ITAT Quashes PCIT’s Revision; Cancellation of Land Deal Meant No Taxable Cash Income [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal has set aside the revision order passed by the Principal Commissioner of Income Tax (Central), Ahmedabad under Section 263 of the Income Tax Act, 1961, holding that the cancellation of a land deal meant there was no taxable cash income in the hands of the assessee. Naman Vidyapati Patel, an individual taxpayer. His return for the Assessment Year 2021-22 was selected for scrutiny after a search action was conducted on the Nila Sambhav Group, a real estate developer. During the search, a Memorandum of Understanding dated April 2, 2019, was found, indicating that Patel had agreed to sell a plot of land in Vasna, Ahmedabad, for a total consideration of Rs. 3.21 crore. Seized handwritten notes suggested that out of this amount, Rs. 1.29 crore was paid via cheque and the balance of Rs. 1.92 crore was to be paid in cash. The Assessing Officer, after examining the case, accepted Patel’s explanation. The taxpayer admitted to the MOU but contended that only Rs. 1.56 crore was received via cheque, and no cash was ever received. He further stated that due to delays in obtaining necessary permissions, the deal was mutually cancelled in January 2022, and the entire cheque amount was refunded to the buyer. The AO found this explanation acceptable and did not make any addition to Patel’s income.

However, the Principal CIT stepped in, using his revisionary powers under Section 263 of the Income Tax Act. The PCIT deemed the original assessment order as erroneous and prejudicial to the revenue's interests. He argued that the evidence seized during the search strongly indicated the receipt of cash, and the subsequent cancellation of the deal appeared to be an afterthought to avoid taxes after the search had taken place. He, therefore, set aside the AO’s order and directed a fresh examination.

Patel then appealed to the ITAT. The tribunal carefully considered the facts. It acknowledged the PCIT’s suspicion that the cancellation might have been a tactical move post-search to evade tax on the alleged cash component. However, the ITAT emphasized that the factual reality was that the deal was indeed cancelled, and the money received by cheque was refunded. The tribunal reasoned that if any cash had actually changed hands, it would logically have been returned as well upon cancellation. Consequently, it concluded that no unaccounted income had materialized for taxation at this stage. The ITAT stated that while the assessee may have been "clever" in his timing, the Assessing Officer’s decision to not make an addition was a "plausible view" and could not be branded as erroneous.

The bench, comprising Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member), allowed the assessee’s appeal and quashed the revision order passed by the PCIT.

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