ITO Vs N. Kumar Housing and Infrastructure Pvt. Ltd. (ITAT Nagpur)
ITAT Nagpur order on applicability of Sections 41(1) and 68 of the IT Act, concerning the addition of lease advances and booking advances as
Brief facts :
The assessee, engaged in constructing commercial and residential properties, filed its return for the assessment year 2020–21, declaring a total loss of ₹3,85,795. The case was selected for limited scrutiny due to high creditors/liabilities and investment in immovable property. During assessment, the Assessing Officer (AO) observed that the assessee had reported “other payables” amounting to ₹15,20,00,000, which included lease deposits and booking advances. The AO questioned the genuineness and existence of these long-standing liabilities, leading to an addition of ₹5.20 crore under Section 41(1) of the Act, treating them as ceased liabilities.
Key Issues:
1. Applicability of Section 41(1): Whether the lease deposit of ₹3 crore and booking advances of ₹2.20 crore could be treated as income due to cessation of liability under Section 41(1).
2. Applicability of Section 68: Whether these amounts could be added as unexplained cash credits under Section 68.
Findings:
• Lease Deposit: The assessee received a lease advance of ₹10 crore from M/s. Poonam Resorts Ltd. before the financial year 2011–12 and an additional ₹3 crore during the financial year 2011–12. The AO, upon examining the lease agreement dated September 13, 2011, acknowledged the ₹10 crore advance but doubted the additional ₹3 crore, treating it as a ceased liability.
• Booking Advances: The assessee had booking advances totaling ₹2.20 crore, received from various parties for property bookings. The AO noted the absence of stock or work-in-progress in the assessee’s financial statements from the assessment year 2015–16 onwards and the lack of detailed information about the parties from whom these advances were received. Consequently, the AO treated these advances as ceased liabilities.
