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TMI Blog2017 (3) TMI 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... this transaction of the assessee cannot attract Section 41(1). So, therefore, there is no infirmity in the order passed by the Ld. CIT (A) and we confirm the same. Liability from M/s Kit Sales (P) Ltd. Liability shown by the assessee without being written off by the creditor cannot attract Section 41(1) of the Act as rightly held by the Ld. CIT (A) and even if advance as claimed by the assessee is found to be non-genuine from the very inspection itself, at least in terms of Section 41(1) of the Act, there is no cure for it. May be the said amount which is credited in the books of the assessee could attract Section 68 of the Act which could have been done in the year when the amount was credited in the books of the assessee i.e. in the A.Y. 2007-08, since the fact remains that the said credit entry in the books of account happened on 28.08.2006. So, therefore, we do not find any infirmity in the order passed by the Ld. CIT (A) and we dismiss the appeal of the Revenue. Liability from B. Nirupam& Co. - Liabilities have been existing from a very long time and same according to the assessee are still liabilities on its books and just because the notices were unserved does not mean th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Member And Dr. A. L. Saini, Accountant Member For the Revenue : Sri Rajat Kumar Kureel, JCIT, Sr. DR. For the Assessee/Cross Objector : Sri K.M. Roy, FCA. ORDER PER ABY T. VARKEY, JM The appeal preferred by the Revenue and the Cross Objection preferred by the assessee are against the order of the Ld. CIT(A)-IV, Kolkata, dt. 03.09.2015 for A.Y. 2012- 13. Since both the appeal and the cross objection have been heard together, we dispose of the same by this consolidated order for the sake of convenience. 2. The main grievance of the Revenue is against the action of the Ld. CIT (A) in allowing the relief of Rs. 1,16,38,000/-. 3. Brief facts of the case is that the assessee had filed his return of income on 30.09.2012 reflecting total income of Rs. 41,39,400/-. Later the case was selected for scrutiny. 4. The AO noted that the assessee was showing liabilities to the tune of Rs. 1,16,38,000/- towards various old liabilities which were held by the AO as bogus liability claim of the assessee. The AO tried to ascertain the genuineness of the liability reflected in the balance sheet by issuing notice u/s. 133(6) to the following, namely, M/s. Nirupama & Co. in whos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the assessee. Aggrieved the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the appeal and ordered deletion of the aforesaid amount. 8. Aggrieved by the said decision of the Ld. CIT(A), the Revenue is before us. 9. We have heard both the parties and perused the records. We take note that the AO has invoked Sec. 41(1) to bring into tax the following liabilities shown by the assessee as follows: (i) B. Nirupam& Co. 6,38,000- Sundry Creditors (ii) Kit Sales (P) Ltd. 50,00,000- Advance (iii) Bimal Kumar Gupta 60,00,000- Advance Thus a total addition of Rs. 1,36,38,000/- has been made by the AO invoking section 41(1) of the Act. 10. First we take the case of Sri Bimal Kumar Gupta, from whom the assessee has shown a liability of Rs. 60,00,000/- which has been treated by the AO as bogus claim and added u/s. 41(1) of the Act. The assessee's case is that during the F.Y. 2005-06 received advances from Sri Bimal Kumar Gupta of an amount of Rs. 25 Lakhs as advance for purchase of land vide 3 cheques. In the month of January and February, 2006 and during the F.Y. 2006-07, the assessee received vide cheque dt. 25.04.2006. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 41(1) cannot be invoked in this case because the assessee is admittedly in the business of buying and selling of properties and that an advance given for stock-in-trade (i.e. in this case land) unless crystallized to a sale the consideration received/advances cannot be income. We note that the advances of Rs. 60 Lakhs has been shown by the assessee in his balance sheet at the liability side because if the transactions does not materialize, then there is an obligation on part of the assessee to return this advance to the buyer (i.e. in this case Sri Bimal Kumar Gupta). So, it was shown by the assessee on the liabilities side and when the sale crystallized by handing over possession of the property, the advance after adjustment of the cost was moved to the income side of the P&L Account (in case if the adjustment results in surplus and when there is a deficit, it will come in the expenditure side). So, we take note that after completing the legal formalities and handing over the property during the F.Y. 2012-13, the profit from the sale of land to Sri Bimal Kumar Gupta of Rs. 34 Lakhs has been transferred to the P&L Account of M/s Abir International in which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, as on date the transactions for which the advance was given to it is yet to be completed. According to the assessee the amount is still lying as advance in the books. It was pointed out by the Ld. Counsel that the reply of M/s Kit Sales (P) Ltd. to the query of the AO was only pertaining to transactions for last 3 years as per the specific questions put forth to it by the AO. According to the Ld. Counsel, since the transactions had taken place long before, so naturally these were not covered in the answer specifically. The Ld. Counsel contended that in the absence of unilateral writing back of liability, no cessation of liability can be imputed. The Ld. Counsel also pointed out that the question covered only 3 years i.e. from 01.04.2010 to 31.03.2013, whereas the assessee received the amount in cheque from M/s Kit Sales (P) Ltd. on 28.08.2006 by cheque totaling to an amount of Rs.50 Lakhs. It was pointed out by the Ld. Counsel that after confronting the assessee and having known the assessee's explanation about the fact that the transactions happened in 2006, and that too through banking channel the assessee was in receipt of the amount in dispute from the very same M/s Kit Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06. If the AO was using the reply of M/s Kit Sales (P) Ltd. to disbelieve the assessee completely, then it should have given an opportunity to the assessee to cross-examine the Directors of M/s Kit Sales (P) Ltd. and examined the statement thereafter. Without doing so, the said reply of M/s Kit Sales (P) Ltd. when seen against the bank transactions of Rs. 50 Lakhs on 28.08.2006, emanating from M/s Kit Sales (P) Ltd. to the assessee, does not infuse confidence and cannot be used against the assessee as laid down by the Hon'ble Supreme Court in CIVIL APPEAL NO. 4228 OF 2006 in the case of Andaman Timber Industries Vs. CCE. Be that as it may be, the liability shown by the assessee without being written off by the creditor cannot attract Section 41(1) of the Act as rightly held by the Ld. CIT (A) and even if advance as claimed by the assessee is found to be non-genuine from the very inspection itself, at least in terms of Section 41(1) of the Act, there is no cure for it. May be the said amount which is credited in the books of the assessee could attract Section 68 of the Act which could have been done in the year when the amount was credited in the books of the assessee i.e. in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sunland Purchase Pvt. Ltd. On an enquiry in this regard, the said party confirmed the liability of Rs. 12,50,000/-. The assessee when confronted with the said reply, clarified that the difference of Rs. 5 Lakhs was advance for land for Water Lab and the bill for Rs. 5 Lakhs has been raised in the next year and the income has been shown in the next year. According to the AO, it seems that the contract work has been completed on 13.03.2012. The amount of Rs. 5 Lakh is the concealed income for the year under consideration and added the same back to the total income of the assessee. Before the Ld. CIT (A) the assessee submitted that from the advance of Rs. 17,50,000/- Rs. 12,50,000/- was for construction of hostel which crystallised this year and advance for land for Water Lab was of Rs. 5 Lakhs, thus totaling to Rs. 17,50,000/-. Sunland Purchase Pvt. Ltd. has confirmed to the AO of cost of construction of hostel of Rs. 12,50,000/-. The balance amount of Rs. 5 Lakhs was reflected by the assessee as income in the next assessment year, which is A.Y. 2013-14 (F.Y. 2012-13). It was claimed by the assessee that this was in accordance to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee contended that the said amount has been paid to the encroachers of the land so that vacant land could be possessed in a peaceful manner and then the stipulated project could commence. However, it was admitted by the assessee that in all cases no formal evidence could be drawn up but there were proof in the form of receipts issued by these persons who have accepted the payments towards them and that the audits have been carried out without any adverse comments of the auditors on this score. It was brought to the notice of the Ld. CIT (A) that the payments were made to the encroachers through regular banking channels except in the case of one Jayanta Dalui amounting to Rs. 1,50.000/-. It was pointed out by the assessee that for the compensation given to the encroachers to be evicted from the property, the AO has accepted the genuineness of the payment of Rs. 6,65,000/-, so, the AO ought to have examined the remaining recipients also and if he had expressed any doubts about the genuineness of the transaction, then he could have given time to the assessee for getting confirmation from the recipients. The Ld. CIT (A) was of the opinion that since the assessee failed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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