2017 (2) TMI 597 - AT - Income Tax

Addition under section 41(1) - Held that - In the present case, the assessee has not forfeited the advances, as it had been declaring the liabilities in its balance-sheet. The assessee though in various letters had been threatening the prospective buyers that their security deposits will be forfeited but did not actually forfeit the same, as it continued to declare such advances in the balance-sheet. Hon ble Delhi High Court in the case of CIT v. Jain Exports Pvt. Ltd. (2013 (5) TMI 690 - DELHI HIGH COURT ), under similar facts and circumstances has held that the liability on account of creditors, which were being declared by the assessee for the last more than 25 years in favour of the assessee, by holding that the liability had not ceased to exist. We further find that the assessee during the subsequent years had adjusted the advances against sale of plots as is apparent from the paper book 2, where against Sl. Nos. 4, 6, 11, 17 and 18 the plots were sold and the amount of deposit was adjusted. The fact of part of advances having been adjusted in subsequent years itself proves that the liability had not ceased and, therefore, also, the addition under section 41(1) of the Act was not justified and the learned Commissioner of Income-tax (Appeals) has rightly deleted the same. - Decided in favour of assessee Addition of commission received - Held that - We find that the assessee had filed complete details of names and addresses of the persons from whom it had received commission at 1 per cent. of the sales consideration. The Assessing Officer assumed commission to be 2 per cent. in a few cases and 1 per cent. in a few cases and arbitrarily made an addition of ₹ 4,55,768. The Assessing Officer did not bother to examine any of the persons from whom the commission was received to find out the rate of commission. Therefore, the learned Commissioner of Income-tax (Appeals) has rightly deleted the addition. - Decided in favour of assessee

Issues Involved:
1. Deletion of addition of ?33,56,272 made by the Assessing Officer (AO) after applying the cost inflation index to unclaimed advances.
2. Applicability of provisions of indexation and section 41(1) of the Income-tax Act.
3. Deletion of addition of ?4,55,768 made by the AO on account of commission income.
4. Charging of interest under sections 234B and 234C of the Income-tax Act.

Detailed Analysis:

1. Deletion of Addition of ?33,56,272:
The AO observed that the assessee had unclaimed advances against the booking of plots, some of which were outstanding for almost 20 years. The AO applied the cost inflation index to determine the present value of these advances and added ?33,56,272 to the total income of the assessee. The assessee argued that these advances were received against the booking of plots and had not been forfeited. The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the addition, agreeing with the assessee that the application of the cost inflation index was inappropriate as it is typically applied in cases involving capital gains, not advances.

2. Applicability of Provisions of Indexation and Section 41(1):
The AO contended that the provisions of indexation and section 41(1) were applicable as the advances remained unclaimed for nearly 20 years. The CIT(A) disagreed, noting that the advances were not received during the year under consideration and were not written back in the books of account. The CIT(A) referenced the decision in the case of International Engg. Corpn. (Regd.) v. ITO, where it was held that liabilities not written back in the books cannot be considered under section 41(1). The Tribunal upheld this view, stating that the cost inflation index should not be applied to advances and that the liability had not ceased as the advances were still reflected in the balance-sheet.

3. Deletion of Addition of ?4,55,768 on Account of Commission Income:
The AO observed that the assessee declared commission income at 1% of the sales consideration but admitted to charging commission at rates between 1% and 2%. The AO assumed an average commission rate of 1.5% and added ?4,55,768 to the income. The CIT(A) deleted the addition, noting that the AO made the addition based on mere presumption without any specific evidence. The Tribunal agreed, highlighting that the assessee had provided complete details of the commission received, and the AO failed to point out any instances where the commission was charged at more than 1%.

4. Charging of Interest under Sections 234B and 234C:
The CIT(A) directed the AO to recompute the interest under sections 234B and 234C after giving effect to the order. The Tribunal upheld this direction, noting that the charging of interest under these sections is mandatory but consequential in nature.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue and upheld the order of the CIT(A), thereby deleting the additions made by the AO. The cross-objection filed by the assessee, which was supportive of the CIT(A)'s order, was also dismissed. The Tribunal's decision was based on the interpretation of the applicability of the cost inflation index, the provisions of section 41(1), and the lack of evidence supporting the AO's assumptions regarding commission income.

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