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2025 (2) TMI 1137 - AT - Income TaxApplicability of section 41(1) and 68 - Addition of lease advance as well as addition toward booking advance as liability ceased as income of the assessee - HELD THAT - Lease deposit amount were interest free deposit means interest free amount to be deposited by the Licensee with Lessor as per terms and conditions of lease agreement. The interest free deposit taken by the licensor is to secure or to act as a guarantee as per the terms of agreement against damages to the properties. The amount of 3 crore received by the assessee were lease deposit and the said deposit is temporary in nature for lease period of 21 years as per lease agreement. The said agreement of lease is binding on both the parties. The amount was duly acknowledged and confirmation was also filed by Poonam Resorts Ltd. which is placed on record. 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 1.20 crore which was received as booking advance against property. Subsequently the assessee has further received 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. Basic condition of invoking the provision of section 41(1) of the Act has not been pointed out the Assessing Officer in the assessment order. The Assessing Officer has only doubted the genuineness of the lease deposit transaction and booking advances transactions which could have been the basis for addition under section 68 of the Act but again the transactions are very old and not taken place during previous relevant year relevant to the assessment year 2020-21. Therefore the applicability of section 68 is also not attracted in assessee s case. Even if the transactions are assumed to be trading liability the condition mentioned in the Explanation to section 41(1) of the Act is bad in law arbitrary and unjustified. Addition made for lease advance as well as addition toward booking advance as liability ceased as income of the assessee were rightly deleted by learned CIT(A). Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The primary issues considered in this judgment were: 1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in holding that the provisions of Section 41(1) of the Income Tax Act are not applicable to the assessee concerning the addition of 5.2 crore, without ascertaining the nature of transactions through documentary evidence as per Rule 46A of Income Tax Rules. 2. Whether the CIT(A) should have treated the amount of 5.2 crore as a benefit arising in the hands of the assessee as per the provisions of Section 28(iv) of the Act due to the lack of evidence regarding the nature of such transactions. ISSUE-WISE DETAILED ANALYSIS 1. Applicability of Section 41(1) of the Income Tax Act: Relevant Legal Framework and Precedents: Section 41(1) deals with the remission or cessation of trading liabilities, where any allowance or deduction has been made in the assessment for any year in respect of loss, expenditure, or trading liability incurred by the assessee. The section is invoked if there is a remission or cessation of such liability. Court's Interpretation and Reasoning: The Tribunal examined whether the liabilities shown by the assessee were indeed ceased or remitted. It found that the Assessing Officer (AO) failed to establish that the assessee had obtained any benefit or remission of the liabilities in question during the relevant assessment year. Key Evidence and Findings: The assessee provided evidence that the liabilities were old and had been accepted in prior assessments. The lease deposit of 13 crore was part of a long-term lease agreement and not a trading liability that had ceased. Similarly, the booking advances were not new liabilities but were carried forward from previous years. Application of Law to Facts: The Tribunal noted that the AO did not demonstrate that the assessee had received any benefit from the liabilities in question during the assessment year 2020-21. The liabilities were old and had been accepted in previous assessments, and no new evidence suggested a cessation or remission. Treatment of Competing Arguments: The Tribunal considered the AO's argument that the liabilities were old and non-existent but found that the AO did not provide sufficient evidence to support this claim. The Tribunal also noted that the AO did not issue a notice under section 133(6) to verify the existence of the liabilities with the concerned parties. Conclusions: The Tribunal concluded that the basic conditions for invoking Section 41(1) were not met, as there was no remission or cessation of liability during the relevant assessment year. 2. Treatment of the Amount as Income under Section 28(iv): Relevant Legal Framework and Precedents: Section 28(iv) deals with the value of any benefit or perquisite, whether convertible into money or not, arising from the business or profession. Court's Interpretation and Reasoning: The Tribunal found that the AO did not demonstrate that the amounts in question constituted a benefit or perquisite arising from the business. The amounts were either lease deposits or booking advances, which did not fall under the purview of Section 28(iv). Key Evidence and Findings: The Tribunal noted that the lease deposits were interest-free and part of a contractual agreement, while the booking advances were received in prior years and were not new income or benefits. Application of Law to Facts: The Tribunal determined that the AO failed to establish that the amounts in question were benefits or perquisites arising from the business, as required under Section 28(iv). Treatment of Competing Arguments: The Tribunal considered the AO's argument that the amounts should be treated as income but found that the AO did not provide sufficient evidence to support this claim. Conclusions: The Tribunal concluded that the amounts in question did not constitute income under Section 28(iv), as they were neither benefits nor perquisites arising from the business. SIGNIFICANT HOLDINGS The Tribunal upheld the CIT(A)'s decision to delete the addition of 5.2 crore made by the AO under Section 41(1), finding that the conditions for invoking this section were not met. The Tribunal also found that the amounts in question did not constitute income under Section 28(iv). Core Principles Established: 1. The mere fact that a liability is old does not automatically result in its cessation or remission under Section 41(1) unless there is evidence of such cessation or remission during the relevant assessment year. 2. Liabilities that are part of a contractual agreement, such as lease deposits, do not constitute income under Section 28(iv) unless they provide a benefit or perquisite arising from the business. Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that the addition of 5.2 crore was not justified under Sections 41(1) or 28(iv) of the Income Tax Act. The Tribunal found that the AO failed to provide sufficient evidence to support the claims of cessation of liability or the existence of a business benefit.
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