ITAT Deletes Addition u/s 68, Rules Assessee Proved Source of Funds for Land Purchases in Earlier Years [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has deleted an addition of Rs. 3.12 crore made under Section 68 of the Income Tax Act, 1961, holding that Raksha Buildtech Private Limited had sufficiently demonstrated the source of funds for land purchases made in earlier years. The bench comprised Judicial Member Sudhir Kumar and Accountant Member S. Rifaur Rahman.

The case pertained to the assessment year 2017-18, where the Assessing Officer (AO) had questioned the legitimacy of Rs. 70.64 crore worth of inventories shown in Raksha Buildtech’s balance sheet.

The AO noted discrepancies in supporting documents for two land parcels in Karnataka, valued at Rs. 3.12 crore, and treated the amount as unexplained under Section 68. The assessee, a subsidiary of Emaar MGF Land Limited, argued that the funds were received as an interest-free advance from its holding company under a collaboration agreement dated 2007 and were utilized to acquire land in FY 2005-06 to 2007-08.

During proceedings, Raksha Buildtech submitted sale deeds and additional evidence before the Commissioner of Income Tax (Appeals) [CIT(A)], clarifying that Rs. 2.48 crore represented ancillary costs like stamp duty, brokerage, and legal fees, which were inadvertently listed separately instead of being apportioned. However, the CIT(A) upheld the AO’s addition, dismissing the assessee’s explanations.

The ITAT observed that the disputed transactions pertained to earlier years and could not be scrutinized under Section 68 for the current assessment year. It relied on the Delhi High Court’s ruling in CIT vs. Usha Stud Agricultural Farms Ltd. (2008), where additions under Section 68 were disallowed for credits carried forward from prior years. The tribunal also noted that Raksha Buildtech had provided documentary evidence, including collaboration agreements, confirmations, and ITR details of its holding company, to establish the genuineness of the transactions.

Regarding the unsubstantiated Rs. 63.46 lakh inventory item, the ITAT Bench comprised of Sudhir Kumar (Judicial Member) and S RifaUr Rahman (Accountant Member) accepted the assessee’s submission of a sale deed filed as additional evidence and directed the AO to verify the apportionment claim for the remaining Rs. 2.48 crore. The bench emphasized that the AO’s invocation of Section 68 was misplaced since the funds were invested in land purchases long before the assessment year in question.

In its ruling, the ITAT deleted the Rs. 3.12 crore addition, concluding that the assessee had discharged its burden of proving the identity, creditworthiness, and genuineness of the transactions.

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