M/s. Trans India Cinema, Ahmedabad V. The Addl.CIT, Range-6, Ahmedabad

ITA 497/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0499 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-10-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 16-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice; Tax effect

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : A HMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 497/AHD./2009 ASSESSMENT YEAR : 2005-2006 M/S. TRANS INDIA CINEMA, AHMEDABAD -VS.- ADDITI ONAL COMMISSIONER OF INCOME TAX, (P.A. NO. AACFT 2624 B) RANGE-6, AHMEDABAD (APPELLANT) (R ESPONDENT) & I.T.A. NO. 941/AHD./2009 ASSESSMENT YEAR : 2005-2006 DEPUTY COMMISSIONER OF INCOME TAX, -VS.- M/S . TRANS INDIA CINEMA, AHMEDABAD CIRCLE-6, AHMEDABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N. DIVETIA DEPARTMENT BY : SMT. NEETA SHAH, SR. D. R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THESE CROSS APPEALS ARE AGAINST THE ORDER DATED 19 .01.2009 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XI, AHMEDABAD FOR THE ASSESSMEN T YEAR 2005-06. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM AND HAS GIVEN ON RENT THE ENTIRE CINEMA COMPLEX, KNOWN AS DRIVE-IN-CINEMA ALO NGWITH THE PLANT, MACHINERY, PREMISES, FURNITURE AND FIXTURES, ETC. TO SUNSET DRIVE-IN-CIN EMA PVT. LTD. FOR EXHIBITION OF FILMS, WHEREAS THE SPACE FOR CATERING ACTIVITIES TO SUNSET CATERIN G SERVICES PVT. LTD. IT ALSO DERIVED RENTAL INCOME FROM POLICE CHOWKY, PETROL PUMP, ETC. FOR TH E ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS.18,03 ,910/-. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. CALLED VARIOUS DETAILS, WHICH INTER ALIA INCLUDES OUTSTANDING LIABILITIES AND SUNDRY CR EDITORS. THE A.O. PROPOSED ADDITION UNDER SECTION 41(1) IN RESPECT OF VARIOUS LIABILITIES AND SUNDRY CREDITORS. BEFORE THE A.O., THE ASSESSEE OBJECTED THE SAID PROPOSAL ON THE GROUND THAT LIABI LITIES AND SUNDRY CREDITORS SHOWN OUTSTANDING SINCE LONG HAD NOT CEASED TO BE ITS LIABILITY AND T HERE WAS NO REMISSION OF THE SAID LIABILITIES WITHIN THE MEANING OF SECTION 41(1) OF THE INCOME T AX ACT, 1961. THE A.O. REJECTED THE 2 EXPLANATION OF THE ASSESSEE AND TREATED THE FOLLOWI NG AS CESSATION OF LIABILITY AND CHARGEABLE TO TAX U/S. 41(1) OF THE INCOME TAX ACT, 1961 :- (A) ADVANCES RECEIVED AGAINST TENEMENTS/SHOPS RS.20,85,103/- (B) SUNDRY CREDITORS RS. 2,33,840/- (C) ADVANCE FROM GANESH HOUSING CORPORATION RS.22,51,000/- (D) DUES/ DEPOSITS OF EX-PARTNER RS.17,65,450/- 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), IT WAS CONTENDED THAT A.O. HAS WRONGLY ADDED RS.20,85,103/- UNDER SE CTION 41(1) OF THE INCOME TAX ACT AS A CEASED LIABILITY. IT WAS ALSO STATED THAT THE ASSES SEE HAD RECEIVED RS.20,85,103/- TOWARDS ALLOTMENT OF HOUSING TENEMENTS AND SHOPS WHICH WERE ACTUALLY ALLOTTED TO VARIOUS PARTIES. HOWEVER, DUE TO CERTAIN LEGAL PROBLEMS, THE PERSONS WHO HAD PAID THE ABOVE SAID SUM COULD NOT GET THE TENEMENTS AND SHOPS REGISTERED IN THEIR NAM ES, EVEN THOUGH THE SAID TENEMENTS AND SHOPS ARE ACTUALLY BEING OCCUPIED BY THEM. THE MONEY RECE IVED ARE BEING SHOWN AS OUTSTANDING LIABILITIES, THEREFORE, THE SAID ADDITION CANNOT BE MADE. 4.1. WITH REGARD TO SUNDRY CREDITORS OF RS.2,33,840 /-, IT WAS SUBMITTED THAT THIS IS ALSO OF SIMILAR NATURE AND THE A.O. MADE THE ADDITION ON WR ONG GROUNDS. 5. AFTER CONSIDERING THE VARIOUS SUBMISSIONS IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT T HE ASSESSEE HAD RECEIVED RS.20,85,103/- TOWARDS ALLOTMENT OF THE TENEMENTS AND SHOPS WHICH WERE ACTUALLY ALLOTTED BY THE ASSESSEE-FIRM. THE ALLOTMENTS HAD BEEN COMPLETED, THOUGH FINAL SAL E DEED HAS NOT BEEN EXECUTED DUE TO LEGAL PROBLEMS. SINCE THE ASSESSEE HAS RECEIVED THE SALE CONSIDERATION, IT SHOULD HAVE OFFERED FOR TAX PURPOSE. THE AMOUNT IS OUTSTANDING FOR MORE THAN 15 YEARS, THEREFORE, THE A.O. RIGHTLY TREATED THE SAME AS CESSATION OF LIABILITY, BECAUSE THESE ARE N OT ACTUAL LIABILITY. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED THAT THESE TEN EMENTS AND SHOPS WERE PHYSICALLY TRANSFERRED TO THE PERSONS, WHO HAVE PAID THE ADVAN CES, BUT ONLY THE FINAL REGISTRATION HAS NOT BEEN COMPLETED. THEREFORE, THE ASSESSEE SHOULD HAVE OFFERED THESE RECEIPTS FOR TAX PURPOSE. SINCE THIS WAS NOT DONE, THE A.O. RIGHTLY MADE THE ADDITI ON. 3 6. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS), AN ALTERNATE PLEA WAS ALSO TAKEN THAT AGAINST THE SAID AMOUNT OF RS.20,85,103/ - AND RS.2,33,840/-, WHICH ARE TAKEN BY THE A.O. FOR TAX PURPOSE UNDER SECTION 41(1) OF THE INC OME TAX ACT, THEN THE WORK-IN-PROGRESS CLAIMED AMOUNTING TO RS.13.56.033/- BE ALLOWED AS S ET OFF AGAINST THE ADVANCES RECEIVED. 7. THE AFORESAID ALTERNATE PLEA OF THE ASSESSEE WAS ALSO REJECTED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ON THE GROUND T HAT ADVANCES WERE RECEIVED BY THE ASSESSEE TOWARDS TENEMENTS AND SHOPS AT RS.20,85,10 3/- AND SUNDRY CREDITORS (ADVANCES) OF RS.2,33,840/- IN TOTAL RS.23,18,943/-, AGAINST WHIC H THE ASSESSEE HAD ALREADY ALLOTTED CERTAIN TENEMENTS AND SHOPS. SOME WORK-IN-PROGRESS, WHICH A RE TO BE COMPLETED AND THEREAFTER ONLY THE ASSESSEE WOULD BE MAKING FURTHER ALLOTMENTS AND SAL ES THEREAFTER. THEREFORE, HE REJECTED THE CLAIM OF SET OFF OF RS.13,56,033/-. 8. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) WITH REGARD TO ADDITION OF RS.22,51,000/-, IT WAS CONTENDED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH GANESH HOUSING CORPORATION FOR SOME CONSTRUCTION WORK AND RECEIVED RS.22,51,000/- AS ADVANCES FROM GANESH HOUSING CORPORATION. HOWEVER, THE LAND WHICH WAS PROPOSED FOR CONSTRUCTION WORK CAME INTO DISPUTE SINCE AHMEDABAD URBAN DEVELOPMENT AUTHORITY DID NOT GIVE NECESSARY APPROVALS. THEREFORE, THE ADVANCES RECEIVED HAVE RE MAINED WITH THE ASSESSEE-FIRM, WHICH WERE NOT RETURNED TO GANESH HOUSING CORPORATION. THESE A DVANCES CANNOT BE TREATED AS CEASED LIABILITY UNDER SECTION 41(1) OF THE INCOME TAX ACT , 1961. 9. WITH REGARD TO THE ADDITION, IN THE IMPUGNED ORD ER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THIS AMOUNT IS ALSO OUTS TANDING FOR MORE THAN 15 YEARS. THEREFORE, THE A.O. RIGHTLY TREATED THE SAID LIABILITY AS CEAS ED LIABILITY UNDER SECTION 41(1) OF THE INCOME TAX ACT, 1961. 10. LASTLY, WITH REGARD TO THE ADDITION OF RS.17,65 ,450/-, BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IT WAS CONTENDED THAT THIS R EPRESENTS DUES OF EX-PARTNERS AND WERE REQUIRED TO BE PAID TO LEGAL HEIRS OF DECEASED PART NERS. HOWEVER, BECAUSE OF DISPUTE OF THE LEGAL HEIRS, THEY ARE NOT ACCEPTING THE PAYMENT AND HENCE , THE AMOUNT HAS REMAINED AS PAYABLE. 4 11. AFTER CONSIDERING THESE ARGUMENTS, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THIS DISPUTED AMOUNT CANNOT BE TREATE D UNDER SECTION 41(1), BECAUSE THE MATTER IS TILL ALIVE FOR PAYMENT WHICH IS TO BE MADE AFTER TH E SETTLEMENT OF DISPUTES OF THE LEGAL HEIRS. 12. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONE R OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS :- 1.1 THE ORDER PASSED U/S.250 ON 19.1.2009 BY C IT(A)-XI, AHMEDABAD FOR ASSESSMENT YEAR 2005-06 PARTLY CONFIRMING THE ADDIT IONS MADE U/S.41(L) OF THE ACT BY AO IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRIN CIPLES OF NATURAL JUSTICE. 1.2. THE CI T(A) HAS GRIEVOUSLY ERRED IN CONFIRMIN G THE IMPUGNED ADDITIONS WITHOUT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BEFORE HIM. 2.1 THE CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND/OR O N FACTS IN CONFIRMING THE FOLLOWING LIABILITIES/ SUNDRY CREDITORS AS CESSATION OF TRADI NG LIABILITY U/S.41(1) OF THE ACT : (A) ADVANCES RECEIVED AGAINST TENEMENTS/SHOPS : R S.20,85,103 (B) SUNDRY CREDITORS : RS. 2,33,840 (C) ADVANCE FROM GANESH HOUSG. CORPN : RS.22,51,0 00 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAST , AS WELL AS IN LAW, THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN UPHOLDING THAT THE PROVISIONS O F SECTION 41(1) WERE APPLICABLE TO THE IMPUGNED ADDITIONS 2.3. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT M ERELY BECAUSE THE IMPUGNED LIABILITIES/SUNDRY CREDITORS WERE OUTSTANDING FOR N UMBER OF YEARS OR HAVE REMAINED UNPAID, THERE WAS NO CESSATION OR REMISSION SO AS T O ATTRACT SECTION 41(1). 3.1. THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THAT A DVANCES RECEIVED TOWARDS TENEMENTS/SHOPS FROM THE MEMBERS AGGREGATING TO RS, 23,L8,943/- WERE RECEIPTS TOWARDS SALE OF TENEMENT AND SHOP AND AS SUCH THE SAME WERE LIABLE TO TAX IN THE YEAR UNDER APPEAL THOUGH NO TRANSFER HAD TAKEN PLACE IN THIS Y EAR. 3.2. THE LD.CIT(A) HAS ERRED IN HOLDING THAT SALE C ONSIDERATION WAS YET TO BE RECEIVED IN RESPECT OF WORK IN PROGRESS SHOWN IN THE BALANCE SH EET. THE LD, CIT(A) HAS FAILED TO APPRECIATE THAT THERE WAS NO MATERIAL ON RECORD TO HOLD THAT SALE CONSIDERATION WAS YET TO BE RECEIVED FOR THE WORK IN PROGRESS. THE APPELL ANT WAS NEVER CALLED UPON TO OFFER EXPLANATION OR FURNISH EVIDENCE WITH REGARD TO THE SAID WORK IN PROGRESS. 3.3. THE LD, CIT(A) HAS FAILED TO APPRECIATE THAT T HE ENTIRE SALE CONSIDERATION RECEIVED FROM THE MEMBERS TOWARDS TENEMENTS AND SHOPS CANNOT BE BROUGHT TO TAX, MUCH LESS IN THIS YEAR, BUT MERELY THE INCOME ELEMENT IN THE YEA R OF TRANSFER. 5 4.1. THE LD. CIT(A) HAS ERRED IN UPHOLDING THAT THE LIABILITY OWED TO GANESH HOUSING CORPORATION HAS CEASED MERELY BECAUSE THE SAME WAS OUTSTANDING FOR LAST 15 YEARS. 5.1. THE OBSERVATION MADE AND CONCLUSION REACHED BY CIT(A) FOR UPHOLDING THE ADDITIONS MADE U/S.41(L) ARE CONTRARY TO THE EVIDEN CE ON RECORD AND THE SAME ARE DENIED BY THE APPELLANT. 13. ON THE OTHER HAND, AGGRIEVED BY THE ORDER OF LE ARNED COMMISSIONER OF INCOME TAX(APPEALS), THE DEPARTMENT HAS RAISED THE FOLLOWI NG GROUNDS IN ITS APPEAL :- (1) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) -XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION MADE U/S. 41(1) OF THE ACT OF RS.17,65,450/- TOWARDS ALLEGED DUES OF T HE EX-PARTNERS. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE U PHELD THE ORDER OF THE ASSESSING OFFICER. 14. WE WILL TAKE UP FIRST THE ASSESSEES APPEAL, I. E. ITA NO.497/AHD./2009 . THE FIRST ISSUE RELATES TO ADDITION IN RESPECT OF S UM OF RS.20,85,103/- BEING ADVANCES RECEIVED AGAINST FLATS, SHOPS FROM THE PROSPECTIVE BUYERS TO WHOM SALE DEEDS WERE NOT EXECUTED BECAUSE OF NON-RECEIPT OF PERMISSION FROM THE AHMED ABAD URBAN DEVELOPMENT AUTHORITY . THESE RECEIPTS CONTINUED TO APPEAR AS LIABILITY IN THE BA LANCE-SHEET. THE A.O. TREATED THIS SUM AS A TRADING LIABILITY SHOWN AS ADVANCES WHICH WOULD FAL L FOR CONSIDERATION UNDER SECTION 41(1). THIS AMOUNT IS NOT REQUIRED TO BE REIMBURSED OR PAID BAC K AND THIS IS MERELY A LIABILITY SHOWN IN THE BALANCE-SHEET AS A BOOK ENTRY ONLY TO BE EXISTED AG AINST FINANCIAL PROCEEDS, BECAUSE THESE ARE NOT ACTUAL LIABILITY. 15. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ADDITION ON THE GROUND THAT THEY ARE THE RECEIPTS APPEARING AS LIAB ILITY IN THE BALANCE-SHEET. THE FLATS AND SHOPS WERE PHYSICALLY TRANSFERRED TO THE PERSONS, WHO PAI D THE ADVANCES BUT PENDING FOR ADJUSTMENT AT THE TIME OF FINAL REGISTRATION. THESE ARE THE RECEI PTS FOR TAX PURPOSES. HE ACCORDINGLY CONFIRMED THE ADDITION. 16. THE LD. A.R. AGITATED THE ADDITION ON THE GROUN D THAT THE CONDITIONS LAID DOWN UNDER SECTION 41(1) ARE NOT SATISFIED AND HENCE, THE A.O. CANNOT MAKE THE ADDITION. THE AMOUNT OF ADVANCES WILL BE SET OFF AGAINST SALE PROCEEDS ON P ROJECT COMPLETION. THEY CANNOT BE TREATED AS INCOME IN THIS YEAR. 6 17. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF AUTHORITIES BELOW. 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION CANNOT BE MADE IN THE CURRENT YEAR AS THE CONDITION S LAID DOWN UNDER SECTION 41(1) OF THE INCOME TAX ACT ARE NOT SATISFIED. SECTION 41(1) OF THE ACT PROVIDES THAT IF ANY LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE FOR ANY ASSESSMENT YEAR WAS ALLOWED AND SUBSEQUENTLY THE SOME AMOUNT IS RECEIVED AGAINST SUCH LOSS OR EX PENDITURE OR TRADING LIABILITY IS CEASED, THE AMOUNT SO OBTAINED BY WAY OF REMISSION OR CESSATION SHALL BE DEEMED TO BE A PROFIT CHARGEABLE TO TAX. 18.1. ON A MERE READING, SECTION 41(1) SHOWS THAT ( I) FOR TAXING A SUM UNDER THAT SECTION, A.O. HAS TO SHOW THAT AN AMOUNT IS ALLOWED AS DEDUCTION OR ALLOWANCE IN RESPECT OF EXPENDITURE, LOSS OR TRADING LIABILITY IN ANY PREVIOUS YEAR AND IN TH E CURRENT YEAR, THE ASSESSEE HAS OBTAINED ANY CASH OR IN KIND ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE; (II) OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CE SSATION. IF THESE EVENTS TAKE PLACE, THEN THE PERSONS RECEIVING CASH OR KIND OR THE BENEFIT ACCRU ING TO THE ASSESSEE WILL BE THE PROFIT CHARGEABLE TO TAX OF THE CURRENT YEAR. 19. IN OTHER WORDS, WHAT IS NECESSARY TO BE SHOWN I S THAT SOME EVENTS HAVE TAKEN PLACE IN THE CURRENT YEAR IN RESPECT OF A DEDUCTION ALLOWED IN A NY PREVIOUS YEAR SO THAT THE ASSESSEE IN THE PREVIOUS YEAR OBTAINS IN CASH OR IN KIND OR THE CRE DITOR IN THIS RESPECT TO WHOM SUCH TRADING LIABILITY IS EXISTED, REMITS OR DUE TO OPERATION OF LAW OR OTHERWISE, IF THERE IS CESSATION OF SUCH LIABILITY ONLY THEN SUCH AMOUNT WOULD BECOME INCOME OF THE ASSESSEE OF THE CURRENT YEAR. THUS WHAT IS NECESSARY IS THAT SUCH EVENT SHOULD TAKE PL ACE IN THIS YEAR IN RESPECT OF A DEDUCTION OR ALLOWANCE MADE IN EARLIER YEAR SO THAT THE ASSESSEE IS BENEFITED EITHER IN CASH OR IN KIND OR THE CREDITOR REMITS THE LIABILITY OR THERE IS CESSATION DUE TO OPERATION OF LAW OR BY CONTRACTUAL AGREEMENT. IF NO EVENTS TAKE PLACE AND THE FACTS AN D CIRCUMSTANCES OF THE CASE REMAIN THE SAME AS IN EARLIER YEAR OR AS IN SUBSEQUENT YEAR, THEN SUCH AMOUNT CANNOT BE TAXED UNDER SECTION 41(1). SECTION 41(1) IS A DYNAMIC SECTION, WHICH CAN BE IN VOKED ONLY WHEN STATIC CONDITION EXISTING IN EARLIER YEARS IS BROKEN. A MEANINGFUL EVENT TAKES P LACE IN THE CURRENT YEAR GIVING THE EFFECT AS MENTIONED IN THIS SECTION. MERELY BECAUSE THE LIABI LITY IS STANDING FOR LONG TIME IN THE BALANCE- SHEET, THE A.O. CANNOT DECIDE AT HIS OWN TO TAX IT UNDER SECTION 41(1). EVEN IN A CASE, WHERE ASSESSEE MAKES UNILATERAL ENTRY OF WRITING OFF THE LIABILITIES ON THE GROUND OF REMITTANCE, IT 7 AMOUNTS TO CESSATION OF LIABILITY [CIT VS.- VILLAR T INDIA LTD. (2008) 302 ITR 221 (ALLD.)]. WHERE AMOUNT IS SHOWN AS LIABILITY IN THE BALANCE-SHEET A ND THERE IS NO EVIDENCE OF CESSATION OF LIABILITY, THEN AMOUNT IS NOT ASSESSABLE UNDER SECT ION 41(1) [CIT VS.- TAMILNADU WAREHOUSING CORPORATION (2007) 292 ITR 210 (MAD.)]. HON'BLE DEL HI HIGH COURT IN THE CASE OF CIT VS.- DELHI AUTOMOBILES (2005) 272 ITR 381 (DEL.) HELD TH AT WHERE UNCLAIMED BALANCES ARE WRITTEN OFF IN THE ACCOUNTS, THEY WILL NOT BE TAXABLE UNDER SECTION 41(1). THUS ACCORDINGLY CONDITIONS LAID DOWN UNDER SECTION 41(1) HAVING BEEN NOT FULFILLED, THE AMOUNT OF ADVANCES STANDING IN THE BALANCE-SHEET OF THE ASSESSEE COULD NOT BE TAXED UN DER THAT SECTION. NO DOUBT, THIS AMOUNT IS REQUIRED TO BE ADJUSTED AGAINST FINANCIAL PROCEEDS WHEN ACCOUNTS ARE SETTLED WITH THE PURCHASER. ACCORDINGLY ON COMPLETION OF THE PROJECT AND FINAL SALE OF THE FLATS/ SHOPS/ TENEMENTS, THE AMOUNT WILL HAVE TO BE ADJUSTED AGAINST SALE PROCEE DS AND ACCORDINGLY TAX EFFECT, IF ANY, WOULD ARISE. IN ANY CASE, AS NO EVENT AS MENTIONED IN SEC TION 41(1) HAVING TAKEN PLACE, THESE ADVANCES WILL NOT BE TAXABLE IN THE PREVIOUS YEAR RELEVANT T O THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 20. THE NEXT ISSUE IS REGARDING THE ADDITION OF RS. 2,33,480/- BEING SUNDRY CREDITORS STANDING IN THE BALANCE-SHEET, WHICH WAS ALSO TREATED AS PRO FIT/ INCOME OF THE ASSESSEE BY INVOKING SECTION 41(1) OF THE INCOME TAX ACT, 1961. IT IS AN UNDISPU TED PROPOSITION THAT THE NATURE OF THIS AMOUNT IS SAME AS IN THE PREVIOUS YEAR. THE A.O. HAS OBSER VED THAT THE AMOUNT OF CREDITORS HAS REMAINED UNPAID FOR UNUSUAL PERIOD AND THE ASSESSEE HAS NOT FURNISHED ANY DETAILS OR ANY REASON FOR NON- PAYMENT. 21. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE A.O. HAS NOT POINTED OUT AS TO WH AT EVENT HAS TAKEN PLACE SO AS TO CONFER ANY BENEFIT IN CASH OR IN KIND OR ANY REMITTANCE BY THE CREDITOR OR CESSATION OF LIABILITY DUE TO OPERATION OF LAW OR OTHERWISE. SINCE THE FACTS AND CIRCUMSTANCES OF THE CREDITORS IN THE BALANCE- SHEET REMAINED THE SAME AS IN EARLIER YEARS AND NO VARIATION IN THE SITUATION HAS TAKEN PLACE, THEN THERE IS NO REASON TO HOLD THAT THIS AMOUNT WOULD B E TAXABLE IN THE YEAR UNDER CONSIDERATION BEFORE US. FOR THE AUTHORITIES MENTIONED BY US IN R ESPECT OF FIRST ISSUE, WE HOLD HERE ALSO THAT THIS AMOUNT WILL NOT BE TAXABLE IN THE PRESENT ASSESSMEN T YEAR. THIS GROUND OF ASSESSEE IS ALSO ALLOWED. 8 22. THE NEXT ISSUE IS ABOUT ADVANCE TAKEN FROM M/S. GANESH HOUSING CORPORATION. THE FACTS ARE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WIT H M/S. GANESH HOUSING CORPORATION FOR SOME CONSTRUCTION WORK AND RECEIVED RS.22,51,000/- AS AD VANCE. HOWEVER, THE LAND, WHICH IS PROPOSED FOR CONSTRUCTION WORK CAME INTO DISPUTE WITH AHMEDA BAD URBAN DEVELOPMENT AUTHORITY ON ACCOUNT OF APPROVAL NOT GRANTED FOR CONSTRUCTION. T HE AMOUNT SO RECEIVED REMAINED WITH THE ASSESSEE-FIRM AND WAS NOT RETURNED TO M/S. GANESH H OUSING CORPORATION. THE A.O. ACCORDINGLY TREATED THE SUM AS PROFIT UNDER SECTION 41(1) AS AC CORDING TO HIM LIABILITY CEASED TO EXIST DUE TO PASSAGE OF TIME. 23. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER OF AUTHORITIES BELOW. WE NOTICE THAT IN THIS YEAR NO EVENT DESCRIBED UNDER SECTION 41(1) HA S TAKEN PLACE, THEREFORE, IT CANNOT BE SAID THAT ONLY IN THIS YEAR THE ASSESSEE HAS RECEIVED ANY BEN EFIT IN CASH OR IN KIND OR THE CREDITOR HAS REMITTED ANY LIABILITY OR THE LIABILITY HAS CEASED TO EXIST ON ACCOUNT OF OPERATION OF LAW OR OTHERWISE. THE A.O. WAS REQUIRED TO POINT OUT AS TO WHAT SPECIFIC EVENT HAS TAKEN PLACE SO AS TO AFFIX LIABILITY ON THE ASSESSEE UNDER SECTION 41(1) THIS YEAR ONLY. SINCE THE FACTS AND CIRCUMSTANCES OF THE ISSUE REMAINED THE SAME AS IN EARLIER YEAR OR IN THE PAST, IT WILL NOT BE LEGALLY AND FACTUALLY CORRECT TO HOLD THAT THE AMOU NT BECAME TAXABLE ONLY IN THE PREVIOUS YEAR RELEVANT TO THE PRESENT ASSESSMENT YEAR. ACCORDINGL Y, THIS GROUND OF APPEAL IS ALSO ALLOWED. 24. IN REVENUES APPEAL, THE ASSESSEE SHOWED LIABIL ITY OF RS.19,35,584/-, WHICH IS AS UNDER :- SL. NO. NAME OF THE EX-PARTNERS DATE OF SUCH TRANSACTION BALANCE AMOUNT DUE (RS.) REMARKS 1 H.N. SHAH (EXPIRED) 02.07.2002 5,44,083 EXPIRED 2 -DO- 02.07.2002 75,000 -DO- 3 B.M. PATEL 09.04.2003 10,18,588 -DO- 4 -DO- 09.04.2003 60,000 -DO- 5 M.R. PATEL 07.12.2003 60,279 -DO- 6 -DO- 07.12.2003 7,500 -DO- 7 H.D. SHAH (EXPIRED) 31.03.1993 9,407 -DO- 8 -DO- 31.03.1003 47,772 -DO- 9 -DO- 31.03.1993 62,918 -DO- 10 -DO- - 50,000 FIXED CAPITAL ACCOUNT THE A.O. TREATED THE ABOVE LIABILITIES AS PROFIT CH ARGEABLE UNDER SECTION 41(1) ON THE GROUND THAT OTHER EX-PARTNERS HAVE DIED OR THERE IS NO CLAIM LE FT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), HOWEVER, ALLOWED THE CLAIM ON THE GRO UND THAT THE ABOVE BALANCE AMOUNTS IN 9 RESPECT OF EX-PARTNERS WERE LIABILITIES, WHO ARE DI ED AND AMOUNT WAS DUE TO THE LEGAL HEIRS OF THE DECEASED PARTNERS. THERE IS DISPUTE ABOUT QUANTUM O F THE PAYMENT AND ACCORDINGLY THE AMOUNT REMAINED PAYABLE. THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) HELD THAT SUCH AMOUNT CANNOT BE TAXED UNDER SECTION 41(1) AS THERE IS DIS PUTE ONLY ON QUANTUM. 25. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE C ONSIDERED VIEW THAT THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS). THE REASONS ARE THAT IT IS NOT AN ITEM OF LOSS OR ALLOWANCE CLAIMED OR A LLOWED IN ANY EARLIER YEAR, NO EVENT HAS TAKEN PLACE IN THIS YEAR, WHICH WOULD HAVE CONFERRED ANY BENEFIT IN CASH OR IN KIND TO THE ASSESSEE OR THERE IS NO EVENT SHOWING THE LEGAL HEIRS REMITTED THE LIABILITY IN FAVOUR OF THE ASSESSEE OR THERE IS NO CESSATION OF LIABILITY ON ACCOUNT OF LAW OR OTHE RWISE. ACCORDINGLY, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS JUSTIFIED IN DELETING TH E ADDITION. THEREFORE, THIS GROUND RAISED BY THE REVENUE IN ITS APPEAL IS ACCORDINGLY DISMISSED. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 13.11.200 9 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13 / 11 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER LAHA/SR.P.S. DEPUTY REGISTRAR, ITAT, AHMEDA BAD