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TMI Blog2021 (12) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... ing reasons, we proceed ex parte qua assessee-respondent, and decide the issue after hearing the ld.DR. 3. Revenue has taken three grounds of appeal. However, its substantial grievances are pleaded in ground no.1, which reads as under: "1 (a) On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in holding that the provisions of section 41(1) are not applicable merely because the assessee is still showing the liability of Rs. 1,69,35,279/- in its balance sheet as advance against booking without considering the fact that the said property has been disposed off during the year. (b) On the facts and in the circumstances of the case and in law, the C1T(A) has erred in holding that the provisions of section 41(1) are not applicable merely because the assessee is still showing the liability of Rs. 1,42,98,315/- in its balance sheet as maintenance deposits even though the deposits were taken in the year 1995 and possession of concerned properties have already been given to the customers." 4. Brief facts of the case are that the assessee has filed its return of income on 30.10.2007 declaring total loss at Rs.(-)3,32,38,250/-. The case of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets of the company and huge past years accumulated losses resulted in halting / closure of revenue earning activity of various divisions of the assessee company. The assessee company was / is under such a critical position and to come out from major legal issues, it had to sell out assets on a terms as suitable to the buying party. Buyer's hands were up and the assessee was not in a position to make any negotiation at all and the assessee has to compromise with itself. Further, as a result of losses exceeds net worth of the company, the company is declared as a sick industrial company by BIFR, New Delhi vide order dated 28.7.2008. 3.3. In respect of Tower D & E, it is stated that residential flats were under construction, possession not handed over and there prevails contingency as to finalization of sale and therefore amounts received from members are in the advance booking deposits. The assessee has received money as a advance for the purpose of sale that is to take place in future. Till the finalization of sale, the assessee is holding the amount as a trustee and the money so received are money in trust. The assessee has given preference and priority to make repayment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer A, B and C, the assessee has taken these deposits against the maintenance of the respective society of different Towers. On that time, the assessee has shown it as liability in its books of account. The assessee has taken these deposits very long back in the year 1995 when the project was begun. The assessee has completed these projects and sold the entire units to customers. The customers have also taken possession and are residing in these houses. But till date the assessee has not repaid these maintenance deposits to the respective societies. The assessee's contention that the Societies has written letters to the assessee for payment of the maintenance deposit, which is not a valid proof that the assessee is going to repay these deposits to respective societies. The assessee has bifurcated its sale consideration of the flats into maintenance deposit and actual sale consideration to avoid the payment of legitimate taxes on the total consideration. This is clear from the fact that the assessee has not repaid a single amount to the societies against which it has taken the maintenance deposit from the members. Thus, it is proved beyond doubt that this is a colourable device ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledged in the balance sheet and the AO has not brought anything on record to show that the appellant has obtained any benefit, whether in cash or in any other manner whatsoever regarding these liabilities. Hence the provisions of the section 41(1) are not applicable to the facts of the present case. 4.3.5 The AO has relied upon the decision in the case of CIT V. TV Sundaram lyenger & Sons Ltd. But in this case, the assessee had itself written back the unclaimed time barred credit balances in its profit and loss . This is not the situation in the present case. The appellant is still the liabilities in its profit and loss account and there is noting in record these have become time barred or that these have appellant's money due some statutory or contractual provisions. 4. Hence, the treatment of these credit balances by the AO as income of the assessee is not correct. Accordingly, these additions are deleted and this ground of appeal is allowed." 6. The ld.DR while impugning finding of the ld.CIT(A) contended that facts in these cases are of different nature. The assessee has collected advances from the prospective buyers of the flats as well as deposits for providing mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction and possession of the same were not handed over to the respective buyers, the assessee has shown these advances as liability, because there prevailed contingency as to finalization of sale. In its submission under para no. n & o, it has highlighted following facts: "n) Now, without prejudice to any of the above, in respect of booking advances of Towers "D" and "E,", the Ld. Assessing Officer has mentioned in Para 3.6 of his assessment order, that the assessee company has sold Tower "D" and "E" to Asman Trading Pvt. Ltd. for consideration of Rs. 2,92,00,000/- and therefore it has nothing to do with the towers. Further, he has noted in the assessment order that since there is no mention about the repayment of advances in the sale deed with Asman Trading Pvt. Ltd., therefore the advances are no more repayable and the liability has ceased to exist, o) However, here we would like to invite Your Honour's kind reference that although the appellant company had sold Towers D and E, it had to repay these advances to the respective members only. This was because the project had ceased and no construction work was to be done. The appellant company was already facing huge finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of black and white TV sets. As per the scheme, the assessee has collected a sum of Rs. 500/- from each customer by sale of coupons. Upon such customer in turn enrolling other four members each, who also had purchased such coupons, would entitle to receive TV set free of cost. The same benefit would be available to newly enrolled members as well upon fulfillment of conditions. This collection of Rs. 500/- in this chain has accumulated to Rs. 7.87 crores and the assessee has been showing it under the head liability continuously. In this background, the Hon'ble High Court has confirmed order of the Tribunal whereby the Tribunal has held that liability to pay has ceased. The relevant discussion of the Hon'ble High Court in this behalf read as under: "8. Learned counsel for the appellant submitted that this was not a case of cessation of liability. The conditions laid down under section 41 of the Act were not fulfilled. The authorities therefore, committed a serious error in adding the said sum to the income of the assessee. She further submitted that the ratio laid down by the Supreme Court in case of CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518/102 Taxman 713 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Tribunal through which the above established facts emerged, we have no reason to interfere. The decision of the Supreme Court in case of Sundaram Iyengar (supra) would apply. In the said case, the Court had held and observed as under: "In the present case, the money was received by the assessee in the course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. In fact, as Atkinson J. pointed out that what the assessee did was the commonsense way of dealing with the amounts." 12. It is true that unlike in case of Sundaram Iyengar (supra), the assessee has not taken such amount in its profit and loss account. Nevertheless, by all acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of Morley v. Tattersall [1939J 7 ITR 316 (CA) and held since it was of a capital nature at the time of the receipt, it could not become assessee's income later on. The Tribunal also rejected reference application under section 256(2) on the ground that no question of law arose. The High Court held that the question sought to be agitated was completely concluded by the decision of that Court in the case of CITv, A.VM. Ltd. [1984] 146 ITR 355 and rejected application made under section 256(2)." 11. In the light of proposition laid down in all these judgment, if we look into the facts of the present case, then it would reveal that the assessee has received trade advance for sale of certain flats to prospective buyers which were ultimately not construed by it and incomplete project was sold under the head "work-in-progress". It has not returned money to these customers in the last fifteen years. It has not created an arrangement with buyer of the WIP that these customers would get flats at reduced price by the amount received by the assessee as advance. It has simply retained these amounts under the garb of liability without paying any taxes. The judgment Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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