Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act challenging the order dated 23.03.2018 passed by the Income Tax Appellate Tribunal for Assessment Year 2010-11. The assessee, Nucleus Steel Pvt. Ltd., had filed its return declaring income of ₹11,145.

During scrutiny, the Assessing Officer noted that the assessee’s balance sheet reflected an outstanding liability of ₹67.50 crores payable to M/s Unitech Ltd. The assessee explained that the amount was received as an advance against sale of land situated in Taluka Khalapur, District Raigad, Maharashtra, pursuant to an Agreement to Sell for a total consideration of ₹135 crores.

The amount of ₹67.50 crores was received in four tranches through RTGS during March 2010. The Assessing Officer, however, doubted the genuineness of the transaction on the ground that the Agreement to Sell was typed on a non-judicial stamp paper issued in March 2012 while bearing the date 12.03.2010. Treating the agreement as suspicious, the Assessing Officer added the amount under Section 68 as unexplained cash credit and also made a disallowance under Section 14A.

The Commissioner of Income Tax (Appeals) deleted the addition under Section 68 and substantially reduced the Section 14A disallowance. The ITAT affirmed the CIT(A)’s order, leading to the present appeal by the Revenue.

Issues Involved

Whether the advance of ₹67.50 crores received from Unitech Ltd. could be treated as unexplained cash credit under Section 68 merely due to irregularities in documentation, despite the assessee having established the identity, creditworthiness of the payer and genuineness of the transaction.

Petitioner’s Arguments

The Revenue argued that the assessee failed to discharge its initial onus under Section 68 as the Agreement to Sell was allegedly fabricated on a bogus stamp paper. It was contended that mere furnishing of bank statements, PAN and confirmations was insufficient to establish genuineness when the foundational document itself was doubtful.

Respondent’s Arguments

The assessee contended that there was no dispute regarding receipt of funds through banking channels from Unitech Ltd., a listed and creditworthy company. It was argued that the advance was duly reflected in the books of both parties and that any defect in stamp paper documentation could not convert a genuine commercial transaction into unexplained income. The assessee further submitted that the onus under Section 68 stood fully discharged.

Court Order / Findings

The Delhi High Court examined the statutory scope of Section 68 and reiterated that an addition can be made only if the assessee fails to explain the nature and source of the credit or if such explanation is found unsatisfactory based on objective material.

The Court noted that there was no dispute regarding the source of funds, the identity and creditworthiness of Unitech Ltd., or the fact that the entire amount was received through RTGS. The Court held that once these foundational facts were established, the burden shifted to the Assessing Officer to demonstrate that the transaction was a sham or subterfuge.

The Court observed that while the discrepancy regarding the stamp paper date was an irregularity, it was not sufficient, in isolation, to hold that the transaction was non-genuine, particularly when there was no evidence of any tax-evasion motive or camouflage of undisclosed income. The transaction was found to be tax-neutral for both parties.

Relying on principles laid down in CIT v. P. Mohanakala, Sumati Dayal v. CIT, and NRA Iron & Steel, the Court held that human probability and surrounding circumstances must justify rejection of the assessee’s explanation, which was not the case here.

The Court upheld the concurrent findings of the CIT(A) and ITAT and found no perversity warranting interference.

Important Clarification

The High Court clarified that Section 68 cannot be invoked merely on suspicion arising from documentation defects. Where the assessee establishes identity, creditworthiness and genuineness through cogent evidence, irregularities in ancillary documentation do not, by themselves, justify treating the receipt as unexplained income.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court answered the questions of law in favour of the assessee and upheld deletion of the addition of ₹67.50 crores under Section 68, holding that the advance received from Unitech Ltd. was genuine and could not be treated as unexplained cash credit.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769857406_THEPROCOMMISSIONEROFINCOMETAX6VsNUCLEUSSTEELPVT.LTD..pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.