Case Law Details
It is not in dispute by either of the parties that the provisions of section 41(1) are not applicable. The issue here now remains as to whether advances received towards booking by the various persons in the earlier years and as reflected in the balance sheet are genuine or not. From a perusal of the balance sheet for the earlier years which have been placed in the paper book and as pointed out by the learned Counsel, it goes to show that these liabilities are towards advance booking at the time when appellant tried to carry out the housing project.
These liabilities are coming from the earlier years which is quite evident from the balance sheet of all the years. Thus they cannot be held to have appeared for the first time as wrongly held by the learned CIT(Appeals). The learned CIT(Appeals) has completely misdirected herself and came to a wrong conclusion after referring to the balance sheet of appellant in his individual capacity rather than the balance sheet of the proprietary concern which carried out the business. In the interest of natural justice, the matter needs to be restored back to the file of the learned CIT(Appeals) who will consider the actual balance sheets of the earlier years of the proprietary concern, wherein these liabilities have been shown. Further the learned CIT(Appeals) will also examine the fact that the part of the liabilities have been discharged not only in this year but also in the subsequent year as given in page 4 to 10 of the appellate order. After considering these aspects, the learned CIT(Appeals) is required to give a proper finding on the issue involved.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA No. : 3429/Mum/2011 – Assessment Year: 2007-08
Shri Mukesh Baldevraj Bajaj Vs. ITO
Date of Pronouncement : 02.03.2012
ORDER
PER AMIT SHUKLA (J.M.):
This appeal has been preferred by the appellant against order dated 25.03.2011 passed by the learned Commissioner of Income Tax (Appeals)-33, Mumbai for the quantum of assessment passed u/s. 143(3) for the Assessment Year 2007-08. The only issue raised in various grounds of appeal relates to the addition of . 1,70,32,165/- made u/s.69 on account of bogus liabilities which was in the nature of advance received from various parties.
2. The facts in brief are that the appellant is a Proprietor of “M/s. Status” and is engaged in the business of real estate developer and consultant. During the course of assessment proceedings it was noted by the Assessing Officer that in the balance sheet as on 31.03.2007 an amount of . 1,70,32,165/- has been shown on the liability side as advance for booking and other liability. The Assessing Officer also noted that, on the one hand there is huge liability on the other hand, the appellant has given loans and advances of . 1,25,66,693/- to others and relatives, made investment of .89,49,500/-, purchased plots of .69,22,565/-, fixed assets of .20,39,586/- has cash in hand of .19,932/-, debtors of .39,000/- and deposits of .3,24,263/-. The Assessing Officer, therefore, required the appellant as to why the liability shown as advance for booking be not treated as ceased liability u/s.4 1(1) of the I.T. Act, 1961.
2.1 The appellant’s contention before the Assessing Officer was that he has entered into the real estate business whereby he has undertook an ambitious project to develop a housing project. For the said purpose, he has collected booking and advances from various persons towards the proposed residential units and also obtained the loan from certain parties. However, due to major slum in the year 1992, the real estate business could not take off and the project went into severe losses. Since, the project could not take off , the entire project was abundant and the booking amount was shown as liability in the balance sheet since last 20 years. In order to fulfil his obligations, he undertook the business of a broker and a consultant in the real estate itself and slowly and steadily effecting the payments in instalment to the various persons who have given advances. The sum and substance of the appellant’s contention was that the liability has neither become time barred nor he has any intention of not paying to his creditors. The entire principle amount of liability has been duly reflected in the books of accounts and has been regularly shown in the balance sheet filed along with the respective income tax return since 1992. So far as the filing of information as required by the Assessing Officer is concerned, the appellant contented that after a gap of many years it would not be possible for him to obtain confirmation letters from various parties.
2.2 The said contention of the appellant was not found acceptable by the Assessing Officer mainly on the ground that in the balance sheet as on 31.03.2007, the appellant has invested in plots and lands and given loans and advances to the relatives and partners along with the huge fixed assets, investments etc. He, therefore, treated the liability of the assessee (which was in the nature of booking advance from various persons) to be a cessation of liability u/s.41(1) and added the same to the total income. However, out of . 1,70,32,165/- he gave a credit of .9,93,800/-, which was paid back by the appellant to the various parties during the year. Accordingly, he added a sum of . 1,60,38,365/- in the income of the appellant u/s.41(1).
3. During the course of first appeal before the learned CIT(Appeals), the appellant contented that there was no cessation of liability and the liability was shown in the books of accounts from year to year and there was no intention of the appellant of not paying to the creditor and as a matter of fact a sum of .9,93,800/- were paid back also and the same has been accepted by the Assessing Officer himself.
3.1 Before the learned CIT(Appeals) the details of various persons shown under the head ‘Sundry Creditors’ for various assessment years right from the Assessment Year 2007-08 to 2011-12 were furnished. The details of the said chart have even been reproduced in the appellate order from pages 4 to 10. In support of the claim, the appellant also furnished the copies of balance sheet for various assessment years and the balance sheet for the Assessment Year 2001-02 have been reproduced at page no. 10 of the appellate order, wherein on the liability side advance for booking has been disclosed as on 31.03.2001 at . 1,83,39,610/-.
4. The learned CIT(Appeals) did not agree with the contention of the appellant on the following grounds:
(i) that the appellant did not had any supporting documents to prove that they were towards for booking of flats;
(ii) agreements for sale of flats with the creditors have not been entered into and hence were not available in support of the claim of the appellant;
(iii) the appellant also did not furnished the copy of books of account for the year 1992 to show that the respective creditors have paid money to him in the year 199 1-92 for the booking of flats;
(iv) on the one hand, the appellant has stated that his assets have been wiped out due to heavy losses suffered by him, on the other hand, the balance sheets shows that various fixed assets have been acquired, loans were given to various parties and investments have been made;
(v) on the perusal of the balance sheet which has been reproduced at page 11 and 12 of the appellate order, the learned CIT(Appeals) noted that there was no such liability in the balance sheet and it occurred for the first time in the balance sheet as on 3 1.03.2007, relevant for the Assessment Year 2007-08 and, therefore, the claim of the appellant that these liabilities are 20 years old is wholly erroneous;
(vi) the onus of the appellant to prove the genuineness and creditworthiness of the persons have been avoided by the appellant by stating that these are old advances and hence it is outside the purview of section 68.
4.1 As regards to the payment of cheques for refund of advancement in some cases, the learned CIT(Appeals) held that it has of no relevance as there could be a payment for something else which has not been declared by the appellant.
4.2 Though the learned CIT(Appeals) agreed that the Assessing Officer has wrongly applied section 41(1) for making the addition, however held that these liabilities are bogus and misleading that they are 20 years old and the appellant has tried to mislead by furnishing the balance sheet for the Assessment Year 2001-02 when in the other years there is no such liability shown in the balance sheet. Accordingly, the learned CIT(Appeals) added the entire liability shown as advance for booking for a sum of Rs. 1,70,32,165/- as bogus liability instead of Rs. 1,60,38,365/- added by the Assessing Officer.
5. The learned authorised representative strongly contented that the learned CIT(Appeals) has grossly erred and misdirected herself by not taking the figures of balance sheet of the proprietary concern which was carrying out the business but has only considered the balance sheets of the individual assessee. She drew our attention to the copies of various balance sheet that were filed along with the return for the Assessment Years 2001-02 to 2005-06, 2006-07 and 2007-08. She specifically drew our attention to page no. 28 of the paper book which is the balance sheet as on 31.03.2005 clearly showing booking amount of Rs. 1,73,68,210/- shown as liability and also referred to page no. 50 which is the balance sheet as on 31.03.2006 wherein advance on booking has been shown as liability at Rs. 1,72,09,710/-. The learned counsel on the basis of these balance sheets submitted that the learned CIT(Appeals) has erroneously not taken into consideration the actual balance sheets of the proprietary concern of the earlier years which were duly filed along with the income tax return but has considered the balance sheet of the individual, wherein no such liability has been disclosed. She also contented that the rectification application to this effect u/s. 154 was filed on 11.06.2011 and there after various reminders were sent. However, the learned CIT(Appeals) has failed to carry out any rectification in this regard. She strongly contented that since the entire liability has been disclosed in the balance sheet from last several years in the income tax return and the same has been accepted by the department also, therefore, the said liability cannot be treated as bogus in the year under appeal.
5.1 To further corroborate the genuineness of the liability, she submitted that the appellant has actually discharged some of the liability not only in the current year, but also in the subsequent year which is evident from chart reproduced from page no. 4 to 10 of the appellate order. Accordingly, she pleaded for the deletion of entire addition of . 1,70,32,165/-.
6. On the other hand, the learned Senior DR in all his fairness accepted the fact that the learned CIT(Appeals) has wrongly noted the figures of individual balance sheet while arriving at the conclusion that these are not old liabilities but has come only in the year under appeal. However, he strongly contended that otherwise the liabilities are not genuine and heavily relied upon the finding given in the order of the Assessing Officer and the reasoning given by the learned CIT(Appeals).
7. We have carefully considered the rival submissions and also gone through the findings of the lower authorities and the documents as have been referred to by the learned AR. It is not in dispute by either of the parties that the provisions of section 41(1) are not applicable. The issue here now remains as to whether advances received towards booking by the various persons in the earlier years and as reflected in the balance sheet are genuine or not. From a perusal of the balance sheet for the earlier years which have been placed in the paper book and as pointed out by the learned Counsel, it goes to show that these liabilities are towards advance booking at the time when appellant tried to carry out the housing project. These liabilities are coming from the earlier years which is quite evident from the balance sheet of all the years. Thus they cannot be held to have appeared for the first time as wrongly held by the learned CIT(Appeals). The learned CIT(Appeals) has completely misdirected herself and came to a wrong conclusion after referring to the balance sheet of appellant in his individual capacity rather than the balance sheet of the proprietary concern which carried out the business. In the interest of natural justice, the matter needs to be restored back to the file of the learned CIT(Appeals) who will consider the actual balance sheets of the earlier years of the proprietary concern, wherein these liabilities have been shown. Further the learned CIT(Appeals) will also examine the fact that the part of the liabilities have been discharged not only in this year but also in the subsequent year as given in page 4 to 10 of the appellate order. After considering these aspects, the learned CIT(Appeals) is required to give a proper finding on the issue involved.
8. In the result, the findings of the learned CIT(Appeals) are set aside and the matter is restored back to the learned CIT(Appeals) who will examine the issue on the above lines and in accordance with the law and will also give due and effective opportunity to the appellant to represent his case.
9. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 2nd day of March, 2012.
