ITAT Deletes ₹1 Crore Addition, Rules Refunded Advances Can't Be Taxed as Income [Read Order]

The Income Tax Appellate Tribunal (ITAT) Kolkata Bench has ruled in favor of Lahoti India Ltd., deleting an addition of ₹1 crore made by tax authorities on advances received by the company. The tribunal held that since the money was refunded to the parties, it could not be treated as taxable income.

Lahoti India Ltd, appellant-assessee which had received cash advances totaling ₹1,00,02,000 (1 crore) from four companies for the sale of land. However, on the same day the money was received, an armed robbery took place at the company’s office, and the entire amount was stolen.

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The company filed a police complaint, and the cash was later recovered by authorities. Meanwhile, the land sale agreements were canceled, and assessee refunded the advances to the companies through account payee cheques.

During a tax survey, the company’s director had initially stated that the amount was part of the company’s income, leading officials to add ₹1 crore to its taxable income. However, the company later argued that this statement was made under pressure and that since the money was returned, it should not be taxed.

The ITAT bench, comprising Pradip Kumar Choubey (Judicial Member ) and Rajesh Kumar (Accountant Member), examined the facts and found that the money was indeed refunded to the original parties. The tribunal noted that income can only be taxed if it is retained by the assessee, not if it is returned.

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The tribunal rejected the tax department’s argument that the transaction was a sham, pointing out that the police investigation confirmed the robbery and the refunds were properly recorded. Since the money was not retained by Lahoti India, the ITAT ruled that it could not be treated as income.

In Conclusion, the appeal was allowed.

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