Assessee-trust entitled to set-off as Section 68 addition of 10-year-old land advance is unsustainable.

By | September 7, 2026
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Assessee-trust entitled to set-off as Section 68 addition of 10-year-old land advance is unsustainable.

Assessee-trust entitled to set-off as Section 68 addition of 10-year-old land advance is unsustainable.
Issue
Whether an advance received towards the sale of land in FY 2006-07 can be taxed as unexplained cash credit under Section 68 in AY 2016-17 on the allegation of adopting a colourable device to set off capital losses.
Facts
  • Receipt of Advance: The assessee received Rs. 10 crores in FY 2006-07 as advance consideration towards the sale of land.
  • Execution & Reporting: The sale deed was subsequently executed by the assessee’s power-of-attorney holder in FY 2013-14.
  • Return of Income: The assessee reflected the transaction in AY 2016-17, declaring capital gains arising from the sale and setting them off against existing capital losses.
  • AO’s Addition: The Assessing Officer (AO) treated the Rs. 10 crore advance as an unexplained cash credit under Section 68 for AY 2016-17, alleging the transaction was a colourable device structured solely to claim capital loss set-off.
Decision
  • Inapplicability of Section 68: Section 68 cannot be invoked to treat an advance as unexplained cash credit in AY 2016-17 when the funds were admittedly received a decade prior in FY 2006-07.
  • Colourable Device Allegation Rejected: Allegations of tax avoidance or adoption of a colourable device do not justify recourse to Section 68 for a historical receipt.
  • Addition Quashed: Making an addition of Rs. 10 crores under Section 68 in AY 2016-17 is legally unsustainable and deleted in full.
Key Takeaways
  • Year of Receipt Governs Section 68: Cash credit additions under Section 68 can only be considered in the specific financial year in which the amount was actually received in the books, not in a subsequent year when the final sale deed is registered.
  • Limits on Anti-Avoidance Invocations: The Revenue cannot arbitrarily invoke Section 68 to defeat a legitimate statutory set-off of capital losses on the ground of a “colourable device” when the actual receipt of funds in an earlier year is undisputed.
HIGH COURT OF DELHI
Principal Commissioner of Income-tax
v.
J D Exim (P.) Ltd
Dinesh Mehta and Rajneesh Kumar Gupta, JJ.
IT Appeal No. 669 of 2026†
AUGUST  18, 2026
Shlok Chandra, SSC, Ms. Naincy Jain, Ms. Madhavi Shukla, JSCs and Udit Dad, Adv. for the Appellant. Ms. Ananya Kapoor, Adv. for the Respondent.
JUDGMENT
CM APPL. 54952/2026 (delay of 454 days in re-filing)
Dinesh Mehta, J. – The present application has been filed by the appellant seeking condonation of 454 days delay in re-filing the appeal.
2. For the reasons stated in the application, the same is allowed and the delay of 454 days in re-filing the appeal stands condoned.
3. The application stands disposed of, accordingly.
CM APPL. 54953/2026 (Exemption)
4. Allowed, subject to just exceptions.
5. Application stands disposed of.
CM APPL. 54951/2026 (delay of 21 days in filing)
6. The present application has been filed by the appellant seeking condonation of 21 days delay in filing the appeal.
7. For the reasons stated in the application, the same is allowed and the delay of 21 days in filing the appeal stands condoned.
8. The application stands disposed of, accordingly.
ITA 669/2026
9. By way of the present appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), the appellant has challenged the order dated 28.11.2024 passed by the Income Tax Appellate Tribunal (hereinafter referred to as ‘ITAT’) in Dy. CIT v. J.D. Exim (P.) Ltd. [IT Appeal No. 8765 (DEL) of 2019] for Assessment Year (AY) 2016-17, whereby the appeal filed by the Revenue against the order dated 26.08.2019 passed by the Commissioner of Income Tax (Appeals)-5, New Delhi [hereinafter referred to as ‘CIT(A)’], allowing the assessee’s appeal was rejected.
10. The facts, shorn of unnecessary details are that the Assessing Officer (AO)while framing the assessment for AY 2016-17, made an addition of Rs. 10 crores under Section 68 of the Act of 1961, considering the amount of advance received by the assessee to be a colourable device.
11. The backdrop facts were, that in the year 2006-07 the assessee had shown a sum of Rs. 10 crores to have been received as an advance as consideration for sale of his land, claiming that the transaction had not culminated.
12. As the facts have come on record, a sale deed was executed by his power of attorney holder in Financial Year (FY) 2013-14, which according to the assessee, came to his knowledge in FY 2015-16 (i.e., Assessment Year 2016-17) because his power of attorney holder did not inform the assessee about the factum of execution of the sale deed. The assessee, therefore, reflected the transaction of his return of income and showed capital gain, but since there was a capital loss, the long term capital gain arising on the land was set off.
13. During the course of assessment proceedings,when the AO questioned the purchaser about the factum of the sale deed and the transaction, then he learnt that the sale deed had been executed in FY 2013-14 and that the purchaser had booked the transaction in his books of accounts in FY 2013-14.The AO therefore took a view that the assessee had adopted a device to show the aforesaid gain in the AY 2016-17, being the year in which he had suffered a capital loss of Rs. 16 crores so as to get a set-off of this capital gain, which had accrued on account of sale of the land and the transaction qua which he had entered into an agreement to sell in the FY 2006-07.
14. In the backdrop of this factual scenario, the AO was of the view that the advance of Rs. 10 crores which the assessee had taken was unexplained advance and thus he added such amount in the year under consideration (2016-17) under Section 68 of the Act of 1961. The said addition was disallowed by the Appellate Authority and said view has been affirmed by the Tribunal by holding that the AO was not justified in making addition of the amount of Rs. 10 crores in the year under consideration, as said amount was received by the assessee in the FY 2006-07.
15. Mr. Shlok Chandra, learned Senior Standing Counsel for the Department vehemently argued that the assessee had adopted a device or a ploy to structure his transaction in a way to get set-off of the capital gain against a capital loss. He added that the assessee waited for two years and intentionally did not disclose the transaction of sale of the land for two years. And, therefore, the AO was justified in making addition of Rs. 10 crores under Section 68 of the Act of 1961.
16. Having heard learned counsel for the appellant and upon perusal of the record, we are of the view that maybe the assessee had adopted a device to avoid or to circuitously availing set-off of capital loss against the capital gain, which he had earned two years earlier. But for dealing with such situation or case, there were other and better modes or measures available with the AO. For the purported avoidance or colourable device, taking recourse to Section 68 of the Act of 1961, within the statutory framework was not permissible, more particularly, when the assessee had admittedly received the amount of Rs. 10 crores way back in the FY 2006-07.
17. Admittedly, the amount of Rs. 10 crores was received by the respondent/assessee in the FY 2006-07 and, therefore, adding that amount in the year under consideration (2016-17) is against anybody’s comprehension. Such addition cannot be sustained.
18. We do not find any error or infirmity in the order(s) passed by both the Appellate Authorities.The present appeal is, therefore, rejected.