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Income Tax Appellate Tribunal, Kolkata Bench, KOLKATA
Before: SRI ABY T.VARKEY & DR. A. L. SAINI
ORDER Per AbyT.Varkey, JM The appeal preferred by the Revenue and the Cross Objection preferred by the assessee are against the order of the Ld. CIT(A)-IV, Kolkata, dt.03.09.2015 for A.Y. 2012-
Since both the appeal and the cross objection have been heard together, we dispose of the same by this consolidated order for the sake of convenience.
2 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13
The main grievance of the Revenue is against the action of the Ld. CIT(A) in allowing the relief of Rs.1,16,38,000/-.
Brief facts of the case is that the assessee had filed his return of income on 30.09.2012 reflecting total income of Rs.41,39,400/-. Later the case was selected for scrutiny.
The AO noted that the assessee was showing liabilities to the tune of Rs.1,16,38,000/- towards various old liabilities which were held by the AO as bogus liability claim of the assessee. The AO tried to ascertain the genuineness of the liability reflected in the balance sheet by issuing notice u/s 133(6) to the following, namely, M/s.
Nirupama& Co. in whose account there was a postponement of liability of Rs.6,38,000/-.
According to the AO the notice came back unserved for which the AO took an adverse view and made the addition u/s 41(1) of the Act.
The next sundry creditor, namely, M/s. KIT Sales Pvt. Ltd. from whom the liability was being reflected from the year 2006-07 onwards wherein an outstanding liability of Rs.50 Lakhs, was also issued notice u/s133(6) whereby reply was received from the said company to the effect that (a) there was no transaction for the period from01.04.2010 to 31.03.2011, 01.04.2011 to 31.03.2012 and 01.04.2012 to 31.03.2013 and for which period no Xerox copy of the ledger account could be produced.
(b) that there was no advance of any amount at any time to M/s Abir International, proprietor Sri Prabir Roy Chowdhury and 3 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 (c) there was no agreement and as such copy and certified copy of ledger account could not be furnished. Therefore, AO took an adverse view and made the addition u/s 41(1) of the Act.
The next sundry creditor, namely, (iii) Sri Bimal Kumar Gupta in whose account there was outstanding liability of Rs.60 Lakhs was also issued notice u/s 133(6) whereby reply was received to the effect that during the period 01.04.2010 to 31.03.2013 there were no transactions with the assessee. However, it was stated that in the reply that land was purchased from the assessee during the year 2006 and the registration of the same was completed in May, 2006 and that there were no further payment to be made to the vendor ShriPrabir Roy Chowdhury, the assessee.
The AO confronted the assessee with the aforesaid reply of Sri Bimal Kumar Gupta for which the assessee explained that since the land which was registered in the name of Mr. Bimal Kumar Gupta could not be handed over physically to the party Sri Bimal Kumar Gupta. The amount received was considered as liability in this year also and when the said land was physically handed over to Sri Bimal Kumar Gupta the said land of Rs.60 Lakhs has been shown as income after adjustment of the cost of purchase of the land by the assessee. However, the AO did not accept the contention of the assessee and concluded that the amount of Rs.60 Lakhs was a tax liability and added it back to the total income u/s 41(1) of the Act. Thus the AO made a total addition u/s 41(1) of Rs.1,16,38,000/- to the income of the assessee. Aggrieved the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the appeal and ordered deletion of the aforesaid amount. 3
4 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13
Aggrieved by the said decision of the Ld. CIT(A), the Revenue is before us.
We have heard both the parties and perused the records. We take note that the AO has invoked Sec. 41(1) to bring into tax the following liabilities shown by the assessee as follows:
(i) B. Nirupam& Co. 6,38,000- Sundry Creditors (ii) Kit Sales (P) Ltd. 50,00,000- Advance (iii) Bimal Kumar Gupta 60,00,000- Advance
Thus a total addition of Rs.1,36,38,000/- has been made by the AO invoking section 41(1) of the Act.
First we take the case of Sri Bimal Kumar Gupta, from whom the assessee has shown a liability of Rs.60,00,000/- which has been treated by the AO as bogus claim and added u/s 41(1) of the Act. The assessee’s case is that during the F.Y. 2005-06 received advances from Sri Bimal Kumar Gupta of an amount of Rs.25 Lakhs as advance for purchase of land vide 3 cheques. In the month of January and February, 2006 and during the F.Y. 2006-07, the assessee received vide cheque dt. 25.04.2006. Rs.35 Lakhs, thus a total amount of Rs. 60 Lakhs was paid by Sri Bimal Kumar Gupta to the assessee i.e. for A.Y. 2006-07 and 2007-08. According to the assessee,though the registration of the property took place in May, 2006, however, the physical possession of the property could not be handed over to Sri Bimal Kumar Gupta and it was done only during the next assessment year (A.Y 2013-14). So, the assessee was showing the said amount i.e. Rs.60 Lakhs as liability because in case if the physical possession could not be handed over to the Sri Bimal Kumar Gupta, the amount which has been taken as advance needs to be returned back to Sri Bimal Kumar Gupta. This explanation of the assessee was not accepted by the AO who added the same as bogus claim and for doing so invoked Section 41(1) of the Act for doing so. On appeal the Ld. 4
5 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 CIT(A) took note of the provision of Section 41(1) of the Act and observed that the liability towards Sri Bimal Kumar Gupta of Rs.60 Lakhs was only an advance which was taken by the assessee against the land which he intended to sell to ShriBimal Kumar Gupta and when the land was physically handed over and when the possession was given to Sri Bimal Kumar Gupta in the subsequent assessment year, resulted in the adjustment of the liability. Ld. CIT(A) noted that when the assessee has explained that though the registration of the property took place and was done in May, 2006, however, physical possession of the land could only be given in the next assessment year and the income from sale of the said land to Sri Bimal Kumar Gupta has been shown as income in the next assessment year was not accepted by the AO which action was not acceptable for the Ld. CIT(A). We also concur that the said action of the Ld. CIT(A) because when section 133(6) notice was issued to Sri Bimal Kumar Gupta, he only has answered to specific queries of the AO which was in respect of the transactions taking place of 3 years i.e. from the period from 01.04.2010 to 31.03.2013 and when the assessee has explained that the assessee has shown the income from the sale of property to Sri Bimal Kumar Gupta in the next assessment year after handing over physical possession of the property in question to Sri Bimal Kumar Gupta was disbelieved by the AO without making any further enquiry which was necessary in the facts and circumstances of the case and Section 41(1) cannot be invoked in this case because the assessee is admittedly in the business of buying and selling of properties and that an advance given for stock-in-trade (i.e. in this case land) unless crystallized to a sale the consideration received/advances cannot be income. We note that the advances of Rs.60 Lakhs has been shown by the assessee in his balance sheet at the liability side because if the transactions does not materialize, then there is an obligation on part of the assesse to return this advance to the buyer (i.e. in this case Sri Bimal Kumar Gupta). So, it was shown by the assessee on the liabilities side and when the sale crystallized by handing over possession of the property, the advance after 5
6 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 adjustment of the cost was moved to the income side of the P&L Account (in case if the adjustment results in surplus and when there is a deficit, it will come in the expenditure side). So, we take note that after completing the legal formalities and handing over the property during the F.Y. 2012-13, the profit from the sale of land to Sri Bimal Kumar Gupta of Rs.34 Lakhs has been transferred to the P&L Account of M/s Abir International in which the assessee is a proprietor. We note that the cost of land purchased from Dindayal Gupta of Rs.26 Lakhs was adjusted against the advances which was duly reflected in the books as “Advance paid on the asset side”. So, we find that in the facts and circumstances of the case this transaction of the assessee cannot attract Section 41(1) of the Act. So, therefore, there is no infirmity in the order passed by the Ld. CIT(A) and we confirm the same.
Coming to Rs.50 Lakhs shown by the assessee as liability from M/s Kit Sales (P) Ltd. The AO notes that the assessee stated that it is an advance from the said party which was given to the assessee on 28.08.2006 for land purchase. However, since the land purchase could not be materialized, the assessee has been carrying forward the liability and if the land transaction does not crystallize, then there is a chance of the amount being refunded back to M/s Kit Sales (P) Ltd. The AO issued notices u/s 133(6) of the Act to verify the genuineness of the claim made by the assessee and pursuant to the said notice the M/s Kit Sales (P) Ltd. stated that they did not have any transaction for the period from 01.04.2010 to 31.03.2013 and they are unable to give certified xerox copies of the ledger account for the aforesaid parties and they added that they have not advanced any loan to the assessee and so they are unwilling to submit any details or confirmation. This reply of the said party was confronted with the assessee who re-iterated that the amount was an advance from M/s Kit Sales (P) Ltd. and that since the transactions could not be completed, is being shows as liability and in 6
7 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 case if the transaction could not be completed then this amount needs to be returned back to the M/s Kit Sales (P) Ltd. So, the assessee has been showing the same as liability. However, the AO did not accept the reply of the assessee and he added the amount u/s 41(1) of the Act. On appeal the Ld. CIT(A) was of the view that Section 41(1) in this case is not applicable. Thus, the liability of Rs.50 Lakhs shown in the name of M/s Kit Sales (P) Ltd. cannot attract Section 41(1) of the Act and, therefore, he was pleased to delete the same.
We take note that this is a case wherein the assessee claims that Rs.50 Lakhs was received as advance for land on 28.08.2006 vide 6 cheques which totals to Rs.50 Lakhs and as per the assessee, as on date the transactions for which the advance was given to it is yet to be completed. According to the assessee the amount is still lying as advance in the books. It was pointed out by the Ld. Counsel that the reply of M/s Kit Sales (P) Ltd. to the query of the AO was only pertaining to transactions for last 3 years as per the specific questions put forth to it by the AO. According to the Ld. Counsel, since the transactions had taken place long before, so naturally these were not covered in the answer specifically. The Ld. Counsel contended that in the absence of unilateral writing back of liability, no cessation of liability can be imputed. The Ld. Counsel also pointed out that the question covered only 3 years i.e. from 01.04.2010 to 31.03.2013, whereas the assessee received the amount in cheque from M/s Kit Sales (P) Ltd.on 28.08.2006 by cheque totaling to an amount ofRs.50 Lakhs. It was pointed out by the Ld. Counsel that after confronting the assessee and having known the assessee’s explanation about the fact that the transactions happened in 2006, and that too through banking channel the assesse was in receipt of the amount in dispute from the very same M/s Kit Sales (P)
Ltd, the AO before drawing any adverse inference against the assessee, ought to have confronted M/s Kit Sales (P) Ltd. regarding the veracity of the cheque transactions between M/s Kit Sales 7
8 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 (P) Ltd. on 28.08.2006 with the assessee. However, no such action has been undertaken by the AO and if the AO treated the statement of M/s Kit Sales (P) Ltd. as gospel truth to disbelieve the assessee, then in the light of the cheques issued by M/s Kit Sales Ltd. to the assessee, the veracity of the reply given to the AO by M/s Kit Sales does not inspire confidence to act against the assessee; and more over, if the AO was using the reply of M/s Kit Sales u/s 133(6) adversely against the assessee, that too without confronting M/s Kit Sales (P) Ltd. with the explanation given by the assessee, then the assessee should have been given an opportunity to cross-examine the person, who has given the reply to the AO. In this back ground, we note that the AO after going through the reply from M/s Kit Sales (P) Ltd. has confronted the assessee, who re-iterated to the claim made by it earlier that Rs.50 Lakhs has been received as advance on 28.08.2006 vide 6 cheques of Rs.50 Lakhs and the same has been shown as liability in the balance sheet and since the transactions having not been completed in the instant A.Y. also the said amount has been shown in the liability side of the balance sheet. Reason for showing it as liability was because in case the transactions could not be completed, then the said advances should be refunded back to M/s Kit Sales (P) Ltd. We note that even though the assessee could show that the cheques were issued by M/s Kit Sales (P) Ltd. for an amount of Rs. 50 Lakhs, the AO before concluding that the transaction was bogus, as stated earlier ought to have enquired or confronted M/s Kit Sales (P) Ltd. with the details of the cheques and found as to whether there is any truth in the contention of the assesse. Without making any further enquiry, the AO simply took the reply of M/s Kit Sales (P) Ltd. to fasten the liability on the assessee u/s 41 (1) of the Act. However, the answer given by M/s Kit Sales 8
9 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 (P) Ltd. shows that they have given a vague reply and that too for a period from 01.04.2010 to 31.03.2013, whereas the case of the assessee is that the cheque payment through bank which was advances were given to the assessee on 28.08.2006. If the AO was using the reply of M/s Kit Sales (P) Ltd. to disbelieve the assessee completely, then it should have given an opportunity to the assessee to cross-examine the Directors of M/s Kit Sales (P) Ltd. and examined the statement thereafter. Without doing so, the said reply of M/s Kit Sales (P) Ltd. when seen against the bank transactions of Rs.50 Lakhs on 28.08.2006, emanating from M/s Kit Sales (P) Ltd. to the assessee,does not infuse confidence and cannot be used against the assessee as laid down by the Hon’ble Supreme Court in CIVIL APPEAL NO. 4228 OF 2006in the case of Andaman Timber Industries Vs. CCE. Be that as it may be, the liability shown by the assessee without being written off by the creditor cannot attract Section 41(1) of the Act as rightly held by the Ld. CIT(A) and even if advance as claimed by the assessee is found to be non-genuine from the very inspection itself, at least in terms of Section 41(1) of the Act, there is no cure for it. May be the said amount which is credited in the books of the assessee could attract Section 68 of the Act which could have been done in the year when the amount was credited in the books of the assessee i.e. in the A.Y. 2007-08, since the fact remains that the said credit entry in the books of account happened on 28.08.2006. So, therefore, we do not find any infirmity in the order passed by the Ld. CIT(A) and we dismiss the appeal of the Revenue.
Now, coming to Rs.6,38,000/- which was shown by the assessee as liability from B.
Nirupam& Co. We note that the assessee has been showing the same as liability from B.
10 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 Nirupam& Co. We note that the assessee has been showing the same as liability which was existing in the books since 1997-98 and was carried forward as on 31.03.2012. The AO issued notices, however, the notices returned back unserved and the AO was of the opinion that the liability is not genuine and, therefore, he applied Section 41(1) of the Act and added the same as income of the assessee. The ld. CIT(A) was pleased to delete the same on the reason that Section 41(1) cannot be applied in the facts of the case. We note that the liabilities have been existing from a very long time and same according to the assessee are still liabilities on its books and just because the notices were unserved does not mean that there is cessation or remission of liabilities and unless there is at least a unilateral act on the part of the creditors, that they have waived off their right to receive payment or by operation of law, there should be cessation of liability, which is not the case, so, Section 41(1) of the Act cannot be applied in the facts of the case; and that Section 41(1) can be applied only when the department has allowed expenditure, loss or trading liability as deduction in a previous A.Y. and there is a benefit which has accrued to the assessee in the assessment year in question, then only Section 41(1) can get attracted. The AO has not brought anything on record to show that in the earlier years the assessee has got any deduction on account of loss, expenditure or trading liability and that in the instant assessment year got benefit by remission or cessation of it, without which Section 41(1) cannot be invoked. Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A).
11 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13
13. Coming to Ground No. 2, which is against the relief granted by the Ld. CIT(A) to the tune of Rs.5 Lakhs.
Brief facts of the case is that the AO observed that the assessee has claimedthe liability of Rs.17,50,000/- with respect to the Sunland Purchase Pvt. Ltd. On an enquiry in this regard, the said party confirmed the liability of Rs.12,50,000/-. The assessee when confronted with the said reply, clarified that the difference of Rs.5 Lakhs was advance for land for Water Lab and the bill for Rs.5 Lakhs has been raised in the next year and the income has been shown in the next year. According to the AO, it seems that the contract work has been completed on 13.03.2012. The amount of Rs.5 Lakh is the concealed income for the year under consideration and added the same back to the total income of the assessee. Before the Ld. CIT(A) the assessee submitted that from the advance of Rs.17,50,000/-, Rs.12,50,000/- was for construction of hostel which crystallised this year and advance for land for Water Lab was of Rs.5 Lakhs, thus totaling to Rs.17,50,000/-.
Sunland Purchase Pvt. Ltd. has confirmed to the AO of cost of construction of hostel of Rs.12,50,000/-. The balance amount of Rs.5 Lakhs was reflected by the assessee as income in the next assessment year, which is A.Y. 2013-14 (F.Y. 2012-13). It was claimed by the assessee that this was in accordance to the guidance note on accounting for real estate transactions issued by the Institute of Chartered Accountancy of India (ICAI) and since all risk and reward of ownership was transferred in that year (next A.Y.) upon execution of agreement with West Bengal Financial Corporation where the assessee had acted as an intermediary in getting the land transferred the assessee contended that Rs. 5
12 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 Lakhs crystallised as income next year and so it was shown as income next year and so not shown as income in this A.Y. The Ld. CIT(A) has deleted the addition by observing as under:
“I have considered the submission of the appellant and perused the assessment order. The AO has made addition on account of difference of the Rs.1750000/- and Rs.1250000/- from Sunland Projects (P) Ltd. This amount was accounted for income by the assessee in the subsequent year. The assessse was following the certain set of accounting standards in conformity with the guidance note and the advance received was treated as income in the subsequent year. As the party Sunland Purchase was following a different method the AO cannot bring liability in the hand of the assessee. There is nothing justifying the addition and thereof the same stands deleted.”
We take note that the AO has pre-poned the income without appreciating that the assessee has offered Rs.5 Lakhs in the next assessment year and followed the accounting standards as prescribed by the ICAI. We do not find any infirmity in the order of the Ld. CIT(A) and, therefore, dismiss this ground of appeal.
15. In the result, Ground No. 2 is dismissed.
16. Coming to the C.O. of the assessee, the first ground pertains to the action of the Ld. CIT(A) in sustaining the disallowance of compensation of Rs.8,67,500/-.
Brief facts of the case is that the AO disallowed a sum of Rs.8,67,500/- out of the claim of Rs.15,92,500/- on account of compensation expenses for want of evidence that the same was spent for the purpose of business as tabulated in the assessment order. The AO observed that debit in respect of compensation claim of 5 persons ( names given in para 2.2 of the order) could not be proved by the assessee to have been incurred for business purposes. Therefore, Rs.8,67,500/- was disallowed and added back and the balance amount was accepted as genuine by AO. Before the Ld. CIT(A) the assessee contended that the said amount has been paid to the 13 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 encroachers of the land so that vacant land could be possessed in a peaceful manner and then the stipulated project could commence. However, it was admitted by the assessee that in all cases no formal evidence could be drawn up but there were proof in the form of receipts issued by these persons who have accepted the payments towards them and that the audits have been carried out without any adverse comments of the auditors on this score. It was brought to the notice of the Ld. CIT(A) that the payments were made to the encroachers through regular banking channels except in the case of one Jayanta Dalui amounting to Rs.1,50.000/-. It was pointed out by the assessee that for the compensation given to the encroachers to be evicted from the property, the AO has accepted the genuineness of the payment of Rs.6,65,000/-, so, the AO ought to have examined the remaining recipients also and if he had expressed any doubts about the genuineness of the transaction, then he could have given time to the assessee for getting confirmation from the recipients. The Ld. CIT(A) was of the opinion that since the assessee failed to adduce evidence with regard to the authenticity of the payments he confirmed the addition made by the AO.
Aggrieved, the assessee is before us.
We take note that the assessee has made claim of payment of Rs.15,92,500/- for evicting the encroachers on the land where the project has to be commenced. We note that out of the said amount, the AO accepted the genuineness of payments of Rs.6,65,000/-, the rest of the payment in respect to Rs.8,67,500/- was disallowed, because 5 persons to whom the payments were made could not be established by documentary evidence but there were proof in the form of receipts issued by these persons who have accepted the payments towards them. The Ld. AR stated that if the matter is remanded back to the file of the AO, the assessee would adduce evidence to support the claim made by him. In the light of the said submission made by the assessee in the interest of justice, we set aside the order of Ld. CIT(A) and remand this issue back to file of the AO to decide 13
14 I.T.A.No.1407/Kol/2015 & C.O.No.60/Kol/2015 Assessment Year: 2012-13 the issue afresh after granting opportunity to the assessee to bring evidence to support its claim.
Consequently, this ground of the assessee is allowed for statistical purposes.
The next ground is against the action of the Ld. CIT(A) in confirming the action of the addition of income of Rs.1,13,058/-.
Brief facts of the case is that the AO observed that the assessee failed to substantiate the source of payment of Rs.1,13,058/- made in cash for registration of some land dealing which is given in para 3 of the assessment order. Before the Ld. CIT(A), the assessee stated that the said amount was deposited in S.B.I. and drafts were taken then paid to purchase stamp duty from Government by way of drafts. The Ld. CIT(A) was of the opinion that since the source of expenditure could not be adduced by the assessee, he confirmed the addition. Before us also the assesse could not adduce any evidence to prove the source of cash of Rs.1,13,058/-. Therefore, we confirm the order of the Ld. CIT(A).
In the result the appeal of the Revenue is dismissed and the CO of the assessee is partly allowed for statistical purposes.
Order pronounced in the Court on 24.03.2017