TaxTMI 
TaxTMI 
2020 (10) TMI 601
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd circumstances of the appellant's case. 3. The ld. CIT(A) failed to appreciate that the aforesaid liabilities shown by the appellant to M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd., were still subsisting and the same was also confirmed by the said parties in course of the enquiries conducted in the remand proceedings before the Assessing Officer and therefore, the impugned addition sustained was opposed to law and facts of the appellant's case. 4. The ld. CIT(A) erred in holding that there was a virtual forfeiture of the said amounts by the appellant on account of the fact that the aforesaid advances were not refundable in terms of the procurement agreement dated 10/02/2006 and because M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. had not taken any steps for recovery of the said amounts. 5. The ld. CIT(A) ought to have appreciated that there had to be an actual forfeiture for attracting the provisions of section 56(2)(ix) of the Act and there was no justification to take a view that the appellant had forfeited the said amounts during the year under appeal and therefore, the application of the provisions of section 56(2)(ix) of the Act w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 25,74,540/- under the heads 'income from business and profession, capital gains and other sources". The assessment was completed u/s. 143(3) of the Act. While framing the assessment, the AO observed that the assessee had received advances of Rs. 21,89,22,200/- as on 31/03/2015 from the following parties: 1. Metro Corp Rs. 19,62,00,000/- 2. Metro Corp Infrastructure Limited Rs. 1,00,00,000/- 3. Raju F Rs. 65,00,000/- 4. Balaji & Co. Rs. 40,00,000/- 5. Chandramohan Grover Rs. 13,22,200/- 6. Kavith Shenoy Rs. 9,00,000/- Total Rs. 21,89,22,200/- The AO enquired from the assessee regarding the outstanding amounts in the name of Metro Corp and M/s. Metro Corp Infrastructure Ltd. It was stated that the assessee received money from Metro Corp vide agreement dated 10/02/2006 for procuring lands at Dodaballapur and Chikkaballapur. The project being developed by M/s. Metro Corp ran into litigation and no further advance could be given to the assessee for land procurement as per the agreement. It was also stated that the assessee was willing to fulfil his obligations under the agreement on receipt of the balance amount....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or land procurement even though clause X of the procurement agreement gives the parties the right to sue each other for specific performance of the agreement. The Ld. CIT(A) observed that out of the amount of Rs. 21,11,00,000/- received from M/s. Metro Corp and Metro Corp Infrastructure Ltd., only an amount of Rs. 5,53,81,059/- was given by the assessee as advances. The bulk of the amount so received has been invested in fixed assets and investments in the assessee's name. The CIT(A) rejected the argument of the assessee that the advances were given for procurement of land which was stock-in-trade and not a capital asset since neither the promoters nor the assessee were trading in parcels of land but these lands were being acquired for the purpose of construction of buildings/townships thereon, hence the land sought to be acquired was a capital asset and on transfer from the land owners to the assessee /promoter, the land-owner would have earned capital gains. Regarding application of provisions of section 56(2), he observed that sub-clause(ix) of section 56(2) provides that certain incomes are to be included under the head income from other sources: (ix) any sum of mon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated as an advance for procurement of lands. The Ld. AR submitted that the assessee was willing to fulfil his obligation under the agreement on receipt of the balance amount from M/s. Metrocorp and the amounts paid by Metrocorp to him was also confirmed by them by authenticating the statement of account of the said firm in the books of the assessee. It was submitted that the assessee confirmed that he did not claim any expenditure or deduction in relation to the advance received from M/s. Metrocorp towards procurement of lands in the present or in any earlier years and that the said advance remained a liability in his books pending performance of his obligation under the agreement. 5.1 The Ld. AR further submitted that the advances of Rs. 20,11,00,000/- and Rs. 1,00,00,000/- received from M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. respectively was for the procurement of land towards the projects proposed to be developed by the said concerns. It was submitted that after payment of some amounts towards procurement of lands, the said parties discontinued to pay the further amounts for various reasons including certain internal disputes regarding the management of their c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngs of the provisions being invoked have to be construed strictly. The Ld. AR submitted that a proviso was inserted in Section 51 of the Income Tax Act which dealt with money, received in respect of Negotiations in relation to a "Capital Asset" by the Finance(No. 2) Act, 2014 simultaneously with the insertion of section 56(2)(ix), there by further confirming the analogy that the provisions of section 56(2)(ix) would apply to the advances received in relation to a "Capital Asset" and not "stock in Trade". 5.3 Further, the Ld. AR submitted that a reading of the agreement entered into dated 10/02/2006 between Adishree Properties a Proprietary Concern of Ravi Shankar Shetty (Appellant) and M/s. Metrocorp, which has been taken as a basis for making additions, would reveal the following important facts: a) That the procurer/coordinator i.e., M/s. Adishree Properties, a Proprietary Concern of Ravi Shankar Shetty (Appellant),is in the business of building and selling of iand, having a expertise in identification of land, ascertaining their suitability of land or commercial exploitation etc. (Refer Page 2of the Agreement). b) That the Promoter/Purchaser M/s. Metrocorp i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mation regarding amounts received from M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. and therefore had not utilized the opportunity of furnishing the same in the gap of one month between the date of e-mail communication and the date of the order. It was submitted that this averment of the Assessing Officer was factually incorrect as the assessee had responded immediately to the e-mail vide his submission dated 02/12/2017 and 20/12/2017 on the subject matter of additions. It was submitted that there as no murmur of impending additions made by the Assessing Officer and no show cause notice was issued on the assessee based on his submissions and consequently, the assessee was under the bona fide belief that the confirmations filed by the assessee and the explanations given by the assessee were in order and accepted by the Assessing Officer. 5.7 The Ld. AR submitted that the Assessing Officer had herself affirmed the fact that Sri Rathan Kumar the Additional Director of M/s. Metrocorp Infrastructure Ltd. and Manager of M/s. Metrocorp had attended the summons u/s. 131 and furnished statements and confirmations regarding advances of Rs. 20,11,00,000/- given by M/s. Metrocorp a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in no way due to the fault of the assessee. 5.9 The Ld. AR submitted that M/s Metrocorp had filed its return of income for the A.Y. 2007-08 and A.Y. 2008-09 and M/s. Metrocorp Infrastructure Ltd. had filed its return of income for the A.Y. 2009-10 and assessments of both the concerns were completed u/s. 143(3) of the I.T. Act. The Ld. AR submitted that the financials of both M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. reflected the advances. The Ld. AR submitted that the nature of lands being procured was held as business asset i.e. 'Stock in Trade' by the assessee and quoted from procurement agreement as follows: i) Whereas the Procurer/Co-ordinator is in the business of buying and selling of land, undertaking joint development agreements and his having expertise n identification of land, verifying the marketability of title, suitability of the land for commercial exploitation and negotiation with the land owners. ii) Whereas the Prompter/Purchaser herein being engaged in the promotion of modern townships, residential, industrial and commercial building complexes etc. have been on the lookout for an ideally located compact and contagious block of la....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... advances received for procurement have not been forfeited by the appellant as on that date. c) That the negotiations for transfer of the lands to be procured by the Appellant cannot be said to have been concluded as the Appellant had to receive further monies towards procurement to perform his obligations under the procurement agreement, which fact has also been confirmed by the representative of the Company which had given such advances in his recorded in answer to Question No. 22 of the remand report. As can be seen from the above, it was submitted that none of the conditions for invoking the provisions of section 56(2)(ix) are applicable to the appellant's case and hence the additions made by the Assessing Officer by invoking the aforesaid provisions of section 56(2)(ix) of the I.T. Act lacks jurisdictions and has been made without the force of law. The above contention is without prejudice to the contention already taken that the negotiations between the Appellant and the Concerns M/s. Metrocorp and M/s. Metrocorp Infrastructure Ltd. which paid the advance to him was for acquiring lands which formed part of stock-in-trade and not for the purpose of acquisition of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 56(2)(ix) of the I.T. Act in respect of liability shown in the name of M/s. Metro Corp at Rs. 20.11 crores and M/s. Metro Infrastructure Ltd. at Rs. 1 crore as outstanding in the financial statement for the year under consideration. This amount was treated by the AO as income of the assessee and confirmed by the CIT(A). This amount has been received by the assessee from M/s. Metro Corporation vide agreement dated 10/02/2006. The assessee is in the business of buying and selling of land. He is in the real estate business. M/s. Metro Corp approached the assessee to facilitate the procurement of land for their business. Similarly, Metro Corp Infrastructure Ltd. advanced money to the assessee amounting to Rs. 1 crore in the month of April, 2008. These amounts are stated as outstanding in the balance sheet of the assessee from year to year and also in the financial year ending 31/03/2015 relevant to the assessment year 2015-16. During the course of assessment, on enquiry by the AO, the assessee furnished the confirmation letters from the parties which are as follows: METROCORP [Narasimha Towers, 46/2,3rd floor,Fourth Cross, Malleshwaram Bangalore 560003] 14....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ited Sd/- (Rathan Kumar) Director 7.1 The AO disallowed the claim of the assessee and held that the said receipt is outstanding in the books of account from year to year. It was the contention of the authorities that it is nothing but virtual forfeiture as the assessee has invested these amounts in the fixed assets and investments in his business. More so, the lender has not made any attempt to recover the same from the assessee. Thus, he invoked the provisions of section 56(2)(ix) of the I.T. Act. The CIT(A) confirmed the same. 7.2 The Ld. Counsel for the assessee submitted that provisions of section 56(2)(ix) would not be applicable on the facts of the present case because the said section came in force with effect from 01/04/2015 and the assessee has not received any sum or advance in this assessment year. Therefore, provision would not be applicable. We are unable to subscribe to such an argument that the provision is applicable only to the amount received after 01/04/2015 because the deeming provision is attracted in the event if any sum is treated by the assessee out of any sum and money received as advance or otherwise in the course of negoti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss. The money was not received from these two parties during the course of negotiations for transfer of any capital asset. The said amount was received by the assessee from these two parties for the purpose of procurement of land for their business operations which is stock in trade to the present assessee. . As discussed earlier, the money received during negotiation for transfer of capital asset is hit by the deeming provision of section 56(2)(ix) of the Act and not to stock in trade.. The aforesaid proposition is also borne out with the legislative intent while introducing section 56(2)(ix) by Finance Act 2014 which is reproduced as follows: "Section 56 Finance Act, 2014 6.10 Taxabitity of advance for transfer of a capital asset where advance is forfeited. (sections 5I and.-56) In Travancore Rubber & Tea co. Ltd.. Vs. CIT [2000J 243 ITR 158/109 Taxman 250 ) it was held that forfeiture of advance money received for transfer of capital asset cannot be treated as revenue receipt chargeable to tax. In order to overcome this ruling by the supreme court, section 56 relating to income from other sources has been amended by the Finance (No. 2) Act, 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r money has been received and retained by the assessee in respect of such negotiation, then same was to be deducted from the cost for which the asset was acquired at written down value or fair market value while computing the cost of acquisition. Now from the assessment year 2015-16, if such sum received as an advance is included in the total income then same is deducted from the cost of acquisition. Section 51 refers to capital asset belonging to the assessee which was subject matter of negotiation for transfer and assessee receiving any sum as advance from such negotiation. It was not applicable to the transferee. In the present case, the facts show that the assessee received money for procurement of land on behalf of these two parties which cannot be said that the assessee received money on transfer of his capital asset to the two parties. Further, the assessee has not forfeited the amount received by him and it has been shown as outstanding in the respective name of these two parties in the Balance Sheet of the present assessee. The entry in the Balance Sheet itself shows that it is outstanding on the date of the balance sheet and the assessee is liable to pay the same to the t....