2021 (3) TMI 1148 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - assessee received cash from some parties to which advances were given in the preceding years. but A.O was not satisfied with the genuineness of the cash received - CIT- A deleted the addition - HELD THAT - The alleged amount added is actually the refund of the advances given by the assessee to various parties for purchase of land in preceding years which were given through banking channel and duly disclosed in the audited financial statements placed before the revenue authorities in the preceding years and no addition/discrepancy have been noticed. We therefore find no reason to interfere in the finding of Ld. CIT(A) and the same stands confirmed. In the result Ground No.1 raised by the revenue is dismissed. Addition u/s 41(1) on bogus creditors - addition deleted by Ld. CIT(A) - HELD THAT - As the alleged amount of bogus creditors are not in the form of sundry creditors. These amounts are advances against booking of plots. When the plots are developed and the parties who have booked the plots give the remaining amount if any, then the advance given at the time of booking is transferred to sales account. As regards the amount outstanding in the name of Maggy Publicity, no addition can be made u/s 41(1) of the Act since it has offered to tax in the return of income filed for Assessment Year 2014-15. All the remaining 10 parties are not sundry creditors but are the advances for booking of developed plots of which some have already been transferred to the sales account when the registry was completed. These 10 parties cannot be termed as sundry creditors as there is no supply of goods or services by these parties. Ledger account shows that the assessee has received the sum through banking channel from these parties. Such sum received can either be in the form of unsecured or advance for sale/booking of plots. In the instant case out of the 10 parties in two cases the registry have been done and the advances received during the preceding years have been transferred to sales account. This fact asserts that all the sum received from 10 parties is advances for booking of plots and not balance of sundry creditors. As decided in NITIN S. GARG 2012 (5) TMI 30 - GUJARAT HIGH COURT Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Appellate Tribunal has rightly observed that the Assessing Officer shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation . We are of the considered view that out of the alleged sum outstanding in the name of Maggi Publicity has been offered to income for Assessment Year 2014-15 and all the remaining amount received from 10 parties are not sundry creditors as they have advances for booking of plot of lands of which few have been transferred to sales account as and when the registry of plot of land is completed. Provision of Section 41(1) are not applicable on this case as the assessee has not claimed the alleged amount of advances from customers as an allowance or deduction in any assessment year in respect of loss, expenditure or trading liability. We thus confirm the finding of Ld. CIT(A) - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made by the AO under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition made by the AO under Section 41(1) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68
The Revenue challenged the deletion of ?2,76,42,000/- added by the AO as unexplained cash credit under Section 68. The AO observed that the assessee received cash from parties to whom advances were given in preceding years. The AO was not satisfied with the genuineness of the cash received and added it to the income of the assessee.

The assessee argued that these were refunds of advances given for land purchases through banking channels in earlier years, which were accepted by the Department in previous assessments. The funds were advanced to various parties and were reflected in the audited balance sheets. The advances were given mostly during AY 2007-08 and 2008-09 and some during AY 2009-10 to 2011-12.

The CIT(A) deleted the addition, noting that the refunds were not cash credits but recovery of earlier advances. The Tribunal upheld this view, stating that the refunds could not be treated as unexplained cash credits under Section 68, as they were not fresh credits but refunds of earlier debits. The Tribunal relied on various judicial precedents, including the cases of SB Steel Industries and Decent Foods Private Limited, which supported the assessee's contention.

Issue 2: Deletion of Addition under Section 41(1)
The Revenue also challenged the deletion of ?83,05,400/- added by the AO under Section 41(1) for bogus creditors. The AO treated the amounts shown as advances from customers for flat bookings as trading liabilities and made the addition.

The assessee contended that these were advances for booking plots, not trading liabilities, and thus Section 41(1) was not applicable. The advances were reflected in the balance sheet under "Advances from Customers" and were transferred to the sales account upon completion of the sale deeds. The CIT(A) accepted this argument, noting that the advances were not trading liabilities and had not been claimed as deductions in earlier assessments.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the advances were for booking plots and not sundry creditors. It noted that the amounts were received through banking channels and were not trading liabilities subject to Section 41(1). The Tribunal cited the Gujarat High Court's decision in Nitin S. Garg, which held that mere outstanding liabilities do not imply cessation of liabilities under Section 41(1).

Conclusion:
The Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s deletions of additions under Sections 68 and 41(1). The Tribunal found that the amounts were refunds of earlier advances and advances for plot bookings, respectively, and not unexplained cash credits or trading liabilities. The order was pronounced in the open Court on 25.03.2021.