2020 (2) TMI 886 - AT - Income Tax

Addition u/s 41(1) - Cessation of liability to pay - HELD THAT - Admittedly the assessee constructed a society named Matrinagar Co-operative Housing Society Bharuch and was thus required to incur expenses on account of drainage boundary wall, temple etc. towards development of the society. Since these expenses were incurred by the owner of the society for which assessee was required to reimburse them therefore the assessee had created a provision in the books of account towards this liability. We also found that Matrinagar Association has not given up their right to recover the amount from the assessee. In the absence of confirmation it cannot be presumed that Matri Nagar Association has given up right of recovery of the said amount from the assessee and moreover the said amount has also been shown as payable by the assessee is also a pointer that assessee still admits the liability to pay. After appreciating the facts of the present case, we are of the view that for invoking provisions of section 41(1) of the Act, there has to be remission of liability. There is no remission or cession of liability in the case of assessee. Remission has to be granted by the creditors and the cession of the lability may occur either by reason of operation of law. Remission of liability arises only when the creditor voluntarily gives up the claim. The cession of liability arises when it ceases to exist in the eyes of law for all purposes - Since as far as the facts of the present case, the assessee has still shown the creditors as payable, therefore, there is no cessation of liability. - Decided in favour of assessee Advance towards sale of house property - HELD THAT - From the records, we are noticed that assessee has received the money from three different persons who were not relatives of the assessee and it is also undisputed fact that assessee had received the money in pursuance of an authority to sell entered into on 01-09-2008. A.O. has recorded the statements of the persons from whom the advance was received. These persons have categorically confirmed and admitted of have doing agricultural activities. The land holdings in the form of 7/12 and also the certificate of Talati cum mantri has already been placed on record. The method by which the tissue were procured by the creditors was sold in the market has also been mentioned by the respective persons. All those persons have specifically stated that agricultural activities being carried out by them. The certificate of Talati also shows that the land owned by those persons are very fertile and the early income for the year under consideration was between 8 to 9 lacs for these individuals. Apart from that they have also specifically stated before the assessing officer that the amount was advanced from accumulated savings of past years. Since there is ample documentary evidence on record which proves the identity, creditworthiness and genuineness of transactions on the record in the form of agreement to sell, affidavits, statement of persons who had made the payment to the assessee and their source of payment, certificate of Talati and mantri and also proof of land holdings, therefore, all those documentary evidences cannot be disbelieved and additions cannot be made, merely rejecting the evidences filed and the evidences given by the assessee do not entitle the AO to make the addition u/s. 68 of the Income Tax Act as held by the Hon ble Supreme court in the case of Orissa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME COURT . More particularly in this case the assessee has discharged his onus by putting forth all the documents, evidence placed on record clearly shows that agreement to sell was entered into by the assessee with the above three persons who had substantial land and confirmed the payments made in the statement also in an affidavit, therefore, the creditworthiness of the persons as well as genuineness of the transactions with the assessee stood established and thus the addition u/s. 69 could not be sustained. - Decided in favour of assessee

Issues Involved:
1. Addition of ?5,36,556/- under Section 41(1) of the Income Tax Act, 1961.
2. Addition of ?75,00,000/- received as advance towards the sale of house property.
3. Charging of interest under Section 234B of the Income Tax Act.
4. Initiation of penalty proceedings under Section 274 read with Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

Ground No. 1: Addition of ?5,36,556/- under Section 41(1)
The assessee challenged the confirmation of the addition of ?5,36,556/- under Section 41(1) by the CIT(A). The assessee argued that there was no cessation or remission of liability as the Matrinagar Co-operative Housing Society had not given up its right to recover the amount. The assessee had created a provision in the books of account towards this liability, which was still shown as payable. The Tribunal noted that for invoking Section 41(1), there must be a remission or cessation of liability, which was not present in this case. The Tribunal relied on several judgments, including J.K. Synthetics Ltd. vs. ITO, CCIT vs. Kesari Tea Company Ltd., and CIT vs. Abdul Adhal, to conclude that there was no cessation of liability. Therefore, the addition was deleted, and this ground was allowed.

Ground No. 2: Addition of ?75,00,000/- Received as Advance
The assessee contested the addition of ?75,00,000/- received as an advance towards the sale of house property. The assessee had entered into an agreement to sell the property and received ?25,00,000/- each from three individuals. The assessee provided confirmations, affidavits, and statements under Section 131 from these individuals, who confirmed the payments and disclosed their sources of income. The Tribunal noted that the AO had rejected these evidences without any substantial reason. The Tribunal found that the assessee had provided ample documentary evidence, including certificates from Talati cum Mantri and landholding proofs, which established the identity, creditworthiness, and genuineness of the transactions. The Tribunal relied on various judgments, including Sarogi Credit Co-operative Society vs. CIT and CIT vs. Ajay Kumar Sharma, to conclude that the addition under Section 68 could not be sustained. Therefore, this ground was allowed.

Ground No. 3: Charging of Interest under Section 234B
This ground was not specifically addressed in the detailed analysis, indicating that it might have been considered as a general issue or dependent on the outcome of the main grounds.

Ground No. 4: Initiation of Penalty Proceedings
This ground was also not specifically addressed in the detailed analysis, suggesting that it might have been considered as a general issue or dependent on the outcome of the main grounds.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal deleting the additions made under Sections 41(1) and 68 of the Income Tax Act. The Tribunal found that the assessee had provided sufficient documentary evidence to establish the genuineness of the transactions and the creditworthiness of the parties involved. The other grounds were considered general and did not require specific adjudication. The order was pronounced in the open court on 14-02-2020.

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