Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2024 (11) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (11) TMI 92 - HC - Income TaxAddition u/s. 41 (1) r.w.s. 28 (iv) - as per AO there is no liability of the assessee to repay the amount and assessee has been benefited by the advances received by it in the financial year 2001-02 and there was cessation of liability as the same has ceased to exist - According to the assessee, the said amount was received against the project to be carried out but could not be implemented and the amount was not returned by the assessee due to financial constraints. HELD THAT - There are concurrent findings of fact arrived at by the CIT (Appeals) as well as the Tribunal to the effect that though the assessee has received the advance against the project which had never been implemented and the amount was never returned by the assessee, the theory adopted by the Assessing Officer that it was a colourable devise was also not believed by the CIT (Appeals) as well as the by Tribunal. The CIT (Appeals) and Tribunal, on the contrary, found that the assessee never received any benefit or enjoyed the money that it has received as an advance and therefore, no benefit was derived out of the said transactions as admitted by the AO in the Assessment Order by observing that the assessee has reinvested the amount received as advance in the shares of the group companies of the said M/s. Marwar Hotels Private Limited which was later on sold at loss and such capital loss was never claimed as a set-off by the assessee. Thus, we are of the opinion that the provisions of Section 41 (1) read with Section 28 (iv) of the Act would not be applicable. Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 41(1) of the Income Tax Act, 1961 regarding cessation of liability. 2. Applicability of Section 28(iv) of the Income Tax Act, 1961 concerning benefits arising from business transactions. 3. Allegation of using a colorable device in financial transactions. Issue-wise Detailed Analysis: 1. Applicability of Section 41(1) of the Income Tax Act, 1961: The core issue was whether the addition of Rs. 11,23,64,705/- could be made under Section 41(1) of the Income Tax Act, 1961, which pertains to the cessation of liability. The respondent-assessee had received this amount from M/s. Marwar Hotels Private Limited in the financial year 2001-02 for a project that was never implemented. The Assessing Officer (AO) argued that since the liability to repay the amount ceased to exist, it should be added as income. However, the CIT (Appeals) and the Tribunal found that the liability was continuously acknowledged by the assessee in its balance sheet, and there was no evidence of any remission or cessation of liability. The Tribunal noted that the amount was reinvested in shares of the group company and later sold at a loss, indicating no benefit was derived by the assessee. Consequently, both the CIT (Appeals) and the Tribunal concluded that Section 41(1) was not applicable as there was no cessation of liability. 2. Applicability of Section 28(iv) of the Income Tax Act, 1961: The AO also invoked Section 28(iv) of the Income Tax Act, which deals with benefits arising from business transactions. The CIT (Appeals) held that this section was not applicable because the advances were shown as payable in the balance sheet, and no benefit was derived by the assessee. The Tribunal agreed with this assessment, noting that any alleged benefit from the transaction was not enjoyed by the assessee, as the amount was returned to the same group through share transactions. The Tribunal emphasized that the assessee did not derive any benefit from the transaction, thus ruling out the applicability of Section 28(iv). 3. Allegation of Using a Colorable Device: The AO alleged that the assessee used a colorable device to avoid tax liability. However, the Tribunal found that even if a colorable device was used, the assessee was not the beneficiary of such a transaction. The Tribunal observed that the amount received as advance was reinvested and returned to the same party, indicating that the assessee did not enjoy the money. The Tribunal concluded that the assessee acted as a conduit rather than a beneficiary, and therefore, no addition could be made on the grounds of a colorable device. Conclusion: The High Court upheld the concurrent findings of the CIT (Appeals) and the Tribunal, determining that neither Section 41(1) nor Section 28(iv) were applicable in this case. The court noted that the assessee did not benefit from the transaction and that the liability was continuously acknowledged. The appeal was dismissed as no substantial question of law arose from the Tribunal's order, affirming that the assessee had not derived any benefit that would warrant the addition of the amount as income.
|