Taxpayer Acted as Middleman and Not Beneficiary for Forfeited Advance of Property: ITAT Deletes Addition u/s 56(2)(ix) [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹75,00,000 made under Section 56(2)(ix) of the Income Tax Act, 1961, affirming that the assessee was acting as a mere facilitator or "middle man" and was not the beneficiary of the forfeited property advance.

Saroj Devi Haldiya (assessee) for whom the dispute revolved around a complex property transaction concerning a plot in Malviya Industrial area, Jaipur. The original allottee Medical Design India Pvt. Ltd., had its allotment cancelled, and an appeal was pending before RIICO.

Dr. Anil Tambi approached the assessee to negotiate the purchase of this disputed plot. The assessee paid ₹75,00,000 to Medical Design India Pvt. Ltd. on behalf of Dr. Anil Tambi to secure an agreement.

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The agreement had a three-month time limit for clearing the plot's hurdles, which was not met, leading to the forfeiture of the ₹75,00,000 advance by Medical Design India Pvt. Ltd. The assessee received ₹75,00,000 from Dr. Anil Tambi's company, Jagdish Health Care Pvt. Ltd., as reimbursement for the amount she had paid and subsequently lost to the original allottee.

The Assessing Officer (AO) had added the amount as income from other sources under Section 56(2)(ix), which applies to any forfeited sum of money received as an advance in negotiations for the transfer of a capital asset that does not result in a transfer.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) confirmed the addition made by the AO. Aggrieved by the CIT(A)’s order, the assessee preferred an appeal before the ITAT.

The two-member bench, comprising Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) observed that the assessee, at no point, was the owner of the plot and was merely acting on behalf of Dr. Anil Tambi Jagdish Health Care Pvt. Ltd.

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The tribunal observed that the assessee received ₹75,00,000 from Jagdish Health Care Pvt. Ltd. was a reimbursement for the amount she had already paid to and forfeited by Medical Design India Pvt. Ltd. The assessee observed that It was not an 'advance' for the transfer of a capital asset owned by the assessee.

The bench concluded that the first stipulation of Section 56(2)(ix) that a sum of money must be received as an advance in the course of negotiations for the transfer of a capital asset was not fulfilled.

The tribunal also observed that since the assessee was not the seller, and the amount received was a reimbursement, the provision was not applicable.

The tribunal held that if any action under Section 56(2)(ix) was warranted, it would be against Medical Design India Pvt. Ltd., the entity that had actually forfeited the advance. Therefore, the addition of ₹75,00,000 in the hands of the assessee was directed to be deleted. In the result, the appeal of the assessee was allowed.

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