ACIT, Coimbatore V. S.Aruputharaj, Coimbatore

ITA 1054/CHNY/2013

• Counselvise Citation: 105421714 RSA 2013
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: V JAGADISAN
• Keywords: Business income; Document seized; Revised return
• Section: 143(3); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO. 1054(MDS)/2013 & C.O. NO. 104(MDS)/2013 (IN ITA NO.1054(MDS)/2013) ASSESSMENT YEAR : 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), 63, RACE COURSE, CHENNAI 641 018. V. SHRI S. ARPUTHARAJ, NO.5, KRISHNA NAGAR, SOWRIPALAYAM, COIMBATORE 641 028. PAN : ADJPA 9492 L (APPELLANT) (RES PONDENT & CROSS OBJECTOR) APPELLANT BY : SHRI SHAJI P . JACOB, IRS, ADDL. CIT RESPONDENT BY : SHRI V. JAGADISA N, CA DATE OF HEARING : 5 TH DECEMBER, 2013 DATE OF PRONOUNCEMENT : 5 TH DECEMBER, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THE PRESENT APPEAL IS FILED BY THE REVENUE. THE CROSS- OBJECTION IS FILED BY THE ASSESSEE. THE RELEVANT A SSESSMENT YEAR IS 2009-10. THE APPEAL AND CROSS-OBJECTION AR E DIRECTED - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 2 AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INC OME TAX (APPEALS)-I AT COIMBATORE, ON 27.2.2013. THESE PRO CEEDINGS ARISE OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS ENGAGED IN T HE BUSINESS OF REALTOR AND CONTRACTOR. ASSESSEE USED TO ENTER INTO AGREEMENTS WITH PARTIES IN NEED OF HUGE PARCEL OF L AND FOR CONSTRUCTION AND DEVELOPMENT WORK, FOR AGGREGATING SMALL PIECES AND FINALLY HANDING OVER TO THEM. IN THE PREVIOUS YEAR, RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD E NTERED INTO SUCH AN AGREEMENT WITH M/S MAYFLOWER INNO REALITY P RIVATE LIMITED FOR SOURCING AND AGGREGATING LAND TO THE EX TENT OF 52 ACRES. ON THE BASIS OF THIS AGREEMENT, THE ASSESSE E ESTIMATED HIS PROFIT AND INCLUDED THE SAME AMOUNT OF PROFIT I N THE ORIGINAL RETURN FILED BY HIM. IN THE ORIGINAL RETURN FILED BY THE ASSESSEE ON 25.9.2009, HE HAD RETURNED AN INCOME OF ` 3,45,91,540/-. THIS INCOME INCLUDED, AS ALREADY STATED, THE PROFIT WORK ED OUT ON SALE AGREEMENT ENTERED INTO WITH M/S MAYFLOWER INNO REAL ITY PRIVATE LIMITED. BEFORE COMPLETING THE ASSESSMENT, A REVIS ED RETURN - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 3 WAS FILED BY THE ASSESSEE ON 28.8.2010 ADMITTING A REDUCED INCOME OF ` 34,24,530/-. THE INCOME SHOWN IN THE REVISED RETU RN WAS REDUCED FOR THE REASON THAT THE ASSESSEE HAD EX CLUDED AN INCOME OF ` 3,11,67,002/- FROM HIS BUSINESS INCOME, WHICH AMOUNT RELATED TO THE TRANSACTION WITH M/S MAYFLOWE R INNO REALITY PRIVATE LIMITED. THE ASSESSEE FILED THE RE VISED RETURN FOR THE PURPOSE OF EXCLUDING THE AMOUNT OF ` 3,11,67,002/- FOR THE REASON THAT THE SALE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S MAYFLOWER INNO REALITY PRIVATE LIM ITED HAS BEEN FRUSTRATED AND THE AGREEMENT WAS NOT MATERIALI ZED IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT. LATER ON, THE AGREEMENT ITSELF WAS CANCELLED BY A SUPPLEMENTARY A GREEMENT DATED 24.11.2010. THE ORIGINAL AGREEMENT WAS EXECU TED ON 18.6.2008. THE ASSESSEE HAD RECEIVED ADVANCE FROM M/S MAYFLOWER INNO REALITY PRIVATE LIMITED. IT WAS IN THESE CIRCUMSTANCES AND ON THE BASIS OF THE AGREEMENT DAT ED 18.6.2008 THAT THE ASSESSEE HAD IN HIS ORIGINAL RET URN DISCLOSED A PROFIT OF ` 3,11,67,002/- ATTRIBUTABLE TO THE AGREEMENT ENTERE D INTO WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITE D. BUT, ONCE THE ASSESSEE CAME TO KNOW THAT THE AGREEMENT WAS NO T GOING TO - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 4 BE IMPLEMENTED AS ENVISAGED AND THE AGREEMENT WAS G OING TO BE CANCELLED, THE ASSESSEE EXCLUDED THE SAID AMOUNT OF PROFIT FROM HIS TOTAL INCOME AND FILED A REVISED RETURN ON 28.8.2010 FOR A REDUCED INCOME OF ` 34,24,530/-. 3. BUT, THE ASSESSING AUTHORITY DID NOT ACCEPT THE REVISED RETURN FILED BY THE ASSESSEE ON 28.8.2010 FOR A LES SER AMOUNT OF INCOME. THE ASSESSING OFFICER RELIED ON THE ORIGIN AL RETURN FILED BY THE ASSESSEE AND FINALLY DETERMINED A TOTAL INCO ME OF ` 3,99,59,980/- THROUGH THE ASSESSMENT ORDER PASSED U NDER SECTION 143(3) ON 30.12.2011. THE ASSESSING OFFICE R DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE THAT THE AGR EEMENT ENTERED WITH M/S MAYFLOWER INNO REALITY PRIVATE LIM ITED WAS NOT GOING TO BE FULFILLED. THE ASSESSING OFFICER OBSER VED THAT AS AGAINST THE OVERALL EXTENT OF 52 ACRES OF LAND, THE ASSESSEE HAS ALREADY PROCURED 13.12 ACRES AND THEREFORE, THE AGR EEMENT WAS IN FULL FORCE AND IN SUCH CIRCUMSTANCES, A LOSS CAN NOT BE ANTICIPATED AS ARGUED BY THE ASSESSEE. THE ASSESSI NG OFFICER HELD THAT THE REVISED RETURN CAN BE FILED ONLY IF T HE ASSESSEE DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT IN TH E ORIGINAL - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 5 RETURN. IN THE PRESENT CASE, THERE IS NO SUCH OMISS ION OR A WRONG STATEMENT AND THEREFORE, THERE IS NO VALID GROUND T O FILE A REVISED RETURN. 4. THE MATTER WAS TAKEN UP IN FIRST APPEAL BEFORE T HE COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSEE EXPLAINED BEFORE THE COMMISSIONER OF INCOME TAX (AP PEALS) THAT THE AGREEMENT WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED WAS NOT FINALIZED AS PER THE TERMS OF THE A GREEMENT AND THE AGREEMENT WAS LATER CANCELLED AND THE ASSESSEE HAD TO RETURN THE ADVANCE AMOUNT RECEIVED FROM M/S MAYFLOW ER INNO REALITY PRIVATE LIMITED ALONG WITH DAMAGES AND OTHE R COSTS. THE ASSESSEE EXPLAINED BEFORE THE COMMISSIONER OF INCOM E TAX (APPEALS) THAT INCOME FROM THE ACTIVITY OF SOURCING OF LAND COULD BE TREATED AS AN ACCRUED OR ARISEN ONLY WHEN THE AS SESSEE PROCURED THE ENTIRE AREA OF LAND AS REQUIRED BY THE PROPERTY DEVELOPERS. IN THE PRESENT CASE, THE ASSESSEE MADE A MISTAKE BY OFFERING A SUM OF ` 3,11,67,002/- AS HIS INCOME IN THE ORIGINAL RETURN IN THE NATURE OF PROFIT ARISING FROM SOURCIN G OF LAND. THIS WAS AN ERROR COMMITTED BY THE ASSESSEE. THIS IS BE CAUSE THE - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 6 ASSESSEE TREATED THE AMOUNT RECEIVED FOR SOURCING O F LAND FOR AN AREA OF 13.2 ACRES AS PURCHASE AND THE AMOUNT WHICH THE PROPERTY DEVELOPER AGREED TO PAY AS THE SALES. BUT , IN FACT, NEITHER THERE WAS ANY PURCHASE OF LAND NOR WAS ANY SALE OF LAND. THE LAND WAS ONLY IDENTIFIED AND SOURCED ON BEHALF OF THE PROPERTY DEVELOPER. IT IS AFTER REALIZING THIS ERR OR THAT THE RETURN WAS REVISED AND THEREFORE, ASSESSING OFFICER OUGHT TO HAVE ACTED UPON THE REVISED RETURN OF INCOME FILED BY TH E ASSESSEE. 5. THE COMMISSIONER OF INCOME TAX (APPEALS), ON VER IFYING THE FACTS OF THE CASE IN A DETAILED MANNER, FOUND T HAT M/S MAYFLOWER INNO REALITY PRIVATE LIMITED HAS TERMINAT ED THE AGREEMENT AND HAS ASKED FOR COMPENSATION AND DAMAGE S FROM THE ASSESSEE IN ADDITION TO THE RETURN OF ADVANCE M ONEY. HE OBSERVED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY SALE AGREEMENT OR POWER OF ATTORNEY EXECUTED BY THE ASSESSEE IN THE NAME OF M/S MAYFLOWER INNO REALITY PRIVATE LIMITED TO STATE THAT THE LAND WAS HANDED OVER TO T HE COMPANY AND THE SALE PROCEEDS WERE RECEIVED BY THE ASSESSEE . THERE WAS A SURVEY IN THIS CASE. THE COMMISSIONER OF INC OME TAX - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 7 (APPEALS) OBSERVED THAT EVEN DURING THE COURSE OF S URVEY, THERE SEEMS TO BE NO DOCUMENT SEIZED SHOWING WHEN THE SAL E TRANSACTION OCCURRED BETWEEN THE ASSESSEE AND M/S M AYFLOWER INNO REALITY PRIVATE LIMITED. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT THE ASSESSEE HAS SH OWN THE ADVANCE AMOUNT RECEIVED FROM M/S MAYFLOWER INNO REA LITY PRIVATE LIMITED AS HIS SALES TURNOVER AND IT WAS A MISTAKE ON THE PART OF THE ASSESSEE TO DO SO AS THE TRANSACTION WA S NOT EXECUTED IN FULL. HE OBSERVED THAT AS THE ENTIRE T RANSACTION OF SALE WAS CANCELLED, THERE IS NO CHANCE FOR THE ASSE SSEE TO GENERATE ANY INCOME AS PER THE AGREEMENT ORIGINALLY EXECUTED WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED. H E ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO ACCEPT THE REVISE D RETURN FOR THE PURPOSE OF ASSESSMENT AND TO EXCLUDE THE AMOUNT OF ` 3,11,67,002/- FROM THE COMPUTATION OF INCOME. AT T HE SAME TIME, THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO HELD THAT THE CORRESPONDING EXPENDITURE OF ` 68,40,000/- CLAIMED BY THE ASSESSEE SHOULD NOT BE ALLOWED AS A DEDUCTION. IN THIS WAY, THE GROUND RAISED BY THE ASSESSEE IN THIS REGARD HAS BE EN ALLOWED BY THE COMMISSIONER OF INCOME TAX (APPEALS). - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 8 6. THE REVENUE IS AGGRIEVED AND THEREFORE, THE SECO ND APPEAL BEFORE US. 7. THE GROUNDS RAISED BY THE REVENUE IN THE PRESENT APPEAL READ AS BELOW:- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE HAS ACTUALLY FILED THE REVISED RETURN ON 28.08.2010 BUT THE TERMINATION AGREEMENT BETWEEN THE ASSESSEE AND M/S MAYFLOWER INNO REALITY PRIVATE LIMITED WAS DATED ON 24.11.2010, WHICH TERMINATES THE ORIGINAL AGREEMENT BETWEEN THE TWO SAID PARTIES DATED 18.06.2008. AS THE REVISED RETURN FILED BY ASSESSEE WAS ALMOST 3 MONTHS PRIOR TO THE TERMINATION AGREEMENT THE ASSESSEE COULD NOT HAVE COME TO THE CONCLUSION PREEMPTIVELY THAT THE SALE WILL NOT TAKE PLACE. 3. THE LEARNED CIT(A) OUGHT TO HAVE OBSERVED THAT THE ASSESSEE HIMSELF HAS IN HIS ORIGINAL RETURN OF INCOME ACCEPTED THAT THE SALE HAS TAKEN PLACED BASED ON THE ORIGINAL AGREEMENT DATED 18.06.2008 BETWEEN THE TWO PARTIES. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT EVEN IN BUSINESS THE LAND PURCHASED SHALL BE TREATED AS STOCK IN TRADE ONCE THE LAND IS IN POSSESSION OF THE ASSESSEE. IT INDICATES THAT THE ASSESSEE HAS PURCHASED THE LAND THROUGH POWER OF ATTORNEY AS PER THE AGREEMENT AND HANDED OVER THE DOCUMENT OF - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 9 POWER OF ATTORNEY TO M/S MAYFLOWER INNO REALITY PRIVATE LIMITED. 8. SHRI SHAJI P. JACOB, THE LEARNED ADDITIONAL COMM ISSIONER OF INCOME TAX, APPEARING FOR THE REVENUE, CONTENDED THAT FILING OF A REVISED RETURN IS DIRECTLY GOVERNED BY THE PRO VISIONS OF LAW STATED IN SECTION 139(5). SECTION 139(5) PROVIDES FOR FILING OF A REVISED RETURN ONLY IF ANY OF THE TWO CONDITIONS AR E SATISFIED. THOSE CONDITIONS ARE THAT THE ASSESSEE MUST DISCOVE R ANY OMISSION OR ANY WRONG STATEMENT IN THE ORIGINAL RET URN FILED BEFORE THE ASSESSING OFFICER. EITHER THERE MUST BE AN OMISSION OR THERE MUST BE A WRONG STATEMENT, OR BOTH. IN TH E PRESENT CASE, THERE IS NO CASE OF ANY OMISSION. AS FAR AS THE IMPUGNED PREVIOUS YEAR IS CONCERNED, THE AGREEMENT ENTERED I NTO BETWEEN THE ASSESSEE AND M/S MAYFLOWER INNO REALITY PRIVATE LIMITED WAS VERY MUCH IN FORCE. THE ASSESSEE HAD SOURCED 1 3.2 ACRES AGAINST TOTAL EXTENT OF 52 ACRES, WHICH SHOWS THAT DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APP EAL, THE ASSESSEE WAS EXECUTING HIS OBLIGATIONS IN THE LIGHT OF THE AGREEMENT AND SUBSEQUENT CANCELLATION OF THE AG REEMENT WAS - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 10 MADE ONLY ON 24.11.2010, WELL AFTER THE CLOSURE OF THE PREVIOUS YEAR AND, IN SUCH CIRCUMSTANCES, IT WOULD NOT HAVE BEEN POSSIBLE TO THE ASSESSEE TO ANTICIPATE THE TERMINATION OF AG REEMENT. IN THE PRESENT CASE, WHAT HAS BEEN DONE BY THE ASSESSE E IS A PREMATURE ACT. AS FAR AS IMPUGNED ASSESSMENT YEAR IS CONCERNED, HE HAD ACTED UPON THE AGREEMENT AND HAS EARNED INCOME. THEREFORE, THE SAID AMOUNT OF INCOME HAS T O BE ASSESSED TO TAX FOR THE IMPUGNED ASSESSMENT YEAR IT SELF. IF, THEREAFTER, THE AGREEMENT WAS TERMINATED AND THE AS SESSEE HAD TO SUFFER LOSS, THE ASSESSEE COULD CLAIM THE LOSS I N THE RETURN FILED IN THE SUBSEQUENT ASSESSMENT YEAR. IN ANTICI PATION OF THE LOSS THAT MIGHT HAPPEN IN THE SUBSEQUENT ASSESSMENT YEAR, THE ASSESSEE CANNOT WITHHOLD THE INCOME EARNED IN THE I MPUGNED ASSESSMENT YEAR. IN THAT WAY, THERE IS NO OMISSION OR ANY WRONG STATEMENT IN THE ORIGINAL RETURN FILED BY THE ASSES SEE AND AS SUCH, THE REVISED RETURN FILED BY THE ASSESSEE CANN OT BE CONSIDERED AS A VALID ONE UNDER SECTION 139(5) OF T HE INCOME- TAX ACT, 1961. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, THEREFORE, CONTENDED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN TAKING A COGNIZANCE OF REVIS ED RETURN OF - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 11 INCOME AND DELETING THE INCOME ORIGINALLY RETURNED BY THE ASSESSEE. 9. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TA X HAS RELIED ON THE JUDGMENT OF THE HON'BLE DELHI HIGH CO URT RENDERED IN THE CASE OF GOLDEN INSULATION AND ENGG. LTD. V. COMMISSIONER OF INCOME TAX (165 TAXMAN 105) TO BRING OUT THE IMP ETUS OF EXPRESSIONS OMISSION AND WRONG STATEMENT. IN T HAT CASE, THE ASSESSEE-COMPANY HAD INITIALLY FILED ITS RETURN VAL UING THE CLOSING STOCK AT MARKET VALUE. THEREAFTER, THE ASSESSEE RE VISED ITS RETURN ON THE GROUND THAT THE COMPANY HAS PASSED A RESOLUTION TO CHANGE ITS METHOD OF STOCK VALUATION AND TO OPT FOR VALUING THE STOCK AT COST PRICE. THE CHANGE IN THE METHOD OF C LOSING STOCK VALUATION HAS RESULTED IN THE REDUCTION OF INCOME A ND IT WAS, THEREFORE, THE REVISED RETURN WAS FILED. THE COURT HELD IN THAT CASE THAT THERE WAS NO OMISSION OR WRONG STATEMENT, WHICH REQUIRED THE ASSESSEE TO FILE A REVISED RETURN. TH E REASON FOR FILING THE REVISED RETURN WAS THAT THE COMPANY HAD PASSED A RESOLUTION TO CHANGE ITS METHOD OF VALUATION OF CLO SING STOCK AS IT DID NOT CORRECTLY SHOW THE PROFIT OR LOSS FOR EACH ACCOUNTING YEAR - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 12 AND THE NEW METHOD ADEQUATELY REFLECTED THE POSITIO N IN REGARD TO THE PREVIOUS YEARS OPERATIONS. THE ONLY REASON FOR THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK DOES NOT AMOUNT TO ANY OMISSION OR WRONG STATEMENT AS CONSTR UED IN SECTION 139(5). THE COURT OBSERVED THAT THE REASON WAS NOT BONAFIDE AS WELL. THEREFORE, ACCORDINGLY HELD THAT THE REVISED RETURN WAS NOT VALID. 10. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME T AX AGAIN RELIED ON AN ORDER OF ITAT, CHENNAI BENCH A , RENDERED IN THE CASE OF M/S BEACON MARITIME CARRIERS P. LTD. V. THE DEPUTY COMMISSIONER OF INCOME TAX IN I.T.A. NO. 2414/MDS/2 003 DATED 8 TH JUNE, 2007. 11. SHRI V. JAGADISAN, THE LEARNED CHARTERED ACCOUN TANT, APPEARING FOR THE ASSESSEE, ON THE OTHER HAND, SUBM ITTED THAT THE ASSESSEE HAD IN FACT MADE THE WRONG STATEMENT I N THE ORIGINAL RETURN FILED BY HIM. THE ASSESSEE HAD EST IMATED PROFIT FROM TRANSACTION ARISING FROM THE AGREEMENT ENTERED INTO WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED. IT WAS ON THE BASIS OF THAT PRESUMPTION THAT ASSESSEE HAD DISCLOSED A P ROFIT OF ` - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 13 3,11,67,002/-. IN FACT, NO PURCHASE OR SALE OF LAN D WAS MADE AND NO ACTUAL TRANSACTION WAS ENTERED INTO AND FINA LLY THE WHOLE AGREEMENT WAS TERMINATED AND THE ASSESSEE HAD NO OP PORTUNITY AT ALL TO EARN ANY PROFIT OUT OF THE AGREEMENT ENTE RED INTO WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED. WHEN T HIS FACT WAS VERY MUCH KNOWN TO THE ASSESSEE, BEFORE COMPLETING THE ASSESSMENT, IT WAS HIS DUTY TO FILE THE REVISED RET URN TO CORRECT THE WRONG STATEMENT IN AS MUCH AS THE INCOME RETURN ED BY AN ASSESSEE MUST BE A REAL INCOME. 12. THE LEARNED CHARTERED ACCOUNTANT SUBMITTED THAT INCOME DOES NOT GENERATE OUT OF AN ENTRY PASSED IN THE BOO KS OF ACCOUNTS. THE INCOME LIABLE FOR TAXATION MUST BE R EAL AND ACTUAL INCOME. ACCRUAL OF INCOME DOES NOT MEAN INCOME ARI SING OUT OF WRONG PRESUMPTION. EVEN ON ACCRUAL BASIS, AN INCOM E CAN BE RECOGNIZED ONLY IF IT IS CERTAIN THAT THE ASSESSEE IS GOING TO RECEIVE THAT MUCH INCOME. IN THE PRESENT CASE, AS THE WHOLE AGREEMENT THE ASSESSEE HAD ENTERED INTO WITH M/S MA YFLOWER INNO REALITY PRIVATE LIMITED HAD BEEN TERMINATED, T HERE WAS NO OCCASION TO EARN ANY INCOME FROM ANY DEAL WITH M/S MAYFLOWER - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 14 INNO REALITY PRIVATE LIMITED AND IN SUCH CIRCUMSTAN CES, THE ORIGINAL PROFIT RETURNED BY THE ASSESSEE WAS ONLY A WRONG STATEMENT MADE IN THE ORIGINAL RETURN. HE, THEREFO RE, SUBMITTED THAT THE ASSESSEE WAS JUSTIFIED IN FILING A REVISED RETURN TO STATE HIS ACTUAL AMOUNT OF INCOME. 13. THE LEARNED CHARTERED ACCOUNTANT HAS RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN T HE CASE OF COMMISSIONER OF INCOME TAX V. SHOORJI VALLABHDAS AN D CO. (46 ITR 144). IN THAT CASE, THE ASSESSEE WAS THE MANAG ING AGENT OF TWO SHIPPING COMPANIES AND THE ASSESSEE WAS TO RECE IVE 10% COMMISSION AS PER MANAGING AGENCY AGREEMENT. BETWE EN APRIL 1, 1947 AND DECEMBER 31, 1947, AN AMOUNT OF ` 1,71,885/- FROM ONE COMPANY AND ` 2,56,815/- FROM ANOTHER COMPANY BECAME DUE TO THE ASSESSEE AS COMMISSION AT THE RATE OF 10 %. AND IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THESE AMOUNT S WERE CREDITED TO ITSELF AND DEBITED TO THE MANAGED COMPA NIES. IN NOVEMBER, 1947, THE ASSESSEE DESIRED TO HAVE THE MA NAGING AGENCY TRANSFERRED TO TWO PRIVATE COMPANIES AND IN THIS CONNECTION AGREED IN DECEMBER, 1948, TO ACCEPT 2.5% AS - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 15 COMMISSION AND GAVE UP 75% OF ITS EARNINGS. THE IN COME-TAX DEPARTMENT SOUGHT TO ASSESSEE THE AMOUNTS OF ` 1,36,903/- AND ` 2,00,625/- BEING THE 75%, WHICH THE ASSESSEE HAD G IVEN UP, ON THE GROUND THAT THE COMMISSION AT 10% HAD ALREAD Y ACCRUED TO THE ASSESSEE IN THE YEAR OF ACCOUNT AND THE AGRE EMENT IN DECEMBER, 1948, AFTER THE CLOSE OF PREVIOUS YEAR TO GIVE UP A PORTION OF THAT INCOME COULD NOT SAVE THAT PORTION FROM LIABILITY TO INCOME-TAX. IN THE ABOVE CIRCUMSTANCES, THE HONBL E SUPREME COURT HELD THAT THE SUBSEQUENT AGREEMENT HAD ALTERE D THE RATE OF COMMISSION IN A WAY AS TO MAKE THE INCOME WHICH REA LLY ACCRUED TO THE ASSESSEE DIFFERENT FROM WHAT HAD BEE N ENTERED IN THE BOOKS OF ACCOUNTS. THIS WAS NOT A CASE OF A GI FT BY THE ASSESSEE TO THE MANAGED COMPANIES OF A PORTION OF I NCOME WHICH HAD ALREADY ACCRUED, BUT AN AGREEMENT TO RECE IVE A LESSER REMUNERATION THAT WHAT HAD BEEN AGREED UPON. THE A SSESSEE HAD IN FACT RECEIVED ONLY THE LESSER AMOUNT IN SPIT E OF THE ENTRIES IN THE ACCOUNT BOOKS AND THIS LESSER AMOUNT ALONE W AS TAXABLE. THE COURT OBSERVED THAT INCOME-TAX IS A LEVY ON INC OME. THOUGH THE INCOME-TAX ACT TAKES INTO ACCOUNT TWO PO INTS OF TIME AT WHICH LIABILITY TO TAX IS ATTRACTED, NAMELY, THE ACCRUAL OF INCOME - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 16 OR ITS RECEIPT, YET THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TA X, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHET ICAL INCOME, WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN F ACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCU MSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN T HOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSL Y NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT IN CERTAIN CIRCUMSTANCES HAVE BEEN MADE IN THE BOOK S OF ACCOUNTS. 14. THE LEARNED CHARTERED ACCOUNTANT ALSO REFERRED TO A JUDGMENT OF HONBLE SUPREME COURT RENDERED IN THE C ASE OF COMMISSIONER OF INCOME TAX V. KALOORAM GOVINDRAM (5 7 ITR 630) IN SUPPORT OF REAL INCOME WHICH IS TO BE TAXED . HE ALSO RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V. SHIVSAGAR ESTATE (257 ITR 59) AND THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN TH E CASE OF - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 17 RAMASWAMI NAIDU (V.) V. COMMISSIONER OF INCOME TAX (35 ITR 33). 15. IN THE PRESENT CASE, WE FIND THAT THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER O F INCOME TAX V. SHOORJI VALLABHDAS AND CO. (46 ITR 144) IS S TRAIGHTAWAY APPLICABLE. THE SUPREME COURT HAS OBSERVED THAT TH E INCOME- TAX IS A LEVY ON INCOME AND THOUGH THE INCOME-TAX A CT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH LIABILITY TO TA X IS ATTRACTED, NAMELY, ACCRUAL OF INCOME OR ITS RECEIPT, YET THE S UBSTANCE OF THE MATTER IS THE INCOME. THE COURT HAS EMPHATICALLY O BSERVED THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A H YPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE REC IPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. BUT, THE COURT REITERATED THE PRINCIPLE THAT WHERE INCOME CAN BE S AID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER AC CRUAL NOR RECEIPT OF INCOME, WHICH IS EXACTLY HAS HAPPENED IN THE PRE SENT CASE. - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 18 THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED FOR THE PURP OSE OF PROCURING AND AGGREGATING LAND TO THE EXTENT OF 52 ACRES. BUT, LATER ON, THE PARTIES DEFERRED ON IMPLEMENTATION OF AGREEMENT AND FINALLY THE AGREEMENT WAS TERMINATED ON 24.11.2 010, AFTER THE CLOSURE OF THE RELEVANT PREVIOUS YEAR ENDED ON 31 ST MARCH, 2009. BUT, TERMINATION OF AGREEMENT IS NOT HAPPEN ING ON A FINE MORNING. DIFFERENCE ARISES BETWEEN THE PARTIES AND THEY NEGOTIATE FOR SOME TIME AND IT IS ONLY AFTER A REAS ONABLE PERIOD THAT THE FORMAL TERMINATION AGREEMENT WOULD BE EXEC UTED. BY THE TIME THE TERMINATION AGREEMENT IS EXECUTED, THE ASSESSEE IS WELL AWARE OF THE FACT THAT THE AGREEMENT IS NOT GO ING TO BE EXECUTED OR IF IT IS GOING TO BE TERMINATED ON THE OTHER HAND AND AS SUCH, THE ASSESSEE IS NOT GOING TO EARN ANY INCO ME FROM THE AGREEMENT. IN THE PRESENT CASE, THE ASSESSEE ALREA DY HAD THIS KNOWLEDGE BEFORE COMPLETING THE ASSESSMENT AND AT T HE TIME OF FILING THE REVISED RETURN, THEREFORE, AT THE FIRST INSTANCE IN THE ORIGINAL RETURN, EVEN IF THE ASSESSEE HAD ESTIMATED PROFIT OUT OF THE AGREEMENT ENTERED INTO WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED, IMMEDIATELY AFTER UNDERSTANDING TH AT THE - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 19 AGREEMENT WOULD NOT BE EXECUTED, HE FILED THE REVIS ED RETURN RESTATING THE CORRECT INCOME. EVEN THOUGH THE FORM AL TERMINATION AGREEMENT WAS EXECUTED LATER ON, THE ASSESSEE WAS V ERY WELL AWARE BEFORE THE COMPLETION OF ASSESSMENT THAT THE INCOME STATED IN THE ORIGINAL RETURN WAS WRONG. IN THAT W AY, THE ORIGINAL COMPUTATION OF INCOME FILED BY THE ASSESSEE WAS WR ONG STATEMENT. WHEN THAT IS SO, THE CASE OF THE ASSES SEE IS COVERED BY SECTION 139(5) WHICH ENABLES HIM TO FILE A REVISED RETURN TO STATE THE REAL INCOME AVAILABLE IN HANDS, FOR THE PURPOSE OF ASSESSMENT FOR THE IMPUGNED ASSESSMENT Y EAR. AS HONBLE SUPREME COURT HAS POINTED OUT, THE REAL QUE STION IS NOT WHETHER INCOME IS RECEIVED ON ACCRUAL BASIS OR ON R ECEIPT BASIS, BUT, IT IS WHETHER ACTUALLY THERE WAS AN INCOME AT ALL. IF NO INCOME IS LIKELY TO ARISE IN THE HANDS OF THE ASSES SEE, THERE IS NO FUN IN ESTIMATING INCOME HYPOTHETICALLY ON THE BASI S OF ACCRUAL CONCEPT. IN THE PRESENT CASE, BEFORE THE COMPLETIO N OF ASSESSMENT AND BEFORE THE EXPIRY OF TIME AVAILABLE FOR FILING OF REVISED RETURN, THE ASSESSEE OBSERVED THE WRONG STA TEMENT MADE IN THE ORIGINAL RETURN REGARDING THE QUANTUM O F INCOME AND REVISED THE RETURN BY STATING THE CORRECT INCOME LI ABLE FOR - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 20 TAXATION. IT HAD COME TO THE KNOWLEDGE OF THE ASSE SSEE THAT HE WAS NOT GOING TO EARN THAT MUCH OF INCOME STATED IN THE ORIGINAL RETURN FILED BY HIM. THEREFORE, THE REVISION MADE BY THE ASSESSEE IS JUSTIFIED. 16. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE FIND THAT COMMISSIONER OF INCOME TAX (APPEALS) IS J USTIFIED IN DELETING THE INCOME OF ` 3,11,67,002/- FROM THE INCOME ASSESSED BY THE ASSESSING OFFICER. 17. THE APPEAL FILED BY THE REVENUE IS, THEREFORE, LIABLE TO BE DISMISSED. 18. IN THE CROSS-OBJECTION FILED BY THE ASSESSEE, T HE GROUND RAISED IS THAT THE COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN DISALLOWING EXPENDITURE INCURRED BY THE AS SESSEE TO THE EXTENT OF ` 68,40,000/-. THIS EXPENDITURE WAS BOOKED BY THE ASSESSEE IN THE LIGHT OF THE AGREEMENT ENTERED INTO WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED. WHEN THE C OMMISSIONER OF INCOME TAX (APPEALS) EXCLUDED THE INCOME OF ` 3,11,67,002/- AS PRAYED FOR BY THE ASSESSEE, HE ALSO DISALLOWED T HE - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 21 CORRESPONDING AMOUNT OF EXPENDITURE PERTAINING TO T HE AGREEMENT WITH M/S MAYFLOWER INNO REALITY PRIVATE L IMITED. 19. WE ARE NOT IN A POSITION TO AGREE WITH THE REAS ONING OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE BUSINESS CARRIED ON BY THE ASSESSEE IS AS A FACILITATOR FOR LOCATING AND AGGREGATING LAND FOR BUILDERS AND DEVELOPERS. EVEN THOUGH THE AGREEMENT WITH M/S MAYFLOWER INNO REALITY PRIVATE LIMITED WAS VITIATED LATER ON, THE EXPENSES OF ` 68,40,000/- HAVE BEEN INCURRED BY THE ASSESSEE IN THE COURSE OF CARRYING ON OF HIS BUSINE SS. IT IS THE BUSINESS OF THE ASSESSEE TO ENTER INTO AGREEMENTS W ITH BIG PARTIES FOR PROCUREMENT OF LARGE PARCELS OF LAND. SOMETIMES, CERTAIN AGREEMENTS MAY FAIL AND ASSESSEE WOULD NOT GET ANY INCOME AT ALL FROM THE PARTICULAR AGREEMENT. THAT DOES NOT MEAN THAT THE CORRESPONDING EXPENDITURE INCURRED BY THE ASSESSEE ON SUCH CANCELLED AGREEMENTS WERE NOT EXPENSES INCURRE D FOR THE PURPOSE OF BUSINESS. THEREFORE, EVEN IF AN AGREEME NT IS CANCELLED LATER ON, THE NATURE OF EXPENDITURE INCUR RED REMAINED THE SAME. WHAT IS SPENT IS SPENT. WHEN THE EXPENS ES ARE INCURRED FOR THE PURPOSE OF BUSINESS, IT HAS TO BE ALLOWED AS AN - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 22 EXPENDITURE IRRESPECTIVE OF THE INCOME OR LOSS FROM THE PARTICULAR AGREEMENT. 20. THEREFORE, WE SET ASIDE THE ORDER OF COMMISSION ER OF INCOME TAX (APPEALS) DISALLOWING THE EXPENDITURE TO THE EXTENT OF ` 68,40,000/-. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAID AMOUNT AS DEDUCTIBLE EXPENDITURE WHILE COMPUTI NG THE INCOME OF THE ASSESSEE. 21. THE NEXT GROUND RAISED BY THE ASSESSEE IN THE C ROSS- OBJECTION IS THAT THE ASSESSEE BEING ASSESSED WITH SHARE FROM HIS AOP, HE SHOULD BE GIVEN THE BENEFIT OF REBATE I N TAX. THIS ARGUMENT OF THE ASSESSEE IS JUST AND PROPER IN LAW. AN ASSESSEE HAVING BEEN ASSESSED FOR HIS SHARE FROM HU F AS WELL, IS ENTITLED FOR THE REBATE IN TAX. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO GIVE THE ASSESSEE THE BENEFIT OF REBATE IN TAX WHILE CONCLUDING HIS ASSESSMENT. 22. THE ASSESSEE IS SUCCESSFUL IN THE CROSS-OBJECTI ON FILED BY HIM. - - I.T.A. NO. 1054/MDS/13 C.O. NO. 104/MDS/13 23 23. IN RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED AND THE CROSS-OBJECTION FILED BY THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THURSDAY, THE 5 TH OF DECEMBER, 2013 AT CHENNAI. SD/- SD/- (S.S. GODARA) (DR. O.K. NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 5 TH DECEMBER, 2013. KRI. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT-I, COI MBATORE 4. CIT(A)-I, COIMBATORE 5. DR 6. GF.