2022 (3) TMI 383 - AT - Income Tax

Addition on account of cessation of liability for purchase of immovable property, when in fact the payment of liability was not proved and established - CIT-A deleted the addition - HELD THAT - Both the parties confirmed outstanding amount. Therefore, Seller has confirmed the amount receivable and the buyer has also accepted its liability for payment of the above sum. Further for the applicability of the provisions of section 41(1) of the Act there is no benefit arising in favour of the assessee. It is merely an outstanding payable to Sundry Creditors for purchase of stock in trade. On looking at the balance sheet of the assessee, it is also seen that there are some land owned by the assessee at Alibaug. Therefore it cannot be said that the explanation for the above outstanding sum is also false. The learned CIT(A) also asked for the remand report from the Assessing Officer which clearly showed that the only payment made by the assessee was of ₹ 10 lacs and the cheques mentioned in the sale deed were not enchased - we find that the liability still exists and the manner of discharge of above liability has also been agreed by the parties. There is no cessation of liability in the hands of the assessee as the liability is live and existing. Therefore, the ld CIT (A) has deleted the addition made by the learned Assessing Officer under section 41(1) - Further in absence of any contrary evidence, the Assessing Officer is not correct in stating that assessee might have paid the above sum out of its unaccounted income. To reach at such conclusion, no evidences are shown before us. Therefore, we do not find any infirmity in the order of the learned CIT (A). in deleting the above addition. - Decided against revenue.

Summary

Issues:
Appeal against deletion of addition on account of cessation of liability for purchase of immovable property.

Analysis:
- The appeal was filed by the Income-Tax Officer against the order of the Commissioner of Income-Tax (Appeals) for Assessment Year 2015-16, challenging the deletion of an addition of ?251,24,000 made on account of cessation of liability for the purchase of immovable property.
- The appellant, a company engaged in land and property development, declared a total income of ?1,47,640, which was selected for scrutiny.
- The Assessing Officer made the addition under section 41(1) of the Income-tax Act, 1961, totaling the income at ?2,52,71,640.
- The CIT(A) deleted the addition, prompting the appeal by the Assessing Officer.
- The case involved the purchase of non-agricultural land, with discrepancies noted by the Assessing Officer regarding payments made and liabilities shown in the balance sheet.
- The Assessing Officer concluded that the liability had ceased to exist or the payment was made from undisclosed income, leading to the addition.
- The CIT(A) considered both parties' recognition of the liability and held that the addition was not sustainable under section 41(1) of the Act.
- The CIT(A) also reviewed the affidavit and remand report, concluding that the liability still existed, resulting in the deletion of the addition.
- The arguments presented by the Departmental Representative and the Authorized Representative focused on the outstanding liability and the lack of evidence supporting the Assessing Officer's conclusions.
- The Tribunal examined the facts, confirming the pending liability and the agreement between the parties for payment through land transfer.
- The Tribunal found no cessation of liability and upheld the CIT(A)'s decision to delete the addition.
- Consequently, all grounds of appeal were dismissed, and the appeal of the Assessing Officer was rejected.

This detailed analysis outlines the legal proceedings, arguments presented, and the Tribunal's decision regarding the addition on account of the cessation of liability for the purchase of immovable property, ultimately upholding the deletion of the addition by the CIT(A).