Addition under Section 68 deleted as oral property deal between relatives proven genuine through TDS and bank records

ITAT Delhi (AT) dismissed the Revenue's appeal and upheld deletion of addition u/s 68. The Tribunal held that identity and creditworthiness of the prospective purchaser were not in dispute and genuineness was supported by deduction and deposit of TDS of Rs. 2,50,000 on Rs. 2.50 crores, Form 26QB, and bank statements showing receipt of Rs. 2,47,50,000. The transaction, though based on an oral agreement between related parties, was corroborated by documentary evidence. AO's doubts based on human probabilities and alleged money laundering were found unjustified.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an addition under section 68 of the Income-tax Act, 1961 was sustainable in respect of an advance of Rs. 2,50,00,000/- received against proposed sale of property, where identity and creditworthiness of the payer were accepted but genuineness of the transaction was doubted by the Assessing Officer.

1.2 Whether repayment of the advance in subsequent years, deduction and deposit of TDS by the payer, and banking trail were sufficient to establish genuineness of the advance against sale of property for purposes of section 68.

1.3 Whether the absence of a written agreement to sell, the oral nature of the arrangement between related parties, and the use of funds for purchase of shares on the same day could, by themselves, justify treating the advance as unexplained cash credit under section 68.

1.4 Whether the Assessing Officer was justified in invoking "human probabilities" and suspicion, without independent enquiry rebutting the assessee's version, to sustain an addition under section 68.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Addition under section 68 in respect of advance against sale of property - identity, creditworthiness, genuineness, repayment and TDS

Interpretation and reasoning

2.1 The Assessing Officer accepted that the payer's identity and creditworthiness were established but held that the assessee failed to prove genuineness of the transaction, primarily because (a) the sale of property had not materialised till date, and (b) the amount received was immediately transferred for purchase of shares, rendering the transaction "suspicious".

2.2 The First Appellate Authority accepted the assessee's explanation that the amount was an advance against sale of property which was subsequently returned when the transaction did not materialise, relying on documentary evidences of repayment in later years.

2.3 The Tribunal noted that the prospective purchaser had deducted TDS of Rs. 2,50,000/- being 1% of Rs. 2.50 crores and deposited it on 31.03.2016, and a copy of Form 26QB, along with the assessee's bank statement showing receipt of Rs. 2,47,50,000/-, had been filed before the Assessing Officer.

2.4 The Tribunal held that the TDS deduction and deposit, coupled with the banking trail, directly supported the assessee's claim that the amount was an advance against sale of property and "sufficiently repels" the contention that the explanation was an afterthought.

2.5 The Tribunal observed that, once identity and creditworthiness are not disputed, and the transaction is supported by documentary evidence including TDS compliance and bank statements, it is not justified to disbelieve the transaction merely on suspicion.

Conclusions

2.6 The advance of Rs. 2,50,00,000/- received against proposed sale of property, backed by TDS deduction/deposit and banking records, was held to be a genuine transaction for purposes of section 68.

2.7 The addition of Rs. 2,50,00,000/- as unexplained cash credit under section 68 was correctly deleted by the First Appellate Authority, and the Tribunal upheld such deletion.

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Issue 3: Effect of oral agreement, related-party nature of transaction, non-materialisation of sale, and utilisation of funds

Interpretation and reasoning

3.1 The Tribunal recorded that the proposed sale was between related parties/family holdings, and it was mutually agreed that a written agreement would be executed only after receipt of the complete transaction value, and that the agreement was oral in nature.

3.2 The Tribunal held that mere absence of a written agreement to sell, where the transaction is otherwise evidenced by TDS deduction and banking documents, cannot by itself be a basis to doubt genuineness.

3.3 The assessee's explanation that it needed funds to meet liabilities and expenses, and therefore agreed to sell a portion of its land, was placed on record, along with the further explanation that the deal could not be materialised due to issues relating to approval from Greater Noida Authorities.

3.4 The Tribunal noted that this specific assertion was not rebutted by any independent enquiry by the Assessing Officer; there was no material brought on record to contradict the stated reason for non-materialisation of the sale.

3.5 The Tribunal also observed that the mere fact that the assessee transferred the funds the same day for purchase of shares could not, in the face of the documentary trail for the advance, conclusively establish that the transaction was not genuine.

3.6 The Tribunal stated that, when identity and creditworthiness are accepted, it is "not justified to doubt the transaction between the related parties within family holdings" solely on account of their relationship and utilisation of funds.

Conclusions

3.7 The oral nature of the agreement, the related-party/family-holding context, the non-materialisation of the sale, and the immediate utilisation of the funds for purchase of shares did not, in the circumstances, justify treating the advance as unexplained cash credit.

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Issue 4: Use of "human probabilities" and suspicion without independent enquiry to sustain section 68 addition

Interpretation and reasoning

4.1 The Tribunal observed that the Assessing Officer, "on the basis of human probabilities, doubted the transaction" and characterised it as suspicious and possibly involving "wrong tipping of funds and money laundering", but did not conduct any independent enquiry to substantiate these doubts.

4.2 The Tribunal emphasised that such suspicion and reliance on human probabilities cannot override specific documentary evidence such as TDS deduction and deposit, Form 26QB, and bank statements evidencing receipt of the net advance amount.

4.3 The Tribunal found that the Assessing Officer had not brought any contrary material on record to rebut the assessee's explanation regarding purpose of the advance and reasons for failure of the deal.

Conclusions

4.4 Reliance solely on human probabilities and suspicion, in the absence of independent enquiry or contrary evidence, was held insufficient to sustain an addition under section 68.

4.5 The Tribunal concluded that the grounds raised by the Revenue lacked substance and dismissed the appeal, thereby affirming deletion of the section 68 addition.

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