportunity to go before ld.CIT(A) so as to prove the creditworthiness of the customers from whom advances have been received during the year. Further, since many of the details were not filed before the ld. Assessing Officer as have been observed in the assessment order and it is also not evident that ld.CIT(A) has called for any Remand Report for the additional evidences filed by the assessee under Rule 46A of the Income Tax Rules, 1962, we deem it proper to restore the issues raised in the instant appeal to the file of ld.CIT(A) for afresh adjudication. Needless to mention that ld.CIT(A) in the set aside proceedings shall afford reasonable opportunity to the assessee and consider the documents/evidences to be filed by the assessee. Ld.CIT(A) shall call for a Remand Report from ld. Jurisdictional Assessing Officer and after considering the objections (if any) from the assessee, shall dispose off the appeal in accordance with law. Assessee is directed to provide updated email id and contact detail on the ITBA portal. Assessee is also directed to remain vigilant and not to take adjournment unless otherwise required for reasonable cause. Impugned order is set aside and the effective grounds raised by the assessee are allowed for statistical purposes.

10. In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced on this 01^st of June, 2026.