Asst. Commissioner of Income Tax, Circle-1, Margao V. M/s . Rangavi Realtors, Margao

ITA 209/PAN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93447 (ITAT-PANAJI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 11-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANGARI
• Assessee Lawyers: D E ROBINSON
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI GEORGE MATHAN , HONBLE JUDICIAL MEMBER AND SHRI N.K. BILLAIYA , HONBLE ACCOUNTANT MEMBER ITA NO. 2 0 9/PNJ/201 4 (ASST. YEAR : 200 7 - 0 8 ) ACIT, CIRCLE - 1, MARGAO. VS. M/S. RANGAVI REALTORS, TIRTHARUPA, N.D. NAIK ROAD, AQUEM ALTO, MARGAO, GOA . PAN NO. AADFR 6069 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D.E. ROBINSON ADV. DEPARTMENT BY : SHRI M.R. BANGARI - D.R. DATE OF HEARING : 11 / 0 6 /2015 . DATE OF PRONOUNCEMENT : 11 / 0 6 /201 5 . O R D E R PER N.K. BILLAIYA THIS IS AN APPEAL BY THE REVENUE PREFERRED AGAINST THE ORDER OF L D. CIT (A), PANAJI, DATED 13 /0 3 /201 4 PERTAINING TO A.Y. 200 7 - 0 8 . 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 22,37,599/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CESSATION OF LIABILITY U/S. 41(1) OF THE ACT. 2 ITA NO. 209/PNJ/2014 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF R EAL E STATE D EALER S & D EVELOPERS . RETURN FOR THE YEAR WAS FILED ON 16/10/2007 DECLARING TOTAL INCOME OF RS. 10,99, 033 / - . THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THE FOLLOWING SUNDRY CREDITORS IN THE BALANCE SHEET OF THE ASSESSEE: - A) ALCON DEVELOPERS RS. 69,59, 057 B) ASHOK AKERKAR RS. 5,44,250 C) PAN NAIK ENTERPRISES RS. 4,66,945 D) S.K. ASSOCIATES RS. 1,08,242 E) SUJIT LAWANDE RS. 6,00,000 F) P.J. FONDEKAR RS. 3,50,000 G) PRAVIN LOTLIKAR RS. 1,35,107 H) ORE SHAIKH PALACE RS. 5,00,000 RS. 87,63,601 THE ASSESSEE WAS ASKED TO PROVIDE THE CONFIRMATIONS IN RESPECT OF THESE SUNDRY CREDITORS . THE ASSESSEE COULD PRODUCE THE CONFIRMATIONS IN RESPECT OF M/S. ALCON DEVELOPERS AND PAN NAIK ENTERPRISES . IN RESPECT OF OTHER SUNDRY CREDITORS, IT WAS STATED THAT THE ASSESSEE FIRM WAS TAKEN OVER BY THE PRESENT PARTNERS IN 1997 CONSEQUENT TO A FAMILY S ETTLEMENT. THE CREDITORS AND LOANS WERE TAKEN OVER ON SUCH DATE AS PART OF THE FAMILY SETTLEMENT. THESE WOULD BE IN THE NATURE OF CAPITAL RECEIPTS WHEREVER THE CREDITORS ARE NOT 3 ITA NO. 209/PNJ/2014 TRACED. NONE OF THE CREDITORS REPRESENT ANY LIABILITY CLAIMED AS AN EXPENDITURE EARLIER BY THE PRESENT PARTNERSHIP FIRM AND CANNOT BE CONSIDERED FOR THE PURPOSES OF PROVISIONS OF SEC. 41 OF THE ACT. AFTER CONSIDERING THIS SUBMISSION MADE BY THE ASSESSEE, THE ASSE SSING OFFICER OBSERVED THAT THE FIRM WAS NEVER DISSOLVED THOUGH SOME OF THE PARTNERS HAVE RETIRED, THE BUSINESS IS STILL CONTINU ING . THEREFORE, IN THE ABSENCE OF ANY CONFIRMATION, PROVISIONS OF SEC. 41(1) WILL BE APPLIED. THE ASSESSING OFFICER CONCLUDED BY ADDING RS. 22,37,599/ - U/S. 41(1) (A) OF THE ACT. 4 . AGGR I EVED , THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) . IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT THE LIABILITIES TREATED AS INCOME WHICH ARE INHERITED LIABILITIES AND ARE CAPITAL RECEIPTS IN NATURE EVEN IF NOT REPAYABLE. IT WAS STRONGLY CONTENDED THAT THE LOANS TAKEN OVER HAVE TO BE CONSIDERED IN THE CONTEXT OF THE ENTIRE FAMILY SETTLEMENT INVOLVING MANY OTHER LOANS AND ASSETS AND CANNOT BE CONSIDERED ONLY IN THE CONTEXT O F SUCCESSION TO THE EARLIER FIRM. IT WAS POINTED OUT THAT THE OBLIGATION OF REP A Y I N G IS NOT ABANDONED BY THE ASSESSEE. THE LD. CIT(A) WAS REMI N DED THAT THE FIRM HAS NOT CLAIMED THE LOANS AS EXPENDITURE AND THE OBSERVATIONS TO THIS EFFECT BY THE ASSESSING OFFICER ARE TOTALLY INCORRECT AND UN F OUNDED. 4 ITA NO. 209/PNJ/2014 AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THE LIABILITY CANNOT BE SAID TO HAVE CEASED BECAUSE THE ASSESSEE HAS NOT WRITTEN IT OFF IN HIS BOOKS. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION ONLY ON THE BASIS OF NON - FILING OF CONFIRMATION SAYING THAT THE LIABILITY HAS CEASED TO EXIST. ON THIS GROUN D, THIS ADDITION CANNOT BE SUSTAINED. LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 22,37,599/ - 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. LEARNED DR SUPPORTED THE ASSESSMENT ORDER. COUNSEL FOR THE ASSESSEE EXPLAINED THE BACKGROUND OF THE LIABILITY AND HOW THE PARTNERS HAVE TAKEN OVER THE ASSETS AND LIABILITY O F ERSTWHILE FIRM ON ACCOUNT OF A FAMILY SETTLEMENT BETWEEN THE MEMBERS OF THE FAMILY. IT IS T HE SAY OF THE COUNSEL THAT THE LIABILITIES WERE INHERITED BY THE ASSESSEE FIRM BY VIRTUE OF A FAMILY SETTLEMENT. THE COUNSEL ONCE AGAIN VEHEMENTLY SUBMITTED THAT THESE LOANS WERE NEVER CLAIMED AS EXPENSES BY THE FIRM, THEREFORE , IT CANNOT BE TREATED AS INCOME OF THE ASSESSEE. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS AN UNDISPUTED FACT THAT THE IMPUGNED LIABILITY REFERS TO THE ADVANCE TAKEN BY THE FIRM FOR THE SALE OF PLOTS. 5 ITA NO. 209/PNJ/2014 IT IS ALSO AN UNDI S PUTED FACT THAT BY VIRTUE OF A FAMILY SETTLEMENT, PARTNERS OF THE PRESENT FIRM GOT THE IMPUGNED LIABILITIES. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS PVT. LTD. (236 ITR 518) HAS HELD THAT UNLESS THE ASSESSEE OBTAINED IN CASH OR IN ANY OTHER MANNER SOME BENEFIT BY WAY OF CESSATION OR REMISSION OF LIABILITY PROVISIONS OF SEC.41(1) CANNOT BE INVOKED . THE EXPLANATION TO SEC. 41(1) WHICH WAS INCORPORATED POSSIBLY AFTER THE SAID JUDGMENT PROVIDES THAT ANY UNILATERAL A CT BY WHICH THE LI ABILITY CEASES (BY WAY OF WRITING OFF THE LIABILITY IN ACCOUNTS), COULD BE TREATED AS ACCRUAL OF BENEFITS IN RESPECT OF SUCH LIABILITY. SINCE THE CASE UNDER APPEAL NO SUCH BOOK ENTRY WAS MADE AND NO UNILATERAL ACTION WAS TAKEN TO INDICATE ANY SUCH CESSATI ON OR REMISSION OF THE LIABILITY THE EXPLANATION WOULD NOT APPLY AND THE RATIO OF THE JUDGMENT WOULD AP P LY TO THE FACTS OF THE CASE. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SUGAULI SUGAR WORKS PVT. LTD . (SUPRA) , WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ( ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 TH JUNE , 201 5 ). S D / - S D / - ( GEORGE MATHAN ) ( N.K. BILLA I YA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 1 1 T H J UNE , 201 5 . 6 ITA NO. 209/PNJ/2014 VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 7 ITA NO. 209/PNJ/2014 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 1 1 .06.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 1 .06.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 1 1 /06/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 1 1 /06/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 1 /06/2015 SR.PS 6. DATE OF PRONOUNCEMENT 1 1 /06/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 2 /06/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER