Case Number: ITA 1198/DEL/2019
Appellant: ITO Ward-10(2), New Delhi
Respondent: Meera Goyal, New Delhi
Assessment Year: 2013-14
Case Filed on: 2019-02-14
Order Type: Final Tribunal Order
Date of Order: 2020-12-14
Pronounced on: 2020-12-14
Conclusion: The appeal of the revenue is dismissed and that of the assessee is dismissed as infructuous.
The case involves Meera Goyal, a resident of New Delhi, and the Income Tax Officer (ITO), Ward-10(2), New Delhi. The dispute revolves around the tax treatment of forfeited advance payments related to property transactions.
In the financial year 2013-14, Meera Goyal entered into an agreement to sell a property located at 37, Friends Colony, New Delhi, for Rs. 63.28 crores. The buyer, Ms. Priti Saraf, paid an advance of Rs. 12.50 crores. Due to the buyer’s failure to complete the remaining payments, the agreement was terminated, and the advance was forfeited by Meera Goyal.
The AO brought the forfeited amount of Rs. 12.50 crores to tax under the head ‘Income from Other Sources,’ arguing that the assessee did not pay tax on the forfeited amount. Additionally, the AO noted that the assessee had received Rs. 18 crores in the financial year 2006-07 for the same property without paying tax on the forfeiture.
The Commissioner of Income Tax (Appeals) [CIT(A)] initially deleted the addition, stating that there was no provision to tax the forfeited amount under the Income Tax Act. The CIT(A) referenced Sections 51 and 56(2)(ix) of the Act, noting their inapplicability for the current assessment year. The CIT(A) concluded that the receipt should be considered under Section 51, which deals with adjustments against the cost of the property for capital gains computation.
Later, the CIT(A) issued an order under Section 154, modifying the initial order. The rectification was based on the argument that the forfeiture of Rs. 18 crores in the assessment year 2007-08 exceeded the cost of acquisition, making the amount received in the current year without consideration. Consequently, the CIT(A) treated the entire receipt, minus the cost of acquisition, as taxable.
The Tribunal reviewed the arguments and relevant provisions of the Income Tax Act. It found that the provisions of Sections 51 and 56(2)(ix) inserted by the Finance Act 2014, effective from 01.04.2015, could not be applied retrospectively to the assessment year 2013-14. According to the pre-amended provisions, any advance received and retained should be deducted from the cost of acquisition when computing capital gains, but not taxed in the year of receipt.
The Tribunal held that the forfeited amount was not liable to tax in the assessment year 2013-14. It directed that the forfeited amount should reduce the cost of acquisition for future capital gains computation. The appeal by the revenue was dismissed, and the appeal by the assessee was deemed infructuous.
This case underscores the importance of adhering to the applicable provisions of the Income Tax Act when determining the tax treatment of forfeited advances. The Tribunal’s decision highlights that retrospective application of tax provisions is not permissible and that any advance received and retained should be adjusted against the cost of acquisition for capital gains purposes.
The case also illustrates the need for clear legal principles and consistent application of tax laws to avoid disputes and ensure fairness in tax administration.
Tax Dispute ITA 1198/DEL/2019: ITO Ward-10(2) vs. Meera Goyal
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