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TMI Blog2025 (2) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... in this line of business. During the assessment year 2019-20, the assessee was having opening balance of ₹ 1.20 crore which was received as booking advance against property. Subsequently, the assessee has further received ₹ 1 crore through proper banking channel towards booking advance during the previous year relevant to the assessment year 2019-20 and not as booking advance during the previous year relevant to the assessment year 2020-21. The said advance were booking advance against property which cannot be treated as cessation of liability. These amounts are specifically received as advances against booking of property and which does not fall within the provision of 41(1) of the Act, therefore, provision of section 41(1) are not applicable in assessee's case. No amount has been received during the previous year relevant to the assessment year 2020-21. Basic condition of invoking the provision of section 41(1) of the Act has not been pointed out the Assessing Officer in the assessment order. The Assessing Officer has only doubted the genuineness of the lease deposit transaction and booking advances transactions which could have been the basis for addition under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, noted that the assessee had shown other payable worth ₹ 14,20,00,000, from the assessment year 2015-16 onwards and in the assessment year 2019-20 and the same was increased to ₹ 15,20,00,000. However, during the assessment year 2020-21, the assessee had shown current liability at ₹ 15,20,00,000, in its Balance Sheet. On inquiry, the assessee submitted that the same was on account of lease deposit and booking advances and further submitted that the same was accepted by the Department in scrutiny assessment for the assessment year 2017-18. The assessee contended that the lease advances of ₹ 10 crore was received from M/s. Poonam Resorts Ltd., prior to the financial year 2011-12 and an amount of ₹ 3 crore was received from the same party during the financial year 2011-12. However, the Assessing Officer, on examination of the lease agreement dated 13/09/2011, found that the lease advance was only ₹ 10 crore. The Assessing Officer further noted that M/s. Poonam Resort Ltd., is related party of the assessee and the assessee has shown the amount of ₹ 3 crore as sundry creditor on account of lease deposits and shown the same as "other payables". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15/02/2021 declaring net loss of Rs. (-) 3,85,795/- vide acknowledgment No. 264362441150221 for the previous year relevant to Asstt. Year 2020-2021. The assessee encloses herewith copy of acknowledgment of return and computation of income for your kind perusal, which is on Page-1 To 4 of the Paper Book. The assessee engaged in business of development and construction of commercial and residential properties. The assesse has maintained regular books of accounts and books of account audited as per provision of section 44AB of the Income Tax Act, 1961. The assessee has obtained Audit Report and audited Balance Sheet, Profit & Loss A/c. and schedule within specified time limit and submitted alongwith return of income. The assessee encloses herewith copy of audited Balance Sheet, Profit & Loss A/c. and schedule for your kind perusal, which is on Page-5 To 14 of the Paper Book. The case was selected under CASS for limited Scrutiny and notices u/s. 142(1) as well as show cause notice were issued to the assessee. The assessee encloses herewith copy of show cause notice for your kind perusal, which is on Page-63 To 72 of the Paper Book. In response to notices counsel for the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,00,000/- were accepted by the department in the past assessment year and assessment was completed and assessment order was passed u/s. 143(3) dated 22/11/2019 for the previous year relevant to Asst. year 2017-2018. The assessee encloses herewith copy of assessment order u/s. 143(3) dated 22/11/2019 for A.Y. 2017-2018 for your kind perusal, which is on Page-61 & 62 of the Paper Book. The lessee company Poonam Resorts Ltd. was also assessed to tax vide PAN No. AADCP3940L and entire transaction was duly reflected in the books of account of lessee company. The assessee encloses herewith copy of confirmation and copy of acknowledgment of return for your kind perusal, which on Page-18 To 19 of the Paper Book. The learned assessing officer, assessment unit, without going into the merits of the case disallowed Rs. 3,00,00,000/- as liability ceased to exist and added Rs. 3,00,00,000/- u/s. 41(1) being cessation of liability. Even the assessee has not received the any sum during the previous year relevant to Asstt. Year 2020-2021. The said lease deposits was the old interest free deposits and duly accepted by the department in the past assessment year. The assessee also draw attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed 1. The lease deposits are old lease deposits and liability has not ceased as the same were depsoits. Therefore the same cannot be the income of the assessee. 2. There is no deduction or exemption claimed by the assessee during the previous year relevant to assessment year 2020-2021. 3. Liability existed in previous years & same is duly accepted by the department in the past assessment years. 4. The assessee has acknowledged its deposits & the same will return after completion of the contract of lease & submitted Balance sheet reflecting the same. 5. The assessee draw attention that Cessation of liability may occur due to following reasons : a. By reason of liability becoming unenforceable in law by creditor coupled with debtor declaring his intention not to honour his liability; b. By a Contract between parties regarding the said laibility; c. By discharge of debt. In the case of assessee, none of the reasons have been occurred and therefore there is no cessation of liability. The assessee places reliance on following judgments : 1. (2023) 67 CCH 0679 (Raipur Trib.) A.C. Strips Pvt Ltd. -Vs.- Assistant Commissioner of Income Tax 2. (2013) 355 ITR 021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at Yerkheda, Kamptee Road, Nagpur. As per agreed terms and condition companyPoonam Resorts Ltd. has paid an amount of Rs. 10crores to assessee company in the year 2011 as lease deposits. These lease deposits were the interest free deposit paid by PoonamResots Ltd to the assessee company. Further looking to the point that as the project was in developing stage and to get it completed in the decided time period, & increase in cost of project further amount of Rs. 3 Crores were again paid by Poonam Resorts Ltd to the assessee company as lease deposit for security purpose. Thus Poonam Resorts Ltd. company has paid total lease deposits of Rs. 13 Crores. The assessee encloses herewith confirmation letter of lease deposits for your kind perusal. The assessee drew attention that Lease deposit amount were interest free deposits. In general principle, Interest Free Deposit means interest free amount to be deposited by the Licensee with Lessor as per terms and conditions of Lease Agreement as interest free deposit. The Interest free deposit taken by the licensor is to secure or to act as a guarantee as per the terms of agreement against damages to the properties. In the case of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on during the previous year relevant to Asstt Year 2019-2020 assessee has further received Rs. 1,00,00,000/- through proper banking channel towards booking advance against property. The assessee submitted herewith the bank statement duly reflecting the booking advance received alongwith ledger account which enclosed herewith for your kind perusal. Thereafter, the project of the assessee was stopped and not completed and badly affected by Covid-19 pandemic. Therefore the amount received were old booking advance against property duly shown in the books of accounts of the assessee & later on after completion & execution of sale deed converted into sale account. The assessee also draw attention to the following points : 1. The booking advance shown were not pertain to previous year relevant to Asstt Year 2020-2021 & were old advances against property & same were advance which cannot be income & when project was completed the same will be transfer to sales account. 2. The funds received were through proper banking channel and duly supported by the bank statement of assessee itself proves the genuineness of the transaction. 3. The booking advance received by the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed at Rs. 2,20,00,000/- as liability ceased to exist is incorrect and same cannot be added u/s 41(1) being cessation of liability. The assessee humbly request that addition made may kindly be deleted and appeal filed by the assessee may kindly be allowed." 6. The learned CIT(A), considering the submissions of the assessee, passed a detailed order vide Page-20 to 24 of the impugned order and by virtue of following observations of the learned CIT(A), the issue was decided in favour of the assessee and against the Revenue. "6.0 Ground No. 1 to 5 :- In these ground the assessee has contested the addition of Rs. 5,20,00,000/- made by the AO u/s. 41(1) of the IT Act. Since all the grounds are interconnected with each other and the main issue involved therein is related the addition of Rs. 5,20,00,000/-, there grounds are taken together for adjudication. 6.1 The written submission uploaded by the assessee have been re-produced in para 5 & 5.1 above 6.2 I have perused the assessment order, grounds of appeal and submissions filed by the assessee carefully. I find from the assessment order that the case was selected for limited scrutiny for the reason (i) High Creditors/liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuineness of the above liability. Therefore the AO considered the same as cessation liability. In view of the above facts, the AO made addition of Rs. 5.20 crores on account of cessation of liability u/s. 41(1) of the Act and completed the assessment. During the course of assessee proceedings, the assessee contended that the liability mentioned in the assessment order are very old liabilities and the same were accepted curing the course of assessment proceeding for AY 2017-18 by the department. Regarding the lease deposits of Rs. 13,00,00,000/- the assessee (lessor) submitted that interest free lease deposit of Rs. 10 crores was received in 2011 from on lease for 20 years vide agreement dated 13/09/2011 for opening a resort and a agreed to pay Rs. 10 lakh per year as lease rent to lessor. The assessee contended that due to increase in cost of project, the lessee had paid further amount of Rs. 3 crores as lease deposits for security purpose. Regarding the liability of Rs. 2,20,00,0000/-, the assessee submitted tha the amount of Rs. 1,20,00,000/- was received prior to AY 2019-20 as booking advance against property from various parties and later on during AY 2019-20, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business sunder clause (b) of that sub-section by way of writing off such liability in his accounts] I find from the assessment order that the AO has not brought out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company and Poonam Resorts Ltd., a company entered into agreement of lease dated 13/09/2011, and lease deed was executed in the year 2011 for land admeasuring 32.87 acres situated at Yerkheda, Kamptee Road, Nagpur. A copy of lease deed is placed on record. The assessee also received ₹ 10 crore from Poonam Resorts Ltd., in the year 2011 and the said deposit was the interest free deposit. The project was not completed as per agreed terms and condition between assessee and Poonam Resorts Ltd., and the company again paid ₹ 3 crore to assessee as lease deposit for the development purpose. It is also admitted fact that the entire lease amount of ₹ 13 crore were accepted by the Department in during assessment year and assessment under section 143(3) was completed for the previous year relevant to the assessment year 2017-2018. 11. It is also admitted fact that the notice under section 133(6) was never issued to Poonam Resort Ltd. and without having received any reply thereto, the Assessing Officer drew conclusion and disallowed ₹ 3 crore as liability ceased to exist and cessation of liability may occur due to the reason viz. (a) by reason of liability becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oking advance against property which cannot be treated as cessation of liability. These amounts are specifically received as advances against booking of property and which does not fall within the provision of 41(1) of the Act, therefore, provision of section 41(1) are not applicable in assessee's case. No amount has been received during the previous year relevant to the assessment year 2020-21. In support of the contentions of the learned Counsel for the assessee, he placed reliance on the following case laws:- 1) CIT v/s Shivall Construction Pvt. Ltd., (2013) 355 ITR 0218 (Del. HC); 2) CIT v/s Speedways Tyre Ltd. (2014) 364 ITR, 0401 (P&H HC); 3) CIT v/s Jain Exports Pvt. Ltd., (2013) 89 DTR 0265 (Del. HC); 4) CIT v/s Hotline Electronics Ltd., (2012) 80 CCH 0156 (Del. HC); 5) ACIT v/s Ashish Indur Chowdhry, (2021) 190 ITD 0435 (Mum.-Trib); 6) ITO & Ors.v/s Marcopolo Products Pvt. Ltd. & Anr., (2016) 159 ITD 0266 (Kolkata-Trib); 7) Modorn Distributors v/s ITO, (2016) 46 CCH 0452 (Asr.-Trib); 8) ACIT v/s M/s. Sunderdeep Construction Pvt. Ltd., ITA No.380/Ind/2017 (ITAT-Indore); 9) CIT v/s Nitin S. Garg, (2012) 208 Taxman 16 (Guj. H.C.). 16. We also noticed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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