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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HON’BLE KUL BHARAT & HON’BLE MANISH BORAD, ACCOUNTANT
PER MANISH BORAD, A.M
The above captioned appeals filed at the instance of the Revenue pertaining to Assessment Year 2012-13 is directed against
the orders of Ld. Commissioner of Income Tax(Appeals)-II (in short
‘Ld. CIT], Bhopal dated 28.02.2017 which is arising out of the order
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u/s 143(3)/147 of the Income Tax Act 1961(In short the ‘Act’)
dated 26.03.2015 framed by ACIT-5(1) Indore.
Brief facts of the case as culled out from the records are that
the assessee is engaged in the business of development of land.
Assessee filed e-return declaring total income of Rs.33,83,540/- on
29.09.2012. Case selected for scrutiny followed by serving of notice
u/s 143(2) of the Act. Assessment u/s 143(3) was completed at
Rs.3,63,73,400/- by Ld. A.O. after disallowance u/s 40A(3) of the
Act at Rs.4,26,000/- , addition u/s 68 of the Act on account of
bogus cash credit introduced in the books of account at
Rs.2,76,42,000/- and addition of bogus creditors at Rs.83,05,400/-
. Aggrieved assessee preferred appeal before Ld. CIT(A) and
succeeded.
Now the revenue is in appeal before the Tribunal raising following grounds of appeal:- “On the facts and circumstances of the case, the Ld. CIT(A) has erred in:- 1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has justified in deleting the addition of Rs.2,76,42,000/- made by the AO u/s 68 by ignoring the finding of the AO.
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Whether on the facts and in the circumstances of the case, Ld. CIT(A) has justified in deleting the addition of Rs.83,04,400/- made by the AO on account of bogus creditors. 3. The appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal.
Ld. Departmental Representative (In short ‘Ld. DR’)
vehemently argued supporting the order of Ld. A.O. With regard to
the addition u/s 68 of the Act he further submitted that the claim
of the assessee that the advances given in the preceding years were
received back in cash is not correct as there are mismatch in the
opening and closing balances of the parties shown in the ledger
account. He also pointed out certain discrepancies in the
cancellation agreement. In short he stressed upon the possibility of
the assessee having routed unaccounted cash in the books of
accounts against the doubtful debits having rare possibility of
recovery. As regards the addition made u/s 41(1)(a) of the Act for
unexplained bogus creditors, Ld. DR submitted that assessee failed
to prove the existence of these liabilities in the nature of creditors
with evidence. Ld. DR placed reliance on the judgment of Hon'ble
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Apex Court in the case of PCIT V/s NRA Iron & Steel Pvt. Ltd Civil
Petition No.29855 of 2018 dated 5.3.2019.
Ld. Counsel for the assessee supported the finding of Ld.
CIT(A) and also placed reliance on the following written submissions
filed before us (Only relevant matter is extracted below):-
(i) Ground No.1 regarding addition made u/s 68 of the Act at Rs.2,76,42,000/- 1. Prior to the impugned year, assessee had given advances through banking channel to various parties for purchase of land. Assessee submits that as the advances were given through banking channel this itself proves the genuineness of the initiation of transaction. 2. Assessee contends that the funds transferred or given at the time of initiation of transaction were out of its own funds which were given through banking channel. The initiation of the transaction is not under dispute nor is questioned by the concerned authorities below. When the initiation of any transaction is not under dispute, no question of raising a doubt on the later part of the transaction arises. 3. These advances given for purchase of land were accepted by the Department in the earlier years and stand accepted. Assessment completed u/s 143(3) and no addition made against these advances given. The status of assessment done in the preceding years is as under – a. A.Y. 2010-11: i. Section under which assessment completed – 143(3) rws 147 ii. Date of assessment order – 29.12.2016 iii. Addition/disallowance made in said assessment – Disallowance of development expenses of Rs. 2,97,47,218 claimed in the return iv. Status of issue of ‘land purchase advances’ in the instant appeal before your Honors -Balance of land purchase advances in the name of various parties duly disclosed in the audited balance 4
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sheet which formed part of total land purchase advances of Rs. 11,09,88,462. No action by the Ld. AO on these advances in the said assessment.
A.Y. 2009-10: i. Section under which assessment completed – 143(3) rws 147 ii. Date of assessment order – 29.12.2016 iii. Addition / disallowance made in the said assessment - Disallowance of Development expenses of Rs. 1,15,87,720 claimed in the return iv. Status of issue of ‘land purchase advances’ in the instant appeal before your Honors - Balance of land purchase advances in the name of various parties were duly disclosed in the audited balance sheet which formed part of total land purchase advances of Rs. 13,56,80,462. No action by the Ld. AO on these advances in the said assessment. 4. The deal for purchase of land did not materialize. Hence the advances given in the earlier years were refunded by the various parties in cash during the impugned year. 5. Year wise details of advances which were given in the earlier years and are accepted by the Department are as under –
Sr. Name of party to whom Amount Period in which given No. advance was given for as advance advance was given purchase of land (Rs.) by assessee for purchase of land 1 Chandansingh Kawarji 10,50,000 AY 2007-08 [PB 35] 2 Darbar Singh 5,00,000 AY 2007-08 3 Mahendra Singh 25,00,000 AY 2007-08 4 Kailash Bai 9,50,000 AY 2007-08 5 Mahesh Chhaganlal 15,00,000 AY 2007-08 6 Kedar Gopilal 5,00,000 AY 2008-09 Choudhary 7 Rajendra Singh 13,00,000 AY 2007-08 & AY 2009-10 8 Rajesh Agrawal 35,00,000 AY 2007-08 9 Moolchand Ratanji 21,00,000 AY 2007-08 10 Satish Modi 8,00,000 AY 2007-08 11 S D Biotech 19,00,000 AY 2007-08 12 Sourambai Lalsingh 13,42,000 AY 2007-08 13 Siddharth Pandya 18,00,000 AY 2011-12 5
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14 Chotelal Sukhramji 30,50,000 AY 2010-11 & AY 2011-12 15 Foolkunwarbai 30,50,000 AY 2010-11 & Chotelal AY 2011-12 16 Parimal Pandya 18,00,000 AY 2011-12 TOTAL 2,76,42,000
From the above table it is evident that all these advances were given in the years much prior to the impugned year. The receipt of cash in the impugned year is against the advances which were given in the earlier years and are not cash credits under the ambit of provisions of section 68. The advances given in earlier years had been reflected regularly in the balance sheet until the same were recovered. Books of accounts of earlier years are audited and no adverse remark has been given by auditor. The assessments for the earlier years have been completed u/s 143(3) and no addition has been made on these advances given in earlier years. Thus, the advances given in the earlier years stand accepted by the Department. 6. Assessee submits that these are not cash credits but are refund of trade advances in the form of cash. Recovery of advances given cannot be treated as cash credits. Details of the parties to whom advances were given through banking channel along with copy of bank statements were already on record both before Ld. AO and Ld. CIT(A). 7. In the instant case, addition has been made u/s 68 of the Act. Appellant contends that provisions of Section 68 are not applicable because the credit which is appearing in the impugned year is as a result of debit transaction which originated in F.Y. 2006-07. This indicates that the credit entry in impugned year is a result of debit entry in earlier year which has been accepted. 8. In the facts of the case – a) Origin of debit transaction: Advance given to the various parties as mentioned above were given in earlier years through banking channel and was reflected in Balance Sheet under the head “Advance for Land Purchase” till the impugned year.
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b) Origin of credit transaction: The deal for purchase of land did not materialize and hence the advance given was refunded to appellant in cash. Appellant also contends that no fresh credits were availed during the impugned year except for the impugned cash receipt. It is clear from above that origin for credit entry appearing in the books is on account of original debit entry. Source of amount itself originates from debit entry of appellant. Appellant is not required to prove source of return of money given in advance earlier. Hence the provisions of Section 68 are not applicable. Further, the appellant cannot be questioned on receipt of cash as there is no limitation on amount being received in cash on account of return of business advance given earlier. 9. Reliance is placed on following judicial precedence’s –
a. Hon’ble Hyderabad Bench of ITAT in the case of SB Steel Industries – ITA No. 264 of 2011 dated 13.11.2013 b. Hon’ble Delhi ‘A’Bench of ITAT in the case of Rachmann Springs (P) Limited – [1995] 55 ITD 159 dated 02.06.1995 c. Hon’ble Delhi ‘B’ Bench of ITAT in the case of Decent Foods Private Limited – ITA No. 2471 of 2010 dated 07.12.2010 10. Ld. AO has brought nothing on record to establish that the money emanated from coffers of the assessee. Reliance is placed on following judicial precedents – a. Kamdhenu Steel & Alloys Limited - Hon’ble Delhi High Court [2012] 19 taxmann.com 26 dated 23.12.2011 b. Value Capital Services Private Limited - Hon’ble Delhi High Court [2008] 307 ITR 334 dated 25.04.2008 (ii) Disallowance made u/s 41(1) amounting to Rs. 83,05,400
During the impugned year assessee had received certain amount from various parties as flat booking advance. It is a customary practice in the line of business in which assessee is engaged that advances are received from various parties as flat booking advance. These advances received by assessee as flat booking advance were reflected in the 7
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Balance Sheet as on 31st March 2012 at ‘Note 8 – Other Current Liabilities’ under sub head ‘Advance from Customers’. [PB 26]
Ld. AO in the assessment order at page 6 para 4 has mentioned – “On perusal of books of accounts, it is found that the assessee has shown creditors from whom advances for booking of plots was taken………….”
As against this Ld. AO erred in mentioning in the table at page 6 para 4 of the assessment order the advances received for flat booking as ‘Name of Creditors’.
The amount reflected in the Balance Sheet relates to advances for booking of flats and these parties are not creditors. Ld. AO treated these advances received from various customers for flat booking as trading liability as per the provisions of section 41(1) of the Act and proceeded to make disallowance of Rs. 83,05,400.
Provisions of section 41(1) reads – “Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof………………”
Assessee submits that neither any allowance nor any deduction has been claimed in respect of the ‘advances from customers’ in any of the preceding years. These amounts have been received specifically as advances for booking of flats. Thus provisions of section 41(1) are not attracted and no disallowance can be made. These amounts received as
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flat booking advance always formed part of the Balance Sheet. There is no debit or credit entry appearing in the Profit and Loss Account.
It is contended that the year in which the flats got registered these amounts received as advances were also transferred under the head ‘Sales’ of Profit and Loss account of respective years. Thus, if this amount received as flat booking advance is added it shall amount to double taxation.
In respect of the advance received from Maggi Publicity of Rs. 12,45,687 it is specifically submitted that this amount has already been included in income for the return filed for AY 2014-15. Reference may please be made to Note 16 – ‘Other Income’ for AY 2014-15 wherein the amount received from Maggi Publicity of Rs. 12,45,687 has been specifically mentioned.
In respect of the advances received from other two customers namely, Anita Sureshkumar Sharma and Amit Shantilal Jain amounting to Rs. 5,00,000 and Rs. 7,75,000 it is submitted that the flats were registered in AY 2013-14 and included in the income.
In the Balance Sheet as on 31.03.2012 assessee had also received advance from customers for – Premium Royal Park, for which no addition/disallowance has been and is accepted by the Department. Assessee contends that the advances received from customers in respect of ‘Premium Royal Park’ project is accepted and for the other i.e. Info City project it has been treated as creditors.
It is a well settled law that the liability can be remitted or ceased only by a bilateral or multilateral act between the creditor(s) on one side and the debtor on the other and not by a unilateral act. In the instant case, the amount received as advances from customers has been reflected in the Balance Sheet as ‘Advance from Customers’ till the date registries were executed. The amount received as advances has been reflected in the balance sheet each year till the time registries were executed in the name of customers. This contention of assessee is squarely covered by the decision of Hon’ble Jurisdictional Bench of Indore ITAT in the case of Shapers Industries Limited – ITA No. 112/Ind/2016.
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Reliance is placed on following judicial precedents –
a. Hon’ble Supreme Court in case of Sugauli Sugar Works (P) Ltd – [1999] 236 ITR 518 – 04.02.1999 – b. Hon’ble Jurisdictional High Court of Madhya Pradesh in the case of Combined Transport Co. (P.) Ltd [1988] 174 ITR 528– 14.07.1988 c. Hon’ble Indore Bench of ITAT in the case of Manoj Pavecha – ITA no. 307/2013 –15.05.2015 –
d. Hon’ble Delhi High Court in case of Jain Exports(P.) Ltd. – [2013] 35 taxmann.com 540 – 24.05.2013 – e. Hon’ble Gujarat High Court in the case of - Nitin S. Garg – [2012] 22 taxmann.com 59 –11.04.2012 f. Hon’ble Gujarat High Court in the case of Puridevi Mahendrakumar Chaudhary – [2014] 41 taxamann.com 329 – 19.11.2013 g. Hon’ble Bombay High Court in the case of J.K. Chemicals Ltd. – [1966] 62 ITR 34 – 18.02.1966 h. Hon’ble Kolkata Bench of ITAT in the case of Marcopolo Products (P.) Ltd [2016] 70 taxmann.com 320
i. Hon'ble Delhi High Court in the case of CIT V/s Value Capital Services (P) Ltd (2008) 307 ITR 334
j. Hon'ble Indore Bench of I.T.A.T. in the case of ACIT v Dwekam Industries Ltd in ITA No.27/Ind/2012 dated. 18.12.2012
k. Hon'ble Indore Bench of I.T.A.T. in the case of Devendra Kanthed v ITO in ITA No.818/Ind/2014 dated. 15.05.2015
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l. Hon'ble High Court of Allahabad in the case of ACIT v ATS Promoters and Builders Pvt. Ltd (2014) 90 CCH 172
m. Hon'ble Indore Bench of I.T.A.T. in the case of Sunderdeep Construction P. Ltd v ACIT in ITA No.505/Ind/2016 dated. 31.10.2019
n. Hon'ble High Court of Calcutta in the case of CIT v Western Estates (1994) 209 ITR 343 Considering the above facts of the case, circumstances, submissions made, documents on record, Ld. CIT(A) has correctly granted relief to assessee on disallowance made by Ld. AO u/s 41(1) of Rs. 83,05,400
We have heard rival contentions and perused the records
placed before us and carefully gone through the judgments referred
and relied by both the parties. Revenue is aggrieved with the
findings of Ld. CIT(A) deleting the addition made by Ld. A.O u/s 68
of the Act at Rs.2,76,42,000/- and the one made u/s 41(1)(A) of the
Act at Rs.83,05,400/- on account of bogus creditors.
We will first take up Ground No.1 relating to deletion of
addition u/s 68 of the Act at Rs.2,76,42,000/-. During the course
of assessment proceedings Ld. A.O observed that the assessee
received cash from some parties to which advances were given in
the preceding years. Ld. A.O was not satisfied with the genuineness
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of the cash received and added to the income of assessee as
unexplained cash credit u/s 68 of the Act
We observe that assessee is regularly maintaining the books of
accounts and preparing audited balance sheet. This fact is not
disputed that the assessee which is engaged in the real estate
business gave advances for purchase of land (mostly agricultural
land) to various farmers through account payee cheque and such
advances for purchase of land are shown under the head “land
purchase advance” shown in the assets side of the balance sheet.
Such advances have been given mostly during assessment years
2007-08 and 2008-09 and remaining during Assessment years
2009-10 to 2011-12. Year wise details of advances which were
given in the earlier years and were forming part of the audited
balance sheet submitted by the assessee along with the return of
income are as follows:-
Sr. Name of party to whom 10. Amount 11. Period in No. advance was given for given as which advance purchase of land advance (Rs.) was given by assessee for purchase of land 12. 1 Chandansingh Kawarji 10,50,000 AY 2007-08 2 Darbar Singh 5,00,000 AY 2007-08 3 Mahendra Singh 25,00,000 AY 2007-08 12
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4 Kailash Bai 9,50,000 AY 2007-08 5 Mahesh Chhaganlal 15,00,000 AY 2007-08 6 Kedar Gopilal 5,00,000 AY 2008-09 Choudhary 7 Rajendra Singh 13,00,000 AY 2007-08 & AY 2009-10 8 Rajesh Agrawal 35,00,000 AY 2007-08 9 Moolchand Ratanji 21,00,000 AY 2007-08 10 Satish Modi 8,00,000 AY 2007-08 11 S D Biotech 19,00,000 AY 2007-08 12 Sourambai Lalsingh 13,42,000 AY 2007-08 13 Siddharth Pandya 18,00,000 AY 2011-12 14 Chotelal Sukhramji 30,50,000 AY 2010-11 & AY 2011-12 15 Foolkunwarbai 30,50,000 AY 2010-11 & Chotelal AY 2011-12 16 Parimal Pandya 18,00,000 AY 2011-12 TOTAL 2,76,42,000
As claimed by the Ld. Counsel for the assessee that since the
amount given as advances in preceding years could not materialize
in the shape of purchase of land for some reasons and the assessee
tried hard to recover the amount advanced to these farmers. Due
to extra efforts assessee to a large extent was able to receive the
refund in cash against the advance given in earlier years. It was
further claimed that the amount so received could not be treated as
cash credit in terms of Section 68 of the Act as it is not in the
nature of loan or credit. Actually it is a refund of amount debited to
the farmers as advance. However this claim of the assessee was not 13
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accepted by the Ld. A.O who taxed the alleged amount as
unexplained credit u/s 68 of the Act. Subsequently when the
matter came up before Ld. CIT(A), the impugned addition was
deleted by him observing as follows:-
Ground no.2 5. This ground of appeal is with regard to addition of Rs.2,76,42,000/- u/s 68 of the Act. 1 have carefully gone through both the assessment order as well as the submissions of the appellant in this regard. The_AO on examination of the cash book had noted that the appellant company had received certain amounts in cash from some persons. The AO did not take into account the submissions by the appellant that these amounts were actually refunds from the persons to whom the such amounts were paid in earlier years as advances for purchase of land. These amounts which were returned by these persons against the advances given to them were treated as unexplained credits u/ s 68 by the AO. The appellant has also submitted that the amount to all these persons were paid by account payee cheques and more importantly all these advances in these accounts were duly accepted by the department as advances in the assessment proceedings for A.Y. 2011-12 that the immediately previous year. 5.1 The moot question here is whether refund of any advance given by the appellant company in earlier years which were received during the year can be considered as cash credit. The appellant company has provided the ledger of the parties alongwith the copy of the bank statement of the appellant company to confirm that the amounts were paid by account payee cheques. the appellant has submitted in this regard as below:- "provision of section 68 is not applicable in case of appellant company, as appellant company has received the amount debited in the name of the above 16 parties since earlier years 14
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& the balances were duly accepted by the Income Tax Department in the assessment u/ s 143(3) for A. Y. 2011-12. Further your honour as per submission made & document submitted by us earlier with our reply dated 23/ 12/2016, we have proved by providing co pies of our bank statement as evidence that the amounts were paid by account payee cheques to all above parties. For this we rely on the following judgments: 1. INCOME TAX OFFICER vs. ALOK AGRAWAL ITAT, AGRA BENCH (2012) 32 CCH 0361,52 SOT 0125 Income-Unexplained cash credit_Addition-Mistake in the Audit Report-Deletion thereof- AO made additions to the income of the assessee in respect of a loan on account of unexplained cash credit as the audit report was showing fresh loan of Rs.58,42,320/- including previous loan from Sona Traders-C1T(A) deleted the addition observing that the transaction with the party was on account of sale of ghee and the amount received during the year was against outstanding sale consideration there was a mistake in the reporting in Audit Report-Held, the fact that there was mistake on the part of the Auditor has been recorded by the CIT(A) in his order-The auditor has also furnished certificate to the effect that the amount was received as a repayment of earlier loan balance and hence it was nil dosing balance-Since no contra") material or facts were produced nor revenue pointed out any such contrary material to the finding of the CIT(A), order of the CIT(A) is confirmed-Appeal filed by the assessee is allowed 2. SB Steel Industries v/s ITO (ITA No 264/Hyd/2011 dated 13/11/2013) Copy Enclosed as Annexure A. 3. ITO v/ s M/ s Decent Foods Pvt. Ltd. (ITA No 2471 /Dell 2010 dated 07/12/2010) Copy Enclosed as Annexure B. Therefore your rumour It is most humbly requested to kindly delete the addition wrongly made by applying section 68 on receipt of advances given in earlier year”.
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5.2 The Hon'ble lTAT, DELHI 'A' BENCH in the case of RACMANN SPRINGS (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX (1995) 14 CCH 0227, 52 TTJ 0660, 55 ITD 0159 has held as below:- "When such is the factual position, the AO cannot find fault with the figure of sundry debtors as on 30th June, 1980 at Rs. 35,99,534. If at all the AO disbelieved Rs. 35,99,538, he should have enhanced the figure of sundry debtors as on 30th June, 1980 by Rs. 18,00,763 and adopted the same in the late' assessment years. This was not done by the assessing authorities. This blowing of hot and cold by the AO is not permissible in law. Only unsubstantiated cash credits can be added under s. 68. The said section does not permit the AOs to add undisclosed sales under that section Further, the realisations from the sundry debtors cannot be treated as cash credits. Cash credits always appear as a liability in the balance sheet of the assessee. Realisation from the sundry debtors would reduce the sundry debtors appearing on the "assets" side of the balance sheet. 22. The reconciliation statement of debtors from 1st July, 1979 to 30th June, 1985 is given at pages 136 and 137 of poper book No. 1. The sundry debtor as on 30th June, 1981, 30th June, 1982, 30th June, 1983, 30th June, 1984 and 30th June, 1985 were given in the balance sheets filed in the later assessment years. They were all accepted by the AO. 'When such is the factual position, the AO cannot find fault with the figure of sundry debtors as on 30th June, 1980 at Rs 35,99,538 If at all the AO disbelieved Rs. 35, 99,538, he should have enhanced the figure of sundry debtors as on 30th June, 1980 by Rs. 18,00,763 and adopted the same in the late' assessment year, This was not done by the assessing authorities. This blowing of hot and cold by the AO is not permissible in law. 23. The AO held in the assessment order dt 13th Jan., 1992, that the drafts deposited in the Bank of Tokyo as per List-1 are actually undisclosed sales and treated the same as income of the assessee under s. 68 of the IT Act, 1961. This is really strange. Only unsubstantiated cash credits can be added under s. 68 of the IT Act, 1961. The said section does not permit the ADs to add undisclosed sales under that section. Further, the realisations from the sundry debtors cannot be 16
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treated as cash credits. Cash credits always appear as a liability in the balance sheet of the assessee. Realisation from the sundry debtors would reduce the sundry debtors appearing on the "assets" side of the balance sheet." 5.3 Thus, the Hon'ble Tribunal has categorically held that only unexplained cash credit can be added u/ s 68 and the realisations from the sundry debtors cannot be added under section 68 of the Act. 5.4 In the case of SB Steel Industries Hyderabad Vs Income Tax Officer-5(1), Hyderabad,(ITA no.264/Hyd/2011) the Hon'ble ITAT Hyderabad Bench-A Hyderabad stated vide para 7 as below:- "It is an established fact that only cash credits can only be considered u/ s 68, but, not trade receipts. The coordinate bench of ITAT in the case of ITO Vas Rajedra Kumar Taparia, 106 TT J 712 (Jodh.) has heId that "cash credits standing in the names trade creditors, all income·tax Assesees could not be treated as non. genuine when they have confirmed the transactions by filing affidavits and deposing before the AO, and the addition could not be made in respect of cash credits or interest paid thereon". In the present case, the amounts received by Assessee are not cash credits but the same were recovers of the debtor, which are available in the books of account Since Assessee furnished details of debtors and also the entries made in the books of account, we are of the opinion that both the AO and the CIT(A) have erred in considering recoveries from deposits as cash credits, the corresponding sales in earlier years have been accepted, as there is no dispute with reference to the entries in the books of account in any of the earlier years. Therefore we are of the view that the principles' laid down [or invoking provisions of section 68 cannot be applied to the made recoveries made by Assessee during the year." 5.5 The Hon’be ITAT Delhi Bench-B, New Delhi in the case of ITO- 10(1), New Delhi vs. M/s Decent Food Pvt. Ltd, New Delhi in ITA no. 2471/Del/2010 has stated vide para 7 & 8 as below:- "On the other hand, Ld. Counsel for the assessee strongly supported the impugned order. He submitted that the amounts in question were received as refund of advances made over to the parties for purchase of goods which purchase could not 17
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materialize, since the parties could not supply the goods in time; as such these amounts cannot be termed as unexplained income of the assessee; that neither of the parties were creditor of the assessee and so, section 68 of the I. T. Act is not applicable; that rather, it was the assessee who was the creditor in the books of account of the two parties; that further, the assessee duly discharged its onus; that therefore, Ld. CIT(A) cannot at all to have erred in deleting the addition. We have heard the parties and perused the material on record. It remains irrefuted that the assessee company did. no take any loan from the two concerns, these concerns were also not creditors of the assessee company. The amount of Rs. 8,25, 000 had been advanced by the assessee to the said supplier parties and when they jailed to make supply in time, these amounts were refunded to the assessee. It was this refund which represented the credit entries of 78,25,000. The assessment order does not show any investigation have been carried out or any information collected by the department to conclude that the payment received by the assessee was actually accommodation entries. It has not been shown as to how the two parties concerned were not creditors to the assessee. Once they are not established to be creditors, operation of section 68 of the I.T. Act does not come into play. No material was brought by the AO to prove that the money was the assessee's own undisclosed income. It was merely that the inf0mlation received from. the Inv Wing of the department was relied on, without verification of the facts qua-the-asseseee. The assessee successfully explained the entries”. In the light of the above judgment it is clear that the 5.6 refund of advances so given cannot be added u/s 68 especially when the appellant has explained these entries and also when the advances so made In the earlier years were accepted by the department. Accordingly, the addition so made is hereby deleted and this ground of appeal is allowed.
From perusal of the finding of Ld. CIT(A) as well as the
submission made before us by the Ld. Counsel for the
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assessee, we find that assessee who is in the business of real estate and developer gave advance for purchase of land to farmers in the preceding years of which mostly are during assessment year 2007-08 and remaining during Assessment Year 2008-09 to 2001-12. All these advances were given by account payee cheque which is verifiable from the copies of bank statement placed on record. Ledger account of each of the parties to which advances were given have been reflected in the audited balance sheet forming part of Income Tax returns. No such addition regarding unexplained investment or unexplained loans and advances given have been made by the revenue authorities in the preceding years. Thus the genuineness of advances given to farmers for purchase of land appears to be correct.
Now the assessee is claiming that it has received the refund of the advances given for land purchase. Copy of cancellation agreement for the advances given to various parties namely Chandansingh Kawarji, Darbad Singh, Mahendra Singh, Kailash Bai, Maahesh Chaganlal, 19
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Sidharth Pandya, Chotelal, Foolkunwarvai and Parinal Pandya. Address of each of these parties are available in these cancellation agreements.
To summarise we find that the assessee claim is that the loans and advances are given to some parties through banking channel in preceding years and the refunds of the loan so given is received in cash during the year under appeal, whereas the revenue’s contention is that there is no nexus of the cash received for the advances so given.
However revenue has not placed any material to support its contention. The fact that advances were given to various parties through account payee cheque in preceding assessment years for purchase of land has not been disputed by the Revenue. Most of the advances were given in Assessment Year 2007-08 which is almost 5 years old. Copies of bank statement asserts this fact and Names and address of all such parties is available. Cancellation agreements have been entered into. No independent
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enquiry was made by the Ld. A.O with the parties from whom the assessee claimed to have received the cash which are mostly farmers. Under these given facts the claim of the assessee that the alleged sum received in cash is refund of loans and advances given in preceding years cannot be doubted. The amounts so received is actually not a credit in the form of loans or credit or in the form of sundry creditors or any other liability, it is actually the refund of amount advanced in preceding years. It is merely a reduction in debit balance of loan and advance and a corresponding increase in debit balance of cash in hand. There is as such no fresh credit.
Similar type of issue came up before the Co-ordinate Bench of Delhi in the case of Decent Foods Private Limited (supra) ITA No.264 of 2011 dated 13.11.2013 wherein the amount advanced by the assessee to the supplier parties was refunded as the supplier failed to supply the goods and the Co-ordinate Bench held that “Once they are not established to be creditors, operation of section 68 of the I.T. 21
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Act does not come into play. No material was brought by the Ld. A.O to prove that the money was the assessee’s own undisclosed income” (emphasis supplied).
As regards the judgment of Hon’ble Apex Court in the case of NRA Iron & Steel Pvt. Ltd (supra) relied by Ld. DR, we find that in this judgment the issue was with regard to the share capital and share premium credited in the books and there was an independent enquiry conducted by Ld. A.O. Both these facts are absent in the instant case therefore the judgment relied by Ld. DR is not applicable on the instant appeals.
We therefore in the given facts and circumstances of the case and respectfully following the judgment referred and relied by Ld. CIT(A) as well as the one referred by us are of the considered view that the alleged amount of Rs.2,76,42,000/- is actually the refund of the advances given by the assessee to various parties for purchase of land in preceding years which were given through banking
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channel and duly disclosed in the audited financial statements placed before the revenue authorities in the preceding years and no addition/discrepancy have been noticed. We therefore find no reason to interfere in the finding of Ld. CIT(A) and the same stands confirmed. In the result Ground No.1 raised by the revenue is dismissed.
Now we take up Ground No.2 regarding the addition of Rs.83,04,400/- made by the Ld. A.O u/s 41(1) of the Act for bogus creditors which was deleted by Ld. CIT(A). Brief facts relating to this issue are that on the liability side of balance sheet assessee had shown following creditors:- Sl.No. Name of the Creditors Amount outstanding (In Rs.) 1. Sunil Jain 550000 2 Hemchandra Bajaj 1105000 3 Sri K. Bawa 700000 4 Anand Kumar Jain 526000 5 Shri S.AP. Joshi 600000 6 Smt. Alka Rajendra Chaturvedi 501000 7 S. Wadhwani 1002713 8 Jagdish Chand Narayan Prasad 800000 9 Anita W/o Suresh Kumar 500000 Sharma 10 Amit Kumar Shantilal Jain 775000 23
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11 Maggy Publicity 1245687 Total 83,05,400/- 19. Notices u/s 133(6) of the Act given to the above mentioned parties were returned unserved. Before the Ld. A.O assessee submitted that it is engaged in the business of development of land and developed plots are sold to its customers except the party namely Maggy Publicity which is a sundry credtor. All other parties have given advance to assessee for booking plot of lands. Whenever the sale deed is registered the advance amount is adjusted in sales account. Giving reference to one of the sundry creditors Mr. Sunil Jain it was submitted that the plot was booked by him and he paid the amount by cheque during financial year 2009-10. The address provided by him at the time of booking was given to the Ld. A.O. He is not the outstanding creditor, only registry is pending and the date on which the plot is completed will get registered in his name and the amount received as advance will be transferred to sales account. Similar was the situation of the other parties also. This plea of the assessee was not accepted and the Ld. A.O 24
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made the addition for bogus creditors u/s 41(1)(a) of the
Act.
However before Ld. CIT(A) assessee succeeded in
convincing the Ld. CIT(A) that the alleged amount are not
sundry creditors but they are advance of booking of plots.
It was also submitted that out of 11 parties in the case of
two parties namely Shri Amit Kumar Shantilal Jain and
Anita W/o Suresh Kumar Sharma the amount appearing is
advance of booking of plots was subsequently transferred to
revenue account as sales as the registry of plot of land was
done in the favour of two parties. Ld. CIT(A) after
examining the facts of the case deleted the addition made
by Ld. A.O u/s 41(1)(a) of the Act observing as follows:-
Ground no,3 6. This ground of appeal is with regard to treating Rs.83,05,400/- as Bogus creditors and adding the same by wrongly applying the provisions of section 41(I)(a), of the Income Tax Act. I have carefully gone through both the assessment order as well as the submissions of the appellant in this regard. 6.1 The Learned A 0 during assessment proceedings has added an amount of Rs.83,05,400/- (although in explanation para he has added Rs.70,59,713/- only but while computing he has considered Rs.83,05,400/-, by applying provision of section 25
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41(1)(a). 6.2 The appellant has submitted that the appellant company being in the business of development of land, all these amounts were received as advance against the booking of plots in earlier years and were shown as advance against booking in the balance-sheet. It would be proper to reproduce the submissions of the appellant in this regard:- "As and when the respective plot is being registered and sale deed will be executed, these amount will be transferred to revenue. Kindly refer Note 8 to Balance- Sheet, wherein these amount were appearing in aggregate under "Advances From customers" of Rs. 3,81,37,651/-. Kindly refer page 19 of our submission. Your honour, these amounts are not appearing as any credit, for which the respective debit had been charged to profit and loss account. We would like to draw your kind attention to section 41 (l)(a), which is reproduced below: Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year:- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission of cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not, 3.5 The copy of ledger account of all the parties are enclosed as under:-
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Sl.No. Name of the Amount Creditors outstanding (In Rs.) 1. Sunil Jain 550000 2 Hemchandra Bajaj 1105000 3 Sri K. Bawa 700000 4 Anand Kumar Jain 526000 5 Shri S.AP. Joshi 600000 6 Smt. Alka Rajendra 501000 Chaturvedi 7 S. Wadhwani 1002713 8 Jagdish Chand 800000 Narayan Prasad 9 Anita W/o Suresh 500000 Kumar Sharma 10 Amit Kumar 775000 Shantilal Jain 11 Maggy Publicity 1245687 Total 83,05,400/-
In addition to this, we would like to bring to your kind notice that in 2 cases namely Amit Kumar Shantilal Jairi and Anita W/o Suresh Kumar Sharma, the sale deed has been executed after passing of the assessee officer and till date. These amounts very duly transferred to our revenue account as per the date of sale deed. Copy of sale deed and copy of respective ledgers are enclosed. (Ends 111 to 138) In case of Item no 11 in the above Chart in the name of Maggi Publicity, the same has not been actually added in the body of the order but same was wrongly considered in the total of addition. This amount of Rs. 12,45,687/- of Maggi Publicity has already offered as Income in the A Y_2014-15 as not payable. Copy of the Note No,.15 of the profit and loss account for the year ended on 31/03/2014 is enclosed for your honour ready reference (Ends 139) Therefore your honour the addition was made by wrongly applying the provision of section 41 (l)(a), may please be deleted." 6.3 After going through the submissions of the appellant, the assessment order and the documents so produced before me it 27
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is clear that as far as the amount of Rs.12,45,687/- is considered, I am inclined to agree with the appellant submissions as the same has already been offered as income u/s 41(1) by the appellant itself in A.Y.2014-1S as not payable, and hence the addition of this amount tantamount to double addition. Further, it is also clear that these amounts represent the advances so received from the customers and the same gets realized to revenues / sales as and when the sale deeds are executed. Hence, the AO has not correctly applied the provision of section 41 (1 )(a) in this case. Thus, the additions so made are held to be not proper and are accordingly deleted. This ground of appeal is allowed. 21. On perusal of the finding of Ld. CIT(A) as well as the facts
narrated before us along with the documentary evidences it is
predominantly clear that the alleged amount of bogus creditors are
not in the form of sundry creditors. These amounts are advances
against booking of plots. When the plots are developed and the
parties who have booked the plots give the remaining amount if
any, then the advance given at the time of booking is transferred to
sales account.
We therefore are of the view that as regards the amount
outstanding at Rs.12,45,687/- in the name of Maggy Publicity,
no addition can be made u/s 41(1) of the Act since it has offered to
tax in the return of income filed for Assessment Year 2014-15.
Further we find that all the remaining 10 parties are not sundry
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creditors but are the advances for booking of developed plots of
which some have already been transferred to the sales account
when the registry was completed. These 10 parties cannot be
termed as sundry creditors as there is no supply of goods or
services by these parties. Ledger account shows that the assessee
has received the sum through banking channel from these parties.
Such sum received can either be in the form of unsecured or
advance for sale/booking of plots. In the instant case out of the 10
parties in two cases the registry have been done and the advances
received during the preceding years have been transferred to sales
account. This fact asserts that all the sum received from 10 parties
is advances for booking of plots and not balance of sundry
creditors.
Hon'ble Gujarat High Court in the case of Nitin S Gar (supra)
(2012) 22 taxmann.com 59 has held that “Merely because the
liabilities are outstanding for last many years, it cannot be inferred
that the said liabilities have seized to exist. The Appellate Tribunal
has rightly observed that the Assessing Officer shall have to prove
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that the assessee has obtained the benefits in respect of such trading
liabilities by way of remission or cessation”.
We therefore in the given facts and circumstances of the case
and respectfully following the judgments referred and relied herein
above find no reason to interfere in the finding of Ld. CIT(A) and
thus are of the considered view that out of the alleged sum of
Rs.12,45,687/- outstanding in the name of Maggi Publicity has
been offered to income for Assessment Year 2014-15 and all the
remaining amount of Rs.70,59,713/- received from 10 parties are
not sundry creditors as they have advances for booking of plot of
lands of which few have been transferred to sales account as and
when the registry of plot of land is completed. Provision of Section
41(1) are not applicable on this case as the assessee has not
claimed the alleged amount of advances from customers as an
allowance or deduction in any assessment year in respect of loss,
expenditure or trading liability. We thus confirm the finding of Ld.
CIT(A) and dismiss Revenue’s Ground No.2.
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Ground No.3 is general in nature which needs no
adjudication.
In the result all the grounds raised by the Revenue are
dismissed.
The order pronounced in the open Court on 25.03.2021.
Sd/- Sd/-
( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER
�दनांक /Dated : 25th March, 2021 /Dev
Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Asstt.Registrar, I.T.A.T., Indore