Is Advance Amount forfeited for sale consideration taxable?

IN THE INCOME TAX APPELLATE TRIBUNAL
“A’’ BENCH: BANGALORE

BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND
SHRI B.R. BASKARAN, ACCOUNTANT MEMBER

 ITA No.408/Bang/2020
 Assessment Year : 2011-12

M/s. Archana Traders Pvt. Ltd.
Cottage No.4, Bangalore Palace
Vasanthnagar,
Bangalore 560 052
PAN NO : AACCA3590N
APPELLANT 

Vs. 

Income Tax Officer
Ward-1(1)(4)
Bangalore
RESPONDENT 

Appellant by : Shri Siddesh Gaddi, A.R.
Respondent by : Shri Vikas Suryavansh, D.R.

Date of Hearing : 22.04.2021
Date of Pronouncement : 30.06.2021

O R D E R

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

The assessee has filed this appeal challenging the order dated 4.2.2020 passed by Ld. CIT(A)-1 Bengaluru and it relates to the assessment year 2011-12. The assessee is aggrieved by the decision of Ld. CIT(A) in confirming the addition made by the A.O. u/s 28(iv) of the Act.

2. At the time of hearing, the assessee did not press the ground relating to validity of reopening of assessment u/s 148 of the Act. Accordingly, the said ground is dismissed as not pressed. 

3. The facts relating to the issue are stated in brief. The assessee is a Private Limited Company and is engaged in the business of trading in refined salt. The return filed by the assessee for the year under consideration was processed u/s 143(1) of the Act. Subsequently, the A.O. re-opened the assessment by issuing notice u/s 148 of the Act. The AO. had received information from Enforcement Directorate, New Delhi that one of the directors of the assessee company named Shri Naveen P. Patil had informed that a sum of Rs.3.00 crores given by him to the assessee company had been forfeited by the assessee company. Shri Naveen P. Patil had claimed set off of above said Rs.3.00 crores against his income declared under the head “Income from other sources”. Accordingly, the A.O. has taken the view that the amount of Rs.3 crores forfeited by the assessee represents income of the assessee and the same has not been declared in the return of income. Hence, the A.O. has reopened the assessment.

4. Before the AO, the assessee submitted that Mr. Naveen P. Patil is one of the shareholders and Directors of the assessee company who had initially advanced a loan of Rs.3.77 crores to it in the financial year 2006-07. Since the assessee company could not repay the above said loan, it was agreed that the assessee company would sell its property located at Narain Manzil, Barakhamba Road, New Delhi for a consideration of Rs.9 crores. In this regard, an agreement for sale was executed on 29.8.2008, as per which Shri Naveen P Patil shall pay the balance amount of sale consideration and complete the sale transaction by the end of December, 2008. However, Mr. Naveen P. Patil failed to pay balance sale consideration and hence the assessee has forfeited the advance amount of Rs.3 crores, as per the terms of Agreement for sale. The assessee submitted before A.O. that the amount of Rs.3 crores forfeited by it is a capital receipt in its hand  and the same is not taxable. The assessee also submitted that, as per provisions of section 51 of the Act, the amount of Rs.3 crores would go to reduce the cost of property. The assessee placed its reliance on the decision rendered by Hon’ble Supreme Court in the case of Travancore Rubber Ltd. 

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