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TMI Blog2017 (2) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - I. T. A. No. 546/Asr/2015 and C. O. No. 1/Asr/2016 - - - Dated:- 26-9-2016 - T. S. Kapoor (Accountant Member) And N. K. Choudhry (Judicial Member) For the Appellant : Rahul Dhawan, Departmental representative For the Respondent : P. N. Arora, Advocate ORDER T. S. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, it had shown the commission income only at 1 per cent. and did not produce the relevant record of commission during assessment. 3. The brief facts, as noted in the assessment order are that the assessee is engaged in the business of development of residential colony on behalf of different land owners and selling of plots and is also earning commission on sale of such plots. The case of the assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer observed that the assessee had in its balance-sheet outstanding advances against the booking of plots and some of the advances were outstanding for almost 20 years. Therefore, the assessee was confronted on the issue that why the sale deeds of plots had not been registered against these advances and the assessee was show caused as to why the advances should not be treated as income of the firm. The assessee submitted that the advances were received against the booking of plots. The Assessing Officer observed that despite efforts, on the part of the firm, these persons had not come forward to take back these advances. Therefore, he assumed that these advances now stand forfeited by the firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-firm shown as outstanding on the liabilities side of the balance-sheet deserves to be forfeited and treated as income of the assessee-firm. The Assessing Officer determined the real value of the advances by applying the cost inflation index. As the assessee had received the money during different financial years and had also forfeited some portion of the advances during the previous years, hence, the Assessing Officer calculated the value of money in the financial year 2011-12 as given in the assessment order and worked out the real value of advances in the financial year 2011-12 at ₹ 33,56,272 and added the same to the total income. In the written submissions it was explained that the appellant is the registered firm and the main job of the firm was to develop plots and to maintain the same on behalf of plot holders who are co-owners of the said land. The assessee gets the expenses reimbursed which have been spent by the appellant-firm on behalf of the plot holders. The assessee-firm only gets commission on the sale of plots and the main source of income of the appellant is commission income. The appellant pointed out that during the year under consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amritsar, in the case of International Engg. Corpn. (Regd.) v. ITO (I. T. A. No. 433(ASR)/2012 for the assessment year 2007-08 dated February 15, 2013). Accordingly, in view of the above discussion there was no basis with the Assessing Officer to make the said addition of ₹ 33,56,272 which is accordingly deleted. (iv) The ground of appeal No. 5 is against the addition of ₹ 4,55,768 on account of less rate of commission charged by the assessee-firm. The assessee had earned income on account of commission on sale brokerage of ₹ 9,11,536. The assessee was asked by the Assessing Officer to provide details of commission received. As per the details submitted the Assessing Officer observed that the assessee-firm had charged commission on sale uniformly at 1 per cent. of sale consideration of plots. As stated by the assessee, it was getting commission on those plots sold by them at 1 per cent. to 2 per cent. at the prevailing rates from the holders of those plots. In the absence of any record of commission earned given by the assessee furnishing the commission charged on sale of each plot, the Assessing Officer charged commission at land half per cent. on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter was written to Mr. Suneel Khurana, was placed. In view of these facts, the learned Departmental representative submitted that since the amounts had been forfeited, therefore, the liability had ceased and as such the amounts were taxable under section 41(1) of the Income-tax Act. He placed reliance on the decision of the hon'ble Punjab and Haryana High Court in the case of Atlas Cycle Industries Ltd. v. CIT [1981] 128 ITR 60 (P H) for the proposition that where forfeiture of deposits was made, the amounts were taxable under section 41(1) of the Act. 8. As regards the other issue relating to commission declared by the assessee, the learned Departmental representative submitted that the assessee itself had submitted that they were charging commission at 1 per cent. to 2 per cent., whereas it had declared the commission income at 1 per cent., therefore, the Assessing Officer had rightly estimated the income from half of the plots at 1 per cent. and on half of plots at 2 per cent. In view of the above, the learned Departmental representative prayed that the order of the learned Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer be upheld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel submitted that the Assessing Officer was not able to point out as to from whom the assessee had received commission at 2 per cent. He submitted that the Assessing Officer had made the addition on the basis of surmises and conjectures and therefore, the learned Commissioner of Income-tax (Appeals) has rightly deleted the same. 12. We have heard the rival contentions and have gone through the material available on record. We find that it is a fact as noted in the assessment order that advances were not received by the assessee in the present year and these were outstanding for the last so many years. It is also an undisputed fact that the assessee, vide written submissions to the learned Commissioner of Income-tax (Appeals), placed at paper book 1, 1A and 1B, had submitted the complete names of the persons in favour of whom the plots were registered in the succeeding year and the learned Commissioner of Income-tax (Appeals) did not find anything adverse in the submissions of the assessee. The declaration of such advances in the balance-sheet for the year under consideration itself proves that the assessee had not forfeited the said advances and had adjusted a part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of record in the order of the Assessing Officer where the assessee had made some payments during the assessment years 2008-09 and 2009-10, which the Assessing Officer at page 2 has mentioned in his order. In spite of such facts on record, the matter did not find favour to the Assessing Officer and confirmation made by the learned Commissioner of Income-tax (Appeals) in a summary manner is not justified. The assessee is assessed to Income-tax regularly, is on record and sundry creditors are outstanding as per the last year for which assessment record was available with the Assessing Officer which was argued by the learned counsel and was not rebutted by the learned Departmental representative in this respect. Even if confirmation copies of accounts and books of account are not produced, the copies of audited accounts for the impugned year and the assessment record of the preceding year was available with the Assessing Officer. The Assessing Officer cannot make the assessment on conjectures, surmises or on the basis of suspicion. The Assessing Officer has not given any findings that the said copies of account as false or fraudulent. Therefore, the assessment has to be made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as specifically taken a ground of appeal that the case law of International Engg. Corpn. (Regd.) v. ITO (I. T. A. No. 433(ASR)/2012 for the assessment year 2007-08 dated February 15, 2013) was not applicable to the facts and circumstances of the present case. However, we find that in that case the assessee had taken ground No. 8 for addition under section 41(1) of the Act. For the sake of convenience, this ground of appeal is reproduced below : 8. That the learned Commissioner of Income-tax (Appeals) did not appreciate that the books of account were duly produced before the Assessing Officer at the time of hearing of the case which was taken up several times and all the information as desired by the Assessing Officer were furnished and there was no justification in confirming the addition of ₹ 14,74,763 on account of cessation of liabilities by invoking the provisions of section 41(1) of the Act. That this liability was not the liability which came into existence for the first time during the year under consideration but it as a liability which was still payable by the assessee and there was no earthly reason for confirming the addition of ₹ 14,74,763. 14. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being made by the creditors and the amount of liabilities outstanding were liable to be added as income of the assessee. 11. The Commissioner of Income-tax (Appeals) did not accept the reasoning of the Assessing Officer and deleted the addition made by the Assessing Officer with respect to amounts reflected as payable to various sundry creditors on the ground that the assessee-company continued to reflect the amounts payable even in the subsequent periods. The Commissioner of Income-tax (Appeals) held that there could be no cessation of liability as the assessee-company continued to acknowledge its debt towards the creditors. However, the Commissioner of Income-tax (Appeals) concluded that the amount outstanding to the credit of M/s. Elephanta Oil and Vanaspati Ltd. was not genuine as the assessee could not produce any confirmation or evidence of the original transaction which was undertaken in 1984- 1985. It is relevant for us to notice that the Revenue did not prefer any appeal against the order of the Commissioner of Income-tax (Appeals), and, thus, accepted his decision that there was no cessation of liability in cases where the assessee-company continued to acknowledge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to Income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not ; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and, accordingly, chargeable to Income-tax as the income of that previous year. Explanation 1.-For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thstanding that its recovery is barred by limitation. . . .' 19. This view has also been taken by the Supreme Court in the case of CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518 (SC). In the said case, it was contended on behalf of the Revenue that the liability has come to an end as the creditors in the said case had not taken any action to recover the amounts due to them for twenty years. The Supreme Court affirmed the decision of the Bombay High Court in the case of J. K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 (Bom) wherein the words 'cessation or remission' had been interpreted. The Supreme Court quoted the following passage from the judgment of the Bombay High Court in the said case of J. K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 (Bom) (page 41) : 'The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees. We fail to see how a debtor, by his own unilateral act, can bring about the cessation or remission of his liability. Remission has to be granted by the creditor. It is not in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lthough, enforcement of a debt being barred by limitation does not ipso facto lead to the conclusion that there is cessation or remission of liability, in the facts of the present case, it is also not possible to conclude that the debt has become unenforceable. It is well settled that reflecting an amount as outstanding in the balance-sheet by a company amounts to the company acknowledging the debt for the purposes of section 18 of the Limitation Act, 1963, and, thus, the claim by M/s. Elephanta Oil and Vanaspati Ltd. can also not be considered as time barred as the period of limitation would stand extended. Even, otherwise, it cannot be stated that M/s. Elephanta Oil and Vanaspati Ltd. would be unable to claim a set off on account of the amount reflected as payable to it by the assessee. Admittedly, winding up proceedings against M/s. Elephanta Oil and Vanaspati Ltd. are pending and there is no certainty that any claim that may be made by the assessee with regard to the amounts receivable from M/s. Elephanta Oil and Vanaspati Ltd. would be paid without the liquidator claiming the credit for the amounts receivable from the assessee-company. It is well settled that in order to attra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. In view of the above facts and circumstances of the case, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) and accordingly ground No. 4 of the Revenue is dismissed. 19. In a nutshell, the appeal filed by the Revenue is dismissed. 20. As regards the cross-objection of the assessee since we have already upheld the order of the learned Commissioner of Income-tax (Appeals), the same is also dismissed as it is only supportive to the order of the learned Commissioner of Income-tax (Appeals) and no other grievance has been raised. 21. In the result, both the appeals of the Revenue as well as cross-objection of the assessee are dismissed. 22. Order pronounced in the open court on September 26, 2016. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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