2020 (10) TMI 601 - AT - Income Tax

Addition invoking the provisions of Section 56(2)(ix) - advances received - AO observed that, the assessee had no intention to repay the creditors, the assessee diverted the funds to acquire fixed assets and investments - bulk of amount received from Metro Corporation was invested in individual name of assessee and unless the assessee has changed the categorization of receipt to be his own and not longer to be creditors, the assessee would not have used it for acquisition of assets/investments in his own name - HELD THAT - The assessee wrote back the amount to the P L account because the various trade parties did not claim these amounts for a long time. The unclaimed surplus balances retained by the assessee itself was treated as trade receipt by bringing it to the P L account and the claim of the customers have become barred by limitation - As treated as trade receipt of the assessee. In the present case, the amount was received by the assessee in the course of his business operations and it was shown as liability in his Balance Sheet till the F.Y. ending 31/03/2015 relevant to the A.Y. 2015-16. There was no write off by the assessee by crediting it to the P L account. By showing the balance as outstanding in the Balance Sheet, the debit is acknowledged by the assessee and the lender also confirmed the same. It cannot be said that the claim of the parties has been barred by time. The present case, the specific provision is sec. 56(2)(ix) which is in relation to capital asset. There is no forfeiture of the amount so received by the assessee and it is outstanding in the books of account of the assessee and also confirmed by the lenders. There is also no negotiation for transfer of capital asset by the assessee with these two parties. Thus, the assessee s case is not hit by the provisions of section 56(2)(ix) of the I.T. Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 56(2)(ix) of the Income Tax Act, 1961.
2. Nature of the advances received by the assessee.
3. Forfeiture of advances.
4. Usage of advances by the assessee.
5. Reliance on the judgment in the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd.
6. Levy of interest under Sections 234A and 234B of the Income Tax Act.

Detailed Analysis:

1. Applicability of Section 56(2)(ix) of the Income Tax Act, 1961:
The main issue is whether the provisions of Section 56(2)(ix) are applicable to the advances received by the assessee. This section relates to any sum of money received as an advance or otherwise in the course of negotiations for the transfer of a capital asset, which is forfeited if the negotiations do not result in the transfer of such capital asset. The Tribunal observed that the assessee received advances for procuring land, which is considered stock-in-trade and not a capital asset. Therefore, Section 56(2)(ix) is not applicable as the money was received for business purposes and not for the transfer of a capital asset.

2. Nature of the Advances Received by the Assessee:
The assessee received advances from M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. for procuring lands. The Tribunal noted that the assessee is in the business of buying and selling land, and the advances were for business purposes. The advances were shown as liabilities in the books of the assessee, and the parties confirmed the same during the remand proceedings.

3. Forfeiture of Advances:
The authorities below held that there was a virtual forfeiture of the advances since the parties did not take steps to recover the amounts. However, the Tribunal found that the advances were still shown as liabilities in the assessee’s books and were confirmed by the parties. There was no actual forfeiture of the amounts, and the provisions of Section 56(2)(ix) were not attracted.

4. Usage of Advances by the Assessee:
The AO observed that the assessee used the advances to acquire fixed assets and investments. The Tribunal held that the usage of the funds by the assessee does not change the nature of the advances received. The advances remained liabilities in the books of the assessee and were not forfeited.

5. Reliance on the Judgment in the Case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd.:
The CIT(A) relied on the Supreme Court judgment in the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd., where unclaimed balances transferred to the P&L account were treated as income. The Tribunal distinguished this case, noting that the advances in the present case were not written back to the P&L account and remained liabilities. Therefore, the judgment in the case of T.V. Sundaram Iyengar & Sons Ltd. was not applicable.

6. Levy of Interest under Sections 234A and 234B of the Income Tax Act:
Since the Tribunal deleted the addition made by the AO under Section 56(2)(ix), the question of levy of interest under Sections 234A and 234B did not arise. The Tribunal allowed this ground of appeal.

Conclusion:
The Tribunal concluded that the provisions of Section 56(2)(ix) were not applicable to the advances received by the assessee as they were for business purposes and not for the transfer of a capital asset. The advances were not forfeited and remained liabilities in the books of the assessee. Accordingly, the addition made by the AO and sustained by the CIT(A) was deleted, and the appeal of the assessee was allowed.