ITO, New Delhi V. M/s Ritesh Properties & industries Ltd., New Delhi

ITA 3336/DEL/2011

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8077 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Business income; Competent authority; Revised return
• Section: 115JB; 139(5)

Judgement Text

1 ITA NO. 3336/DEL/2011 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 3336/DEL /2011 (A.Y 2007-08) (THROUGH VIDEO CO NFERENCING) ITO WARD-15(4), ROOM NO. 223, C. R. BUILDING NEW DELHI (APPELLANT) VS RITESH PROPERTIES & INDUSTRIES LTD. 11/5B, FIRST FLOOR, PUSA ROAD NEW DELHI AAACR1437M (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST ORDER DATED 21/04/2011 PASSED BY CIT(A)-XVIII, NEW DELHI FOR ASSESSMENT Y EAR 2007-08. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO CONSIDER THE REVISED C OMPUTATION FILED BY THE ASSESSEE COMPANY CLAIMING A DEDUCTION OF RS.9,00,00 ,000/- ON ACCOUNT OF REVISION OF FINANCIAL ACCOUNTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN NOT APPRECIATING CONTENTS OF THE GENERAL C IRCULAR NO. 1/2003 DATED APPELLANT BY SH. JAGDISH SINGH, SR. DR RESPONDENT BY SH. AJAY VOHRA, SR. ADV & SH. ROHIT JAIN, ADV DATE OF HEARING 17.08.2020 DATE OF PRONOUNCEMENT 24.08.2020 2 ITA NO. 3336/DEL/2011 13.01.2003 ISSUED BY THE MINISTRY OF FINANCE AND CO MPANY AFFAIRS, WHICH ALLOWS THE COMPANY TO REOPEN AND REVISIT ITS ACCOUN T AFTER THEIR ADOPTION IN ANNUAL GENERAL MEETING AND FILING WITH THE ROC ONLY IN CASE OF ANY TECHNICAL REQUIREMENT OF ANY LAW. THE ASSESSEE COMPANY DID NO T PUT FORWARD ANY SUCH REQUIREMENT OF ANY LAW. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN IGNORING THE COMMENTS OF THE AUDITOR, SH. S.B. AGGARWAL, CA WHO HAS AUDITED ASSESSEES REVISED ACCOUNTS, AND HAS OPINED IN THE AUDITORS REPORT THAT THE ASSESSEE CANNOT REOPEN AND REVISIT ITS ACC OUNTS ONCE ADOPTED BY THE SHAREHOLDERS AT AN AGM. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT AS PER THE SECTION 139(5) OF IT ACT, THE RETURN OF INCOME CAN ONLY BE REVISED WITHIN ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASS ESSMENT, WHICHEVER IS EARLIER. IN THE PRESENT CASE, THEREFORE GIVING EFFE CT TO LD. CIT(A)S DIRECTIONS WOULD AMOUNT TO VIOLATING THE PROVISIONS OF SECTION 139(5) OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT W ITH M/S ANSAL PROPERTIES AND INFRASTRUCTURES LTD. FOR DEVELOPMENT AND INDUSTRIAL AND RESIDENTIAL TOWNSHIP ON COMPANIES LAND AT LUDHIANA. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/10/2007 DECLARING TOTAL INCO ME OF RS. 1,00,800/-. DURING THE YEAR UNDER SCRUTINY THE BUSINESS INCOME OF RS. 8,56,39,658/- WAS SET OFF AGAINST BUSINESS LOSSES. THE ASSESSEE PAID TAX OF RS. 46,87,534/- U/S 115JB ON BOOKS PROFIT OF RS. 78,89,62,653/- AFTER SETTING OF BROUGHT FORWARD BUSINESS LOSSES FROM IT. THE AGREEMENT ENTERED WIT H M/S ANSAL PROPERTIES AND INFRASTRUCTURE LTD. COULD NOT BE IMPLEMENTED RESULT ING THEREBY THE PROPOSED PROJECT OF INDUSTRIAL AND RESIDENTIAL TOWNSHIP REDU NDANT IN JULY, 2009. IN THE MEANWHILE, THE ASSESSEE COMPANY HAD ENTERED INTO AN AGREEMENT TO SELL ON PRE-LAUNCH BASIS WITH M/S ESTATE INVESTMENT SOLUTIO N AND RS. 9,00,00,000/-. ON THIS ACCOUNT HAD BEEN INCORPORATED AS SALE IN AS SESSEES BOOKS OF ACCOUNTS. BUT AS PER THE GUIDELINES ISSUED BY THE STATE GOVER NMENT OF PUNJAB FOR MEGA 3 ITA NO. 3336/DEL/2011 PROJECT, NO MONEY COULD BE COLLECTED FROM THE PROPO SED BUYERS TILL SUCH TIME LAYOUT/ZONING PLANS ARE CLEARED FROM THE COMPETENT AUTHORITY. THEREFORE, THE ASSESSEE COMPANY CREATED THE SALE ACCOUNT AND DEBIT ED THE ACCOUNT OF M/S ESTATE INVESTMENT SOLUTION AND GROUPED UNDER SUNDRY DEBTORS. AS THE PROJECT BECOME REDUNDANT, THE MANAGEMENT DURING THE FINANCI AL YEAR 2008-09, DECIDED TO REQUIRE ITS RIGHTS OF THE AREAS SOLD TO M/S ESTATE INVESTMENT SOLUTIONS BY MUTUALLY TERMINATING THE AGREEMENT TO SALE. THE CANCELLATION OF THE AGREEMENT TO SALE HAS RESULTED INTO REDUCTION I N GROSS SALE OF RS. 9,00,00,000/-. THOUGH THE CANCELLATION OF SALES IN RESPECT OF SALES EFFECTED DURING THE YEAR UNDER REVIEW HAS HAPPENED DURING TH E FINANCIAL YEAR 2008-09, THE COMPANY WAS ADVISED THAT THE CANCELLATION EFFEC T IN RESPECT OF THE ABOVE TRANSACTIONS SHOULD BE EFFECTED IN THE YEAR OF ASSE SSMENT ONLY AND NOT AT THE TIME WHEN ACTUAL CANCELLATION TOOK PLACE. ACCORDIN GLY, THE COMPANY REDRAFTED ITS FINANCIAL STATEMENTS AS IF THE TRANSACTION FOR SALE HAS NOT OCCURRED AT ALL. CONSEQUENTLY, DURING THE YEAR UNDER CONSIDERATION, SALES HAD BEEN REDUCED BY RS. 9,00,00,000/- AND REVISED FINANCIAL STATEMENTS WERE PREPARED AND GOT IN AUDITED AND WERE DULY APPROVED BY THE BOARD OF DIRE CTORS OF THE COMPANY. IN VIEW OF THE AMENDMENT TO THE FINANCIAL STATEMENTS O F THE COMPANY FOR THE FINANCIAL YEAR ENDED ON 31 ST MARCH, 2007, GIVING EFFECT TO THE ABOVE-MENTIONED CANCELLATION OF TRANSACTION, COMPANY. THE COMPANY HAS ONCE AGAIN SEND THE REVISED AMENDED FINANCIAL STATEMENTS TO THE MEMBERS OF THE COMPANY FOR THEIR APPROVAL AND IN THE FORTH COMING ANNUAL GENERAL MEE TING WHICH IS SCHEDULED TO BE HELD ON 24 TH DECEMBER, 2009. THE MANAGEMENT HAS REVISED THE FI NANCIAL STATEMENTS IN ACCORDANCE WITH THE GENERAL CIRCULAR NO. 1/2003 DATED 13/1/2003 ISSUED BY THE MINISTRY OF FINANCE AND COM PANY AFFAIRS PERMITTING REVISION OF FINANCIAL STATEMENT IN ORDER TO ACHIEVE THE TRUE AND FAIR VIEW UNDER THE CHANGED CIRCUMSTANCES AS ABOVE. THE MANAGEMENT HAS RELIED ON THE INTERPRETATION OF THE SAID CIRCULAR THAT THE PROPOS ED REVISION OF THE FINANCIAL STATEMENTS MADE IN ACCORDANCE WITH LETTER AND SPIRI T OF THE SAID CIRCULAR THEREBY THE REVISION OF FINANCIAL STATEMENT IS IN A CCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956. THE ASSESSING OFFICER O BSERVED THAT THE AUDITED 4 ITA NO. 3336/DEL/2011 REVISED ACCOUNTS INCLUDING BALANCE-SHEET PROFIT AND LOSS ACCOUNT THEIR SCHEDULES ETC ARE NOT ACCEPTED. THUS, THE ASSESSIN G OFFICER ASSESSED THE INCOME OF THE ASSESSEE ON THE BASIS OF ITS ORIGINAL ACCOUNTS. THE DECLARED INCOME FROM HOUSE PROPERTY OF RS. 1,00,800/- AND NI L BUSINESS INCOME AFTER SETTING OF OFF BROUGHT FORWARD BUSINESS LOSSES OF R S.8,57,40,458/- WAS ACCEPTED. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE A SSESSEE. 5. THE LD. DR SUBMITTED THAT THE ASSESSEE SHOULD H AVE NOT REVISED THE AUDITED ACCOUNTS AS THEIR TRANSACTION HAS ACTUALLY CORRECTLY NOTIFIED IN THE ORIGINAL ACCOUNTS. IN-FACT, EVEN THE AUDITOR HIMSE LF WAS NOT AGREEING WITH THE DECISION OF THE MANAGEMENT TO REVISE THEIR ACCOUNTS ONCE ADOPTED IN AGM. THUS, THE TREATMENT GIVEN BY THE ASSESSING OFFICER WERE JUST AND PROPER AND THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER THE REVISED COMPUTATION FILED BY THE ASSESSEE COMPANY CLAIM A D EDUCTION OF RS. 9,00,00,000/- ON ACCOUNT OF REVISION OF FINANCIAL A CCOUNTS BY TAKING WRONG INTERPRETATION OF CIRCULAR NO. 1/2003 DATED 13/1/20 03 ISSUED BY THE MINISTRY OF FINANCE AND COMPANY AFFAIRS. THE LD. DR FURTHER SUBMITTED THAT AS PER SECTION 139(5) OF THE INCOME TAX ACT, 1961, THE RET URN OF INCOME CAN ONLY BE REVISED WITHIN ONE YEAR FROM THE END OF THE RELEVAN T ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT WHICHEVER IS EARLI ER. 6. THE LD. AR SUBMITTED THAT ITS AUDIT ACCOUNT WAS REVISED AND NOT THE RETURN OF INCOME AS PER SECTION 139(5) OF THE INCOM E TAX ACT. THE REVENUE IS NOT TAKING INTO CONSIDERATION. THE ACTUAL CONTEXT OF CIRCULAR NO. 1 OF 2003 AS THE SAID CIRCULAR IS RELATED TO REVISED AUDIT ACCOU NTS AND NOT REVISED RETURN OF INCOME. THE LD. AR FURTHER SUBMITTED THAT THE TRAN SACTION WITH THE ANSAL PROPERTIES RELATING TO PROPOSED PROJECT OF INDUSTR IAL AND RESIDENTIAL TOWNSHIP WAS IN THAT PARTICULAR ASSESSMENT YEAR COULD NOT BE IMPLEMENTED AND THUS PRE-LAUNCH AGREEMENT WHICH IS BANNED BY THE GUIDELI NES OF THE STATE 5 ITA NO. 3336/DEL/2011 GOVERNMENT OF PUNJAB WAS NOT TENABLE DURING THAT PA RTICULAR ASSESSMENT YEAR/PRESENT ASSESSMENT YEAR 2007-08. THE ASSESSEE WITH THE FULL AWARENESS OF THE COMPANY PROCEDURE HAS REVISED AUDIT ACCOUNT THROUGH AGM AS PER THE GUIDELINES ISSUED BY CIRCULAR NO. 1 OF 2003 ISSUED BY MINISTRY OF FINANCE AND COMPANY AFFAIRS. THUS, THE CIT(A) HAS RIGHTLY ALLO WED THE APPEAL OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS REVISED THE AUDITED ACCOUNT AND HAS GIVEN THE RELEVANT DOCUMENTARY EVID ENCE BEFORE THE CIT (A) UPON WHICH THE ASSESSING OFFICER HAS ALSO COMMENT ED THROUGH THE REMAND REPORT. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECTS IN THE AUDITED ACCOUNTS WHICH ARE ALLOWED TO BE REVISED AS PER THE GUIDELINES ISSUED BY THE MINISTRY OF FINANCE AND COMPANY AFFAIRS. THUS, TH E CIT(A) RIGHTLY HELD THAT THE ARTIFICIAL AND HYPOTHETICAL INCOME CREATED BY M ERE GENERAL ENTRIES WHICH WERE SUBSEQUENTLY REVERSE CANNOT BE BROUGHT TO TAX. BESIDES THAT THE ASSESSEE MADE THE STATEMENT BEFORE US THAT THE INCOME DERIVE D FROM THE SAID PROJECT IN SUBSEQUENT ASSESSMENT YEARS HAS BEEN OFFERED TO TAX BY THE ASSESSEE. THUS, THE REVENUE IS NOT AT LOSS AT ANY POINT OF TIME AND HENCE THE TREATMENT GIVEN BY THE CIT(A) BY DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF RS. 9,00,00,000/- ON ACCOUNT OF REVISION OF FINANCIAL A CCOUNTS IS JUST AND CORRECT. THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF AUGUST, 2020 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24/08/2020 R. NAHEED * 6 ITA NO. 3336/DEL/2011 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI