TMI Blog2021 (12) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court in the case of Sundaram Iyengar Son Ltd. [ 1996 (9) TMI 1 - SUPREME COURT] is fully applicable on the facts of the present case. Therefore, we allow appeal of the Revenue. - ITA.No.2751/Ahd/2011 - - - Dated:- 14-12-2021 - Shri Rajpal Yadav, Vice-President And Shri Pradipkumar Kedia, Accountant Member For the Assessee : None For the Revenue : Shri Vijaykumar Jaiswal, CITDR ORDER PER RAJPAL YADAV, VICE-PRESIDENT Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-III, Baroda dated 5.8.2011 passed for Asstt.Year 2007-08. 2. This appeal was listed on the board on 9.1.2012. Shri Mehul Patel, the ld.counsel appeared on behalf of the assessee. Thereafter, it has been adjourned continuously on his request. However, in the month of Jul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid a single rupee till 31.3.2007, rather as on date. In these circumstances, you are requested to show cause as to why the said advance of ₹ 1,69,35,279 should not be treated as your income u/s.41(l) of the Income-tax Act, 1961. [2] Like-wise, it is also noted that you have taken deposit in respect of the following Block of Vishwamitri Town Ship as under - A - ₹ 40,56,700 B - ₹ 41,03,300 C - ₹ 41,87,100 3% maintenance deposit - ₹ 19,51,315. You are also requested to show cause as to why these deposits aggregating to ₹ 1,42,98,415 should not be treated as your income as per the provisions of section 41(1) of the Income-tax Act, 1961. 3.2. The assessee vide its letter dated 21.12.2009, the assessee has stated that suits were filed against the company and its directors by Bank of India, Kalbadevi Br. Mumbai, CBI Mumbai, Anchor Health Beauty Care Pvt. Ltd., Shikhar Leasing Trading Ltd., Members of Bhadralok, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociation, for Vishwamitry Maintenance deposit the society has filed suits against the assessee in court and, therefore, the assessee unable to collect the confirmation. It is stated by the assessee that all the past records are mixed up, held by lawyer and due to time bound assessment proceedings, the assessee is not in a to submit agreements with each party for booking /maintenance. 3.5. The assessee has requested not to treat the advances / deposits aggregating to ₹ 3,12,33,694 should not held to be income of the assessee in the present year u/s.41(l) of the Income-tax Act, 1961. 3.6. I have considered the reply filed by the assessee. The same is not tenable. It is the contention of the assessee that the assessee has to repay these booking advances s to the respective person / parties and that they have filed suits against the assessee to recover the deposits / advances given. The assessee's contention was not supported by any corroborative evidence. With regard to the booking advance taken against Tower D E of Bhadralok Project amounting to ₹ 1,69,35,279, the current fact of the case is that the assessee has sold the whole work-in-progress of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its business. The same was treated as maintenance deposit and was of capital nature at the point of time it was received. Although the amount received originally was not of income nature, the amount remained with the assessee for a long period. By lapse of time, the claim of the deposit become time barred and the amount attain a totally different quality. It becomes a definite trade surplus. Here in this case, the assessee has not paid the said deposits / booking advances to any of the members / societies and also not going to pay the same because he has sold his entire business of construction. This is nothing but cessation of liability in the hands of the assessee u/s.41(l) of the Income-tax Act, 1961. Reliance is placed on the decision of the Hon. Supreme Court in the case of CIT v/s. T.V. Sundaram lyengar Sons Ltd. [88 Taxman 429]. Therefore, an addition of ₹ 3,12,33,694 is made to the total income of the assessee. Penalty proceedings u/s.271(l)(c) of the Income-tax Act, 1961 are separately initiated. 4.0. Subject to above remarks and after discussion, the total income of the assessee is computed as under:- Total loss as per return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69,35,279/- has been sold by the assessee to Asman Trading P.Ltd. It has worked out the value under the head work-in-progress of ₹ 6.70 crores. This project was sold for a consideration of ₹ 2.92 crores. Thus, he pointed out that the assessee has nothing to do for adjustment of these advances towards ultimate sale proceeds of the flat buyers. In other words the advances taken from the flat buyers was not going to be adjusted against cost of the flats, ultimately if any given to these buyers, because the assessee has already sold the project. It failed to produce that the advances received from the buyers was adjusted against the money it has received from Asman Trading P.Ltd. ( ASTPL ). Thus, he submitted that the liability towards those advance has been ceased, and therefore, this receipt ought to have been recognized as income in the hands of the assessee. He relied upon the judgment of Hon ble Gujarat High Court in the case of Gujtron Electronics P.Ltd. Vs. ITO, 83 taxmann.com 389 (Guj). He placed on record copy of this decision. 7. We have considered submission of the ld.CIT-DR and gone through the record with his assistance. The section 41(1) applies where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has received advances from buyers of the flats. However, without constructing these flats, it has sold the whole project by treating it as work-in-progress . In its reply, it has submitted that WIP was valued at ₹ 6.70 crores and the project was ultimately sold for a consideration of ₹ 2.92 crores. The question before us is, whether the receipt received by the assessee as advance during the course of its business can attain character of any cessation of liability. There is no dispute with regard to the fact that intention behind this receipt was for construction of the flats and sale thereof. Thus, it was an ordinary trading receipt in the line of assessee s business, though in the accounts, it was recognized as advance from the customers. It is to be appreciated that moment the assessee has valued WIP that means, it has incurred expenditure which were crystallized in the form of WIP. This WIP has been sold at lower price, and the business has been closed down with regard to this project. In such situation what treatment could be made to the advance received from the prospective buyers ? To our mind, once it is percolated in the WIP and these advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount in its profit and loss accounts. Our attention was also drawn to two decisions this Court in case of CIT v. Bhogilal Ramjibhai Atara [2014] 43 taxmann.com 55/222 Taxman 313 (Guj.) and in case of CIT v. Nitin S. Garg [2012] 22 taxmann.com 59/208 Taxman 16 (Guj.). 9. Facts of the present case, as concurrently held by the two Revenue authorities and the Tribunal are somewhat peculiar. The assessee had launched a scheme of sales promotion. Under such scheme, the assessee would enroll a member, who would deposit a sum of ₹ 500/- with the assessee company. If such a member in turn enrolled four members, he would get one black and white TV set manufactured by the assessee company free of cost. Same benefit would be available to the enrolled members if they fulfilled this condition. The scheme was operative for a period of 12 months. In other words, a member would have to enroll four members within such period of 12 months in order to get the benefit of earning a free TV set. Over a span of couple of years, the assessee collected a huge sum of ₹ 7.87 crores by enrollment membership fee of ₹ 500/- each. 10. As is bound to happen, in such a scheme re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of claiming amount back has also seized. There is absolutely no movement or correspondence between the assessee and its members with respect to the claim or with respect to the deposited amounts. 10. We further make reference to the decision of Hon ble Delhi High Court referred by the ld.CIT-DR in the case of CIT Vs. Chipsoft Technology P.Ltd., 26 taxmann.com 109 (Del). In this case, the assessee had shown unpaid liability to an extent of ₹ 38.51 lakhs on account of its employees due pertained to certain salary payments related back to 2000-01. The assessment year involved before the Hon ble High Court was of Asstt.Year 2005-06. The dues were to be paid to roughly 170 employees. The assessee could not provide complete details of the employees or confirmation. The ld.AO construed that the liability has ceased. However, on appeal, the ld.CIT(A) deleted the addition which were upheld by the Tribunal. However, the Hon ble High Court concurred with the AO and confirmed the addition. The Hon ble Court has considered all the decisions relied upon by the assessee, viz. CIT Vs. Sundaram Iyengar Sons Ltd., 222 ITR 334. This decision has been relied upon by the AO also. Head ..... X X X X Extracts X X X X X X X X Extracts X X X X
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