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January, 29th 2013
%                                        Judgment delivered on : 17.01.2013
+       ITA 1263/2011

        CIT                                               ..... Appellant


        MEERA GOYAL                                       ..... Respondent

Advocates who appeared in this case:
For the Appellant    : Mr Karan Khanna, Sr. Standing Counsel with Ms
                       Asmita Kumar, Advocate.
For the Respondent  : Mr Simran Mehta with Ms Inklee Roy and Ms
                      Yogita Sunaria, Advocates.




1.      This appeal by the revenue is directed against the order dated

05.04.2011 passed by the Income Tax Appellate Tribunal, New Delhi in

ITA No.604/Del/2011 in respect of the assessment year 2007-08.

2.      The respondent/ assessee has house property at 37, Friends Colony,

New Delhi. On 28.01.2007 the respondent entered into an agreement to

sell the said property to Shinestar Buildcon (P) Ltd.                   The sale

consideration of the property was agreed upon at `150 crores. Earnest

ITA 1263/2011                                                           Page 1 of 6
money under the agreement was determined to be `36 crores. In respect

of the said earnest money of `36 crores the respondent/ assessee received

six cheques as under: -

            Date      Cheque No.          Bank           Amount
      28.01.2007     022114          UTI Bank Ltd.      9,00,00,000/-
      28.01.2007     022115                -do-         9,00,00,000/-
      28.01.2007     022119                -do-         5,00,00,000/-
      28.01.2007     022120                -do-         5,00,00,000/-
      28.01.2007     022121                -do-         5,00,00,000/-
      28.01.2007     022122                -do-         3,00,00,000/-

3.      The balance amount was payable by 30.03.2007 and time was the

essence of the contract. Clause 3 of the said agreement provided that if

the purchaser failed to pay the balance consideration by that date, the

seller (respondent/ assessee) had the right to forfeit the earnest money and

the purchaser Shinestar Buildcon (P) Ltd. would have no claim on the

property whatsoever and the agreement to sell would stand terminated.

4.      Shinestar Buildcon (P) Ltd. failed to pay the balance consideration

by 30.03.2007 and the respondent/ assessee sent a notice of forfeiture

dated 31.03.2007 and forfeited `18 crores out of the earnest money of

ITA 1263/2011                                                    Page 2 of 6
`36 crores.     The first two cheques mentioned in the table above

amounting to `18 crores were returned to Shinestar Buildcon (P) Ltd. as a

part of the settlement arrived at between the assessee and the said

Shinestar Buildcon (P) Ltd. However, the balance four cheques were

encashed and the sum of `18 crores was forfeited.

5.      The forfeited amount of `18 crores was shown as advance received

from the property in the balance sheet of the respondent/ assessee and the

said sum of `18 crores had not been offered for taxation in the relevant

assessment year. The assessing officer did not accept this treatment of

the said sum of `18 crores and held that the entire transaction was a sham

transaction in which Shinestar Buildcon (P) Ltd. attempted to book bogus

losses. As a result, the assessing officer made an addition of `18 crores.

6.      Being aggrieved, the respondent/ assessee preferred an appeal

before the Commissioner of Income Tax (Appeals) which was allowed.

At this juncture it would be relevant to note that prior to the assessment

being framed, directions under section 144A of the Income Tax Act, 1961

had been given by the Addl. Commissioner on a reference being made by

the assessee under that provision in relation to the proceedings for the

assessment year 2007-08. The directions given were, inter alia, as under:

ITA 1263/2011                                                    Page 3 of 6
        "In the light of above observation, forfeited amount is not
        liable to be taxed as income or chargeable gain under the
        provisions of the act till there is sale of property. The legal
        position to this effect is supported from provisions of sec. 51
        of the Income Tax Act, 1961 and various judgments referred
        to above.
        However, the Assessing Officer is required to ensure that as
        and when the property is sold, the forfeited amount is
        adjusted towards the cost of the property for the purpose of
        computation of capital gain. Moreover, if the AO chooses to
        treat the forfeited amount otherwise she may do so after
        recording proper reasons in the body of the assessment order
        and after meeting out the legal position on the issue."

7.      The Commissioner of Income Tax (Appeals) held in favour of the

respondent/ assessee in view of the fact that the assessing officer had not

complied with the directions given by the Addl. Commissioner of Income

Tax under section 144A of the said Act. He also held that the said

directions were binding on the assessing officer and the assessing officer

had no authority to disregard the said directions.

8.      Being aggrieved by the order of the CIT (Appeals) the revenue

preferred an appeal before the Income Tax Appellate Tribunal which has

also been dismissed. The Tribunal held as under: -

        "6. We have heard the rival contentions and perused the
        relevant records. We find that it is not disputed that there
        was an agreement to sell between the assessee and M/s
        Shinestar Buildcon P Ltd. and in terms of the agreement the

ITA 1263/2011                                                      Page 4 of 6
        assessee received `18 crores as earnest money.
        Subsequently, the said earnest money was forfeited by the
        assessee and the same was claimed as capital receipt.
        Assessing Officer was not satisfied, therefore, a reference
        was made to Addl. Commissioner of Income Tax, u/s 144 of
        the IT Act. The Ld. Commissioner of Income Tax (Appeals)
        has given a categorical finding that in respect of the issue of
        forfeiture of earnest money, the Addl. Commissioner of
        Income Tax, after taking into consideration the provisions of
        section 51 of the IT Act and decision of the Hon'ble
        Supreme Court in the case of Travancore Rubber and Tea
        Company Ltd., issued directions that forfeited earnest money
        is not liable to tax and the same is to be considered as charge
        against the property and value of the property is to be
        suitably adjusted for the purpose of computation of capital
        gain, as and when the property is sold.
        6.1 We find ourselves in agreement with the Ld.
        Commissioner of Income Tax (Appeals) that the Assessing
        Officer had to abide by the directions of the Addl.
        Commissioner of Income Tax, which he has not done in this
        case. Further, Ld. Commissioner of Income Tax (Appeals)
        has given a finding that there was survey u/s 133A at the
        premises of the assessee and no incriminating material which
        has any adverse implication in relation to the genuineness of
        the transaction was found. Thus, it is clear that the addition
        was made on the basis of presumption. The earnest money
        was received through banking channels and genuineness of
        the receipt is not in dispute. We find ourselves in agreement
        with the Ld. Commissioner of Income Tax (Appeals) that no
        addition can be done on the basis of surmises and
        conjectures. Hence, we do not find any infirmity in the Ld.
        Commissioner of Income Tax (Appeals)'s direction that "as
        directed by the Addl. Commissioner of Income Tax, earned
        money so received and forfeited is to be adjusted against the
        cost of property and capital gain is to be worked out on the
        basis of the resultant cost as and when the property is sold.
        Accordingly, we uphold the order of the Ld. Commissioner

ITA 1263/2011                                                      Page 5 of 6
        of Income Tax (Appeals) and decide the issue in favour of
        the assessee."

9.      Before us, the learned counsel for the appellant/ revenue sought to

invoke the provisions of section 56(2)(vi) of the said Act. However, we

find that this plea had not been raised before the Tribunal. Consequently,

we are not inclined to entertain this plea of the learned counsel for the

appellant. Even otherwise, before a plea based on section 56(2)(vi) of the

said Act can be taken, a foundation has to be laid that the transaction was

without any consideration. No such foundational plea had been taken

before the Tribunal. Apart from this, we find that the Tribunal has rightly

noted that the provisions of section 51 of the said Act would come into

play as it specifically covers this type of a transaction.       Once the

transaction has been held to be genuine, there is no question of the

transaction being without any consideration. Consequently, we find no

merit in the revenue's appeal, much less any substantial question of law

for our consideration. The appeal is dismissed.

                                          BADAR DURREZ AHMED, J

                                                        R.V.EASWAR, J
JANUARY 17, 2013/hs

ITA 1263/2011                                                    Page 6 of 6
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