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Income Tax Appellate Tribunal, ‘A‘ BENCH
Before: SHRI MAHAVIR SINGH & SHRI M.BALAGANESHShri Ashish Indur Chowdhry
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2015-16 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-8, Mumbai in appeal No.CIT(A)-8/IT-95/2017-18 dated 19/08/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/10/2017 by the ld. Asst. Commissioner of Income Tax, Circle 3(1)(1), Mumbai (hereinafter referred to as ld. AO).
The Revenue has raised the following grounds:-
“i. Whether, on the facts and circumstances of the case and in law, the Ld,CIT(A) was correct in accepting the proof of payments submitted by the assessee before him which were never produced before the AO in contravention to the provisions of' Rule 46A of the Income Tax Rules, 1962? ii. Whether, on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in holding that the AO has not established that the assessee had actually written off the outstanding liabilities in the books of account without appreciating that mere reflection of liability in the books of account would not tie down revenue to hold such liability to be subsisting liability as held by the Hon'ble ITAT, Ahmedabad Bench in the case of Dattatray Poultry Breeding Farm (P.) Ltd in [2018] 95 taxmann.com 130 (Ahmedabad - Trib.)/[2018] 171 ITD 615 (Ahmedabad - Trib.)? iii. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored. iv. The appellant craves leave to amend, alter, delete or add grounds which may be necessary
We have heard rival submissions and perused the materials available on record. We find that assessee is an individual and a Bollywood actor who had hosted famous programme for Disney show. Assessee had also acted in many music videos as well as advertisements. The return of income for the A.Y.2015-16 was filed by the assessee on 29/09/2015 declaring total income of Rs.95,59,860/-. The ld. AO on perusal of the details furnished by the assessee observed that assessee had received Rs.2,03,21,808/- as advance against sale of property situated at flat No.402, Raheja Komal, Bandra during the financial years 2002-03 to 2008-09 from Art Advertising and Marketing (India) Pvt. Ltd., vide Memorandum of Understanding (MOU) dated 03/03/2004. The total consideration for the said flat was fixed at Rs.4 Crores and the balance consideration was to be paid on or before 31/03/2009 as per the MOU. The clause 4 of the said MOU stated that if the consideration is not received as per the MOU, the vendor i.e. the assessee shall have option to terminate the MOU and earnest money paid by the purchaser shall be refunded without any interest. The said MOU was cancelled by the assessee vide letter dated 13/09/2008 as purchaser i.e. Art Advertising and Marketing (India) Pvt. Ltd., expressed their inability to complete the transaction. The assessee started repaying earnest money as per MOU from F.Y.2010-11. The balance outstanding as on 31/03/2015 payable by the assessee to Art Advertising and Marketing (India) Pvt. Ltd., was Rs.1,66,42,608/-. The assessee had also made payments to the said party subsequent to 31/3/2015 and that the balance outstanding as on 31/03/2017 was Rs.32,87,498.15. The ld. AO observed that the liability of Rs.1,66,42,608/- was reflected in the balance sheet of the assessee and since the same was not paid for more than a decade, he concluded that the said liability ceased to exist and accordingly, sought to add the same as income of the assessee in terms of Section 41(1) of the Act on the ground of “cessation of liability”. The assessee even submitted a copy of confirmation and statement of account of the said purchaser who had also accounted for the said transaction in the books of accounts. The assessee also submitted before the ld. AO that the said money received was only towards advance for sale of flat and hence, would only be a capital receipt in his hands and the same is not of trading liability. Hence, it was pleaded that the said receipt cannot be brought to tax as income in the hands of the assessee. However, these evidences and submissions were ignored by the ld. AO and addition u/s.41(1) of the Act was made in the assessment.
3.1. The assessee pleaded that it was not having sufficient funds to repay the entire advance of MOU to the purchaser i.e.Art Advertising and Marketing (India) Pvt. Ltd., Hence, the monies were being repaid to the said party in instalments. The ld. CIT(A) observed that the provisions of Section 41(1) of the Act would not come into operation at all as assessee had not claimed any deduction in earlier years in respect of such liability.
Aggrieved by this action, the Revenue is in appeal before us.
We have heard the rival submissions and perused the materials available on record. It is not in dispute that the sum which is the subject matter of addition was nothing but advance received by the assessee for sale of his flat originally pursuant to MOU entered into with the purchaser. It is not in dispute that since the said purchaser expressed his inability to pay the remaining part of the consideration for the property, the MOU was cancelled by the assessee. As per the said MOU and pursuant to its cancellation, the assessee is bound to refund the advance received on sale of property without interest to the said purchaser. The assessee had explained that since he had no sufficient funds to refund the advance to the party, the same were refunded in installments. Accordingly, as against the amounts received in the form of advance for sale of property in the sum of Rs.2,03,21,808/-, after accounting for the repayments made by the assessee, a sum of Rs.166,42,608/- was remaining as a liability (i.e. capital liability) in the balance sheet of the assessee as on 31/03/2015. This capital liability was sought to be treated as cessation of liability in terms of Section 41(1) of the Act by the ld. AO. We hold that at the outset, the amounts received as advance for sale of property is a capital receipt and is certainly not a trading receipt. Hence, the same cannot be construed as a trading liability remaining in the balance sheet of the assessee. Admittedly, the said liability of Rs.1,66,42,608/- has been continued to be shown as a liability as on 31/03/2015 in the books of assessee. Hence, the said liability had not ceased to exist. The very fact that the assessee has continued to show the said liability in his balance sheet goes to prove that assessee had duly acknowledged his debt due to Art Advertising and Marketing (India) Pvt. Ltd., and subsequent conduct of the assessee by making repayments thereon also go to prove that the said liability is a genuine capital liability which had been refunded from time to time. Since the said liability continues to remain in the balance sheet of the assessee as on 31/03/2015, the same cannot be treated as cessation of liability in terms of Section 41(1) of the Act. Moreover, we also find that assessee had admittedly not claimed any deduction in the earlier years while creating this liability. Hence, the basic pre-requisite of invoking the provisions of Section 41(1) of the Act had not been fulfilled in the instant case, On this count also, the action of the ld. AO deserves to be dismissed and action of the ld. CIT(A) deserves to be upheld. The various case laws relied upon by the ld. AO in his assessment order are distinguishable and not germane to the facts on record before us.
5.1. We also find that Revenue has raised in one of the grounds that there was a violation of Rule 46A of the Income Tax Rules (in short „Rules‟) wherein the ld. CIT(A) had merely accepted the payments subsequently made by the assessee to Art Advertising and Marketing (India) Pvt. Ltd., for which the ld. AO was not afforded any opportunity. We find that admittedly assessee had furnished the details of subsequent repayment of advance made by him to Art Advertising and Marketing (India) Pvt. Ltd., in a tabular form before the ld. CIT(A) and had also stated what is remaining balance outstanding at the end of each year post 31/03/2015. From the said table it could be deciphered that as on 31/03/2019, there were no amounts payable by the assessee to said party. This cannot be construed as any additional evidence as it is only submission of mere fact of repayments made to the said party which were submitted at the behest of the ld CIT(A). Even before us, the Revenue had not brought any contrary evidence to prove that the said liability was not repaid. In the first instance, the addition ought not to have been made u/s.41(1) of the Act in the facts of the instant case as we have already stated hereinabove that assessee has been continuing to show it as liability as on 31/03/2015 in his balance sheet. The ld. AO having made an unwarranted addition in the hands of the assessee cannot claim recourse to Rule 46A violation by merely taking the ground before us when the said provision of Section 41(1) of the Act could not have been applied by him in the eyes of law. Moreover, the ld. CIT(A) had not granted relief to the assessee by relying on the said table. He had granted relief on the ground that no deduction has been claimed by the assessee in earlier years and hence, provisions of Section 41(1) of the Act could not be invoked in the instant case. Moreover, the ld. CIT(A) had also appreciated the fact that assessee had continued to show the liability in his books and that the liability had not ceased to exist. Hence, the ground No.1 raised by the Revenue on the alleged violation of Rule 46A of the IT Rules is hereby dismissed. In view of the aforesaid observations, both the grounds of the Revenue are dismissed.
In the result appeal of the Revenue is dismissed.
Order pronounced on 14/07/2021 by way of proper mentioning in the notice board.