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2016 (9) TMI 848 - ITAT MUMBAI

2016 (9) TMI 848 - ITAT MUMBAI - [2017] 53 ITR (Trib) 614 - Addition on cessation of liability - whether the said liability did not exist in the books of accounts of M/s, Dawat-E-Hadiyah Trust as confirmed during the course of enquiry u/s. 133(6) ? - Held that:- Amount of advance received for sale of property shall be treated as income u/s 56 if the same is forfeited and negotiations did not result in transfer of such capital asset. But these provisions have been inserted w.e.f. 01-04-2015. Thes .....

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cost of acquisition of asset. Thus, we reinforce the direction of the Ld. CIT(A) and direct the Assessing Officer to reduce the cost of acquisition of the property by the amount of ₹ 3.74 crores on sale of the said property at the time of computation of capital gains as may be arising on account of sale of the said property. The action of Ld. CIT(A) in directing the Assessing Officer to delete the addition which was made by the Assessing Officer u/s 41(1) of the Act, is hereby upheld. - De .....

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following grounds: "On the facts and in the circumstances of the case and in law, the Ld CJT(A) has erred in directing the A.O. to delete the addition of ₹ 3,74,00,000/- on account of cessation of liability ignoring the fact that the said liability did not exist in the books of accounts of M/s, Dawat-E-Hadiyah Trust as confirmed during the course of enquiry u/s. 133(6) of the I.T.Act." 1. The solitary issue raised by the revenue by way of this appeal is with regard to deletion o .....

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dings, the AO noted that there was a liability of ₹ 3,74,00,000/- as shown in the balance sheet of the assessee, in the name of M/s Dawat-E-Hadiyah Trust. The said liability was created in the year 1995, when the assessee had received the said amount from the said trust as an advance for sale of assessee's property. The AO conducted enquiries from M/s Dawat-E-Hadiyah Trust, who vide their letter dated 29.11.2012 replied that the liability had been written off in the year under consider .....

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of the assessee under section 41(1) of the Act. Accordingly, he added the said amount of ₹ 3,74,00,000I- to the total income of the assessee. In support of his view, the AO relied upon the judgments in the cases of T. V. Sundaram lyengar and Sons Ltd, 222 ITR 344 (SC) and Sugauli Sugar Works Pvt. Ltd 236 ITR 518 (SC). The AO also observed that though both the assessee as well as M/s Dawat-E-Hadiyah Trust, have contended that the transaction was in respect of transfer of property, but this .....

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Trust was an interest-free unsecured deposit in the course of the business of the assessee company. Thus, on the ground of cessation of the liability, the AO added the amount of ₹ 3.74 crores u/s 41(1) of the Act. 4. Being aggrieved, the assessee filed appeal before Ld. CIT(A) and made detailed submissions. It was submitted that the impugned amount was received by the assessee with regard to sale of property located at Chennai. Under these circumstances, no addition could have been made u/ .....

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the business of the assessee company. The assessee had also in this regard furnished copies of the correspondences between itself and M/s Dawat-E-Hadiyah Trust indicating that all through, the intention of the advance received was for transfer of the assessee s property at Madras and when the deal did not materialise, the said M/s Dawat-E4 Hadiyah started demanding its money back. Copies of all these correspondences were also furnished before the Assessing Officer. 5. The Ld. CIT(A) considered .....

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assessee, the cost of acquisition of the property shall be reduced by the amount of ₹ 3.74 crores for the purpose of computation of capital gains in view of provisions of section 51 of the Act. Under these circumstances and with these directions, the addition made by the Assessing Officer was directed to be deleted. 6. We have considered the submissions made by both the sides as well as orders passed by lower authorities. The admitted facts on record are that assessee has been showing its .....

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foresaid party. The Ld. CIT(A) has recorded a clear and categorical finding that correspondence between the assessee company and said party revealed that the transaction was in respect of assessee s property located at Madras. But, the transaction could not be completed. This factual finding could not be rebutted by the Ld DR. Thus, as per facts and records brought before us, aforesaid property is undoubtedly capital asset of the assessee company. Under these circumstances, it has been rightly h .....

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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: Provided that where any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the total income of the assessee for an .....

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t for computing cost of acquisition. The provisions becomes further clear on perusal of proviso to this section which has been introduced with effect from 01-04-2015 wherein it has been clarified that if the amount of advance received was treated as income in pursuance of section 56(2)(ix), then no deduction shall be done in computing the cost of acquisition with the said amount. It is noted that provisions of section 56(2)(ix) reads as under: 56 (2) In particular, and without prejudice to the g .....

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