TMI Blog2011 (3) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,63,20,000 ignoring that the amount being forfeited, was clear case of cessation of liability arising during the course of business." 2. The main object of the assessee-company is to carry on the business of builders, colonizers, developers and mortgagers of residential, commercial and industrial properties and to carry on the business of purchase, sale and development of any type of land. In the Notes to Accounts filed by the assessee with its return of income for the assessment year under consideration, i.e., assessment year 2005-06, it had been stated that the assessee had forfeited certain trading advances which were received by it from certain parties against sale of flats. The total amount forfeited was stated to be at Rs. 1,63,20,000. On query by the Assessing Officer, the assessee submitted vide reply dated 27-8-2007, that it had entered into a collaboration agreement for sale of flats to be built on the property, 'L- 1/7, Hauz Khas Enclave, New Delhi'; that however, the applicants, to whom the letters of allotment were issued, did not pay the agreed amounts in time; that therefore, the amounts received were forfeited; that these were amounts of Rs. 50,10,000 from Damson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer. It was further submitted that the suits filed against it were at the appellate stage and were sub-judice during the year under consideration; that the assessee had not actually forfeited the amounts, but had merely tried to make a disclosure in its books of account, regarding the liabilities pending against it; that even otherwise, this disclosure was made in the accounts for assessment year 2000-01 and did not have any bearing on the year under consideration, i.e., assessment year 2005-06. 6. Allowing the appeal of the assessee, the learned CIT(A) observed, inter alia, that the amounts/advances shown received by the assessee, in the accounts for assessment year 2000-01, were of Rs. 1,63,20,000, under Current Liabilities and Provisions, within Schedule D of the Audited Accounts; that in the accounts for the year under consideration, i.e., assessment year 2005-06, under Schedule E of the Accounts, advances from customers had been shown under Current Liabilities at Rs. 1,92,68,000; that these advances included those shown in the Accounts for the assessment year 2000-01; that in the Accounts for the year under consideration, under Schedule 5 thereof, the assessee had m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al act by the assessee by writing off such liability in his accounts; that the disclosure made by the assessee by way of Notes to Accounts, is unambiguous, inasmuch as it accepts the factum of forfeiture; that as per Lakshmi Vilas Bank Ltd.'s case (supra) and State Trading Corpn. of India Ltd.'s case (supra) both of which are binding, forfeiture results in income; that the ld. CIT(A) has erred in distinguishing these decisions even though these are squarely applicable. 9. The learned counsel for the assessee, on the other hand, has placed strong reliance on the impugned order. It has been contended that the learned CIT(A) has rightly deleted the addition wrongly made; that in fact, as rightly considered, there was no cessation of liability; that there is no denying the fact that in the Notes to the Accounts, the assessee had declared the forfeiture; that however, undisputedly, no financial entries were made in the Account with regard to the amount of Rs. 1,63,20,000, since the matter was pending in the Court, in the suits filed by the parties against the assessee-company; that no applicability of the provisions of section 41 of the Act can be envisaged in a case where there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the Note, the parties to whom letters of allotment had been issued, had given trading advances to the assessee-company against construction of flats. However, these parties did not make payments as per the terms agreed upon. It was, therefore, that it was conveyed to these parties by the assessee-company that the amounts already received as advance would be forfeited. Aggrieved, these parties moved Court by way of filing civil suits and seeking a refund of the advances made by them amounting to Rs. 1,63,20,000. The matter had hitherto not attained finality and when the assessee was before the ld. CIT(A), appeals in the said suits were pending disposal. It was, as such, that the assessee did not pass any financial entries for the amount of Rs. 1,63,20,000. 13. Section 41(1) (relevant portion) of the Income-tax Act runs as follows :-- "Profit chargeable to tax - (1) 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', wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs. 1,63,20,000 advanced by the parties to the assessee-company. However, it cannot be gainsaid, as it is well-settled, that a document has to be read and considered in full. A fragment thereof cannot be picked and chosen to the detriment of a party. As discussed hereinabove, when the complete para 6 of the Notes to the Accounts for assessment year 2000-01 of the assessee is construed, it comes out that yes, that the assessee did consider the amount of Rs. 1,63,20,000 as having been forfeited, since the parties concerned had failed to make the payments in accordance with the terms agreed upon. However, in this very Note, the assessee also related that since this amount was subject-matter of litigation which had not attained finality, no financial entries with regard to this amount of Rs. 1,63,20,000 were being passed. It would be appropriate to extract herein, once again, for facility and ready reference, the relevant sentence:-- " .however, the matter being sub-judice, no financial entries have been passed for the amount mentioned below which stands forfeited." [Emphasis supplied] 16. Now, evidently, the Assessing Officer missed out on this recital. The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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