SRI. RAVI SHANKAR SHETTY,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 6(3)(1), BANGALORE

Per CHANDRA POOJARI, AM: This appeal filed by the assessee is directed against the order of the CIT(A) Bengaluru-6 dated 25/11/2019 and pertains to assessment year 2015-16.

I.T.A. No. 28/Bang/2020

I.T.A. No. 28/Bang/2020 8. Without prejudice to the right to seek waiver with the CCIT/DG, the appellant denies himself liable to be charged to interest u/s.234A, 234B and 234C of the Act, which under the facts and in the circumstances o the appellant’s case and the levy deserves to be cancelled. 9. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

I.T.A. No. 28/Bang/2020 balance amount from M/s. Metro Corp. It was submitted that the assessee had not claimed any deduction of expenditure in relation to the advance which remained a liability in his books. Similar is the position of M/s. Metro Corp Infrastructure Ltd.

3.1 The AO observed that as per the contents of the agreement the assessee is not required to refund the advance money received and the question of performing the obligation does not arise when the other party is not traceable as per the address stated by the assessee and assessee himself could not locate the Metro Corporation and Metro Corp Infrastructure Ltd. The amount is payable only as per books and not in real terms. It is also pertinent to mention that though sum was received in 2007, till date the negotiations have not resulted in transfer of capital asset and the assessee could not produce/trace the other party and as such the AO considered that such sum was forfeited. According to the AO there is no evidence of any recovery suit filed by the creditors and the creditors are not traceable which signified that the claim over the amount paid to the assessee was forfeited by them. According to the AO, the assessee had no intention to repay the creditors and under such circumstances, the assessee diverted the funds to acquire fixed assets and investments. The AO found that as per loan and advances schedule assessee had given advances only to an extent of Rs.5,53,81,059/- and thus bulk of amount received from Metro Corporation was invested in individual name of assessee and unless the assessee has changed the categorization of receipt to be his own and not longer to be creditors, the assessee would not have used it for acquisition of assets/investments in his own name. Thus, the AO added the advances received

I.T.A. No. 28/Bang/2020 from M/s. Metro Corp and M/s. Metro Corp Infrastructure Ltd. totaling Rs.21,11,00,000/- to the income of the assessee by invoking the provisions of Section 56(2)(ix) of the I.T. Act.

I.T.A. No. 28/Bang/2020 provides that certain incomes are to be included under the head income from other sources: (ix) any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital assesse if, (a) Such sum is forfeited; and (b) The negotiations do not result in transfer of such capital asset.

4.1 The CIT(A) observed that though the assessee claimed that he is liable to return these advances but the facts of the case indicate that there has been virtual forfeiture of the amount as the promoters have made no attempt to recover the same. According to the CIT(A) these advances were in the nature of trade advances and not having returned the same and having utilized them for making investments in his own name, these amounts had acquired the nature of income in the hands of the assessee. The CIT(A) relied on the judgment of the Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons (222 ITR 344). Before the CIT(A), the assessee placed reliance on the judgment of ITAT, Mumbai in the case of Nilesh Janardhan Thakur vs. ITO (168 ITD 143) where the advances were given for procurement of land and were subsequently not returned. The Tribunal upheld the assessee’s claim on the grounds that the AO had wrongly applied the provisions of section 56(2)(vi) to the case. In the case of Nilesh Janardhan Thakur, the promoters of the project had filed a suit for recovery of the advances given and hence the liability of the assessee to return the same was established whereas in the present case, no such suit was filed. In view of the above, the CIT(A) sustained the addition made by the AO.

I.T.A. No. 28/Bang/2020 5. Against this, the assessee is in appeal before us. The Ld. AR submitted that a sum of Rs.19,62,00,000/- was received as an advance for procurement of lands from M/s. Metrocorp pursuant to an agreement dated 10/02/2006. M/s. Metrocorp advanced a sum of Rs.85 lakhs on the date of agreement and further sums over a period of time aggregating to Rs.19,62,00,000/-The Ld. AR submitted that the last payment was received from M/s. Metrocorp on 07/08/2007 with almost the entire advance being received before 31/03/2007 and further that all amounts were received only by way of account payee cheque. The Ld. AR submitted that due to various reasons including litigations pertaining to the project being developed by Metrocorp the said firm could not pay any further advance to the assessee to procure the lands and as such, the amount received by him was treated as an advance for procurement of lands. The Ld. AR submitted that the assessee was willing to fulfil his obligation under the agreement on receipt of the balance amount from M/s. Metrocorp and the amounts paid by Metrocorp to him was also confirmed by them by authenticating the statement of account of the said firm in the books of the assessee. It was submitted that the assessee confirmed that he did not claim any expenditure or deduction in relation to the advance received from M/s. Metrocorp towards procurement of lands in the present or in any earlier years and that the said advance remained a liability in his books pending performance of his obligation under the agreement.

5.1 The Ld. AR further submitted that the advances of Rs.20,11,00,000/- and Rs.1,00,00,000/- received from M/s. Metrocorp and M/s. Metrocorp Infrastructure

I.T.A. No. 28/Bang/2020 Ltd. respectively was for the procurement of land towards the projects proposed to be developed by the said concerns. It was submitted that after payment of some amounts towards procurement of lands, the said parties discontinued to pay the further amounts for various reasons including certain internal disputes regarding the management of their concerns and other factors. Out of the advances received as above, the assessee made initial payments towards procurement of lands to several parties aggregating to Rs.5,53,81,059/- which is shown under loans and advances in the financial statements as on 31/03/2015.

5.2 Further, the Ld. AR submitted that the provision of section 56(2)(ix) of the Income Tax Act 1961 invoked by the AO to make the disputed additions to th income of the assessee are not applicable to case of the assessee. The Ld. AR submitted that the additions made to the income of the assessee by invoking the provisions of 56(2)(ix) suffers from lack of jurisdiction as the said section per se do not apply and cannot be invoked in the case of the assessee for the following reasons:

i) Section 56(2)(ix) of the Income Tax Act 1961 which was inserted with effect from 01/04/2015 y amendment made in the Finance (No. 2) bill, 2014, read as follows: any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if, - (Emphasis supplied) (a) such sum is forfeited; and (b) the negotiations do not result in transfer of such capital asset; Thus, it is abundantly clear from reading of the provision itself as above that the sum of money received as an advance or otherwise should have been in the course 8

I.T.A. No. 28/Bang/2020 of negotiations for the transfer of capital asset. According to the Ld. AR, It is a well settled principle of interpretation supported by a catena of judicial decisions including that of the Apex Court that the intention of the legislature in is to be strictly gathered from the language of the provision particularly where the language is plain and unambiguous. The Ld. AR relied on the following decisions in this regard 1. Smt.Tarulata Sharadas Vs CIT (1977) 108 ITR 345(SC) 2. CIT Vs Calcutta Knitwears (2014) 362 ITR 673 (SC) 3. Indian Bank Associations and Ors. Vs Devkala Consultancy Services and Ors (2CC1) 267 ITR 179 (SC) 4. Nathuram Agarwal Vs State of Madhya Pradesh (1999) 8 SCC 667 (SC) 5. Tata Consultancy Services Vs State of Andhra Pradesh (2004) 271 ITR 401(sc) According to the Ld. AR, the above principle is even more applicable in this case as the addition was made in the case of assessee by invoking the deeming provision to tax a receipt as an income, where the wordings of the provisions being invoked have to be construed strictly. The Ld. AR submitted that a proviso was inserted in Section 51 of the Income Tax Act which dealt with money, received in respect of Negotiations in relation to a “Capital Asset" by the Finance(No. 2) Act, 2014 simultaneously with the insertion of section 56(2)(ix), there by further confirming the analogy that the provisions of section 56(2)(ix) would apply to the advances received in relation to a "Capital Asset" and not "stock in Trade".

5.3 Further, the Ld. AR submitted that a reading of the agreement entered into dated 10/02/2006 between Adishree Properties a Proprietary Concern of Ravi Shankar Shetty (Appellant) and M/s. Metrocorp, which has been taken as a basis for making additions, would reveal the following important facts:

I.T.A. No. 28/Bang/2020

a) That the procurer/coordinator i.e., M/s. Adishree Properties, a Proprietary Concern of Ravi Shankar Shetty (Appellant),is in the business of building and selling of iand, having a expertise in identification of land, ascertaining their suitability of land or commercial exploitation etc. (Refer Page 2of the Agreement). b) That the Promoter/Purchaser M/s. Metrocorp is in the business of promotion of modern township, residential, industrial and commercial complexes etc., and had approached the Appellant to facilitate the procurement of lands in furtherance of its Business objectives (Refer page 1 of the Agreement).

As is discernible from the agreement, the Ld. AR submitted that the amounts advanced by the Promoter/Purchaser M/s. Metrocorp to M/s. Adishree Properties a Proprietary concern of Ravi Shankar Shetty (Appellant) was to identify, procure and acquire lands which would constitute “Stock in Trade” in hands of the promoter/coordinator and will also be regarded as an advance towards the procurement/acquisition of lands as “Stock in trade” in furtherance of the business of the proprietary concern of the assessee M/s. Adishree Properties. In other words, the advance given and advance taken are for the purpose of and in relation to procurement/acquisition of lands as “Stock in Trade”.

5.4 The Ld. AR further submitted that as the advances received are in the course of negotiations for transfer of “Stock in Trade” and not a Capital Asset” both in the hands of the payer i.e., M/s.Metrocorp and the payee i.e., the recipient M/s. Adishree Properties Proprietary Concern of Ravi Shankar Shetty (Appellant), the provisions of section 56(2) (ix) are not applicable to the facts of the assessee’s case.

I.T.A. No. 28/Bang/2020 5.5 The Ld. AR submitted that the assessee had received letters from M/s Metrocorp and from M/s. Metrocorp Infrastructure Ltd. in which the following facts have been clearly stated and confirmed :

a) That M/s Metrocorp and M/s Metrocorp Infrastructure Ltd has not advanced further monies to Sri. Ravi Shetty, proprietor of Adishree properties (Appellant) towards the aforesaid procurement agreement, as a result of which he is yet to fulfil his obligations under the agreement. b) That the amounts already paid bv M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd to Ravi S Shetty (Appellant) has been shown as advance in the books of the said entities . The Ld. AR submitted that these letters are critical evidence in support of the assessee’ss claim and goes into the root of the matter on which the addition was made.

5.6 The ld. AR submitted that the Assessing Officer in Para 1 of the Remand Report stated that the assessee had not responded to the e-mail communication dated 28/11/2017 by furnishing confirmation regarding amounts received from M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. and therefore had not utilized the opportunity of furnishing the same in the gap of one month between the date of e- mail communication and the date of the order. It was submitted that this averment of the Assessing Officer was factually incorrect as the assessee had responded immediately to the e-mail vide his submission dated 02/12/2017 and 20/12/2017 on the subject matter of additions. It was submitted that there as no murmur of impending additions made by the Assessing Officer and no show cause notice was issued on the assessee based on his submissions and consequently, the assessee

I.T.A. No. 28/Bang/2020 was under the bona fide belief that the confirmations filed by the assessee and the explanations given by the assessee were in order and accepted by the Assessing Officer.

5.7 The Ld. AR submitted that the Assessing Officer had herself affirmed the fact that Sri Rathan Kumar the Additional Director of M/s. Metrocorp Infrastructure Ltd. and Manager of M/s. Metrocorp had attended the summons u/s. 131 and furnished statements and confirmations regarding advances of Rs.20,11,00,000/- given by M/s. Metrocorp and Rs.1,00,00,000/- from M/s. Metrocorp Infrastructure Ltd. which proves beyond doubt that not only the said concerns were represented by a designated official but also that the confirmation of balances of the advances given to the assessee were produced.

5.8 The Ld. AR further submitted that in para 3 of the Remand Report, the Assessing Officer has reproduced statements made by Sri Rathan Kumar for and on behalf of M/s. Metrocorp Infrastructure Ltd. and M/s. Metrocorp. In para 1 of the same, the Assessing Officer had confirmed that Sri Rathan Kumar was unable to furnish the financial statement of M/s. Metrocorp for the years in which the advances were given to the assessee and it was further stated that only ledger accounts were provided showing bank accounts transactions for which bank statements were not produced. In this regard, it was stated that the assessee had furnished a letter dated 29/01/2019 which clearly showed that the assertion made by the Assessing Officer is factually incorrect as copies of financial statements of

I.T.A. No. 28/Bang/2020 M/s. Metrocorp for the year in which the advances were given were available on record. Regarding Sri Rathan Kumar not being able to produce the bank statements of M/s. Metrocorp, it was stated that Sri Rathan Kumar had joined the group only from 31/08/2016. The Ld. AR submitted that the evidence of the advances received by the assessee from the parties through banking channels was clearly established by the assessee in the ledger statements produced before the Assessing Officer. According to the Ld. AR, the averment of the Assessing Officer that necessary supporting evidence for Rs.110 crores investment in M/s. Metrocorp was not provided is incorrect as audited financial statements of M/s. Metrocorp for the year ending 31/03/2008 clearly showed investment from an international investor M/s. Pramerica. The Ld. AR submitted that the averment of the AO that M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. had not completed a single project is of no consequence as the assessee was in no way responsible for the completion of projects by the said concerns. It was submitted that the financials of M/s. Metrocorp Infrastructure Ltd. for year ended 31/03/2009 clearly showed that an amount of Rs.76,78,24,728/- was incurred as project cost for project ‘Nirvana’ and the non submission of any documents pertaining to the project was in no way due to the fault of the assessee.

5.9 The Ld. AR submitted that M/s Metrocorp had filed its return of income for the A.Y. 2007-08 and A.Y. 2008-09 and M/s. Metrocorp Infrastructure Ltd. had filed its return of income for the A.Y. 2009-10 and assessments of both the concerns were completed u/s. 143(3) of the I.T. Act. The Ld. AR submitted that the financials of

I.T.A. No. 28/Bang/2020 both M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. reflected the advances. The Ld. AR submitted that the nature of lands being procured was held as business asset i.e. ‘Stock in Trade’ by the assessee and quoted from procurement agreement as follows: i) Whereas the Procurer/Co-ordinator is in the business of buying and selling of land, undertaking joint development agreements and his having expertise n identification of land, verifying the marketability of title, suitability of the land for commercial exploitation and negotiation with the land owners. ii) Whereas the Prompter/Purchaser herein being engaged in the promotion of modern townships, residential, industrial and commercial building complexes etc. have been on the lookout for an ideally located compact and contagious block of lands for the promotion and development of a modern township consisting of residential, industrial and commercial sites together with all modern facilities, amenities and infrastructure.

The Ld. AR submitted that the procurement agreement showed that the assessee was in the business of buying and selling of lands. Thus, it was clear that the nature of asset was procured for the purchaser and being acquired by the assessee as part of his ‘Stock in Trade’ and not a capital asset.

5.9.1 Regarding answers to Question 21 and Question 22 of the statement recorded from Mr. Rathan Kumar in the remand report, the Ld. AR submitted that the Assessing Officer had not reproduced certain important aspects of the sworn statement of Mr. Rathan Kumar as follows: Answer to Question 12, Shri Rathan Kumar has clearly stated that the advances were to the appellant to procure land for its project ‘Nirvana’. The said project located at Sadahalli Village, Devanahalli Taluk, Bangalore Rural District.

I.T.A. No. 28/Bang/2020 Answer to Question 17, Sri Rathan Kumar has clearly stated that the services of Adishree Properties were employed because of their expertise in coordinating, procuring and acquiring lands and ancillary activities of negotiating with Land Owners, identification of land and its marketability.

Answer to Question 22 Sri Rathan Kumar has clearly stated that M/s. Metrocorp have not taken any legal action against Adishree Properties. Since we have no further advanced that remainder amount as per Procurement Agreement dated 10/02/2006.

5.9.2 The Ld. AR submitted that the judgment of the Apex Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons dated 11 September, 1996 is distinguishable on facts of the present case. The Ld. AR submitted that the representative of M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. had clearly stated that no legal action could be taken against the assessee since further advances were not given to the assessee to enable him to fulfil his obligation under the Procurement Agreement.

5.9.2 It was further submitted by the Ld. AR that in the case of the assessee, the following points need to be emphasized and placed on record.

a) That the sum of money received by the Appellant was not for the transfer of any capital asset owned or held by him but only for the procurement of the land from others. b) That the advances received for procurement have not been forfeited by the appellant as on that date. c) That the negotiations for transfer of the lands to be procured by the Appellant cannot be said to have been concluded as the Appellant had to receive further monies towards procurement to perform his obligations under the procurement agreement, which fact has also been confirmed by the representative of the Company which had given such advances in his recorded in answer to Question No. 22 of the remand report. 15

I.T.A. No. 28/Bang/2020

As can be seen from the above, it was submitted that none of the conditions for invoking the provisions of section 56(2)(ix) are applicable to the appellant’s case and hence the additions made by the Assessing Officer by invoking the aforesaid provisions of section 56(2)(ix) of the I.T. Act lacks jurisdictions and has been made without the force of law. The above contention is without prejudice to the contention already taken that the negotiations between the Appellant and the Concerns M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. which paid the advance to him was for acquiring lands which formed part of stock-in-trade and not for the purpose of acquisition of capital assets. The Ld. AR submitted that the provisions of section 56(2)(ix) was introduced into the Income Tax Act by Finance Act, 2014 by amendment to section 56 of the Income Tax Act. Simultaneously with the insertion of section 56(2)(ix) a proviso was inserted in section 51 of the I.T. Act in effect to provide that in the event any advance received in the course of transfer of capital asset has been included as income u/s. 56(2)(ix), the same need not reduced from the cost of asset. In other words, it was submitted that section 56(2)(ix) was introduced to fix the point of taxability of the amount receive and forfeited in the negotiation of transfer of a capital asset which was not taxable u/s. 51 but only deferred to a future date by allowing the advance forfeited to be reduced from the cost of the asset. Thus, based on the above submissions, the Ld. AR prayed that the addition may be deleted and the appeal of the assessee allowed.

I.T.A. No. 28/Bang/2020 6. The Ld. DR on the other hand submitted that the amounts of Rs.20,11,00,000/- and Rs.1,00,00,000/- given by Metrocorp and Metrocorp Infrastructure Ltd., respectively to the assessee for procurement of land was not returned to these parties is not in dispute. The Ld. DR submitted that the assessee claimed that these advances remained a liability in his books and he may have to return the same at some further date, particularly if these concerns face liquidation proceedings. The AO has noted that only an amount of Rs.5,53,81,059/- has been given by the assessee as advances and balance invested in fixed assets and investments in the assessee’s name. The Ld. DR submitted that the advances were in the nature of trade advances and not having returned the same and having utilized them for making investments in his own name, these amounts had acquired the nature of income in the hands of the assessee. According to the Ld. DR the assessee claimed that he is liable to return these advances but the facts of the case indicate that there has been virtual forfeiture of the amount as the promoters have made no attempt to recover the same and in the present case, no suit was filed. In view of the above, the Ld. DR submitted that the CIT(A) was justified in upholding the additions made by the AO.

I.T.A. No. 28/Bang/2020 the assessee and confirmed by the CIT(A). This amount has been received by the assessee from M/s. Metro Corporation vide agreement dated 10/02/2006. The assessee is in the business of buying and selling of land. He is in the real estate business. M/s. Metro Corp approached the assessee to facilitate the procurement of land for their business. Similarly, Metro Corp Infrastructure Ltd. advanced money to the assessee amounting to Rs.1 crore in the month of April, 2008. These amounts are stated as outstanding in the balance sheet of the assessee from year to year and also in the financial year ending 31/03/2015 relevant to the assessment year 2015-16. During the course of assessment, on enquiry by the AO, the assessee furnished the confirmation letters from the parties which are as follows:

METROCORP [Narasimha Towers, 46/2,3rd floor,Fourth Cross, Malleshwaram Bangalore 560003] 14/11/2018 To The Assistant Commissioner of Income Tax Circle 6(3)(1), Bangalore Sir, Subject: Confirmation of amount paid to Sri Ravi Shankar Shetty,Proprietor of M/s. Adishree Properties This is to confirm that Metrocorp Infrastructure Limitedhad paid an advance of Rs.1,00,00,000/- (Rupees One Crore only) to Mr. Ravi Shankar Shetty, Proprietor, Adishree Properties No. 89, 1st Floor, 15th Main, RMV Extension 560 080 , in the month of April 2008. The said advances were made towards procurement of land. We confirm that we have not advanced further moneys to Shri Ravi Shankar Shetty towards the aforesaid procurement of land, as a result of which, he is yet to fulfill his obligations under the agreement. The amount paid to Sri Ravi Shankar Shetty has been shown as an advance to Metrocorp’s books 18

I.T.A. No. 28/Bang/2020 Kindly note that pursuant to an assignment deed executed during 2009, Metrocorp, the partnership firm, bearing PAN No: AAMFM 60578, has assigned all its rights, assets and liabilities to Metrocorp Infrastructure Limited. Thanking you For Metrocorp Sd/- (Rathan Kumar) Manager

METROCORP INFRASTRUCTURE LIMITED [Narasimha Towers, 46/2,3rd floor,Fourth Cross, Malleshwaram Bangalore 560003] From: Metrocorp Infrastructure Limited, Bangalore 14/11/2018 PAN: AAMFN 6057B To The Assistant Commissioner of Income Tax Circle 6(3)(1), Bangalore Sir, Subject: Confirmation of amount paid to Sri Ravi Shankar Shetty,Proprietor of M/s. Adishree Properties This is to confirm that Metrocorp Infrastructure Limited had paid an advance of Rs.1,00,00,000/- (Rupees One Crore only) to Mr. Ravi Shankar Shetty, Proprietor, Adishree Properties No. 89, 1st Floor, 15th Main, RMV Extension 560 080 , in the month of April 2008. The said advances were made towards procurement of land. We confirm that we have not advanced further moneys to Shri Ravi Shankar Shetty towards the aforesaid procurement of land, as a result of which, he is yet to fulfill his obligations under the agreement.

I.T.A. No. 28/Bang/2020 The amount paid to Sri Ravi Shankar Shetty has been shown as an advance to Metrocorp’s books

Thanking you For Metrocorp Infrastructure Limited Sd/- (Rathan Kumar) Director

7.1 The AO disallowed the claim of the assessee and held that the said receipt is outstanding in the books of account from year to year. It was the contention of the authorities that it is nothing but virtual forfeiture as the assessee has invested these amounts in the fixed assets and investments in his business. More so, the lender has not made any attempt to recover the same from the assessee. Thus, he invoked the provisions of section 56(2)(ix) of the I.T. Act. The CIT(A) confirmed the same.

7.2 The Ld. Counsel for the assessee submitted that provisions of section 56(2)(ix) would not be applicable on the facts of the present case because the said section came in force with effect from 01/04/2015 and the assessee has not received any sum or advance in this assessment year. Therefore, provision would not be applicable. We are unable to subscribe to such an argument that the provision is applicable only to the amount received after 01/04/2015 because the deeming provision is attracted in the event if any sum is treated by the assessee out of any sum and money received as advance or otherwise in the course of negotiation for the transfer of a capital asset. Hence, we have to see herein whether the amount received by the assessee is in the course of transfer of a capital asset qua whether 20

I.T.A. No. 28/Bang/2020 there is forfeiture of the amount in the assessment under consideration. From the plain reading of section 56(2)(ix), it is clear that money was received as advance or otherwise in the course of negotiation for transfer of capital asset. Therefore, sum received in the course of negotiation for transfer of a capital asset is sine qua non for invoking the deeming provisions. This negotiation is to be in relation to the transfer of a capital asset in whose case the deeming provision is attracted. In other words, the capital asset which is the subject matter of negotiation for transfer must belong to the assessee. The lower authorities was of the opinion that since the amount received from M/s. Metro Corp and M/s. Metro Infrastructure Ltd. was invested by the assessee in acquisition of fixed assets and investments in assessee’s business, it attracted provisions of section 56(2)(ix) of the I.T. Act. From the bare reading of section 56(2)(ix) shows that any amount received during the course of negotiations for transfer of capital asset, i.e., capital asset of the issuer company and not the receiving company. The deeming provision is applicable in a situation where the person who owns a capital asset enters into a negotiation for transfer of his capital asset with the other person and receives any advance which is forfeited on account of failure of negotiation for transfer of such capital asset, then the money received as advance is hit by the deeming provisions which is taxable as income from other sources in the hands of the receiver. In the present case, it is an admitted fact that the assessee is in the business of real estate business. The parties viz. M/s. Metro Corp and M/s. Metro Corp Infrastructure Ltd. have advanced money to the assessee to facilitate the procurement of land for the furtherance of their business as the assessee is in the business of buying and selling of land,

I.T.A. No. 28/Bang/2020 having expertise in the identification of land, verification of marketability of title, suitability of land for commercial exploitation etc. This was mentioned in page 2 of the agreement entered by the assessee with M/s. Metro Corp. There is no dispute regarding the fact that the assessee is in the business of procurement and co- ordinator of land or he is in the real estate business. The money was not received from these two parties during the course of negotiations for transfer of any capital asset. The said amount was received by the assessee from these two parties for the purpose of procurement of land for their business operations which is stock in trade to the present assessee. . As discussed earlier, the money received during negotiation for transfer of capital asset is hit by the deeming provision of section 56(2)(ix) of the Act and not to stock in trade.. The aforesaid proposition is also borne out with the legislative intent while introducing section 56(2)(ix) by Finance Act 2014 which is reproduced as follows:

“Section 56 Finance Act, 2014 6.10 Taxabitity of advance for transfer of a capital asset where advance is forfeited. (sections 5I and.-56) In Travancore Rubber & Tea co. Ltd.. Vs. CIT [2000J 243 ITR 158/109 Taxman 250 ) it was held that forfeiture of advance money received for transfer of capital asset cannot be treated as revenue receipt chargeable to tax. In order to overcome this ruling by the supreme court, section 56 relating to income from other sources has been amended by the Finance (No. 2) Act, 2014 by inserting a new clause (ix) in sub-section (2) of the aforesaid. section. The said. new clause (ix) provides that where any sum of money, received as an advance or otherwise in the course of the negotiation for transfer of a capital asset, is forfeited and the negotiations do not result in transfer of such capital asset, then, such sum shall be chargeable to income-tax under the head "Income from other Sources”. This amendment will take effect from 1st April, 2015 and will accordingly, apply in relation to the assessment year 2015-16 and subsequent years.

I.T.A. No. 28/Bang/2020 Consequential amendments have been made to definition of income in section 2(24) and in section 51. The existing provisions contained in clause (24) of section 2 define the term “income”. The clause (24) has been amended so as to include any sum of money referred to in clause (ix) of sub-section(2) of section 56 in the definition of income. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the ay 2015-16 and subsequent years. The existing provisions contained in section 51 provide that where any capital asset was on any previous occasion, the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. Finance (No. 2) Act, 2014 ha inserted a proviso in the said section, so as to provide that where any sum of money received as an advance or otherwise in the course of the negotiations for transfer of a capital asset has been included in the total income of the assessee for any previous year in accordance with the provisions of clause (ix) of sub-section (2) of section 56, then, such sum shall not be deducted from the cost of acquisition. This amendment aims to avoid double taxation of the forfeited advance. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the ay 2015-16 and subsequent years.”

7.3 Thus, the provisions of section 56(2)(ix) has to be understood in the light of section 51 of the Act which provided that where any capital asset was on any previous occasion, subject matter of negotiation for its transfer and any advance or any other money has been received and retained by the assessee in respect of such negotiation, then same was to be deducted from the cost for which the asset was acquired at written down value or fair market value while computing the cost of acquisition. Now from the assessment year 2015-16, if such sum received as an advance is included in the total income then same is deducted from the cost of acquisition. Section 51 refers to capital asset belonging to the assessee which was subject matter of negotiation for transfer and assessee receiving any sum as advance from such negotiation. It was not applicable to the transferee. In the 23

I.T.A. No. 28/Bang/2020 present case, the facts show that the assessee received money for procurement of land on behalf of these two parties which cannot be said that the assessee received money on transfer of his capital asset to the two parties. Further, the assessee has not forfeited the amount received by him and it has been shown as outstanding in the respective name of these two parties in the Balance Sheet of the present assessee. The debit in the Balance Sheet itself shows that it is outstanding on the date of the balance sheet and the assessee is liable to pay the same to the two parties. More so, the parties have given confirmation letters stating that the amount is outstanding from the assessee to them. In such a situation, it cannot be considered as an amount forfeited by the assessee so as to invoke the provisions of section 56(2)(ix) of the I.T. Act.

7.4 Further, the other contention of the Ld. DR is that the assessee has invested bulk of this amount which was received by assessee in Fixed Assets and investments. In our humble opinion, usage of the funds by the assessee cannot be reason to invoke the provisions of section 56(2)(ix) of the I.T. Act. The usage of said funds by the assessee cannot change the character of the source of funds received by the assessee and it will remain as received towards procurement of land on behalf of the lender for procuring land which is stock in trade to the assessee. As discussed earlier, we have to see only the issue that whether the assessee has received the money in the course of transfer of capital asset or whether it is forfeiture. In our humble opinion, these two conditions were not fulfilled so as to invoke the provisions of section 56(2)(ix) of the I.T. Act.

I.T.A. No. 28/Bang/2020 7.5 The lower authorities placed reliance on the judgment of the Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd. (222 ITR 344) wherein the assessee received deposits not being in the nature of security deposits held by the assessee for performance of contract by its constituents or its customers in the course of business and depleted by adjustments from time to time, unclaimed balances transferred by the assessee to its P&L account or its trading receipt, even though the receipt was initially treated as capital receipt, the claim of depositors having become barred by time. In the case of CIT vs. T.V. Sundaram Iyengar & Sons (supra), the amounts were received from trade parties who have not made any claim of repayment of balances. The assessee wrote back the amount to the P&L account because the various trade parties did not claim these amounts for a long time. The unclaimed surplus balances retained by the assessee itself was treated as trade receipt by bringing it to the P&L account and the claim of the customers have become barred by limitation. Hence, it was treated as trade receipt of the assessee. In the present case, the amount was received by the assessee in the course of his business operations and it was shown as liability in his Balance Sheet till the F.Y. ending 31/03/2015 relevant to the A.Y. 2015-16. There was no write off by the assessee by crediting it to the P&L account. By showing the balance as outstanding in the Balance Sheet, the debit is acknowledged by the assessee and the lender also confirmed the same. It cannot be said that the claim of the parties has been barred by time. The provisions of section considered by the Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons (supra) is with reference to section 28. In the present case, the specific provision is sec. 56(2)(ix)

I.T.A. No. 28/Bang/2020 which is in relation to capital asset. Being so, the ratio laid down by the Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons (supra) is not applicable to the present case. Thus, in our opinion, there is no forfeiture of the amount so received by the assessee and it is outstanding in the books of account of the assessee and also confirmed by the lenders. There is also no negotiation for transfer of capital asset by the assessee with these two parties. Thus, the assessee’s case is not hit by the provisions of section 56(2)(ix) of the I.T. Act. Accordingly, the addition sustained by the CIT(A) is deleted. This ground of appeal of the assessee is allowed.

7.6 The charging of interest u/s. 234A and 234B is consequential. Since we have deleted the addition made by the AO u/s. 56(2)(ix) of the I.T. Act, there is no question of levy of interest under these sections. Thus, this ground of the appeal of the assessee is allowed.

(BEENA PILLAI) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Bengaluru Dated: September, 2020 GJ Copy to: 1. Shri Ravi Shankar Shetty, #289, 1st Floor, 15th Main, RMV Extension, Bengaluru-560 08. 2. The Assistant Commissioner of Income-tax, Circle-6(3)(1), Bengaluru 3. The Commissioner of Income-tax(Appeals), Bengaluru-6.

I.T.A. No. 28/Bang/2020 4. The Pr. Commissioner of Income-tax, Bengaluru. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Bengaluru