TMI Blog2020 (10) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... heet 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 present case, the specific provision is sec. 56(2)(ix) which is in relation to capital asset. 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. - Decided in favour of assessee. - ITA No.28/Bang/2020 - - - Dated:- 8-9-2020 - Shri Chandra Poojari, AM And Smt. Beena Pillai, JM For the Assessee : Shri V. Srinivasan, Adv. For the Revenue : Shri Pradeep Kumar, CIT(DR) ORDER 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness and the purpose for which M/s. Metrocorp and M/s. Metro Infrastructure Ltd., were acquiring the lands was not relevant to judge the applicability of the provisions of section 56(2)(ix) in the hands of the appellant and hence, the impugned addition made by invoking the provisions of section 56(2)(ix) of the Act was unjustified and misconceived and the impugned addition made ought to have been deleted. 7. The ld. CIT(A) is not justified in holding that the ratio of the judgment of the Supreme Court in the case of T.V. Sundaram Iyengar and Sons reported in 222 ITR 344(SC) was applicable to the facts of the appellant s case without appreciating that the said judgment was distinguishable since the amounts were written back by the said assessee and it was claimed that the same was not taxable as it was a capital receipt at the point of receipt whereas in the appellant s case, the amounts were never written back and continued to remain as a liability and thus, the reliance placed on the said judgment of the Supreme Court was misplaced. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 5,53,81,059/- and thus bulk of amount received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of negotiations for the transfer of capital asset. According to the Ld. AR, It is a well settled principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, 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. 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 Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 6. The Ld. DR on the other hand submitted that the amounts of ₹ 20,11,00,000/- and ₹ 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 ₹ 5,53,81,059/- has been given by the assessee as advances and ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 were 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, apply in relation to the assessment year 2015-16 and subsequent years. 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 transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds 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 there 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. 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 treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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