By TIOL News Service

MUMBAI, APRIL 18, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether innocent ignorance of taxpayer in offering his liabilities as his income for taxation, should not be taken advantage of by the Department, where such action was rebutted during assessment. YES IS THE VERDICT.

Facts of the case

Pursuant to filing of assessee's return for the relevant A.Y, the assessment proceedings were carried out, wherein the AO noted that the assessee firm had shown other income of Rs 19,87,500/-. In relation to the same, the assessee explained that one Mrs Becharlal Patel had booked a flat in its building but failed to make the payments regularly as and when called for. So the assessee had to cancel her booking of flat, but she intended to take back her money and filed civil suit. Thus, the assessee claimed to have to repay such amount along with interest, and hence this income would not be liable for taxation. However, the AO did not accept the submissions on the ground that assessee firm had not filed any copies of litigation and the decision of Civil Court to substantiate its claim. When the matter went to the CIT(A), it was noted that the 'Other Income' credited to the P&L A/c consisted of an entry recorded by the assessee on account of forfeiture of earnest money. The CIT(A) called for remand report from the AO, wherein the AO informed that Mrs Becharlal Patel had confirmed to the AO to have had made an advance of Rs 19,87,500/- to the assessee and that the assessee had not allotted any flat to her. She also denied having acquiesced in the forfeiture of the said amount. In view of these facts, the CIT(A) concluded that the assessee had not proved that the amount of Rs 19,87,500/- related to the forfeiture of deposit made for flat by Mrs Becharlal R Patel only.

On hearing the matter, the Tribunal held that,

++ the facts of the case indicate that assessee had claimed as other income, a sum of Rs.19,87,500/- received from a buyer who had booked the flat. Further, since there was irregular payment from the buyer, the assessee had forfeited the sum of Rs.19,87,500/- and offered the same as income. However, in the meanwhile, the said person had filed a suit. There is no doubt about the existence of the suit. In the remand report, the AO has also submitted that the said person has categorically claimed that he has not acquiesced in the forfeiture of the sums. In this background, there is no question of treatment of the said amount as assessee's income. This amount received against the booking of flat can be added in the hands of assessee only if there is a cessation of liability. On the facts and circumstances of the case, by no stretch of imagination, it can be said that there is a cessation of liability. The Revenue authorities cannot take refuge on the mistaken offering of income by the assessee which has been cogently rebutted during the course of assessment. Therefore, the said amount deserves to be excluded from the income.

(See 2018-TIOL-568-ITAT-MUM)