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No Tax Treatment on Advance from Future Sale

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No Tax Treatment on Advance from Future Sale, Tax Treatment only on Actual Sale, Find complete details for Tax treatment of Advance Money. Hi Friends In this article you can find complete details regarding No Tax Treatment on Advance from Future Sale with Case Law. you can also find case law explanation and decision by tribunal. Now you can scroll down below and check more details regarding “No Tax Treatment on Advance from Future Sale”

No Tax Treatment on Advance from Future Sale

Introduction :-

This is a case of the assessee which is engaged in the business and profession of the building and constructions business, in which the advances for the building or commercial shops is normal and any person wanting to buy the building has to give the advance for the same.The above case was in Tribunal where it was decided that no money shall be treated as income as against advance and so no penalty u/s 271(c ) can be levied on the assessee. The brief of the case in mentioned below.

Explanation :-

The partnership firm which was under the business of building and construction had been in the search action u/s 132 of the income tax act. The Assessing officer was in the duty of assessment procedures, during which he found that there were unaccounted, unrecorded and undisclosed cash receipts of Rs. 25 Lakhs, which he asked to the assessee, in which reply to the same under notice u/s 153A said that this were the advances for the shops which he was constructing and the work was not completed and the sale was not possible and so the assessee treated as advances and not as income.

The Assessing officer ignored the fact and the rejected the reply given by assessee and treated it as an income in the year in which the advance were received and not when actual sale was done. And as assessee didn’t showed it as income, he had to re concile the same and had to pay tax for the same which would result in delay of the same. So penalty u/s 271( c ) was also levied which the assesse didn’t agreed to pay. So he filed appeal against CIT(A).

Order of CIT(A) :-

The CIT(A) held that the appeal of the assessee was correct and thus penalty should not be levied. The advance from customers will accrue to the income of assessee only when such sale is done. And thus the Amount is payable only when such sale is done and not in the current year. So the penaly was erased.

Reply by Department :

The Department didn’t agreed to the plea of CIT and further appealed to Tribunal where he gave the justification that the cash receipts received by the assessee were not accounted in the books of account and the same was undisclosed. He also told that when the advances are not accounted for in the books of account, it becomes the part of income of the assessee. This receipts should be taxed in the year of receipt only.

Reply by Assessee :-

The assessee replied that the notice was served by the department but it didn’t contained any particulars for concealed and alleged income nor it contained any particulars for malafide or wrong intention of the assessee. It was also said that the basis for levying the penalty is the wrong intention of the assessee, which is not in the current case

Decision by Tribunal :-

The Tribunal by hearing to the contentions of both assessee and department, it was decided that the contention of the assessee was correct and charging the advances as incomes was not right and thus the appeal of department was rejected

Order Date :-

The decision was dated 12th June 2015 and effect from there in.

A BIG QUESTION :-

NOW COMES THE BIG QUESTION THAT IF THE ADVANCE WERE RECEIVED AND FURTHER ON A FUTURE DATE IF THE SALE IS NOT DONE AND CANCELLED DUE TO ANY REASON THAN WHAT SHOULD BE THE TREATMENT OF ADVANCES ??? NO ANSWER HAS BEEN PROVIDED FOR THE SAME IN THE LAW.

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About Yash Shah

Yash Shah is passionate article writer and has written more than 100 articles in the field of Finance, Insurance, Stock Market, Company Law, Auditing, Taxation and many others. In case of any queries or suggestions, you can reach the author @ [email protected], you can also catch him on facebook @ yashshah299

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