Karnataka High Court: Pr. Commissioner of Income Tax, Koramangala, Bangalore & Anr. v. Shri Ravi Shankar Shetty [ITA No. 225 of 2021]
The Court dismissed the Revenue’s appeal, holding that Section 56(2)(ix) was inapplicable where the advances were received for procuring land as stock-in-trade and there was no forfeiture of such advances. The assessee, engaged in the business of procurement of land for real estate projects, had received advances aggregating to Rs. 21.89 crore from Metro Corp and M/s Metro Corp Infrastructure Ltd. under an agreement for procuring lands. The Assessing Officer treated Rs. 21.11 crore as income under Section 56(2)(ix), holding that the advances had been virtually forfeited since they had remained outstanding for nearly eight years. The CIT(A) upheld the addition, whereas the Tribunal deleted it. Before the High Court, the Revenue contended that the advances had been utilised by the assessee for purchasing assets in his own name and, having remained unclaimed for several years, amounted to forfeited advances. Rejecting the contention, the High Court held that the amounts were not received in the course of negotiations for transfer of a capital asset but were entrusted to the assessee for carrying out a business activity of procuring lands, which constituted stock-in-trade and not capital assets. The Court further held that mere lapse of time does not amount to forfeiture and that, so long as the advances continued to be reflected as liabilities in the books of account, the conditions prescribed under Section 56(2)(ix) were not satisfied. Accordingly, the Court upheld the Tribunal’s order and dismissed the Revenue’s appeal.
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