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2020 (12) TMI 602 - AT - Income TaxCharacterisation of receipt - Forfeiture of advance received during the assessment year - Addition on account of treatment of the earnest money forfeited in respect an agreement for sale of property as assessee’s income under the head “Income from Other Source” - CIT (A) initially deleted the addition on the grounds that there is no provision to tax the amount forfeited in the Income Tax Act and held that the provisions of Section 51 and the provisions of Section 56(2)(ix) are not applicable to the facts of the assessee in the current year - HELD THAT:- Both the provision to section 51 has been inserted by the Finance (No.2) Act 204 with effect from 1.4.2015 and so as the provisions of clause (ix) of sub-section (2) of section 56 - AO chose to apply the provisions inserted from 01.04.2015 to the assessment year 2013-14 which cannot be held to be legally valid. The pre-amended provisions applicable to the case of the assessee for the instant assessment year directs as to how the advance or other money received is to be treated. As per the provisions in existence, any money or other money received in connection with negotiations of any capital asset and retained by the assessed shall be deducted from the cost for which the asset was acquired in computing the cost of acquisitions while determining the capital gains. Going through the provisions of Sections amended and pre-amended, we find that till the assessment year 2015- 16, the amount of forfeiture is not liable to be taxed but will go only in reducing the value of the asset while computing the taxability of the assessee under the head “capital gains”. There is no taxability of the forfeited amount in the current year. The revenue may monitor or keep track of determination of capital gains as and when the asset is finally sold. Not to leave the issue raised by the revenue of receipt of advance money from M/s Shine Star Built Co. Pvt. Ltd. of ₹ 18 crores during the assessment year 2007-08, we find that the Hon’ble High Court [2013 (2) TMI 74 - DELHI HIGH COURT] deleted the addition made by the AO on similar grounds and held that the amount received should be treated in accordance with Section 51 of the Income Tax Act, thus, resting the arguments of the revenue.
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