No Addition since Assessee Refunded the Advances received from Property Buyers for Breach of Contract: ITAT [Read Order]

The Income Tax Appellate Tribunal bench comprising V. Durga Rao (judicial member) & D.S. Sunder Singh (accountant member) has held that no addition can be made under the Income Tax Act when the assessee refunded the advances received from property buyers for breach of contract.

Assessee is a civil contractor filed its return of income. On scrutiny, the A.O. found that the assessee company has refunded Rs. 184.08 crores to the customers who have opted out or due to breach of contract from ventures and AO treated the same as deemed sales and estimated the income @ 8% on 184.08 crores and computed the total income at 40,35,89,103/-.

Aggrieved assessee went on appeal before the CIT (A) wherein the authority held that there was no element of sales involved in refund of advances. He accordingly, deleted the addition made by the A.O. with regard to the estimated income on deemed sales of refunds.

Aggrieved by the order of the CIT (A), the revenue approached the tribunal and the bench opinioned that according to the terms and conditions, the amounts received were refunded to the customers along with some suitable compensation, there is no case for any profit element and the same cannot be treated as deemed sales.

The ITAT pronounced that CIT (A) has rightly deleted the addition relating to deemed sales and the observation of CIT (A) was right that on verification of the balance sheet, the CIT(A) observed the decrease in liabilities as well as corresponding assets.