Deputy Commissioner of Income Tax Central Circle-2(1), Bangalore V. Shri Peter Caddy , Bangalore

ITA 1633/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4727 (ITAT-BANGALORE)
• Duration Of Justice: 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 17-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANDEEP GOEL BENGALURU
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1633/BANG/2017 ASSESSMENT YEAR : 2009 - 10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(3)(1), BANGALORE. VS. SHRI R. SRINIVAS RAJU, NO.1, SHRIHARI TOWERS, 5 TH A MAIN, NH-7, HEBBAL, BENGALURU 560 024. PAN: ACWPR 2702A APP ELL ANT RESPONDENT A PP EL LANT BY : DR. SANDEEP GOEL, ADDL .CIT(DR)(ITAT), BENGALURU. RE SPONDENT BY : NONE DATE OF HEARING : 2 4 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 01.06 . 201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 17.02.2017 OF THE CIT(APPEALS), BENGALURU-6, BENGALURU RELATING T O ASSESSMENT YEAR 2009-10. 2. FOR THE HEARING ON 12.02.2018, NOTICE OF HEARI NG WAS DULY SERVED ON THE ASSESSEE. AT THE REQUEST OF THE ASSESSEE, T HE HEARING WAS ADJOURNED FROM 12.2.18 TO 24.5.18. ON 24.05.2018 W HEN THE CASE WAS CALLED FOR HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE. WE THEREFORE PROCEED TO DECIDE THE APPEAL EX PARTE . ITA NO. 1633/BANG/2017 PAGE 2 OF 6 3. THE DELAY OF THREE DAYS IN FILING OF APPEAL BY T HE REVENUE IS CONDONED. 4. THE GROUNDS RAISED BY THE REVENUE READS AS FOLLO WS:- 1. THE ORDER OF THE CIT (APPEALS) IS OPPOSED TO L AW AND THE FACTS ARID CIRCUMSTANCES OF THE CASE. 2. WHETHER HON'BLE CIT(A) IS JUSTIFIED IN HOLDING T HAT THERE WAS NO CESSATION OF LIABILITY WITH REGARD TO LAND U NDER CONSIDERATION U/S 41(1) OF THE I.T ACT WHEN ASSESSI NG OFFICER HAS ESTABLISHED IN THE ASSESSMENT ORDER THA T EVEN THOUGH THE SALE DEED HAS BEEN EXECUTED, THE LAND HA S REMAINED UNDER OWNERSHIP OF THE ASSESSEE. 3. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A), IN SO FAR AS IT RELATES TO THE ABOVE GROUND S MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO AFTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 5. THE ASSESSEE, AN INDIVIDUAL, IS ENGAGED IN REAL ESTATE BUSINESS. THE ASSESSEE IN THE COURSE OF HIS BUSINESS ACQUIRED PROPERTY MEASURING 2 ACRES 2 GUNTAS IN SY.NO.72/1, CHIKKAJALA VILLAGE, J ALA HOBLI UNDER SALE DEED DATED 07.3.2007. THE VALUE OF THIS PROPERTY W AS RS.72 LAKHS. THIS PROPERTY WAS SOLD TO THE ASSESSEE BY SHRI B.S. MANJ UNATH (BSM FOR SHORT). THE ASSESSEE OWNED PROPERTY MEASURING 1 A CRE 1 GUNTA IN SY.NO.34/4 AND 39 GUNTAS IN SY.NO.35/3, MARANAYAKAN AHALLI VILLAGE, JALA HOBLI, VALUED AT RS.15,37,500 AND RS.14,62,500 RESP ECTIVELY. IN ALL, THE VALUE OF THE PROPERTY OWNED BY THE ASSESSEE WAS RS. 30 LAKHS. THE ASSESSEE BY A REGISTERED SALE DEED DATED 04.4.2007 AND 12.4.2007 SOLD THE AFORESAID PROPERTIES TO BSM. THE ASSESSEE AND SHRI B.S. MANJUNATH ITA NO. 1633/BANG/2017 PAGE 3 OF 6 (BSM) DID NOT PAY ANY CONSIDERATION OR RECEIVE ANY CONSIDERATION FOR THE PROPERTY CONVEYED BY ONE TO THE OTHER. 6. THE PROPERTY ACQUIRED BY THE ASSESSEE FROM BSM W AS OF THE VALUE OF RS.72 LAKHS, WHEREAS THE PROPERTY SOLD BY THE AS SESSEE TO BSM WAS OF THE VALUE OF RS.30 LAKHS. AS ALREADY STATED, THERE WAS NO ACTUAL PAYMENT OF CONSIDERATION BY THE ASSESSEE TO BSM. TO THE EX TENT OF RS.30 LAKHS, THE PROPERTY SOLD BY THE ASSESSEE TO BSM WAS ADJUSTED T OWARDS SALE CONSIDERATION PAYABLE BY THE ASSESSEE TO BSM. THE REMAINING SUM OF RS.42 LAKHS REMAINED OUTSTANDING AND PAYABLE BY THE ASSESSEE TO BSM (72 LAKHS 30 LAKHS). THIS WAS SHOWN AS AN OUTSTA NDING LIABILITY BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. 7. IN THE NOTES TO THE ACCOUNTS, THE AUDITORS HAVE OPINED THAT FULL DOCUMENTS WERE NOT PROVIDED FOR VERIFICATION BY THE ASSESSEE AND THAT THE OUTSTANDING LIABILITY WAS BECAUSE OF THE EXCHANGE O F LAND BETWEEN THE ASSESSEE AND BSM. BASED ON THE ABOVE NOTES TO ACCO UNTS GIVEN BY THE AUDITOR, THE PROCEEDINGS U/S. 147 OF THE ACT WAS CO MMENCED AGAINST THE ASSESSEE. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 147 OF THE ACT, THE ASSESSEE EXPLAINED THE ABOVE TRANSACTIONS AND A LSO FILED A CONFIRMATION FROM BSM THAT A SUM OF RS.42 LAKHS IS STILL DUE AND PAYABLE BY THE ASSESSEE TO HIM. IT WAS ALSO EXPLAINED BY T HE ASSESSEE THAT BECAUSE OF CERTAIN DISPUTES IN THE TITLE OF THE PRO PERTY TRANSFERRED BY BSM TO HIM, THE REMAINING SUM OF RS.42 LAKHS WAS NOT PA ID BY THE ASSESSEE TO BSM. 8. THE AO, HOWEVER, WAS OF THE VIEW THAT SINCE THE SALE DEEDS HAVE BEEN EXECUTED AND THE ASSESSEE HAS ACQUIRED THE PRO PERTY, THERE WAS A CESSATION OF LIABILITY OF THE ASSESSEE OF RS.42 LAK HS TO BSM, WHICH HAD TO BE TREATED AS ASSESSEES INCOME U/S. 41(1) OF THE I NCOME-TAX ACT, 1961 ITA NO. 1633/BANG/2017 PAGE 4 OF 6 [THE ACT]. THE AO ACCORDINGLY ADDED THE SUM OF R S.42 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 9. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) WAS OF THE VIEW THAT IN THE LIGHT OF CONFIRMATION FILED BY BSM REGARDING TH E LIABILITY STILL EXISTING, THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION U/S. 41 (1) OF THE ACT. THE CIT(APPEALS) IN THIS REGARD ALSO MADE A REFERENCE T O THE FOLLOWING DECISIONS OF THE HONBLE HIGH COURT OF KARNATAKA:- (I) ALVARES & THOMAS (2016) 69 TAXMAN.COM 257 (KARNAT AKA) DATED 24.03.2016. (II) RAMGOPAL MINERALS (2017) 79 TAXMANN.COM 284 (KARNAT AKA) 10. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 11. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF AO. THE PROVISIONS OF SECTION 41(1) OF TH E ACT READS AS FOLLOWS:- 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE I N THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REF ERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVI OUS YEAR, ( A ) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRA DING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHAL L BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREV IOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WH ICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENC E IN THAT YEAR OR NOT; OR ( B ) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER I N CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF W HICH LOSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PER SON OR SOME ITA NO. 1633/BANG/2017 PAGE 5 OF 6 BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRE D TO IN CLAUSE ( A ) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRU ING 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 EXPRESS ION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SU CH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUD E THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY T HE FIRST MENTIONED PERSON UNDER CLAUSE ( A ) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE ( B ) OF THAT SUB- SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS.] EXPLANATION 2 .FOR THE PURPOSES OF THIS SUB-SECTION, 'SUCCESSOR IN BUSINESS' MEANS, ( I ) WHERE THERE HAS BEEN AN AMALGAMATION OF A COMP ANY WITH ANOTHER COMPANY, THE AMALGAMATED COMPANY; ( II ) WHERE THE FIRST-MENTIONED PERSON IS SUCCEEDED B Y ANY OTHER PERSON IN THAT BUSINESS OR PROFESSION, THE OTHER PERSON; ( III ) WHERE A FIRM CARRYING ON A BUSINESS OR PROFESSI ON IS SUCCEEDED BY ANOTHER FIRM, THE OTHER FIRM;] ( IV ) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING C OMPANY. 12. IT CAN BE SEEN FROM A PLAIN READING OF THE PROV ISIONS THAT THE CONDITION PRECEDENT FOR APPLICATION OF THE AFORESAI D PROVISIONS IS THAT THERE SHOULD BE A REMISSION OR CESSATION OF TRADING LIABI LITY WHICH WAS ALREADY CLAIMED AND ALLOWED AS A DEDUCTION WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE. IN THE PRESENT CASE, THERE WAS NEITHER REMISSION OR CESSATION OF LIABILITY AND THIS IS EVIDENT FROM THE FACT THAT CO NFIRMATION FROM BSM WAS FILED BEFORE THE AO AND THAT THE AO DID NOT DISPUTE THE GENUINENESS OF SUCH CONFIRMATION. THE FACT THAT SALE DEED WAS REG ISTERED IN THE NAME OF THE ASSESSEE BY BSM CANNOT BE A GROUND FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT. BSM AS AN UNPAID VENDOR IS ALSO ENTITLED TO LIEN ON THE PROPERTY SOLD BY HIM IN LAW. THEREFORE, IT CANNOT BE SAID THAT THE LIABILITY OF THE ASSESSEE TOWARDS BSM WAS NON-EXIST ENT OR THAT IT WAS ITA NO. 1633/BANG/2017 PAGE 6 OF 6 REMITTED OR CEASED TO EXIST. WE THEREFORE CONCUR W ITH THE ORDER OF THE CIT(APPEALS) AND FIND NO MERIT IN THIS APPEAL BY TH E REVENUE. 13. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMB ER JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST JUNE, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.