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TMI Blog2025 (2) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, the Ld. CIT(A) should have treated the amounts of Rs. 5.2 crore on the basis of lack of any evidences submitted by the assessee regarding the nature of such transactions as benefit arisen in the hands of the assessee as per the provisions of section 28(iv) of the Act on account of benefit arisen on exercising the business." 3. Fact in Brief:- The assessee is Private Limited Company is engaged in the business of construction of commercial and residential properties. For the year under consideration, the assessee filed its return of income on 15/02/2021, declaring total loss of Rs. 3,85,795. The case was selected for limited scrutiny for two reasons viz. (i) High creditors/liabilities and (ii) investment in immovable property. The Assessing Officer, during the course of assessment proceedings, noted that the assessee had shown other payable worth Rs. 14,20,00,000, from the assessment year 2015-16 onwards and in the assessment year 2019-20 and the same was increased to Rs. 15,20,00,000. However, during the assessment year 2020-21, the assessee had shown current liability at Rs. 15,20,00,000, in its Balance Sheet. On inquiry, the assessee submitted that the same wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as cessation liability. In view of these facts, the Assessing Officer made addition of Rs. 5.20 crore on account of cession of liability under section 41(1) of the Act and completed the assessment. Being aggrieved, the assessee preferred appeal before the first appellate authority. 5. During the first appellate proceedings, the assessee made a detailed submission before the learned CIT(A), which is recorded at Page-4 to 21 of the impugned order passed by the learned CIT(A), is also reproduced below for ready reference:- "5.0 The assessee has submitted ground wise written submission vide letter dated 30/05/2024, which is reproduced as under Ground No. 1 : General in nature, hence no comments. Ground No. 2 to 4 : The assessee has filed return of income on 15/02/2021 declaring net loss of Rs. (-) 3,85,795/- vide acknowledgment No. 264362441150221 for the previous year relevant to Asstt. Year 2020-2021. The assessee encloses herewith copy of acknowledgment of return and computation of income for your kind perusal, which is on Page-1 To 4 of the Paper Book. The assessee engaged in business of development and construction of commercial and residential properties. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per agreed terms and condition a company Poonam Resorts Ltd. has paid an amount of Rs. 10crores to assessee company in the year 2011. These lease deposits were the interest free deposit paid by PoonamResots Ltd to the assessee. Later on as the project was in developing state and were not completed further amount of Rs. 3 Crores were again paid by Poonam Resorts Ltd to the assessee company as lease deposit for the development purpose. Thus Poonam Resorts Ltd. company has paid total lease deposits at Rs. 13 Crores. In support it contention the assessee encloses herewith ledger account of Lease Deposits-Kamptee for your kind perusal, which is on Page-35 of the Paper Book, which clearly showing entire lease amount is old amount. The entire lease amount of Rs. 13,00,00,000/- were accepted by the department in the past assessment year and assessment was completed and assessment order was passed u/s. 143(3) dated 22/11/2019 for the previous year relevant to Asst. year 2017-2018. The assessee encloses herewith copy of assessment order u/s. 143(3) dated 22/11/2019 for A.Y. 2017-2018 for your kind perusal, which is on Page-61 & 62 of the Paper Book. The lessee company Poonam Resorts L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect assessed by the valuer to the lessee. The same is duly mentioned in Para 9 of the Agreement of lease which is on page 39 of the paper book. Therefore, assessee respectfully submitted that since the lease period is continued till 21 years then the lease deposits also exists and has not ceased. The said agreement of lease is binding on both the parties and hence during the previous year relevant to Asstt Year 2020-2021, the said lease deposits cannot be treated as income of the assessee. Further the sum of Rs. 3,00,00,000/- were again paid by the Poonam resorts & were duly acknowledged and confirmation were also filed by the Poonam Resorts Limited. The assessee respectfully submits that on account of following reasons appeal filed by the assessee may kindly be allowed 1. The lease deposits are old lease deposits and liability has not ceased as the same were depsoits. Therefore the same cannot be the income of the assessee. 2. There is no deduction or exemption claimed by the assessee during the previous year relevant to assessment year 2020-2021. 3. Liability existed in previous years & same is duly accepted by the department in the past assessment years. 4. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, N.Kumar Housing & Infrastructure Pvt Ltd and Poonam Resorts Ltd company has entered into agreement of lease dated 13/09/2011 and the lease deed was executed between the parties i.e. Poonam Resorts Ltd. and assessee company Nkumar Housing & Infrastructure Pvt. Ltd in the year 2011. It was planned by the assessee company to open up a resort, Community Center, 9 hole Golf Course with apartment towers with facility of accommodation and club house having other recreational activities. The assessee company was unable to execute this project. It was then agreed between assessee company, N.Kumar Housing & Infrastructure Pvt Ltd and Poonam Resorts Ltd to develop this dream project and Poonam Resorts Ltd has taken on lease basis area of 32.87 acres of land situated at Yerkheda, Kamptee Road, Nagpur. As per agreed terms and condition companyPoonam Resorts Ltd. has paid an amount of Rs. 10crores to assessee company in the year 2011 as lease deposits. These lease deposits were the interest free deposit paid by PoonamResots Ltd to the assessee company. Further looking to the point that as the project was in developing stage and to get it completed in the decided time period, & increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has received in the prior assessment years. In the books of accounts the assessee has claimed booking advance of Rs. 2,20,00,000/- and the same was shown in the audited balance sheet. In Earlier year the assessee has agreed to sold some portion of property and received advance amount against sale of property for sum of Rs. 2,20,00,000/- towards booking advance against property from various parties. The project of the assessee was not completed and badly affected by Covid-19 pandemic & hence the assessee has not executed any further document. The assessee respectfully submitted that in the past assessment year 2019-2020, assessee has opening balance of Rs. 1,20,00,000/- which were received as booking advance against property from various parties and later on during the previous year relevant to Asstt Year 2019-2020 assessee has further received Rs. 1,00,00,000/- through proper banking channel towards booking advance against property. The assessee submitted herewith the bank statement duly reflecting the booking advance received alongwith ledger account which enclosed herewith for your kind perusal. Thereafter, the project of the assessee was stopped and not completed and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance sheet each year till the time registries were executed in the name of customers. Therefore the liability is existing and has not ceased. Therefore there is no cessation of liability. 7. The assessee further submitted that as and when the project of the assessee is completed and sale deeds are executed the said booking advances from customers shall be transferred to Sales/revenue account. Hence there is no loss to the revenue on the above mentioned preposition. The assessee further places reliance on following judgements : 1. ITA 380/Ind/2017 (ITAT, Indore) ACIT -vs.- M/s. Sunderdeep Construction Pvt Ltd 2. (2012) 22 taxman 59 (Gujarat High Court) Commissioner of Income Tax -Vs.-Nitin S Garg In the circumstances assessee humbly request that amount disallowed at Rs. 2,20,00,000/- as liability ceased to exist is incorrect and same cannot be added u/s 41(1) being cessation of liability. The assessee humbly request that addition made may kindly be deleted and appeal filed by the assessee may kindly be allowed." 6. The learned CIT(A), considering the submissions of the assessee, passed a detailed order vide Page-20 to 24 of the impugned order and by virtue of following ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s therefore the AO inferred that the assessee has nothing to sell in terms of stock/inventory to the persons/parties from whom the booking advances of Rs. 2.20 crores were shown under the head "other payables and under the head other current liabilities in ITR for AY 2020-21. Further the AO noted that the assessee has not submitted the details of persons/parties from whom the booking advance of Rs. 2.20 crores such as name, address, PAN number, confirmation of existence of booking advance etc. Further the AO noted the books of accounts of the assessee company are not audited from AY 2015-16 onwards. Therefore the AO concluded that these liabilities are very old liability and the assessee has filed to establish the existence of liability and failed to prove the genuineness of the above liability. Therefore the AO considered the same as cessation liability. In view of the above facts, the AO made addition of Rs. 5.20 crores on account of cessation of liability u/s. 41(1) of the Act and completed the assessment. During the course of assessee proceedings, the assessee contended that the liability mentioned in the assessment order are very old liabilities and the same were accepted cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under :- Profit chargeable to tax. 41. [(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, whether in cash or n any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profit and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel for the assessee reiterated the submissions made before the authorities below and supported the impugned order passed by the learned CIT(A). 10. We have heard the rival arguments, perused the material available on the record and gone through the order of the authorities below. Keeping in view the overall facts and circumstances of the case, we find it to be admitted fact that the assessee company was engaged in the business of development and construction in commercial and residential properties. The assessee claimed "other current liabilities" at Rs. 15,20,00,000, and also shown in the Audited Balance Sheet, which includes lease deposit of Rs. 13,00,00,000, and booking advance of Rs. 2,20,00,000. It is also admitted fact that the assessee company and Poonam Resorts Ltd., a company entered into agreement of lease dated 13/09/2011, and lease deed was executed in the year 2011 for land admeasuring 32.87 acres situated at Yerkheda, Kamptee Road, Nagpur. A copy of lease deed is placed on record. The assessee also received Rs. 10 crore from Poonam Resorts Ltd., in the year 2011 and the said deposit was the interest free deposit. The project was not completed as per agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Covid-19 Pandemic. The amount received towards booking advance was old advance and carry forwarded to next year. 15. We find that the assessee company received advance against booking of property from various parties, which were routine practice in this line of business. During the assessment year 2019-20, the assessee was having opening balance of Rs. 1.20 crore which was received as booking advance against property. Subsequently, the assessee has further received Rs. 1 crore through proper banking channel towards booking advance during the previous year relevant to the assessment year 2019-20 and not as booking advance during the previous year relevant to the assessment year 2020-21. The said advance were booking advance against property which cannot be treated as cessation of liability. These amounts are specifically received as advances against booking of property and which does not fall within the provision of 41(1) of the Act, therefore, provision of section 41(1) are not applicable in assessee's case. No amount has been received during the previous year relevant to the assessment year 2020-21. In support of the contentions of the learned Counsel for the assessee, he pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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