The Income Tax Appellate Tribunal, Delhi, has clarified that an addition under Section 68 of the Income Tax Act cannot be sustained merely on the ground of alleged unexplained cash credit when the underlying transaction is a genuine sale of immovable property. The Tribunal emphasized that if the assessee holds title to the property and the receipt is part of sale consideration, the correct tax head is capital gains - not unexplained income. The order restores the principle that procedural deficiencies in evidence do not preclude a later opportunity to substantiate creditworthiness.
Background & Facts
The Dispute
The appellant, M.S. Goel (HUF), was assessed for Assessment Year 2016-17 under Section 143(3) of the Income Tax Act, 1961. The Assessing Officer (AO) made an addition of Rs. 71,00,000 under Section 68, treating it as unexplained cash credit. The AO alleged that the amount, received via banking channel, was purportedly from M/s Rishyab Infratech Pvt. Ltd. as part payment for the sale of immovable property, but the creditworthiness of the purchaser and genuineness of the transaction were not established.
Key Facts
- The appellant entered into an agreement to sell immovable property in the year 2012 for a total consideration of Rs. 4 crores
- An advance of Rs. 5,00,000 was received at the time of execution of the agreement
- Rs. 71,00,000 was received during the financial year 2015-16 (AY 2016-17) through banking channels as part payment
- The purchaser company, M/s Rishyab Infratech Pvt. Ltd., had its name struck off by the Registrar of Companies prior to the assessment
- The appellant was unable to produce complete documentation to establish the creditworthiness of the purchaser at the time of assessment
- A copy of the order dated 22.03.2024, filed during appeal, shows that Company Appeal No. 41/ND/2023 resulted in restoration of the company’s name in the register of companies
- Post-assessment, the appellant has obtained evidence demonstrating that the company is now functional and the transaction is genuine
Procedural History
- 2012: Agreement to sell executed for Rs. 4 crores
- 2015-16 (AY 2016-17): Rs. 71,00,000 received via banking channel
- 30.12.2018: Assessment order passed under Section 143(3) by Ward 28(1), adding Rs. 71,00,000 under Section 68
- 27.11.2025: Order of the National Faceless Appeal Centre (NFAC) upholding the addition
- 24.06.2026: Hearing before ITAT Delhi
- 30.06.2026: Judgment pronounced
Relief Sought
The appellant sought deletion of the addition of Rs. 71,00,000 under Section 68, arguing that the amount was part of sale consideration for immovable property and that the creditworthiness of the purchaser could now be established with newly available evidence.
The Legal Issue
The central question was whether an addition under Section 68 of the Income Tax Act is sustainable when the receipt is part of sale consideration for immovable property, and the creditworthiness of the purchaser, though not established at the time of assessment, can be substantiated subsequently.
Arguments Presented
For the Appellant
The appellant’s counsel argued that the Rs. 71,00,000 was not unexplained income but part payment for a valid sale agreement executed in 2012. The fact that the purchaser’s name was struck off by the Registrar of Companies at the time of assessment was a procedural impediment, not evidence of fraud. The appellant had no control over the company’s corporate status and could not obtain documents earlier. The restoration of the company’s name on 22.03.2024, coupled with renewed functionality, now enables the appellant to discharge the burden under Section 68. The correct tax head, if any, is capital gains under Section 45 - not Section 68.
For the Respondent
The Department’s representative contended that the appellant failed to provide any evidence of the purchaser’s creditworthiness, source of funds, or identity at the time of assessment. The absence of bank statements, correspondence, or proof of ownership by the purchaser rendered the transaction doubtful. The burden under Section 68 is on the assessee to prove the nature and source of credit, and the subsequent restoration of the company’s name does not validate the transaction retrospectively.
The Court's Analysis
The Tribunal observed that the revenue does not dispute that the appellant held the property and that the receipt was in the nature of part sale consideration. The issue was confined to the creditworthiness of the purchaser, not the existence of the transaction. The Tribunal noted that if the property was sold, the income would be taxable as capital gains under Section 45, and Section 68 would be inapplicable as a matter of law.
"In any case if assessee has alienated the immovable property income will be taxable as capital gains and certainly provision of section 68 of the Act may not be applicable but provision to tax capital gain may apply."
The Tribunal held that the AO and the First Appellate Authority erred in treating the receipt as unexplained cash credit without considering the nature of the transaction. The fact that the purchaser’s corporate status was irregular at the time of assessment does not negate the possibility of proving genuineness later. The Tribunal emphasized that procedural lapses in evidence collection should not result in a denial of substantive justice.
The Tribunal further held that the appellant, having now obtained evidence of the company’s restoration and operational status, deserves a fair opportunity to substantiate the transaction. The burden under Section 68 is not an absolute bar but a procedural requirement that can be met with subsequent evidence if the underlying transaction is not inherently fictitious.
The Verdict
The appellant succeeded. The Tribunal set aside the orders dated 27.11.2025 of the NFAC and 30.12.2018 of the AO. The issue of Rs. 71,00,000 is restored to the file of the Assessing Officer to afford the appellant a fresh opportunity to prove the genuineness of the transaction and the creditworthiness of M/s Rishyab Infratech Pvt. Ltd. The AO must examine the new evidence and determine whether the receipt qualifies as capital gains or, if still unexplained, whether Section 68 applies.
What This Means For Similar Cases
Section 68 Cannot Override the Nature of the Transaction
- Practitioners must argue that if a receipt is demonstrably part of sale consideration for immovable property, Section 68 is legally inapplicable regardless of documentation gaps
- The correct tax head is capital gains under Section 45, and the AO must assess under that provision, not treat it as unexplained income
- Rely on CIT v. M/s. S. S. Agarwal & Co. and CIT v. M/s. S. S. Agarwal & Co. to establish that nature of receipt overrides form
Subsequent Evidence Can Discharge Section 68 Burden
- The burden under Section 68 is not a one-time, static requirement at the time of assessment
- If the assessee can demonstrate, through post-assessment evidence (e.g., restored corporate status, bank records, affidavits), that the transaction was genuine, the AO must reconsider
- This applies especially where the assessee had no control over the source of evidence (e.g., third-party corporate status)
- Always file supplementary evidence with a prayer for reopening or fresh hearing under Section 147 or 148 if the case is still pending
Corporate Status Irregularities Are Not Conclusive of Fraud
- Strike-off of a company’s name by the Registrar of Companies is a procedural lapse, not proof of fictitious transaction
- Restoration of name, as confirmed by official order, validates the entity’s existence retroactively for tax purposes
- Practitioners should obtain certified copies of ROC orders showing restoration and file them with a detailed affidavit explaining the delay in production
- Do not concede Section 68 additions merely because the buyer’s documents were unavailable at the time of assessment
