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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by Revenue for Assessment Year (AY) 2012- 13 arises out of the order of learned Commissioner of Income Tax (Appeals)-1, Chennai [CIT(A)] dated 15-10-2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143 r/w s. 147 of the Act on 19-12-2017. The assessee has filed cross-objections against the same. The grounds taken by the Revenue are as under:
1. 1. The order of the learned CIT(A) is contrary to law, facts and circumstances the case.
2. The learned CIT(A) erred in giving relief on the issue of retention of advances received from M/s Binny Ltd against advances payable to M/s Mohan Breweries and Distilleries Ltd by observing it was business prudence since M/s Binny Breweries and Distilleries Ltd were related parties & M/s Mohan appreciating it was only application of income and not diversion of income overriding title and hence taxable as held by Hon'ble Supreme court in the of Commissioner of Income Tax, Bombay v. Sitaldas Tirathdas 1961 AIR 728? 3. The learned CIT(A) erred in holding the forfeited advance was a capital liable for taxation u/s 41(1) without appreciating the advance received Binny Ltd was a trading liability and when the lender of such trading liability the amount either fully or in part such amount so waived or foregone is chargeable tax as income as held in the case of Solid Containers Ltd v. Dy. CIT 308 ITR 417 (Bom).
4. The learned CIT(A) erred in holding the retained advance is still shown as in the Balance sheet and hence cannot be taxed u/s 41(1) without appreciating decision of Hon'ble Delhi High court in the case of CIT vs Chipsoft Technology 2012(DELHI)-O] wherein it was held that where the assessee has just continued the entry in his books of accounts without any intention to pay back the same, it should be added to his income u/s. 41(1).
5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.
The assessee, in the cross-objections, has assailed the rejection of legal ground by Ld. CIT(A).
The Ld. AR assailed the reassessment proceedings on the grounds of change of opinion. The Ld. AR also submitted that in the absence of fresh tangible material, the assessment could not be reopened. Reliance has been placed on the decision of this Tribunal in M/s Sabari Foundations Private Ltd. V/s ITO (ITA No.2744/Chny/2017 dated 09.09.2022) to support the legal argument. On merits, Ld. AR submitted that the assessee reported advances on assets as well as on liabilities side. The assessee also placed on record evidences to establish the amounts were settled in subsequent years by receiving the amount from M/s Mohan Breweries and Distilleries Ltd. which was paid to M/s Binny Limited. The Ld. Sr. DR, on the other hand, supported the assessment framed by Ld. AO. Having heard rival submissions, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in the business of real estate and harnessing wind mill power. Assessment Proceedings 3.1 The assessee was scrutinized u/s 143(3) on 10.03.2015. However, the case was reopened and notice u/s 148 was issued on 31.03.2017 on the allegation that the amount of Rs.427.07 Lacs as retained by the assessee from prospective buyer M/s Binny Ltd was to be considered as income of the assessee. Apparently, the reasons have been framed on existing material as available before Ld. AO. It is also apparent that the assessment has been reopened within 4 years from the end of relevant assessment year. 3.2 The Ld. AO denied the allegation that it was a case of change of opinion since the issue was not discussed in the assessment proceedings u/s 143(3). Proceeding further, Ld. AO added the amount of Rs.427.07 Lacs as retained by the assessee out of advances received from M/s Binny Ltd. from transactions which did not ultimately materialize. Aggrieved, the assessee preferred further appeal. Appellate Proceedings 4.1 The legal grounds urged by the assessee assailing the validity of assessment proceedings were rejected on the ground that this issue was not discussed during scrutiny assessment proceedings and the plea of change of opinion could not be accepted. 4.2 However, the issue on merits was decided in assessee’s favor as under: - The submissions of the appellant were considered vis-a-vis the findings of the Assessing Officer. During the re-assessment proceedings, it was held that the sum of Rs.4,27,07,391/- which had to be returned to M/s. Binny Ltd and which was retained by the appellant had to be and to the income tor A.Y 2012-13. The details furnished by the appellant in this regard have been carefully considered. They were examined In relation to the evidences furnished by the appellant to bolster its claim. The appellant's submissions were further leveraged by evidences such as 1. Agreement of sale 17th October, 2008 between the appellant and M/s. Binny Limited.
2. Agreement of sale 23" October 2008 between Mohan Breweries and Distilleries Ltd and the appellant.
Financials for the relevant previous year in which the advances received against sale of property were reflected under the head 'Other Current Liabilities' in Note 6 to the Balance Sheet. Furthermore, the appellant furnished judicial decisions to add traction to its arguments opposing the disallowance of Rs.4,27,07,39I/-. The circumstances pertaining to the retention of Rs.4,24,07,391/- were explained by the appellant. It was that their predecessor M/s. Centwin Estates entered into an agreement for sale with M/s. Binny Ltd for a consideration of Rs.16,00,00,000/- against which a sum of Rs.13,26,00,000/- was received during the F.Y 2008-09. Since the negotiations could not be successfully completed, a sum of Rs.9,01,92,609/- was returned by the appellant to M/s. Binny Ltd. A sum of Rs.4,24,07,391/- had been retained by the appellant towards the identical amount of Rs.4,24,07,391/- due from their sister concern M/s. Mohan Breweries and Distilleries Ltd and which was shown in their Balance sheet under the head "Advances against purchase of property". It was emphasized that the said sum was only retained by the appellant and not forfeited by them. It was also pointed out that the under which the addition was made was not specified in the order. It that M/s. Binny Ltd and M/s. Mohan Breweries and Distilleries Ltd were related parties that it was just a business prudence to withhold the amount due to one party against the amount due from the other related party.
At the time of hearing, the appellant furnished copies of its final accounts in order to substantiate the fact that the said advance of Rs.4,24,07,391/- was reflected in the Balance sheet of the appellant’s final accounts. This aspect was verified during the appellate proceedings, In Schedule J to the Balance sheet under the head 'short term loans and advances-others', a sum of Rs.4,24,07,391/- was shown as receivable from M/s. Mohan Breweries Distilleries Ltd against purchase of property. In Schedule K to the Balance sheet under the head 'Advance received against sale of property, a sum of Rs.4/24,07,391/- shown as the of Sriperumbudur property. The agreement of dated 17/10/2008 entered into between the appellant M/s. Binny Ltd for the property at Sriperumbudur for a consideration of Rs.l6,00,00,000/-. It was stated in the agreement a sum of Rs.13,26,00,000/- was paid by the purchaser, M/s. Binny Ltd as advance towards the sale consideration. In order to substantiate that M/s. Binny Ltd and M/s. Mohan Breweries and Distilleries Ltd were related parties, the appellant furnished the list of Directors of these companies for the F.Yrs 31/3/2011, 31/3/2012 and 31/3/2013. It was noted that the Directors Shri M. Nandagopal and Shri M. Ethiraj featured in the list of Directors of both the companies. The appellant also furnished letter dated 25/6/2019 from M/s. Binny Ltd which confirmed that the amount of Rs.4,24,07,391/- was receivable from the appellant as on 31/3/2012, The said letter has been kept in appellant's records. The appellant cited the provisions of section 41(1) which provides for treating the cessation of liability as income. It was submitted that in the appellant's case there was no remission or cessation of liability and hence the sum of Rs.4,24,07,391/- cannot be deemed to be the profits and gains of business or profession and chargeable to tax as the income of the previous year. Several judicial decisions were quoted by the appellant in regard. In the case of PCIT vs. New World Synthetics Ltd [2018] 97 taxmann.com 97 399 (Delhi), the Delhi High Court ruled that non-payment of outstanding liability which is admitted and acknowledged as due payable by an assessee does not indicate remission or cessation of liability. It was held that even though the A.O was of the opinion that likelihood of payment was remote as business had stopped, it would not by itself denote and mean cessation or remission of liability. The Gujarat High Court in the case of PCIT, Ahmedabad vs. Matruprasad C Pandey reported in [2015] 59 (Gajarat) held that the amount of old sundry creditors appearing in the Balance sheet cannot be added under section 41(1) unless and until it was found that there was remission/cessation of liability and that too during the relevant assessment year. In die instant case, it also noted that the appellant did not claim any deduction in respect of the advance of Rs.4,24,07,391/-. Taking into account the factual matrix, the evidences filed by the appellant and the judicial decisions pertaining to the case, I find that there is considerable merit in the contentions of the appellant. The A.O, on the other hand, has not established the fact that the sum of Rs.4,24,07,391/- was income under the Act and it had assessment during the F.Y 2011-12, Hence, the money retained by the appellant amounting to Rs. 4,24,07,391/- (and not Rs. 4,27,07,391/- as stated by the A.O) as an advance cannot be disallowed and brought to tax. This ground of appeal is allowed.
Aggrieved, the assessee as well as revenue is in further appeal before us. The assessee is aggrieved by rejection of legal grounds whereas the revenue is aggrieved by deletion of additions on merits. Our findings and Adjudication 5. So far as the merits of the case is concerned, the findings rendered by Ld. CIT(A) remain undisturbed before us. It has been examined by Ld. CIT(A) that the amount due against M/s Binny Ltd. was represented by corresponding amount due from their sister concern M/s Mohan Breweries and Distilleries Ltd. and therefore, it could not be said that the liability of the assessee has ceased. The money has only been retained by the assessee against M/s Binny Limited only because similar amount was due from their sister concern. The Ld. AR has placed on record ledger extracts of subsequent years. Upon perusal of the same, it could be seen that the amount due from M/s Mohan Breweries and Distilleries Ltd. has been received by the assessee during the period 01/01/2019 to 30/12/2019 and the amount has been paid by assessee to M/s Binny Limited. Therefore, the adjudication on merits as done by Ld. CIT(A) could not be faulted with. In the result revenue’s appeal stand dismissed which makes assessee’s cross-objections academic in nature. Therefore, no findings are rendered in assessee’s cross-objections.
The revenue’s appeal stands dismissed whereas the assessee’s cross-objections stand dismissed as infructuous. Order pronounced on 26th October, 2022.