MOU Receipts Taxable as ‘Income from Other Sources’ Where Assessee Had No Land Rights: ITAT

ITAT Ahmedabad dismissed all appeals of the assessee, holding that amounts received under an MOU were taxable as income from other sources, since the assessee had no ownership or rights in the land, and upheld reopening under Section 147 for relevant assessment years.

A taxpayer named Simatajvar Yusufkhan Khan has filed the present appeals in the ITAT Ahmedabad, challenging an order dated April 22, 2022, passed by the CIT(A)/NFAC Delhi under Section 250 of the Income Tax Act, 1961. The case is related to the assessment years 2009-10, 2010-11, 2013-14, and 2014-15. All appeals involved the same issue; hence, the tribunal heard them all simultaneously and issued a single order for all.

The assessee had received certain amounts under a Memorandum of Understanding (MOU) allegedly entered into for the sale of land in Village Abhwa, Surat, during the years in consideration. The assessee claimed these amounts as capital receipts, hence not taxable as per the law. However, the department classified these amounts as casual receipts, falling under the category of ‘income from other sources,’ hence taxable as per the law.

During the assessment, the Assessing Officer (AO) discovered that the assessee was not the owner of the land mentioned in the MOU. The documents revealed that the land was already sold out in 1968 to other individuals, who alone were part of later legal actions related to the land. The assessee had herself accepted that she was no longer associated with the land and had no relation to legal actions related to the land. Even the MOU had clarified that the assessee and her family had sold the land a long time back. Hence, the authorities concluded that the assessee could not have received any genuine advance for the sale of land.

The CIT(A) supported the same view and ruled that the amounts in question were received without any real consideration or transfer of rights. Therefore, they were rightly taxed under Section 56 as income from other sources. When the appeal was filed before the tribunal, the assessee could not furnish any documentary evidence to challenge the above findings. In conclusion, the tribunal ruled that since the assessee had no ownership or future right in the land, the receipts could not be treated as advances for the sale of the same land; hence, receipts were rightly considered as casual receipts and taxed under the head of ‘income from other sources.’

For A.Y. 2009-10, the assessee also challenged the reopening of the assessment under Section 147. The Tribunal rejected this challenge, holding that a minor mistake in the amount mentioned in the reasons for reopening did not invalidate the proceedings, as income had clearly escaped assessment. Accordingly, the ITAT dismissed all four appeals of the assessee.