Income Tax Act | S. 68 Can't Tax Property Sale Advance In Subsequent Year Even If Capital Gain Was Set Off Against Loss: Delhi High Court

The Delhi High Court has held that an amount received as an advance towards the sale of property cannot be added as unexplained cash credit under Section 68 of the Income Tax Act in a subsequent assessment year, merely because the assessee allegedly adopted a “device” to set off the capital gain arising from the sale against a capital loss.

The division bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta was dealing with an appeal filed by the Revenue against an ITAT order concerning Assessment Year 2016-17.

The Assessing Officer had made an addition of ₹10 crore under Section 68, treating ₹10 crore received by the assessee in FY 2006-07 as advance consideration for the sale of land, as a “colourable device”.

A sale deed in respect of the land was subsequently executed by the assessee's power of attorney holder in FY 2013-14. According to the assessee, he became aware of the execution of the sale deed only in FY 2015-16. He accordingly disclosed the transaction in his return and showed the capital gain in AY 2016-17, setting it off against a capital loss.

The Revenue alleged that the assessee had deliberately disclosed the capital gain in AY 2016-17, when he had suffered a capital loss of ₹16 crore, to avail a set-off. AO consequently treated the ₹10 crore advance as unexplained and added it under Section 68 for AY 2016-17.

The addition was however deleted by the appellate authority, and the ITAT affirmed the decision.

Revenue argued that the assessee had structured the transaction to obtain a set-off of capital gain against capital loss and had intentionally not disclosed the sale transaction for two years.

Rejecting the appeal, the High Court observed that even if the assessee had adopted a device to avoid tax or circuitously avail the set-off, the AO could not resort to Section 68 to deal with such alleged avoidance.

“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,” it said.

As such, the Court dismissed Revenue's appeal.

For Appellant: Mr. Shlok Chandra, SSC with Ms. Naincy Jain, and Ms. Madhavi Shukla, JSCs with Mr. Udit Dad, Adv.

For Respondent: Ms. Ananya Kapoor, Adv.

Case Title: Pr. Commissioner of Income Tax-4, New Delhi v. M/s J D Exim Pvt Ltd

Case No.: ITA 669/2026

Click here to read order