LOK HOUSING AND CONSTRUCTIONS LTD, MUMBAI V. ACIT 8(3)(OSD), MUMBAI

ITA 8485/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8462 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: USHA NAIR
• Assessee Lawyers: S C TIWARI MS NATASHA MANGAT
• Keywords: Capital asset; Business income; Competent authority; Capital receipt; Revised return
• Section: 143(3); 142(1); 133A; 234B; 139(5); 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER.. I.T.A. NO.8485/MUM/2011. ASSESSMENT YEAR : 2007-08. M/S LOKHOUSING AND ASSTT. COMMISSIONER OF CONSTRUCTIONS LIMITED, VS. INCOME-TAX-8(3) )OSD), LOK BHAVAN, LOK BHARTI COMPLEX, MUMBAI. MAROL MAROSHI ROAD, ANDHERI (E), MUMBAI 400 059. PAN AAACL 1881B APPELLANT. RESPONDENT . APPELLANT BY : SHRI S.C . TIWARI MS. NATASHA MANGAT. RESPON DENT BY : SMT. USHA NAIR. DATE OF HEARING : 14-09-2012 DATE OF PRONOUNCEMENT : 23-10-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-17, MUMBAI DATED 31-10-2011 WHEREBY HE UPHELD THE ORDER OF THE AO TREATING THE REVISED RETURN FILED BY THE ASSESSE E AS INVALID AND ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS.135.56 CRORES ON THE BASIS OF ORIGINAL RETURN FILED BY THE ASSESSEE. 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE THAT THE ASSESSEE IS A LISTED COMPANY ENGAGED IN THE BUSINESS OF DEVE LOPMENT OF REAL ESTATE AND CONSTRUCTION. THE RETURN OF INCOME FOR THE YEAR UND ER CONSIDERATION I.E. ASSESSMENT 2 ITA NO.8485/MUM/2011 YEAR 2007-08 WHICH WAS DUE TO BE FILED BY 30 TH NOV., 2007 HAD NOT BEEN FILED BY THE ASSESSEE TILL 11-09-2008 WHEN A SURVEY U/S 133A OF THE ACT WAS CARRIED OUT AT ITS PREMISES. DURING THE COURSE OF SURVEY, AUDITED FINANCIAL STATEMENTS FOR THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007-08 W ERE FOUND SHOWING PROFIT BEFORE TAXATION AT RS.142.45 CRORES. IN THE COMPUT ATION OF TOTAL INCOME OF THE ASSESSEE COMPANY AS MADE BY ITS ACCOUNTS STAFF ON T HE BASIS OF THE SAID FINANCIAL STATEMENTS, A SUM OF RS.52.55 CRORES WAS SHOWN TO B E PAYABLE BY THE ASSESSEE COMPANY FOR ASSESSMENT YEAR 2007-08 ON ACCOUNT OF T AX AS WELL AS INTEREST U/S 234A, 234B AND 234C. DURING THE COURSE OF SURVEY, S TATEMENT OF SHRI LALIT C. GANDHI, CHAIRMAN AND MANAGING DIRECTOR OF THE ASSES SEE COMPANY WAS RECORDED WHEREIN HE ACCEPTED THAT THE TAX SO PAYABLE WAS NOT PAID BY THE ASSESSEE COMPANY DUE TO SEVERE FINANCIAL CRUNCH AND THE RETURN OF IN COME FOR THE YEAR UNDER CONSIDERATION WAS ALSO NOT FILED DUE TO NON-PAYMENT OF THE SAID TAX. SUBSEQUENT TO THE SURVEY, LETTERS WERE ALSO FILED BY THE ASSESSEE COMPANY REITERATING ITS ASSURANCE TO MAKE THE PAYMENT OF OUTSTANDING TAX FOR THE YEAR UNDER CONSIDERATION. FINALLY, THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY THE ASSESSEE ON 23-09-2008 IN RESPONSE TO NOTICE ISSUED BY THE AO U /S 142(1) ON 18-09-2008 DECLARING TOTAL INCOME OF RS.135.47 CRORES BUT NO P AYMENT OF TAX DUE THEREON WAS MADE. THE SAID RETURN FILED BY THE ASSESSEE WAS PRO CESSED BY THE AO U/S 143(1) ON 22-10-2008. THEREAFTER A REVISED RETURN WAS FILED B Y THE ASSESSEE COMPANY ON 01- 01-2009 DECLARING THEREIN ITS TOTAL INCOME AT NIL. ALONG WITH THE SAID RETURN, REVISED ANNUAL ACCOUNTS WERE ALSO FILED BY THE ASSE SSEE WHICH REVEALED THAT THE MAJOR DIFFERENCE BETWEEN THE ORIGINAL AND REVISED R ETURN WAS ON ACCOUNT OF CANCELLATION OF THE FOLLOWING FIVE TRANSACTIONS IN IMMOVABLE PROPERTY AND REVERSAL OF INCOME RECOGNITION FROM THE SAID TRANSACTIONS BY THE ASSESSEE : 3 ITA NO.8485/MUM/2011 DATE OF SALE AMT. BUYER REFUNDED TILL DATE SALE CONSIDE- RATION PARTICULARS OF PROPERTY SOLD ADVAN CE RECEI VED. DATE OF CANCELL- ATION 29.06.06 ADJUSTED DEEBRO SILK AGAINST LOAN INDUSTRIES GIVEN BY PVT. LTD., ASSESSEE TO GALA NO. CHIRAG 20/B, BLDG HOLDINGS (A NO. 1, SISTER CONCERN INDUSTRIAL OF DEEBRO ESTATE, M.V SILK ROAD, INDUSTRIES) ANDHERI (EAST), MUMBAI59 RS.17.81 CRORES DEVELOPMENT RIGHTS FOR PART OF LAND SITUATED AT AMBERNATH RS. 3 CRORES 03.12.200 8 25.9.06 RS.5 LAKHS LOK HOLDINGS AND CONSTRU- CTIONS LTD., LOK BHAVAN, LOK BHARTI COMPLEX, MAROL MARO- SHI ROAD, ANDHERI (E), MUMBAI-59. RS. 18 CRORES. 75% RIGHTS IN LAND AT VEERA DESAI PROPERTY ANDHERI 13,271.10 SQ. MTRS. RS. 3 CRORES. 4.12.2008 27.09.06 RS.5 LAKHS AZOFEN PVT LTD., LOK BHAVAN, LOK BHARTI COMPLEX, MAROL MAROSHI ROAD ANDHERI (E), MUMBAI 59. RS. 51 CRORES LAND OF 1,24,143 SQ. MTRS AT KALYAN. RS. 3 CRORES. 28.11.200 8 30.12.20 06 RS. 5 AZOFEN PVT. LAKHS LTD., LOK BHAVAN, LOK BHARTI RS.56.26 CRORES. DEVELOPMENT RIGHTS FOR PART OF LAND SITUATED AT RS. 3 CRORES. 28.11.200 8 4 ITA NO.8485/MUM/2011 COMPLEX, MAROL MAROSHI ROAD ANDHERI (EAST) MUMBAI 59. AMBERNATH. 30.03.20 07 NA C&B FUTURISTIC BUILDERS PVT. LTD. OFFICE NO. 203, AHUJA CHAMBER NO.1, KUMARA KRUPA ROAD, BANGALORE560001 RS.51CRORES AS CAPITAL INTRODUCED IN JOINT VENTURE WITH THE BUYER AND 25% PROFITS IN THE SAID JOINT VENTURE. LAND AT KADUGODI VILLAGE, PLANTATION AREA, WHITE FIELD, BIDARAHALLI HOBLI, HOSKOTE TALUK, BANGALAORE. NIL 08.12.200 8 3. THE REVISED RETURN FILED BY THE ASSESSEE COMPANY WAS REJECTED BY THE AO HOLDING THE SAME TO BE INVALID ON THE FOLLOWING GRO UNDS : (A) DURING THE COURSE OF SURVEY THE CHAIRMAN CUM MD OF THE COMPANY, SHRI LALIT C. GANDHI, HAD ADMITTED IN HIS STATEMENT UNDE R OATH, THAT THE ASSESSEE'S INCOME FOR A.Y, 2007-08, AS PER AUDITED ACCOUNTS, WAS RS. 142.45 CRORES, ON WHICH TAX OF RS. 52.55 CRORES WAS DUE. HOWEVER, HE ADMITTED, THAT THE SAME COULD NOT BE PAID DUE TO A FINANCIAL CRUNCH. FURTHER, MR. GANDHI ALSO ADMITTED THAT : DURING THE F. Y. 2006-07 AND 2007-08 LOK GROUP HAD ENTERED INTO CERTAIN TRANSACTIONS FOR SALE OF PROPERTIES HE LD AS STOCK IN TRADE, PURSUANT TO WHICH PROFITS OF APPROXIMATELY R S. 300 CRORES WERE RECOGNIZED. THE REVENUES WERE RECOGNIZED IN AC CORDANCE WITH THE COMPANY'S CONSISTENTLY FOLLOWED ACCOUNTING POLICIES TO RECOGNIZE SALES ON EXECUTION OF AGREEMENTS. THE REV ENUE RECOGNITION RESULTED INTO TAX OBLIGATIONS TO THE EX TENT OF RS. 85 CRORES ..... 5 ITA NO.8485/MUM/2011 (B) SECTION 139(5) PERMITTED AN ASSESSEE TO REVISE ITS RETURN IF THERE WAS ANY OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN. THE AO DID NOT AGREE WITH THE ASSESSEE'S EXPLANATION THAT THE REVISED RE TURN HAD BEEN ACCEPTED BY THE BOMBAY HIGH COURT PURSUANT TO ITS W RIT PETITION. THE AO ALSO DID NOT AGREE WITH THE APPELLANT THAT CANCELLA TION OF THE SALE AGREEMENTS IN THE SUBSEQUENT FINANCIAL YEAR AMOUNTE D TO AN OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN. IN THIS REG ARD, AO RELIED UPON THE FOLLOWING DECISIONS: (I) DEEPANARAYAN NAGU & CO V. CIT (1986) 157 ITR 37 (MP ) (II) CIT V. GIRISHCHANDRA HARIDAS (1922) 196 ITR 833,836 (KER) (III) SUNANDDA RAM OEKA V CIT ( 1994) 210 ITR 998, 990(GA UH) (C) THE AO HELD THAT ALL THE SALE AGREEMENTS, WHICH WER E SUBSEQUENTLY CANCELLED, WERE COLLUSIVE TRANSACTIONS, AS THE AGRE EMENTS WERE MADE WITH EITHER SISTER CONCERNS OR WITH CONCERNS ON WHICH TH E ASSESSEE COMPANY WAS HAVING A DIRECT OR INDIRECT CONTROL (D) THE AO ALSO NOTED THAT IN THE ORIGINAL RETURN THE A SSESSEE HAD DECLARED ITS INCOME ON THE BASIS OF ITS CONSISTENTLY FOLLOWE D ACCOUNTING POLICY, AS NOTED IN SCHEDULE Q OF THE NOTES TO ACCOUNTS, AS FOLLOWS: III) REVENUE RECOGNITION IN RESPECT OF PROPERTY SA LE TRANSACTIONS IS ON THE BASIS OF AGREEMENT OF SALE AND ARE SUBJECT TO EXECU TION OF CONVEYANCE AND COMPLIANCE OF APPLICABLE LEGAL FORMALITIES. ' THE AO ALSO NOTED THAT SALE WAS CORRECTLY RECOGNIZE D IN 2006-07 KEEPING IN VIEW THE TRANSFER OF PROPERTY ACT, 1882 AND SALE OF GOODS ACT, 1930. AS THE SALE HAD BEEN RECOGNIZED ON' THE BASIS OF ITS OWA A CCOUNTING POLICY, THE ASSESSEE COULD NOT NOW SAY THAT THERE WAS ANY OMISS ION OR WRONG STATEMENT IN THE ORIGINAL RETURN OF INCOME. (E) THE AO NOTED THAT THE AUDITORS OF THE ASSESSEE HAD THEMSELVES EXPRESSED RESERVATIONS ON THE REVISION OF ACCOUNTS, AS FOLLOW S 'AS PER OUR OPINION, WHICH OPINION IS ALSO SUPPORTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, A COMPANY CANNOT REOPEN AND REVISE THE ACCOUNTS ONCE ADOPTED BY THE SHAREHOLDER S AT AN ANNUAL 6 ITA NO.8485/MUM/2011 GENERAL MEETING. CONTRARY TO THIS OPINION, THE BOAR D OF DIRECTORS OF THE COMPANY HAS REOPENED AND REVISED THE AFORESAID ACCOUNTS IN TERMS OF THE CIRCULAR OF THE MINISTRY, OF FINANCE A ND COMPANY AFFAIRS DTD 13.1.2003 IN COMPLIANCE WITH THE ACCOUNTING STA NDARDS. WE HAVE CONSIDERED THE EARLIER AUDITOR'S REPORT DAT ED 28TH JUNE, 2007 ON THE ORIGINAL ACCOUNTS AND HAVE EXAMINED THE CHANGES MADE THEREIN WHICH ARE AS UNDER : 'CANCELLATION OF SALE AMOUNTING TO RS. 1,81,56.33 LACS REVERSAL OF COST OF SALES THERE TO AMOUNTING TO RS. 90,32.86 LACS AN D RESULTING REDUCTION IN PROFIT AFTER TAX BY RS.91,23.47 LACS' THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY O F THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPI NION ON THESE FINANCIAL STATEMENTS BASED ON OUR AUDIT. (F) LASTLY, THE AO HELD THAT OWING TO THE RECOGNITION O F REVENUE FROM THE ABOVE CITED FIVE SALE AGREEMENTS, FOR A PERIOD OF A PPROXIMATELY 2 YEARS FROM THE DATE OF SALE AGREEMENT TO THE DATE OF TERM INATION OF THE AGREEMENT, THE COMPANY'S / CONCERNS CONNECTED WITH THE ASSESSEE HAD MADE SUBSTANTIAL PROFITS BY TRADIN G IN THE ASSESSEE'S SHARES. BETWEEN JANUARY 2006 TO DECEMBER 2006, THE SHARE PRICE OF THE ASSESSEE COMPANY, QUOTED IN THE BOM BAY STOCK EXCHA NGE, ROSE FROM RS.35 PER SHARE TO RS.351 PER SHARE. THE SHARE PRIC E FELL TO RS.15.75 PER SHARE IN 2008. AS A RESULT OF THE FLUCTUATION IN TH E SHARE PRICE, WHICH WAS DIRECTLY RELATED TO THE AUDITED ACCOUNTS OF THE ASSESSEE AND ITS SUBSEQUENT REVISION, THE' ASSOCIATE COMPANIES OF TH E ASSESSEE MADE HUGE PROFITS. THUS THE ASSESSEE CANNOT NOW SAY THAT THERE WAS A OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN. 4. THE AO ALSO REJECTED THE CLAIM OF THE ASSESSEE O N MERIT RELATING TO REVERSAL OF INCOME RECOGNITION FROM THE FIVE TRANSACTIONS A S SHOWN IN THE ORIGINAL RETURN OF INCOME, FOR THE VARIOUS REASONS GIVEN IN THE ASSESS MENT ORDER WHICH, AS SUMMARIZED BY THE LEARNED CIT(APPEALS) IN HIS IMPUG NED ORDER, ARE AS UNDER : THE SALE AGREEMENTS, ENTERED INTO F.Y. 2006-07, WE RE CANCELLED AFTER A PERIOD OF 2 YEARS. NONE OF THE PARTIES TO THE TRANS ACTIONS, BARRING THE ASSESSEE, HAVE 7 ITA NO.8485/MUM/2011 REVISED THEIR ACCOUNTS FOR F.Y. 2006-07, AS WAS DON E BY THE ASSESSEE. THE ASSESSEE HAS AGREED TO CANCEL THE AGREEMENTS WI THOUT ARBITRATION OR CHARGING OF ANY INTEREST OR PENALTY FROM THE BUYERS . THREE OUT OF THE FIVE AGREEMENTS IN QUESTION, WERE WITH GROUP COMPANIES OF THE ASSESSEE HAVING COMMON SHAREHOLDERS. IN THE CAS E OF THE JOINT VENTURE AGREEMENT, SHRI CHETAN GANDHI IS A DISTANT RELATIVE OF THE MD OF THE ASSESSEE COMPANY, SHRI LALIT GANDHI. THE SALE AGREEMENTS WERE VALID LEGAL DOCUMENTS AND THE ASSESSEE HAS, PRIOR TO CANCELLING THESE AGREEMENTS, TAKEN NO LEGA L MEASURES TO RECOVER ITS DUES OR FORFEIT THE PART CONSIDERATION RECEIVED BY IT. HENCE THE AO HELD : 'THE MANNER AND THE FACTS BY WHICH THE SALE AGREEME NTS HAVE BEEN CANCELLED CLEARLY INDICATES THAT THESE ARE MUTUALLY CONVENIENT DOCUMENTS CREATED THROUGH COLLUSIVE ACTIVITIES FOR THE SOLE PURPOSE OF WRIGGLING OUT FROM THE TAX LIABILITY WHICH WAS OTHERWISE PAYABLE BY TH E ASSESSEE. SINCE ALL THESE PARTIES WERE CLOSELY CONNECTED WITH THE ASSES SEE AND THE ASSESSEE HAS A LOT OF INFLUENCE ON ALL THESE PARTIES, AND IN ONE O F THE TRANSACTIONS ASSESSEE HIMSELF WAS A BUYER THROUGH A JOINT VENTURE PARTNERSHIP R THE CANCELLATION OF THE AGREEMENTS HAS BEEN SOLELY A DEVISE TO REDUCE THE TAX LIABILITY. IN A.Y. 2009-10, THE AUDITORS HAVE QUALIFIED THE AC COUNTS OF THE ASSESSEE COMPANY AS FOLLOWS: . 'IN OUR OPINION AND TO THE BEST OF KNOWLEDGE AND AC CORDING TO THE EXPLANATION GIVEN TO US AND SUBJECT TO THE SPECIFIC REFERENCE BEING DRAWN ON I. NOTE #2 (A) REGARDING NON-ACCOUNTING OF SALES RETURNS OF RS . 2,82,14.46 LACS EFFECTED DURING THE YEAR UNDER REVIEW (INSTEAD SALES RETURNS BEING ACCOUNTED IN EARLIER YEARS). THE RESULTING IMPACT B EING THAT SALES /GROSS REVENUE FOR THE YEAR IS OVER STATED BY RS. 2,82,14.46 LACS AND THE NET LOSS AFTER TAX IS UNDER STATED BY RS. 1,69,01.50 LACS HOWEVER THE RESERVES AND SURPLU S AND INVENTORIES REMAINING THE SAME;.) KEEPING IN VIEW THE ABOVE REASONS AS WELL AS THE DI SCUSSION MADE ON THE VARIOUS CASE LAWS RELEVANT ON THIS POINT, THE AO COMPLETED THE ASSESSMENT U/S 143(3) VIDE AN ORDER DATED 19-12-2009 ON INCOME OF RS.135.56 CR ORES ON THE BASIS OF ORIGINAL RETURN FILED BY THE ASSESSEE IGNORING REVISION THER EOF AS MADE BY THE ASSESSEE. 8 ITA NO.8485/MUM/2011 5. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLE NGING THE ACTION OF THE AO IN IGNORING THE REVISED RETURN FILED BY IT TREATING TH E SAME AS INVALID AND IN HOLDING THAT PROFIT FROM THE FIVE TRANSACTIONS OF IMMOVABLE PROPERTY WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CON SIDERATION ON ACCRUAL BASIS. ON THE FIRST ISSUE RELATING TO VALIDITY OF ITS REVISED RETURN, ELABORATE SUBMISSIONS WERE MADE ON BEHALF OF HE ASSESSEE BEFORE THE LEARNED CI T(APPEALS) WHICH HAVE BEEN SUMMARIZED BY THE LATTER IN HIS IMPUGNED ORDER AS UNDER : THE REVISED RETURN WAS FILED TO CORRECTLY REFLECT THE TRUE INCOME OF THE ASSESSEE COMPANY BY MAKING SUITABLE CORRECTIONS OF WRONG STATEMENTS INADVERTENTLY MADE I N THE EARL I ER R ETURN WITH REGARD TO CERTAIN HYPOTHETICAL INCOME ALLEGEDLY FLOW I NG FROM SOME PREPARATORY AND INCOMPLETE AGREEMENTS OF THE PROPERTY EXECUTED BY THE ASSESSE E WITH SOME PARTIES . THE SALE AGREEMENTS WITH REGARD TO THE FIVE PROPERT IES WERE NEARLY PROVISIONAL AND D I D NOT GIVE RISE TO ANY LEGAL ENFORCEABLE RIGHTS . THESE WERE DEVELOPMENT AGREEM E NTS AND WERE EXECUTED WITH A VIEW TO GIVE EFFECT TO THE FUTUR E INTENTION S. AS THE ASSESSEE HAD BEEN UNABLE TO FULF I LL THE OBLIGAT I ONS EMBO D IED I N TH E AGREEMENTS , THE SAME WERE RENDERED VOID . NO SANCTIONS , APPROVALS , PERMISS I ONS , ETC WERE PROCURED BY THE ASSESSEE T O C OMMENCE DEVELOPMENT WORK . NO FORMAL POSSESSION O F THE PROPERTY WAS G I V E N . NOR WER E THE AGREEMENTS REGISTERED UNDER THE REGIS T RATION ACT . THEREFORE , THE ASSESSEE HAD COMMITTED A LEGAL ERROR I N RECOGNIZING HYPOTHET I C A L I NCOME I N I TS BOOKS . THE ENT I RE CONS I DERATION RECEIVABLE BY THE ASSESSEE UNDER THESE AGR EEMEN T S HAD NEITHER BEING RECEIVED NOR RECRUIT . ONLY A TOKEN MON E Y HAD BEEN RECEIV ED ON ADVANCE . NO FORMALITIES HAD BEEN COMPLETED TO G I VE CONTROL OF THE PROP ER TIES TO T H E ASSIGNEES . A S THE AGREEMENTS WERE NOT REGISTERED THE ASSIGNEES WE RE UND ER NO LEG AL OBLIGAT I O N T O CA R RY OUT THE AGREEMENT . 9 ITA NO.8485/MUM/2011 IN VIEW OF THE ABOVE , I T WAS SUBMITTED THAT THE INCOME FROM THES E AGREEMENT S HAD NOT ACCRUED OR ARISEN TO THE ASSESSEE AND THE E NTRIES IN THE BOOKS W E R E E R RONEOUS . THE CANCELLATION DEEDS WERE ONLY A RECOGNITION OF T HE EXISTING POSITION T H AT NO INCOME HAD ACCRUED FROM THE SAID AGREEMENTS. IN THE LIGHT OF THE ABOVE SUBMISSIONS, IT WAS CONTE NDED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) THAT THERE WAS A WR ONG STATEMENT OF INCOME MADE IN THE ORIGINAL RETURN INASMUCH AS THERE WAS NO SUC H INCOME ACCRUING OR ARISING TO THE ASSESSEE AND, THEREFORE, THE REVISED RETURN FIL ED BY IT CORRECTING THE SAID WRONG STATEMENT WAS VALID IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 139(5). 6. IN ADDITION TO THE SUBMISSIONS MADE ON THE PRELI MINARY ISSUE RELATING TO VALIDITY OF THE REVISED RETURN, ELABORATE SUBMISSIO NS WERE MADE ON BEHALF OF THE ASSESSEE COMPANY BEFORE THE LEARNED CIT(APPEALS) ON MERIT STATING THAT THE PROFIT FROM THE RELEVANT FIVE TRANSACTIONS IN IMMOVABLE PR OPERTY AS DECLARED IN THE ORIGINAL RETURN OF INCOME WAS ONLY THE HYPOTHETICAL INCOME WHICH COULD NOT BE BROUGHT TO TAX ESPECIALLY WHEN THE SAID TRANSACTION S WERE CANCELLED SUBSEQUENTLY. THESE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS SUMMARIZED BY THE LEARNED CIT(APPEALS) WERE AS UNDER : THE ASSESSEE RECORDED HYPOTHETICAL INCOME IN THE OR IGINAL RETURN ON THE BASIS O F 5 AGREEMENTS . THE REVISED RETURN F I LED EXCLUDING THE HYPOTHETICAL I NCOME HAS NOT BEEN ACCEPTED BY THE AO . THE AO COMMITTED MISTAKE IN MAKING FACTUALLY INCORRECT OBSERVATIONS IN PARA 4.1 THAT A LL THE TERMS OF THE AGREEMENT HAS BEEN SATISFIED . HE FURTHER FACTUALLY ERRED IN OBSERVING THAT ALL TH E REQUIREMENTS A S PER THE TRANSFER OF PROPERTY ACT , 1882 & SALE OF GOODS ACT , 1930 TO CON STITUTE T HE TRANSACT I ONS OF SALE DUR I NG THE A . Y . (PARA 4.3 ) . THUS , HE CAME TO THE C ONC L US I ON , ON ERRONEOUS ASSUMPTION OF FACTS , THAT THE I NCOME IS SOUGHT TO BE RE V ERSED ONLY ON ACCOUNT OF NON PAYMENT OF BALANCE CONS I DERATION MENTIONED IN THESE AGREEMENTS . THE AO FURTHER MISCONSTRUED THE TRUE PURPORT OF EXISTING ACCOUNTING POLICY ON REVENUE RECOGNITION TO DISCARD THE REVERS AL OF NOTIONAL INCOME . HE 10 ITA NO.8485/MUM/2011 FU R THER QUESTIONED THE VAL I DITY OF THE REVISED RETURN ON THE GROUND THAT THERE IS NO W R ONG STA T EMENT I N THE ORIGINAL RETURN TO ENTITLE THE ASSESSEE TO FI LE THE REVISED R ETURN . THE CAS E O F T HE ASSESSEE I S THAT NO INCOME HAS ACCRUED O R AR I SEN A T AN Y PO I NT O F TI ME FRO M I MPUGNED 5 AGREEMENTS ME R E L Y ON ACCOUN T O F E R R ONEOUS BOOK E N TRIES . THE AGREEMENTS WERE ONLY PREPARATORY AND EXECUTOR A ND HAD NO LEGA L SANCT I ON . THE RIGHTS OF THE ASSESSEE UNDER AGREEMENTS WERE IN EXTRICABLY LINKED TO THE CORRESPONDING OBL I GATIONS ON THE ASSESSEE . THE ASSESSEE ITSELF HAS FA I LED TO ME ET T H E SACROSANCT OBL I GATIONS WITHOUT WHICH THE AGREEMENTS COU LD N O T B E P ROCEEDED W I T H . THE ASSESSEE HAS IN TURN NOT RECEIVED ANY PART OF TH E BALAN CE C ONS I DERAT I ON . THE I NCOME RETURNED I N THE O RI G I NAL RETURN BASED ON ER R ONEOUS ACC O U NT I NG E NTR I ES RECOGN I Z I NG SUCH PROPOSED CONS I DERATIONS FROM T H E PRE PARATORY AGR E EMEN T S HAS NEVER ACCRUED OR LEGALLY DUE TO TH E A SSESS EE . MERCAN T IL E SYST E M OF ACCOUNTING IS RELEVANT ONLY FOR THE PURPOSES O F POINT OF TIME A T WHICH SUC H I NCOME I S TO BE TAXED. HOWEVER , I NCOME MUST ACCRU E OR A R I S E AS A PRE COND I T I ON BEFORE IT CAN BE TAXED . A F ORMAL CANCELLAT I ON DEED WAS EXECUTED W I THOUT OB LI TERATED T HE O RI G I NA L AG RE EM E NTS W ITH WHATEVE R LI TTLE VALUE IT M I GHT HAVE . THE A S SESSEE WAS TH E R E F O RE J US TIFI ED IN REV I S I NG THE RETURN CONSEQUENTLY . 2 OU T OF 5 AGREEMENTS WERE ' DEVELOPMENT AGREEMENTS ' FOR DEVELOPMEN T OF LAND/PROP E RTY THE AGREEMENTS DID NOT GIVE ANY RIGHT TO POSSESSION OR C ONSTRUCT I ON AS PER SE . NO APPROVAL , SANCT I ONS OF THE COMPETENT AUTHORITIES WERE MAD E A V A I LAB LE T O THE ASSIGNEES BY THE ASSESSEE . NO AGREE M ENTS F O R TR ANS F ER OF FSI/ DE VEL OPM E N T R I G HT S WERE EVER EXECUTED I N F AVOUR O F ASS I GNEES . N O POA W A S GIVE N I N F AVOUR O F THE ASSESSE E . RENEWA L UNDER SCHEME O F ULC A WAS AL SO NOT CA RR I ED OUT . ONLY I N I T I AL TOKEN PAYMENT WAS RECEIVED BY THE ASSESSEE . NO D E V EL OPMEN T WORK EVER COMMENCED . THE SO CALLED DEVELOPMENT AGREEMENT WAS ONL Y MOU AND NOT REGISTERED . THE AGREEMENT COULD NOT BE ENFOR CE D IN C OU RT.THE A GREEME N T F I N ALLY WAS CANCELLED WITHOUT ANY WORK . T H E ASSES SEE CON T INUED TO RETAIN THE SAME RIGHTS IN THE PROPERTY AS BEFORE THE DEVELOPMENT AGREEMEN T . NO INCOME THEREFORE ACCRUED OR AROSE TO THE ASSESSE E . OTHE R 2 AGREEMENTS WERE I N RELATION TO ' SALE OF LAND / PROPERTY ' . AGAIN , THE .. AGREEMENTS WERE ONLY PREPARATORY AND I N THE NATURE OF MOU . THE T I TLE TO THE PROPERTY NEVER PASSED TO THE BUYERS. NO POSSESSION WAS G I VEN . AGAIN NO CONS I DERATION WAS RECEIVED EXCEPT T HE TOKEN ADVANCE AGAINST THESE MOUS . T HE PROPERT Y CON TI NUES TO BELONG TO THE ASSESSEE I N THE SAME MANNER A S BEFORE . N O CHANGE IN THE STATUS OF THE PROPERTY . THE PROPOSED BUYER CAN NOT ENJOY O R DEA L W I TH PROPER T Y I N ANY MANNER IN EXCLUSION TO THE ASSESSEE . THEREFORE NO I NCOME CAN BE CONTEMPLATED FROM SUCH AGREEMENTS . ONE AGREEMENT EXECUTED ON THE LAST DAY OF THE FINAN CIAL YEAR PERTAINS TO A ' JOIN T VENTURE '. THE ACCOUNT OF THE ASSESSEE I N JOINT VENTURE WAS TO BE CREDITED NOTIONAL L Y WITH RS . 51 CRS. FOR I NTRODUCING PROPERTY PROPOSED TO B E DEVELOPED. 11 ITA NO.8485/MUM/2011 T HE ASSESSEE WAS ALSO ENT I TLED TO 25% OF THE INCOME IN THE JOINT VENTURE . THE PROPERTY PROPOSED TO BE INTRODUCED HOWEVER DID NOT BELONG TO THE ASSESSEE ITSEL F A T THE TIME OF AGREEMENT . THE PROPERTY BELONGED TO A GROUP OF 3 SE LLE RS TO WHO M ON L Y A T OKEN AMOUNT WAS PA I D BY THE AGREE M EN T . T HE PROPER TY COULD BE T RANSFE R RED I N FAVOUR OF THE ASSESSEE BY THESE GROUP S O F SELL ER S ON L Y ON CL EARANCE F ROM THE STATE GOVT OF KARNATAKA . NO SUCH APPROVA L HAS B EEN OB T A I NED . THE T I TLE O R POSSESS I ON OF THE PROPERTY HAS NO T BE E N T RAN SFERR ED TO THE ASSESS EE . THEREFORE , THE ASSESSEE ITSE L F WAS CONS T RA I NED F RO M EXECUTI NG SUCH J OINT VEN T U R E . NO FORMA L ASSIGNMENT O F PROPER T Y I N F AVOU R O F JO I N T VENT U RE . NO POSSESS I ON OF PROPERTY TO THE CO VENTURE . NO WORK WHATSOEVER HAS BEEN DO NE PURSUANT TO THE JOINT VENTURE . THE JOINT VENTURE DID NOT TAKE OFF AT ALL . NO BANK ACCOUNT WAS OPENED . NO PAN NUMBER WAS OBTAINED FOR THE PROPOSED JOIN T VENTURE . THEREFORE, IN THE ABSENCE OF ANY TRANSFER OF PROPER TY T O TH E J OI NT VENTURE , NO QUESTION OF INCOME ARISES . NO MATE RI AL HAS BEEN BROUGHT ON RECORD TO D I SPROVE THE VERSION OF THE ASSESS EE. NO I NQU I RY WAS CONSIDE R ED NECESSARY FROM THE CONTRACT I NG PART I ES EIT HER . T H E S TATE ME NT OF CMO ' OF T H E A SSESSEE CO. W AS BASED ME RE L Y O N BOOK ENTRIES . HE WA S NO T A LI VE TO THE L EGA L POS I T I O N THA T SUC H BOOK EN TRIES R ECO RDING HY POTH ETI C AL INC OME ON T HE BAS I S OF BA L D AG R EE M E NT S W AS NE I THER IN AC CORDA NCE W ITH R EGU L AR L Y FOLLOWED ACCOUNT I NG PO LI C I ES O F TH E COMPAN Y NO R IS ' A CCRUED I NCOME ' AS PE R T HE ACT . THE STATEMENT WAS THEREFORE GULL I BLE AND I N A N Y CAS E NOT CONCLUS I VE OF T HE MATTER . THE SUPREME COURT IN THE PLETHORA OF CASES HAS HELD THAT BOOK ENTRIES ARE NOT DECISIVE IN DETERMINATION OF TAXABILITY NOR OTHERWI SE OF A TRANSACTION. WHAT IS RELEVANT IS THE ACTUAL ACCRUAL OF INCOME. THE ACCRU AL OF INCOME MEANS THE RIGHT TO RECEIVE IS VESTED IN FAVOUR OF ASSESSEE AND BECO MES LEGALLY DUE TO HIM. IN THE INSTANT CASE, MERE EXECUTION OF BALD AGREEMENTS WIL L NOT GIVE RISE TO INCOME OF ANY SORT. IN THE FACTS AND CI RCUMSTANCES OF THE CASE , THE PURPORTED INCOME NEVER ACCRUED OR BECOME LEGALLY DUE TO THE ASSESSEE, HENCE , THE ASSESSEE WAS FULLY JUSTIFIED IN EXCLUDING HYPOTHETICAL INCOME BASED ON ERRONEOUS BO OK ENTRIES BY FILING REVISED RETURN . I N ANY CASE , THE HYPOTHETICAL INCOME CANNOT BE TAXED EVEN UNDE R ORIGINAL RETURN BASED ON STINGLESS PREPARATORY AGRE EMENTS ON THE GROUNDS OF ' REAL INCOME THEORY '. THE ORIGINAL AGREEMENT BEING A NULLITY DOES NOT GIV E RISE TO ANY I NCOME ALBEIT CANCELLATION DEEDS EXECUTED SUBSEQUENT LY . THE OR I G I NAL AGREEMENTS HAVE BECOME NONEST OW I NG TO CANCELLATION DEED BASED ON THE ' DOCTR I NE OF RELATION BACK. 12 ITA NO.8485/MUM/2011 7. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECOR D, THE LEARNED CIT(APPEALS) PROCEEDED TO DECIDE INITIALLY THE ISSUE RELATING TO THE VALIDITY OF REVISED RETURN FILED BY THE ASSESSEE. IN THIS REGARD, HE REFERRED TO THE PROVISIONS OF SECTION 139(5) AND HELD THAT THE WORD DISCOVERS USED IN THE SAID PRO VISION CONNOTES DISCOVERY OF SOME OMISSION OR WRONG STATEMENT IN THE RETURN OF W HICH THE ASSESSEE WAS NOT AWARE AT THE TIME OF FILING OF THE ORIGINAL RETURN. HE ALSO HELD THAT FOR A RETURN TO BE ELIGIBLE FOR THE REVISION U/S 139(5), NOT ONLY SHOU LD THERE BE A WRONG STATEMENT OR OMISSION, BUT THE SAME SHOULD BE A BONAFIDE WRONG STATEMENT OR OMISSION. HE HELD THAT THE ORIGINAL RETURN IN THE PRESENT CASE W AS FILED BY THE ASSESSEE COMPANY ON THE BASIS OF AUDITED ACCOUNTS AND IN ACCORDANCE WITH THE REVENUE RECOGNITION POLICY BEING CONSISTENTLY FOLLOWED BY IT. AS NOTED BY HIM, THE SALE WAS RECOGNIZED BY THE ASSESSEE REGULARLY IN THE YEAR IN WHICH THE SALE AGREEMENTS WERE ENTERED INTO AND THE EFFECT OF THE CANCELLATION OF THE SALE AGRE EMENTS, IF ANY, WAS ALWAYS GIVEN IN THE YEAR IN WHICH THEY WERE CANCELLED. HE HELD T HAT THIS WAS THE REGULAR SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE REGULA RLY IN THE EARLIER YEARS WHICH WAS VIOLATED IN THE REVISED RETURN FILED BY THE ASS ESSEE FOR THE YEAR UNDER CONSIDERATION. HE HELD THAT THE ACTION OF THE ASSES SEE IN REVISING THE RETURN AS WELL AS IN REVISING THE AUDITED ACCOUNTS THUS WAS NOT BO NAFIDE. ACCORDING TO HIM, THERE WAS A GAP OF TWO YEARS BETWEEN THE SALE AGREEMENTS AND THEIR CANCELLATION AND DURING THIS PERIOD, THE VALUE OF SHARE OF THE ASSES SEE COMPANY HAD INCREASED SUBSTANTIALLY WHICH ASPECT WAS UTILIZED OR EXPLOITE D BY ITS ASSOCIATE CONCERNS BY SELLING THE SHARES OF THE ASSESSEE COMPANY AT HUGE PROFITS. HE HELD THAT THE ARGUMENTS OF THE ASSESSEE THAT THE INCOME ACCRUING IN ITS BALANCE SHEET WAS HYPOTHETICAL AND IT AMOUNTED TO A WRONG STATEMENT THUS WAS NOT BORNE OUT BY 13 ITA NO.8485/MUM/2011 FACTS. HE HELD THAT ACCEPTANCE OF SUCH ARGUMENT OF THE ASSESSEE WOULD AMOUNT TO RIGGING THE SHARE MARKET. 8. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT T HE REVISED RETURN WAS FILED ON THE BASIS OF THE REVISED AUDITED ACCOUNTS FOR THE Y EAR UNDER CONSIDERATION, THE LEARNED CIT(APPEALS) NOTED THAT THE REVISED RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 01-01-2009 WHEREAS THE AUDIT REPORT ACC OMPANYING THE REVISED AUDITED ACCOUNTS WAS DATED 30-03-2009. HE HELD THAT THE REV ISED RETURN THUS WAS FILED BY THE ASSESSEE EVEN PRIOR TO THE REVISION OF ITS BOOK S OF ACCOUNTS. HE THEN REFERRED TO THE RELEVANT TWO CIRCULARS ISSUED BY MINISTRY OF CO RPORATE AFFAIRS DEALING WITH REVISION OF ANNUAL ACCOUNTS RELIED UPON BY THE ASSE SSEE AND HELD THAT AS PER THE SAID CIRCULARS, ACCOUNTS COULD ONLY BE REVISED UNDER THE COMPANIES ACT PURSUANT TO TECHNICAL REQUIREMENTS OF ANY OTHER LAW ONLY. ACCOR DING TO HIM, THERE WAS NO SUCH REQUIREMENT EITHER INDICATED BY THE AUDITORS OF TH E ASSESSEE COMPANY OR EVEN BY ITS DIRECTORS AT THE TIME OF ADOPTING THE REVISED A CCOUNTS. HE HELD THAT THE REVISED ACCOUNTS, ON THE BASIS OF WHICH THE REVISED RETURN WAS CLAIMED TO BE FILED BY THE ASSESSEE, THUS WERE NOT VALID WITHIN THE PURVIEW OF THE COMPANIES ACT AND THIS BEING SO, THERE WAS NO BONAFIDE IN THE ASSESSEES S UBMISSION THAT ORIGINAL AUDITED ACCOUNTS OF THE COMPANY DID NOT REFLECT THE REAL IN COME OF THE COMPANY. THE LEARNED CIT(APPEALS) ACCORDINGLY UPHELD THE ACTION OF THE AO IN HOLDING THAT THE REVISED RETURN FILED BY THE ASSESSEE WAS NOT A VALI D ONE. 9. THE LEARNED CIT(APPEALS) THEN PROCEEDED TO EXAMI NE THE ISSUE RELATING TO TAXABILITY OF PROFIT ARISING FROM THE FIVE TRANSACT IONS IN IMMOVABLE PROPERTY AS INCOME IN THE HANDS OF THE ASSESSEE FOR THE YEAR UN DER CONSIDERATION ON MERIT. IN THIS REGARD, HE EXAMINED THE RELEVANT AGREEMENTS FO R SALE AND DEVELOPMENT AND FOUND THAT THERE WAS NO CLAUSE IN THE ENTIRE AGREEM ENT DEALING WITH THE TERMINATION OR CANCELLATION OF THE AGREEMENT. HE ALSO EXAMINED THE RELEVANT TERMINATION 14 ITA NO.8485/MUM/2011 AGREEMENTS AND HELD ON SUCH EXAMINATION THAT ALTHOU GH THE REASON FOR TERMINATION WAS MENTIONED THEREIN AS DUE TO INABILITY OF THE OT HER PARTY TO PAY THE BALANCE CONSIDERATION TO THE ASSESSEE, THE ENTIRE ACT OF CA NCELLATION OR TERMINATION BY REFUNDING THE ADVANCE CONSIDERATION RECEIVED WAS SH AM IN THE ABSENCE OF ANY CLAUSE RELATING TO TERMINATION OR CANCELLATION IN T HE ORIGINAL AGREEMENTS. HE HELD THAT ALL THE PARTIES TO THE FIVE TRANSACTIONS/AGREE MENTS WERE RELATED TO THE ASSESSEE DIRECTLY OR INDIRECTLY WHICH MADE THE RELEVANT TRAN SACTIONS SUSPICIOUS AND COLLUSIVE. 10. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT THERE WAS NO REAL INCOME ACCRUED TO IT FROM THE RELEVANT TRANSACTIONS/AGREEM ENTS SINCE NECESSARY SANCTIONS AND APPROVALS HAD NOT BEEN RECEIVED OR SPECIFIC OBL IGATIONS WERE NOT PERFORMED, THE LEARNED CIT(APPEALS) HELD THAT THE SAME WERE NO T ACCEPTABLE SINCE THERE WAS NO PROVISION IN THE RELEVANT AGREEMENTS FOR TERMINA TION OR CANCELLATION DUE TO NON PERFORMANCE. RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MORVI INDUSTRIES LTD. 82 ITR 835, HE HELD THAT THE INCOME HAD ACCRUED TO THE ASSESSEE THE MOMENT THE RELEVANT AGREEMENTS WERE SI GNED AND TERMINATION OF THE SAID AGREEMENTS AFTER A PERIOD OF TWO YEARS COULD N OT AFFECT THE ACCRUAL OF INCOME. HE HELD THAT THE ASSESSEE WAS NOT ONLY MAINTAINING ITS BOOKS OF ACCOUNT ON MERCANTILE BASIS BUT IT WAS ALSO CONSISTENTLY CREDI TING ITS BOOKS AS AND WHEN AGREEMENTS FOR SALE WERE ENTERED INTO IN RESPECT OF IMMOVABLE PROPERTY WHICH CONSTITUTED ITS STOCK IN TRADE. HE HELD THAT THE AC T OF TERMINATING THE AGREEMENTS MUCH AFTER THE END OF THE RELEVANT PREVIOUS YEAR, T HEREFORE, WOULD NOT EXEMPT THE ASSESSEE FROM ITS LIABILITY OF PAYING ITS TAXES ON THE ACCRUED INCOME. ACCORDINGLY, THE LEARNED CIT(APPEALS) REJECTED ALL THE CONTENTIO NS RAISED BY THE ASSESSEE ON MERITS AND UPHELD THE ORDER OF THE AO BRINGING TO T AX THE PROFITS ARISING FROM THE FIVE TRANSACTIONS IN IMMOVABLE PROPERTY AS INCOME O F THE ASSESSEE FOR THE YEAR 15 ITA NO.8485/MUM/2011 UNDER CONSIDERATION. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBU NAL. 11. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS RELATING TO VALIDITY OF THE REVISED RETURN FILED BY IT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE COMPANY HAS BEEN HELD TO BE INVALID BY THE AUTHORITIES BELOW ON THE GROUND THAT THERE WAS NO DISCOVERY OF ANY OMISSION OR ANY WRONG STATEMENT BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME SUBSEQUENT TO THE FILING OF THE SAID RETURN. HE CONTENDED THAT THIS REASONIN G GIVEN BY THE AUTHORITIES BELOW IS CONTRARY TO THE FACTS ON RECORD AND THERE WAS NO REASON FOR THEM TO HOLD THAT THE ASSESSEE KNEW ALL ALONG THAT THE ORIGINAL RETURN OF INCOME WAS NOT TRUE AND CORRECT. HE SUBMITTED THAT THIS STAND TAKEN BY THE AUTHORITI ES BELOW IS SELF CONTRADICTORY INASMUCH AS THE ASSESSEE WAS ALLEGED TO HAVE THE KN OWLEDGE OF THE ORIGINAL RETURN OF INCOME BEING NOT TRUE AND CORRECT RIGHT FROM THE BEGINNING WHILE THE ASSESSMENT HAS BEEN COMPLETED ON THE BASIS OF THE SAID ORIGINA L RETURN ACCEPTING THE INCOME DECLARED THEREIN WITH SOME MINOR ADDITION. 13. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OU T THAT THE ORIGINAL RETURN FILED BY THE ASSESSEE WAS PROCESSED BY THE AO U/S 143(1) ON 22-10-2008 AND THE NOTICES U/S 143(2) AND 142(1) WERE ISSUED ON 04-03-2009 AND 02-06-2009 RESPECTIVELY ONLY AFTER FILING OF THE REVISED RETURN BY THE ASSE SSEE ON 01-01-2009. HE CONTENDED THAT THE REVISED RETURN FILED BY THE ASSESSEE THUS WAS IMPLIEDLY ACCEPTED BY THE AO AND THE NOTICES U/S 143(2) AND 142(1) WERE ISSUED T O SCRUTINIZE THE SAID RETURN. HE CONTENDED THAT THE AO, THEREFORE, WAS NOT JUSTIFIED TO TREAT THE REVISED RETURN FILED BY THE ASSESSEE AS INVALID AND THE LEARNED CIT(APPE ALS) WAS NOT RIGHT IN GOING A STEP FURTHER TO DECLARE THE SAID RETURN AS NON-EST IGNORING THAT THE POWERS CONFERRED 16 ITA NO.8485/MUM/2011 UPON HIM U/S 251(1)(A) ARE ONLY IN RELATION TO THE ORDER OF ASSESSMENT TO THE EXTENT THAT HE MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE A SSESSMENT. HE CONTENDED THAT THE LEARNED CIT(APPEALS), THEREFORE, EXCEEDED HIS JURISDICTION WHILE DECLARING THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE AS N ON-EST. 14. IN SUPPORT OF THE ASSESSEES CASE THAT THE REVI SED RETURN FILED BY IT WAS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 139(5), T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ACCOUNTING POLICY CONSI STENTLY FOLLOWED BY THE ASSESSEE HAD TWO LIMBS. HE SUBMITTED THAT THE ORIGINAL RETUR N WAS FILED BY THE ASSESSEE RELYING ON THE FIRST LIMB OF THE ACCOUNTING POLICY WHEREBY INCOME FROM THE FIVE TRANSACTIONS IN IMMOVABLE PROPERTY WAS DECLARED SUB JECT TO EXECUTION OF CONVEYANCE AND COMPLIANCE OF APPLICABLE LEGAL FORMA LITIES, WHICH WAS THE SECOND LIMB OF THE ACCOUNTING POLICY FOLLOWED BY THE ASSES SEE. HE SUBMITTED THAT NONE OF THE PARTIES TO THE SAID TRANSACTIONS/AGREEMENTS ACT UALLY ACTED THEREUPON DUE TO CHANGE IN THE REAL ESTATE MARKET CONDITION AND THE SAME WERE FINALLY CANCELLED BY MUTUAL CONSENT IN THE MONTH OF NOVEMBER AND DECEMBE R, 2008. HE CONTENDED THAT THE SECOND LIMB OF THE ACCOUNTING POLICY THUS BECAM E OPERATIVE AND THE STATEMENT MADE IN THE ORIGINAL RETURN BY RECOGNIZING THE REVE NUE IN RESPECT OF FIVE TRANSACTIONS IN REAL ESTATE TURNED OUT TO BE WRONG. HE SUBMITTED THAT THE ASSESSEE BECAME AWARE OF THIS WRONG STATEMENT ONLY AFTER THE CANCELLATION OF THE RELEVANT TRANSACTIONS AND FILED THE REVISED RETURN IN ORDER TO CORRECT THE SAID WRONG STATEMENT WHICH WAS IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 139(5). HE SUBMITTED THAT IT IS RELEVANT TO NOTE HERE THAT THE REVISED RETURN FILED BY THE ASSESEE NEVER TREATED AS A DEFECTIVE RETURN BY THE AO AS RE QUIRED BY THE PROVISIONS OF SECTION 139(9) AND THE REVISED RETURN FILED BY THE ASSESSEE, THEREFORE, CANNOT BE TREATED AS NO-NEST. RELYING ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CIT VS RANCHHODDAS KARSONDAS 36 ITR 569 AND T HAT OF HONBLE DELHI HIGH 17 ITA NO.8485/MUM/2011 COURT IN THE CASE OF QAMMAR-UD-DIN & SONS VS CIT 1 29 ITR 703, HE CONTENDED THAT THE ASSESSEE CAN ALWAYS CORRECT THE RETURN FIL ED BY HIM BY FILING THE REVISED RETURN AND ONCE THE REVISED RETURN IS FILED BY THE ASSESSEE, THE SAME CANNOT BE IGNORED. HE ALSO CONTENDED THAT IT IS A WELL SETTLE D LEGAL POSITION THAT ONCE A REVISED RETURN IS FILED, THE EXISTENCE OF ORIGINAL RETURN O F INCOME IS OBLITERATED THEREAFTER. 15. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE HAD NOT BEEN DECLAR ED TO BE DEFECTIVE U/S 139(9) AND THE SAME WAS ACTED UPON BY THE AO BY ISSUING NO TICE U/S 143(2), THE SAID RETURN HAD OBLITERATED THE EXISTENCE OF ORIGINAL RE TURN FILED BY THE ASSESSEE AND IT WAS NOT OPEN TO THE REVENUE TO RELY ENTIRELY UPON T HE ORIGINAL RETURN IGNORING COMPLETELY THE REVISED RETURN FILED BY THE ASSESSEE . HE CONTENDED THAT THE ASSESSEE IN ANY CASE IS ENTITLED TO MAKE ITS CLAIM BEFORE TH E APPELLATE AUTHORITY AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL T HERMAL POWER CO. VS. CIT 229 ITR 383 AND THE APPELLATE AUTHORITY CAN ENTERTA IN THE SAID CLAIM MADE EVEN OTHERWISE BY FILING THE REVISED RETURN AS HELD BY H ONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS CIT 284 ITR 323. 16. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUP PORTED THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) UPHOLDING THE ACTION OF THE AO IN TREATING THE REVISED RETURN FILED BY THE ASSESSEE AS INVALID AND NON-EST . SHE CONTENDED THAT THE INCONE OF RS.135.47 CRORES HAD ACCRUED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AS A RESULT OF ENTERING INTO FIVE AGREEMENTS AND THE SAM E WAS RIGHTLY RECOGNIZED AND DECLARED BY THE ASSESSEE IN THE ORIGINAL RETURN AS PER THE ACCOUNTING POLICY CONSISTENTLY FOLLOWED BY IT. SHE CONTENDED THAT THE RE WAS THUS NO OMISSION OR WRONG STATEMENT MADE BY THE ASSESSEE IN THE ORIGINA L RETURN WHICH COULD BE SAID TO BE SUBSEQUENTLY DISCOVERED BY IT. SHE CONTENDED TH AT CANCELLATION OF THE AGREEMENT AFTER A PASSAGE OF MORE THAN TWO YEARS BY THE ASSESSEE AND THAT TOO WITH 18 ITA NO.8485/MUM/2011 THE PARTIES WHO WERE AT ITS COMMAND AND CONTROL CAN NOT BE EQUATED TO DISCOVERY OF ANY OMISSION OR WRONG STATEMENT WITHIN THE MEANING OF SECTION 139(5) OF THE ACT SO AS TO MAKE THE ASSESSEE ENTITLED TO FILE A REVIS ED RETURN. SHE CONTENDED THAT THE ASSESSEE CANNOT TAKE A STAND THAT THE REVENUE WAS R ECOGNIZED IN THE ORIGINAL RETURN ON CONDITIONAL BASIS AND THAT IT COULD CANCEL THE R EVENUE SO RECOGNIZED AT ITS OWN WILL AT ANY TIME BY VIRTUE OF ITS ACCOUNTING POLICY WITHOUT ESTABLISHING THAT THERE WAS ANY OMISSION OR WRONG STATEMENT MADE IN THE ORI GINAL RETURN. SHE SUBMITTED THAT AS PER THE ACCOUNTING POLICY FOLLOWED BY THE A SSESSEE IN THE EARLIER YEARS, THE EFFECT OF CANCELLATION OF SALE AGREEMENTS WAS GIVEN IN THE YEAR IN WHICH THE CANCELLATION HAD TAKEN PLACE AND GOING BY THIS POLI CY ADOPTED BY THE ASSESSEE, IT CANNOT BE SAID THAT THERE WAS ANY OMISSION OR WRONG STATEMENT MADE IN THE ORIGINAL RETURN OF INCOME. SHE CONTENDED THAT THE REVISED RE TURN FILED BY THE ASSESSEE THUS WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 139(5) AND THE SAME WAS RIGHTLY DECLARED BY THE AUTHORITIES BELOW AS INVALI D AND NON-EST. SHE, THEREFORE, STRONGLY RELIED ON THE IMPUGNED ORDER OF THE LEARNE D CIT(APPEALS) ON THIS ISSUE AND SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE LEARNED CIT(APPEALS) FULLY SUPPORT THE CASE OF THE REVENUE ON THIS ISSUE. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. AS PER THE PROVISIONS OF SECTI ON 139(5), A PERSON, WHO HAS FURNISHED A RETURN U/S 139(1) OR IN PURSUANCE OF A NOTICE ISSUED U/S 142(1), ON DISCOVERY OF ANY OMISSION OR WRONG STATEMENT THEREI N, IS ENTITLED TO FURNISH THE REVISED RETURN AT ANY TIME BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION O F THE ASSESSMENT, WHICHEVER IS EARLIER. THUS IN ORDER TO ENABLE THE ASSESSEE TO FU RNISH A REVISED RETURN U/S 139(5), THE FOLLOWING CONDITIONS MUST BE SATISFIED: 19 ITA NO.8485/MUM/2011 I) THAT THE ORIGINAL RETURN MUST HAVE BEEN FURNISHE D U/S 139(1) OR IN PURSUANCE OF A NOTICE ISSUED U/S 142(1), II) THAT THE ASSESSEE DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT THEREIN AND III) THAT THE REVISED RETURN IS FILED AT ANY TIME B EFORE THE ASSESSMENT IS MADE OR BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN THE PRESENT CASE, THE ORIGINAL RETURN WAS FILED BY THE ASSESSEE IN RESPONSE TO A NOTICE ISSUED U/S 142(1) AND THE REVISED RETURN WAS FILED BY IT ON 01-01-2009 THAT IS BEFORE THE ASSESSMENT WAS MADE AS WELL AS BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR I.E. ASSESS MENT YEAR 2007-08. THE CONDITIONS (I) AND (III) THUS WERE DULY SATISFIED I N THE PRESENT CASE AS STIPULATED IN SECTION 139(5) AND THERE IS NO DISPUTE ABOUT THE SA ME. THE ONLY DISPUTE IS ABOUT THE SATISFACTION OF SECOND CONDITION AS TO WHETHER THER E WAS DISCOVERY OF ANY OMISSION OR WRONG STATEMENT BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME. ACCORDING TO THE REVENUE, THE WORD DISCOVERS USED IN SECTION 1 39(5) CONNOTES DISCOVERY OF SOME OMISSION OR WRONG STATEMENT IN THE ORIGINAL RE TURN OF INCOME OF WHICH THE ASSESSEE WAS NOT AWARE AT THE TIME OF FILING THE OR IGINAL RETURN. IT IS, THEREFORE, NECESSARY TO ASCERTAIN AS TO WHETHER THERE WAS ANY WRONG STATEMENT MADE IN THE RETURN OF INCOME ORIGINALLY FILED BY THE ASSESSEE A ND WHETHER THE ASSESSEE WAS NOT AWARE OF SUCH WRONG STATEMENT AT THE TIME OF FILING THE ORIGINAL RETURN. FOR THIS PURPOSE, WE ARE OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE IN THE REVISED RETURN OF INCOME VIZ-A-VIZ THE RETURN OF INCOME FIL ED ORIGINALLY NEEDS TO BE EXAMINED ON MERIT TO ASCERTAIN AS TO WHETHER THERE WAS ANY WRONG STATEMENT MADE IN THE ORIGINAL RETURN OF WHICH THE ASSESSEE WAS NO T AWARE AT THE TIME OF FILING THE SAME. IN OUR OPINION, SUCH EXAMINATION OF THE ASSES SEES CLAIM ON MERIT ONLY WILL REVEAL AS TO WHETHER THE CONDITION NO. (II) WAS SAT ISFIED IN THE PRESENT CASE IN ORDER TO ENABLE THE ASSESSEE TO FURNISH THE REVISED RETUR N U/S 139(5). WE, THEREFORE, NOW 20 ITA NO.8485/MUM/2011 PROCEED TO EXAMINE THE SAID ISSUE ON MERIT AND WILL REVERT BACK TO THE ISSUE RELATING TO VALIDITY OF THE REVISED RETURN FILED BY THE ASSE SSEE U/S 139(5) THEREAFTER. 18. THE ISSUE THAT HAS BEEN RAISED BY THE ASSESSEE IN THE PRESENT APPEAL ON MERIT IS RELATING TO THE ADDITION MADE BY THE AO AND CONF IRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF PROFIT FROM FIVE TRANSAC TIONS IN IMMOVABLE PROPERTIES AS DECLARED IN THE ORIGINAL RETURN OF INCOME IGNORI NG THE REVISED RETURN WHEREIN THE SAME WAS WITHDRAWN/REVERSED. 19. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AGGREGATE AGREED CONSIDERATION AS PER THE FIVE AGREEMENTS AMOUNTING TO RS.194.07 CRORES WAS TAKEN INTO CONSIDERATION BY THE ASSESSEE AND ESTIMATED AC CRUED INCOME OF RS.135.47 CRORES WAS RECOGNIZED AND DECLARED IN THE RETURN OF INCOME ORIGINALLY FILED FOR THE YEAR UNDER CONSIDERATION FOLLOWING THE ACCOUNTING P OLICY I.E. 'REVENUE RECOGNITION IN RESPECT OF PROPERTY SALE TRANSACTIONS IS ON THE BASIS OF AGREEMENT OF SALE AND ARE SUBJECT TO EXECUTION OF CONVEYANCE AND COMPLIANCE O F APPLICABLE LEGAL FORMALITIES.' HE SUBMITTED THAT THE SAID ACCOUNTING POLICY FOLLOW ED BY THE ASSESSEE HAS UNMISTAKABLY TWO LIMBS. THE FIRST LIMB IS RECOG NITION OF REVENUE IN RESPECT OF A TRANSACTION OF SALE OF PROPERTY ON THE BASIS OF AGR EEMENT OF SALE AND THE SECOND LIMB IS REVENUE RECOGNIZED IN SUCH MANNER SHALL BE SUBJECT TO EXECUTION OF CONVEYANCE AND COMPLIANCE OF APPLICABLE LEGAL FORMA LITIES. HE CONTENDED THAT INITIAL RECOGNITION OF REVENUE THUS WAS IN ANTICIPA TION AND WAS CONDITIONAL UPON FURTHER PROGRESSION OF THE AGREEMENT OF SALE I N AS MUCH AS IF SUBSEQUENTLY IN THE CASE OF SALE OF LAND, CONVEYANCE DEED IS NOT EX ECUTED OR IN THE CASE OF DEVELOPMENT AGREEMENT, NECESSARY LEGAL FORMALITIES ARE NOT COMPLIED WITH, THE REVENUE RECOGNIZED EARLIER ON THE EXECUTION OF AGRE EMENT WOULD BE CANCELLED. HE SUBMITTED THAT THAT NONE OF THE FIVE AGREEMENTS EXE CUTED BY THE ASSESSEE PROCEEDED BEYOND THE STAGE OF SIGNING OF AGREEMENT AND THE ASSESSEE DID NOT 21 ITA NO.8485/MUM/2011 RECEIVE A SINGLE RUPEE BY WAY OF SALE PROCEEDS. HE CONTENDED THAT IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE ACCOUNTING POLIC Y FOLLOWED BY THE ASSESSEE CLEARLY REQUIRED THAT THE REVENUE RECOGNIZED ON SIG NING OF AGREEMENT IN ANTICIPATION MUST BE REVERSED. 20. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IN ANY CASE IS LIABLE TO TAX ON INCOME WHICH THE PROVISIONS OF INC OME-TAX ACT DETERMINE AND NOT ON ANY HIGHER OR LOWER INCOME WHICH IS WRONGLY MENT IONED IN THE BOOKS OF ACCOUNT OF AN ASSESSEE. HE SUBMITTED THAT THE ASS ESSING OFFICER IS DUTY BOUND TO MAKE ASSESSMENT OF AN ASSESSEE IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT IRRESPECTIVE OF THE AMOUNT OF INCOME ADMITTED OR NO T ADMITTED IN THE BOOKS OF ACCOUNT AND/OR IN THE RETURN OF INCOME FILED BY AN ASSESSEE ESPECIALLY WHEN THE ASSESSMENT HAS BEEN MADE BY THE ASSESSING OFFICER U NDER SECTION 143(3)(II). HE EMPHASIZED THAT NONE OF THE FIVE AGREEMENTS ENTERED INTO BY THE ASSESSEE IN THE PRESENT CASE COULD BE ACTED UPON AND THEY REMAINED JUST ON PAPER ONLY WITHOUT YIELDING INCOME OF A SINGLE RUPEE TO THE ASSESSEE D URING THE YEAR UNDER CONSIDERATION OR EVEN THEREAFTER. 21. RELYING INTER-ALIA ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT 82 ITR 363 (SC) AND SUTLEJ COTTON MILLS LTD. VS. COMMISSIONER OF INCOME TAX 116 ITR 1 (SC), THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT EVEN WHERE AN ASSESSEE FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING MAKES ENTRIES IN ITS BOOKS OF ACCOUNTS O N THE BASIS OF ACCRUAL OF INCOME, IF ON THE PECULIAR FACTS AND CIRCUMSTANCES OF HIS CASE RESULTANT INCOME IS NOT REALLY EARNED OR OTHERWISE NOT GOING TO BE RECE IVED BY THE ASSESSEE, THEN SUCH RESULTANT INCOME BASED ON ACCRUAL SHOULD BE IGNORED AND THE ASSESSMENT SHOULD BE 22 ITA NO.8485/MUM/2011 MADE ON THE BASIS OF 'REAL INCOME' ACTUALLY EARNED OR LOSS ACTUALLY INCURRED. HE ALSO RELIED ON THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF CIT VS. SHOORJI VALLABHADAS & CO. 46 ITR 144 (SC) AND SUBMI TTED THAT THE ASSESSEE IN THE SAID CASE WAS A FIRM WHICH ENTERED INTO CERTAIN AGR EEMENTS WHEREBY IT WAS ENTITLED TO RECEIVE COMMISSION AT THE RATE OF 10% ON THE FRE IGHT CHARGED IN RELATION TO THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1948-49. IN THE BOOKS OF ACCOUNT OF THAT ASSESSEE, THE COMMISSION AS AGREED UPON WAS RECOGNI ZED AS HAVING ACCRUED. HOWEVER, SUBSEQUENTLY THE PARTIES TO THE AGREEMENT INSISTED UPON REDUCING THE COMMISSION FROM 10% TO 2.5% WHICH THE ASSESSEE FIRM CONCEDED. A QUESTION AROSE AS TO WHETHER THE ASSESSEE WAS CHARGEABLE TO TAX FOR ASSESSMENT YEAR 1948- 49 ON THE INCOME RECOGNIZED IN THE BOOKS OF ACCOUNT ON THE BASIS OF COMMISSION AT THE RATE OF 10% OR ON THE BASIS OF 2.5% AS ACTUALLY RECEIVED. HON'BLE SUPREME COURT HELD THAT THE ASSESSEE WAS CHARGEABLE TO TAX ON INCOME WHICH WAS ACTUALLY EARNED BY IT AND NOT ON THE BASIS OF INCOM E SHOWN TO HAVE ACCRUED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM ON THE BASIS OF EARLIER AGREEMENT. 22. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIE D ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS. CIT 225 ITR 746 (SC) AND SUBMITTED THAT THE ASSESSEE IN THE SAID CA SE WAS AN ELECTRICITY COMPANY KEEPING ACCOUNTS ON MERCANTILE SYSTEM. IT INCREASED THE TARIFF OF ELECTRICITY SUPPLIED AND BILLED THE CONSUMERS AT THE ENHANCED R ATE. THIS RESULTED INTO LONG DRAWN LITIGATION AS WELL AS INTERVENTION OF THE GOV ERNMENT AND FINALLY THE ASSESSEE COULD NOT COLLECT THE CHARGES FROM CONSUMERS ON THE BASIS OF ENHANCED TARIFF AND RECEIVED MUCH SMALLER AMOUNTS THAN THAT SHOWN AS AC CRUED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE QUESTION AROSE AS TO WHETHER THE ASSESSEE WAS REQUIRED TO BE ASSESSED ON THE INCOME WHICH WAS TRE ATED AS ACCRUED ON THE BASIS OF ENHANCED TARIFF OR ON THE ACTUAL ELECTRICITY CHARGE S REALIZED BY IT FROM ITS 23 ITA NO.8485/MUM/2011 CUSTOMERS. THE MATTER TRAVELLED TO SUPREME COURT AN D HON'BLE SUPREME COURT HELD THAT THE CLAIM AT THE INCREASED RATES AS MADE BY TH E ASSESSEE-COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPRESENTED ON LY HYPOTHETICAL INCOME AND THE IMPUGNED AMOUNTS AS BROUGHT TO TAX BY THE ITO D ID NOT REPRESENT THE INCOME WHICH HAD REALLY ACCRUED TO THE ASSESSEE-COMPANY DU RING THE RELEVANT PREVIOUS YEARS. HE SUBMITTED THAT THE SUM OF RS.135.47 CRORE S SHOWN AS ACCRUED INCOME IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IN THE PRESEN T CASE NEVER REALLY ACCRUED TO THE ASSESSEE IN AS MUCH AS NONE OF THE FIVE AGREEMENTS WERE ACTED UPON AND RESULTED INTO ANY INCOME TO THE ASSESSEE. ALL THAT THE ASSES SEE RECEIVED WAS THE SUM OF RS.9 CRORES BY WAY OF ADVANCE AND NOT AS SALE PROCEEDS O R INCOME WHICH BECAME REFUNDABLE ON CANCELLATION OF AGREEMENTS. HE CONTEN DED THAT THE INSISTENCE OF THE ASSESSING OFFICER AS WELL AS LD. CIT(A) UPON AS SESSING THE SUM OF RS.135.47 CRORES AS INCOME OF THE ASSESSEE IS IN GROSS VIOLAT ION OF LAW AS PRONOUNCED BY THE APEX COURT AND OTHER COURTS IN INDIA. HE CONTENDED THAT EVEN IF THE ASSESSEE HAD NOT REVERSED ENTRIES IN ITS BOOKS OF ACCOUNTS OF F.Y. 2 006-07, THE ASSESSMENT OF ITS INCOME IN RELATION TO THE FIVE AGREEMENTS IN QUESTI ON COULD NOT BE MADE AT ANY AMOUNT OTHER THAN NIL. 23. THE LEARNED COUNSEL FOR THE ASSESSEE THEN PROCE EDED TO MEET THE VARIOUS OBJECTIONS RAISED BY THE AO AS WELL BY THE LEARNED CIT(A). HE SUBMITTED THAT THE OBSERVATIONS OF THE ASSESSING OF FICER THAT THE ASSESSEE HAD CORRECTLY RECOGNIZED REVENUE IN THE ORIGINAL RE TURN OF INCOME SINCE IN THE CASE OF THE ASSESSEE THE REQUIREMENTS OF PROVISION OF SECTION 54 OF TRANSFER OF PROPERTY ACT, 1882 AND SECTION 4 (3) OF SALE OF GOO DS ACT, 1930 WERE SATISFIED ARE RIDICULOUS AND BETRAY COMPLETE LACK OF APPLICAT ION OF MIND. HE SUBMITTED THAT AS PER SECTION 54 OF THE TRANSFER OF PROPERTY ACT, THE TRANSFER OF TANGIBLE IMMOVABLE PROPERTY OF THE VALUE OF RS. 100 AND MORE CAN BE MADE ONLY BY A 24 ITA NO.8485/MUM/2011 REGISTERED DOCUMENT AND AN AGREEMENT OF SALE DOES N OT OF ITSELF CREATE ANY INTEREST IN OR CHARGE ON SUCH PROPERTY. HE CONTENDE D THAT THE PROVISION OF SECTION 54 OF TRANSFER OF PROPERTY ACT THUS IS RESO UNDINGLY IN FAVOUR OF THE ASSESSEE AND EVEN UNDER WIDELY EXTENDED AND ENLARGE D DEFINITION OF 'TRANSFER' AS PROVIDED U/S. 2(47) OF INCOME-TAX ACT 1961, THE POSITION REMAINS UNCHANGED AND UNAFFECTED THAT MERE AGREEMENT OF SALE DOES NOT OF ITSELF EFFECT ANY TRANSFER OF AN IMMOVABLE PROPERTY OR OF ANY INTEREST IN IMMO VABLE PROPERTY. AS REGARDS THE PROVISION OF SECTION 4(3) OF SALE OF GOODS ACT, 1930 RELIED UPON BY THE AUTHORITIES BELOW, HE CONTENDED THAT THE SALE OF GO ODS ACT, 1930 DOES NOT APPLY TO AN IMMOVABLE PROPERTY AND THEREFORE RELIANCE OF THE REVENUE THEREON IS CLEARLY MISPLACED. 24. AS REGARDS THE STAND OF THE ASSESSING OFFICER A ND CIT(A) THAT THE SISTER CONCERNS OF THE ASSESSEE MADE HUGE PROFITS ON SALE OF SHARES AT HIGHER MARKET PRICE ACHIEVED AS A RESULT OF HIGHER REVENUE RECOGNIZED I N THE ASSESSEE'S ACCOUNTS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SE OBSERVATIONS ARE BASED ON MERE SUSPICION, CONJUNCTURE AND SURMISES. HE SUBMIT TED THAT NO EVIDENCE OTHER THAN PURE GUESS WORK HAS BEEN RELIED UPON SO AS TO ARRIVE AT THE FINDING THAT THE ASSESSEE DELIBERATELY RECOGNIZED HIGHER REVENUE SO AS TO MAKE PROFIT OUT OF ARTIFICIALLY INFLATED MARKET PRICE OF THE ASSESSEE COMPANY'S SHARES. HE SUBMITTED THAT THERE ARE MANY HOLES IN THIS HYPOTHESIS OF THE AUTHORITIES BELOW. FIRST IT IS MERE ASSUMPTION OF THE ASSESSING OFFICER / CIT(A) THAT T HE PRICES OF THE SHARES OF THE ASSESSING COMPANY MOVED UPWARDS BECAUSE OF THE REVE NUE RECOGNIZED IN RELATION TO THE FIVE AGREEMENTS IN CONSIDERATION. SECONDLY, THERE IS NO MATERIAL TO HOLD THAT IT WAS DONE IN COLLUSIVE MATTER. HE SUBMITTED THAT THERE HAS BEEN NO ADVERSE FINDING OR ORDER AGAINST THE ASSESSEE FROM ANY COMP ETENT AUTHORITY INCLUDING SEBI OR BSE IN RELATION TO THE ALLEGATIONS OF THE TYPE A S MADE IN THE ASSESSMENT ORDER 25 ITA NO.8485/MUM/2011 AND THE ORDER OF LEARNED CIT(A) AND IN THE ABSENCE OF ANY SUCH ADVERSE FINDING OR ORDER FROM ANY COMPETENT AUTHORITY, THEY ARE NOT JUSTIFIED TO MAKE SUCH WILD ALLEGATIONS WITHOUT CONCRETE EVIDENCE. HE SUBMITTED THAT NEITHER THE ASSESSING OFFICER NOR THE LEARNED CIT(A) IN ANY CAS E HAS THROWN ANY LIGHT UPON AS TO HOW THESE ALLEGATIONS SUPPORT THE ASSESSMENT OF HUGE INCOME OF RS. 135.47 CRORES IN THE HANDS OF ASSESSEE WHEN IT IS UNDISPUT ED FACT THAT THE ASSESSEE DID NOT EARN A SINGLE RUPEE FROM THE FIVE AGREEMENTS UNDER CONSIDERATION. HE SUBMITTED THAT IT IS ALSO NOT THEIR CASE THAT THE ASSESSEE'S COMPA NY EARNED ANY INCOME ON SALE OF ITS OWN SHARES. HE CONTENDED THAT THE ENTIRE ARGUMENTS AND EXERCISE OF ASSESSING OFFICER AND LEARNED CIT(A) IN THIS RESPECT IS FUTIL E AND MALICIOUS MUD-SLINGING HAVING NO LOGICAL NEXUS WITH THE ADDITIONS TO INCOM E MADE IN THEIR ORDERS. HE ALSO CONTENDED THAT THIS STAND TAKEN BY THE REVE NUE DENOUNCES THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE WHI CH IS THE SOLE BASIS OF THE IMPUGNED ASSESSMENT ORDER AND THUS TAKES AWAY THE W IND FROM THE SAIL OF THE ASSESSMENT ORDER. 25. AS REGARDS THE STAND OF THE AUTHORITIES BELOW T HAT THE CANCELLATION OF THE AGREEMENTS WAS NOT A BONA FIDE ACTION OF THE ASSESS EE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NOTHING BROUGHT ON RECORD TO SHOW THAT THESE FIVE AGREEMENTS WERE ACTED UPON. HE REITERATED THAT AS P ER THE PROVISION OF SECTION . 54 OF THE TRANSFER OF PROPERTY ACT. A CONTRACT OF SALE OF IMMOVABLE PROPERTY DOES NOT, OF ITSELF, CREATE ANY INTEREST IN OR CHARGE ON SUCH PROPERTY. THERE IS NOTHING EVEN IN THE WIDELY EXTENDED AND ENLARGED DEFINITION OF 'TRA NSFER' U/S. 2(47) OF INCOME-TAX ACT TO MOVE AWAY FROM THIS WELL SETTLED LEGAL POSIT ION. HE SUBMITTED THAT EVEN NOTHING MUCH TURNS UPON AS TO WHETHER OR NOT THERE IS ANY TERMINATION CLAUSE IN THE AGREEMENTS BECAUSE BY MUTUAL CONSENT PARTIES TO THE AGREEMENT CAN ALWAYS DO ANYTHING TO THE AGREEMENT. AS REGARDS THE ALLEGATIO N OF THE LEARNED CIT(A) THAT THE 26 ITA NO.8485/MUM/2011 ASSESSEE CANCELLED THE AGREEMENTS BECAUSE IT DID NO T WANT TO PAY TAX, HE SUBMITTED THAT NO BUSINESSMAN SHUNS INCOME MERELY BECAUSE IT IS CHARGEABLE TO TAX. 26. AS REGARDS THE RELIANCE PLACED BY THE LEARNED C IT(A) ON THE JUDGMENT IN THE CASE OF MORVI INDUSTRIES LTD. 82 ITR 835(SC), THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAME IS DISTINGUISHABLE ON FACTS IN AS MUCH AS IT WAS A CASE OF AN ASSESSEE FORGOING AN INCOME WHICH HAD ALREADY BE EN ACCRUED TO HIM. HE SUBMITTED THAT AS EXPLAINED BY OF THE ASSESSEE, THE AGREEMENTS WERE ABANDONED AND ACCORDINGLY CANCELLED BECAUSE OF THE SUDDEN CHANGE IN THE MATRIX OF THE REAL ESTATE MARKET AS A RESULT OF WHICH THE AGREEMENTS NO LONGE R REMAINED ATTRACTIVE AND THERE IS NOTHING BROUGHT ON RECORD TO DISLODGE THIS CLAIM OF THE ASSESSEE. AS REGARDS THE ALLEGATION OF THE REVENUE AUTHORITIES THAT THESE AG REEMENTS WITH RELATED PARTIES WERE AIMED AT ARTIFICIALLY JACKING-UP PRICE OF THE ASSESSEE COMPANY'S SHARES IN THE MARKET SO THAT THE SISTER CONCERNS OF THE ASSESSEE COULD MAKE HUGE PROFITS ON SALE OF THE SHARES OF THE ASSESSEE COMPANY, HE SUBMITTED THAT IF IT WAS SO, NO FAULT COULD BE FOUND WITH THE REVERSAL OF THE RECOGNITION OF REVENUE BY THE ASSESSEE IN THE REVISED RETURN OF INCOME. HE HOWEVER HASTENED T O CLARIFY THAT ALL THE ACTS OF THE ASSESSEE WERE ENTIRELY BONA FIDE AND PROMPTED BY OB JECTIVE BUSINESS CONSIDERATIONS. THE AGREEMENTS IN QUESTION WERE ENT ERED INTO WITH GREAT HOPES TO MAKE GOOD PROFIT AND THE CHANGE IN MARKET SCENARIO WAS NOT FORESEEN OR ANTICIPATED. AS THE MATRIX OF THE MARKET CHANGED IT BECAME NECESSARY TO REVOKE THE AGREEMENTS. THE ASSESSEE HAS ACTED AS AN HONEST AND PRUDENT BUSINESSMAN. HOWEVER, EVEN IF FOR ARGUMENT SAKE, WITHOUT PREJUDI CE AND WITHOUT CONCEDING ANYTHING IT IS ASSUMED THAT THE ARGUMENTS OF LEARNE D ASSESSING OFFICER AND LEARNED CIT(A) ARE JUSTIFIED, THEN ALL THEIR OBJECTIONS ARE TO THE AGREEMENTS AND RECOGNITION OF REVENUE BASED THEREUPON. HE CONTENDED THAT THIS IS THE FALLACY IN THEIR ARGUMENT INASMUCH AS THEY ARGUE AGAINST THE ORIGINAL RETURN OF INCOME BUT WANT TO HOLD THE 27 ITA NO.8485/MUM/2011 REVISED RETURN AS NOT BONA FIDE. 27. AS REGARDS THE OBJECTION OF THE REVENUE AUTHORI TIES THAT UNDER THE COMPANIES ACT AUDITED ACCOUNTS APPROVED BY THE SHAREHOLDERS C ANNOT BE SUBSEQUENTLY REVISED, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT CHARGE OF INCOME TAX IS NOT RESTRICTED TO COMPUTATION OF INCOME AS ARISING FROM THE FINAL ACCOUNTS OF AN ASSESSEE. THE CHARGE OF INCOME TAX IS ON THE ACTUAL FACTS OF THE CASE OF AN ASSESSEE AS FOUND FROM THE SCRUTINY AND ENQUIRY MADE BY THE ASS ESSING OFFICER AND OTHER INCOME TAX AUTHORITIES. HE REITERATED THAT ENTRIES IN THE BOOKS OF ACCOUNTS OF AN ASSESSEE ARE NOT CONCLUSIVE AND IT IS TO BE SEEN WH ICH OF THE TWO FINAL ACCOUNTS ARE CLOSER TO ACTUAL FACTS OF THE CASE AND LEAD TO CORR ECT COMPUTATION OF INCOME CHARGEABLE TO TAX. RELYING ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT V. SIMON CARVES LTD. 105 ITR 212 (SC), HE CONTE NDED THAT THE ASSESSING OFFICER SHOULD HAVE FOCUSED HIS ATTENTION ON FINDIN G OUT WHAT IS THE CORRECT AMOUNT OF BUSINESS INCOME OF THE ASSESSEE DURING THE FINAN CIAL YEAR INSTEAD OF BOTHERING ABOUT WHICH OF THE TWO BALANCE SHEETS WOULD PREVAIL UNDER THE COMPANIE ACT. HE POINTED OUT THAT THE REVISED FINAL ACCOUNTS WERE SU BMITTED BY THE ASSESSEE TO THE COMPANY LAW AUTHORITIES AND THERE HAS BEEN NO OBJEC TION FROM THEM TILL TODAY. 28. REGARDING THE ACCOUNTING POLICY ADOPTED BY THE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FINDING OF ASSESSING OFFICER AND LEARNED CIT(A) THAT THERE IS CHANGE IN THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNTS TO THE CANCELLATION OF AGREEMENTS THIS YEAR IN CONTRADISTI NCTION TO THE TREATMENT GIVEN IN THE EARLIER ASSESSMENT YEARS IS FACTUALLY INCORRECT . HE EXPLAINED THAT CANCELLATION OF AGREEMENT IN PAST RELATED TO SOME STRAY FLAT BUYERS WHO WANTED TO CANCEL THE BOOKING AND OBTAIN THE REFUND OF AMOUNTS PAID. THE PROJECTS WERE IMPLEMENTED IN 28 ITA NO.8485/MUM/2011 THOSE CASES AND BUILDINGS WERE INDEED CONSTRUCTED A ND THE CANCELLED FLATS WERE INDEED SOLD ALBEIT TO ANOTHER BUYER. ON THE OTHER H AND, THE CANCELLATION OF AGREEMENTS IN THE YEAR UNDER CONSIDERATION RELATED TO THE PROJECTS AS A WHOLE. THE FACTUAL MATRIX OF THOSE PROJECTS AND RECOGNITION OF REVENUE IN RELATION THERETO UNDER THE DESIGNATED ACCOUNTING POLICY OF THE ASSESSEE DE MANDED THAT THE CANCELLATION BE GIVEN EFFECT FROM THE DATE OF AGREEMENT ITSELF. THE REASONS FOR THIS ARE QUITE OBVIOUS AND EASY TO UNDERSTAND. CANCELLATION OF THE BOOKINGS BY SOME STRAY BUYER MERELY RESULTED INTO THE SALE OF THE FLAT TO ANOTHE R BUYER. THE CANCELLATION OF PROJECTS RESULTED INTO ANTICIPATED INCOME NOT MATER IALIZING. HE CONTENDED THAT THE NEED TO REVISE THE EARLIER ACCOUNTING ENTRY THEREFO RE AROSE BECAUSE IT WAS NECESSARY TO WITHDRAW RECOGNITION OF REVENUE WHICH DID NOT AC CRUE AT ALL. RELIANCE IN THIS REGARD WAS PLACED BY HIM UPON THE JUDGMENTS OF HON' BLE SUPREME COURT IN THE CASES OF CIT VS. BIRLA GWALIOR (P) LTD. 89 ITR 266 (SC) AND CIT VS. A. GAJ APATHY NAIDU 53 ITR 114(SC) AS WELL AS THAT OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. FEROZPUR FINANCE (P) L TD. 124 ITR 619 (P&H) TO CONTEND THAT EVEN UNDER MERCANTILE SYSTEM OF ACCOUN TING NO INCOME CAN BE ASSESSED UNLESS ACCRUED. 29. AS REGARDS THE STAND OF THE REVENUE THAT BECAUS E THE SIGNING OF THE AGREEMENTS AND THE CANCELLATION OF AGREEMENTS TOOK PLACE IN TWO DIFFERENT FINANCIAL YEARS, THE ASSESSEE SHOULD HAVE GIVEN THE EFFECT OF CANCELLATION IN THE ASSESSMENT YEAR RELATING TO THE DATE OF CANCELLATIO N OF AGREEMENTS, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THAT THERE ARE TWO LIMBS OF THE ACCOUNTING POLICY OF THE ASSESSEE WHICH BOTH THE ASSESSING OFFICER AN D LEARNED CIT(A) HAVE IGNORED. THEY HAVE TAKEN INTO CONSIDERATION ONLY THE FIRST L IMB OF THE ACCOUNTING POLICY THAT RESULTS INTO RECOGNITION OF REVENUE ENTIRELY ON ANT ICIPATION AND IN ADVANCE LONG BEFORE ACCRUAL OF SUCH INCOME AND HAVE IGNORED THE SECOND LIMB THAT CLEARLY 29 ITA NO.8485/MUM/2011 STATES THAT THE ANTICIPATED RECOGNITION OF REVENUE IS SUBJECT TO SUBSEQUENT ACCRUAL. IN THE EVENT OF ANTICIPATED REVENUE NOT MA TERIALIZING THE RECOGNITION OF THE REVENUE ITSELF WOULD BE CANCELLED OR MODIFIED. HE C ONTENDED THAT IT IS NOT OPEN TO THEM TO ACCEPT THE ACCOUNTING POLICY IN PART AND RE JECT IN PART ESPECIALLY WHEN SUCH PIECEMEAL ACCEPTANCE AND REJECTION RESULTS INT O ABSURD ASSESSMENT OF INCOME AS HAS BEEN DONE BY ASSESSING OFFICER AND UPHELD BY LEARNED CIT(A) IN THE PRESENT CASE. 30. IN REPLY, THE LEARNED DR AT THE OUTSET NARRATED THE SEQUENCE OF EVENTS THAT IS RELEVANT IN THE PRESENT CONTEXT. SHE SUBMIT TED THAT THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS NOT FILED BY T HE ASSESSEE TILL THE DATE OF SURVEY CARRIED ON 11-09-2008 ALTHOUGH THE DUE DATE OF FILING THE SAME WAS 30- 10-2007. SHE POINTED OUT THAT THE ASSESSEE WAS ISSU ED A NOTICE U/S.142(1) OF THE ACT AFTER THE DATE OF SURVEY AND ACCORDINGLY TH E ASSESSEE FILED ORIGINAL RETURN OF INCOME ON 23.09.2008, DECLARING TOTAL INCOME AT RS. 135,47,15,708/-. SHE SUBMITTED THAT THE ASSESSEE HO WEVER SUBSEQUENTLY FILED ITS REVISED RETURN OF INCOME ON 01.01.2009, DECLARING T OTAL INCOME AT RS. NIL. SHE SUBMITTED THAT THE REVISED RETURN WAS NOT ACCEPTED BY THE THEASSESSING OFFICER WHO FINALIZED THE ASSESSMENT U/S.143(3) OF THE ACT ON 29.12.2009, ASSESSING THE TOTAL INCOME AT RS.135,56,57,729/- AF TER TAKING INTO CONSIDERATION THE STATEMENTS ON OATH RECORDED AT TH E TIME OF SURVEY PROCEEDINGS AND ALSO THE ADMISSIONS OF THE MANAGING DIRECTOR THEREIN. SHE EMPHASIZED THAT IN HIS STATEMENT RECORDED ON OATH A T THE TIME OF SURVEY PROCEEDINGS, SHRI LALIT C. GANDHI, THE THEN CHAIRMA N-CUM MANAGING DIRECTOR OF LOK GROUP OF COMPANIES, ADMITTED THAT THE REVENU ES WERE RECOGNIZED IN ACCORDANCE WITH THE COMPANY'S CONSISTENTLY FOLLOWED ACCOUNTING POLICIES TO RECOGNIZE SALES ON EXECUTION OF AGREEMENTS. SHE POI NTED OUT THAT SHRI EANTHI 30 ITA NO.8485/MUM/2011 ALSO ADMITTED THE TAX LIABILITY OF THE ASSESSEE COM PANY IN HIS STATEMENT RECORDED ON OATH AT THE TIME OF SURVEY PR OCEEDINGS AS WELL AS BY HIS SUBSEQUENT COMMUNICATION VIDE LETTERS DAT ED 12 TH A 23 RD SEPTEMBER, 2008. 31. REGARDING THE ASSESSEE'S PLEA THAT FOLLOWING TH E SECOND LIMB OF THE ACCOUNTING POLICY FOR 'REVENUE RECOGNITION' BEING A DOPTED BY THE ASSESSEE, THE ESTIMATED ACCRUED REVENUE OF RS.135.4 7 CRORE RECOGNIZED IN THE FINANCIAL YEAR 2006-07 COULD BE CANCELLED BY VI RTUE OF CANCELLATION OF THE AGREEMENTS BY WAY OF FILING REVISED RETURN, THE LEA RNED DR SUBMITTED THAT MERELY BY ADOPTING THE ACCOUNTING POLICY OF REVENUE RECOGN ITION SUBJECT TO EXECUTION OF CONVEYANCE AND / OR COMPLIANCE OF APPLICABLE LEGAL FORMALITIES, THE ASSESSEE CANNOT BE EXONERATED FROM COMPLYING WITH THE PROVISIONS LA ID DOWN IN THE STATUTE. SHE CONTENDED THAT THE RELEVANT FIVE AGREEMENTS WERE EX ECUTED IN THE FINANCIAL YEAR 2006-07 RELEVANT TO A.Y. 2007-08 WHEREIN THE ASSESS EE HAD RIGHTLY OFFERED THE INCOME ACCRUED TO IT IN ITS ORIGINAL RETURN OF INCOME AND THAT MERE CANCELLATION OF THE SAID AGREEMENTS IN SUBSEQUENT Y EARS CANNOT RELATE BACK TO THE YEAR WHEN AGREEMENTS WERE EXECUTED. IN SUPPORT OF THIS CONTENTION, THE LEARNED DR RELIED ON THE FOLLOWING CASE LAWS :- I. SHIV PRAKASHJANAK RAJ & CO. LTD. V. CIT 222 ITR 583 (SC) II. SARASWATI INSURANCE CO. (P) LTD. V CIT 252 ITR 430 (DEL.) III. H.P. MINERAL & IND. DEVELOPMENT V. CIT 302 ITR 120 (HP) IV. ROHINI HOLDINGS (P) LTD. V. CIT 345 ITR 466 (MAD. ) 32. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS TRIED TO DISTINGUISH THESE TRANSACTIONS AND ACCOUNTING POLIC Y REGARDING CANCELLATIONS FOLLOWED IN THE EARLIER ASSESSMENT YE ARS. SHE POINTED OUT THAT THE ASSESSING OFFICER HAD RIGHTLY OBSERVED IN THE REMAN D REPORT SUBMITTED TO 31 ITA NO.8485/MUM/2011 CIT(A) THAT IN THE EARLIER YEARS A DIFFERENT TREATM ENT WAS GIVEN TO THE CANCELLATION OF AGREEMENTS AND THAT IN ITS REVISED RETURN OF INCOME, THE ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING WHICH IS NOT PERMISSIBLE. SHE INVITED OUR ATTENTION TO PARA 7.2(I) ON PAGE NO.14 & 15 OF THE IMPUGNED ORDER OF THE LEARNED CIT(A) WHEREIN HE HAS OBSERVED THAT IN THE FINANCIAL YEARS 2002-03, 2003-04, 2004-05 & 2005-06, THE ASSE SSEE WAS REDUCING THE CANCELLATION OF SALE ITSELF I.E. CANCELLATIONS MADE IN F.Y. 2002-03, 2003-04, 2004-05 & 200506 WERE REDUCED FROM THE GROSS SALES OF THE RELEVANT FINANCIAL YEARS THOUGH THE SALE HAD BEEN RECOGNIZED AND ACCOU NTED BY THE ASSESSEE IN THE YEAR PRIOR TO RELEVANT FINANCIAL YEAR. SHE CONT ENDED THAT IT CLEARLY SHOWS THAT THE ASSESSEE ITSELF HAS VIOLATED THE REGULAR ACCOUN TING PRACTICE FOLLOWED EARLIER BY IT IN THE A. Y. 2007-08 AND 2008-09 WHICH IS NOT PERMISSIBLE IN LAW. 33. THE LEARNED DR REFERRED TO THE RELEVANT PROVISI ONS OF SECTION 211 AND 215 OF THE COMPANIES ACT, 1956 AND SUBMITTED THAT I N VIEW OF THESE PROVISIONS, IT IS NOT AT THE DISCRETION OF THE ASSE SSEE BEING A LISTED COMPANY TO CHANGE ITS METHOD OF ACCOUNTING AT ITS OWN WILL AND REVISE ITS FINANCIAL STATEMENTS AT ITS OWN SWEET WILL AT ANY TIME AFTER A PASSAGE OF ALMOST 1 1/2 YEARS AFTER COMPLETION OF THE FINANCIAL YEAR. SHE S UBMITTED THAT IT IS SIGNIFICANT TO NOTE IN THIS CONNECTION THAT THE ASSESSEE HAS GOT I TS ACCOUNTS AUDITED THRICE FOR THE FINANCIAL YEAR 2006-07 RELEVANT TO A.Y. 2007- 0 8 AND THE THIRD AUDIT REPORT IS DATED 31.03.2009 WHEREAS THE ASSESSEE HAS FILED ITS REVISED RETURN OF INCOME ON 01.01.2009 I.E. PRIOR TO SUCH AUDIT REPORT. 34. THE LEARNED DR SUBMITTED THAT THE ASSESSING OFF ICER HAS RIGHTLY OBSERVED THAT IT IS APPARENT THAT OWING TO HIGHER R EVENUE RECOGNIZED IN THE 32 ITA NO.8485/MUM/2011 ASSESSEE'S BOOKS OF ACCOUNTS DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY'S SHARES ON BOMBAY STOCK EXCHANGE WERE QUOT ED AT A HIGHER MARKET PRICE, RESULTING INTO BENEFIT TO ITS SISTER CONCERN S ON SALE OF SHARES OF THE ASSESSEE COMPANY AT SUCH HIGHER MARKET PRICE. IT IS REITERAT ED THAT THE CANCELLATION OF AGREEMENTS AND CONSEQUENTLY REVISION OF RETURN OF I NCOME WAS NOT A BONA FIDE ACT ON THE PART OF THE ASSESSEE. SHE SUBMITTED THAT KEEPING IN VIEW THE PROVISIONS OF SECTION 220 OF THE ACT READ WITH THE MINISTRY'S GENERAL CIRCULAR NO.1/2003, A COMPANY CANNOT LAY MORE THAN ONE SET OF ANNUAL ACCOUNTS FOR A PARTICULAR FINANCIAL YEAR UNLESS IT HAS REOPENED / REVISED SUCH ANNUAL ACCOUNTS AFTER THEIR ADOPTION IN THE ANNUAL GENERAL MEETING ON THE GROUNDS SPECIFIED IN THE MINISTRY'S CIRCULAR NO.1/2003. SHE CONTENDED THAT THE REVISED ACCOUNTS, ON THE BASIS OF WHICH THE REVISED RETURN HAS BEEN FILED, ARE NOT VALID WITHIN THE PURVIEW OF THE COMPANIES ACT, 1956 AS NE ITHER HAVE THEY BEEN ADOPTED BY THE AGM NOR HAVE THEY BEEN REVISED TO ME ET THE TECHNICAL REQUIREMENTS OF ANY OTHER LAW FOR THE TIME OF BEING IN FORCE AS IS REQUIRED BY THE CIRCULAR OF THE MINISTRY OF CORPORATE AFFAIRS. 35. THE LEARNED DR SUBMITTED THAT IT APPEARS THAT A T ONE POINT OF TIME THE ASSESSEE FOLLOWS 'MERCANTILE' METHOD OF ACCOUNTING AND SUDDENLY AT ANOTHER POINT OF TIME, THE ASSESSEE OPTS FOR 'CASH' SYSTEM OF ACCOUNTING AND REVISES ALL ITS BOOKS OF ACCOUNTS FROM THE YEAR OF EXECUTION OF AGREEMENTS WHICH GOES ON TILL THE YEAR OF CANCELLATION OF SUCH AGREEMENTS. S HE READ OUT AND RELIED ON PARA 7.2 ON PAGE NO.21 OF THE IMPUGNED ORDER OF THE LEAR NED CIT(A) WHEREIN HE HAS CRITICALLY EXAMINED THE RELEVANT ASP ECTS OF THE AGREEMENTS IN QUESTION AND HELD THAT INCOME FROM THESE TRANSACTIO NS WERE LIABLE TO BE ASSESSED IN THE RELEVANT ASSESSMENT YEAR AS PER THE ORIGINAL RETURN OF INCOME AND SUBSEQUENT CANCELLATION OF THOSE AGREEME NTS CANNOT 33 ITA NO.8485/MUM/2011 RETROSPECTIVELY REPLACE INCOME OFFERED IN THE ORIGI NAL RETURN OF INCOME. THE LEARNED DR SUBMITTED THAT THE DEVELOPMENT RIGHT S AND TDRS ASSIGNED BY THE ASSESSEE REPRESENT ITS STOCK-IN-TRADE AS EVIDENT FR OM THE COPIES OF THE RELEVANT BALANCE SHEETS AND PROFIT & LOSS ACCOUNTS. THEREFOR E, THE ASSESSEE'S EMPHASIS ON TRANSFER WHICH IS GERMANE TO CAPITAL GAINS IS IR RELEVANT AND UNFOUNDED. THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND REA L ESTATE. UNDOUBTEDLY, BY THESE AGREEMENTS, THE ASSESSEE HAD ASSIGNED THE RIG HTS TO THE ASSIGNEES FOR DEVELOPMENT OF THE RESPECTIVE PROPERTIES IN THE ORD INARY COURSE OF ITS BUSINESS ACTIVITY. THE SUBSEQUENT CANCELLATIONS OF THE AGREEMENTS DENOTE THAT THE ORIGINAL POSITION IS RESTORED I.E. THE ASSESSEE 'S STOCK-IN-TRADE HAS BEEN RETURNED TO IT AND THAT NO CONSIDERATION IS PAYABLE BY THE ASSIGNEES ANY MORE. THUS, THE TRANSACTION IS IN THE NATURE OF 'SALES RE TURNS' AND AS PER THE ACCOUNTING POLICIES, THE SAME ARE TO BE ACCOUNTED F OR IN THE YEAR OF RETURNS AND NOT IN THE YEAR OF SALE. 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THI S ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE ALSO DELIBERAT ED UPON THE VERRIOUS JUDICIAL PRONOUNCEMENTS CITED BY BOTH THE SIDES IN SUPPORT O F THEIR RESPECTIVE STAND. UNDER THE INCOME-TAX ACT, INCOME CHARGED TO TAX IS THE I NCOME THAT IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN THE PREVIOUS YEAR RELEVANT TO THE YEAR FOR WHICH ASSESSMENT IS MADE OR THE INCOME THAT ACCRUES OR AR ISES OR IS DEEMED TO ACCRUE OR ARISEN IN INDIA DURING SUCH YEAR. THE COMPUTATION O F SUCH INCOME IS TO BE MADE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IF THE ACCOUNTS ARE MAINTAINED UNDER THE MERCANTILE SY STEM, WHAT HAS TO BE SEEN IS WHETHER INCOME CAN BE SAID TO HAVE REALLY ACCRUED T O THE ASSESSEE. THERE ARE SETTLED PRINCIPLES TO ASCERTAIN WHETHER INCOME CAN BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE IS FOLL OWING MERCANTILE SYSTEM OF 34 ITA NO.8485/MUM/2011 ACCOUNTING AND BEFORE WE DECIDE AS TO WHETHER THE I NCOME IN QUESTION FROM THE RELEVANT FIVE TRANSACTIONS IN IMMOVABLE PROPERTY CA N BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION ON THE TOUCHSTONE OF THESE PRINCIPLES AND IN THE LIGHT OF THE PROPOSITIONS PRO POUNDED BY THE HONBLE SUPREME COURT IN THE VARIOUS JUDICIAL PRONOUNCEMENTS, IT IS PERTINENT TO FIRST CONSIDER AND DEAL WITH THE VARIOUS OBJECTIONS/CONTENTIONS RAISED BY THE REVENUE TO BRING TO TAX THE SAID INCOME IN THE HANDS OF THE ASSESSEE FOR TH E YEAR UNDER CONSIDERATION IN THE LIGHT OF ELABORATE SUBMISSIONS MADE ON BEHALF OF TH E ASSESSEE IN ORDER TO MEET THE SAID OBJECTIONS/CONTENTIONS OF THE REVENUE. 37. THE FIRST OBJECTION RAISED BY THE REVENUE IS BA SED ON THE ACCOUNTING ENTRIES AS MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT ORI GINALLY PREPARED. DURING THE COURSE OF SURVEY, THE SAID ACCOUNTS WERE FOUND AND ON THE BASIS OF PROFITS REFLECTED IN THE SAID ACCOUNTS, CHAIRMAN AND MANAGING DIRECTO R OF THE ASSESSEE COMPANY AGREED TO PAY THE TAX THEREON AND FILE THE RETURN AFTER PAYMENT OF TAX. ALTHOUGH NO SUCH TAX WAS FINALLY PAID BY THE ASSESSEE COMPANY, THE ORIGINAL RETURN OF INCOME WAS FILED DECLARING THE TOTAL INCOME OF RS.135.47 C RORES ON THE BASIS OF PROFITS REFLECTED IN THE BOOKS OF ACCOUNTS AS FOUND DURING THE COURSE OF SURVEY. THEREAFTER, A REVISED RETURN WAS FILED BY THE ASSESSEE DECLARIN G NIL INCOME WHICH WAS CLAIMED TO BE FILED ON THE BASIS OF THE REVISED ACCOUNTS. T HE REVENUE HAS NOT ACCEPTED EITHER THE REVISED RETURN OR THE REVISED ACCOUNTS H OLDING THAT THE REVISION OF ACCOUNTS WAS NOT PERMISSIBLE UNDER THE COMPANIES AC T. THEY HAVE RELIED ON THE ENTRIES MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUN TS ORIGINALLY AS FOUND DURING THE COURSE OF SURVEY TO HOLD THAT INCOME OF RS.135. 47 CRORES HAD ACCRUED TO THE ASSESSEE FROM THE FIVE AGREEMENTS FOR SALE OF PROPE RTIES ENTERED INTO IN THE YEAR UNDER CONSIDERATION. IT IS BY NOW WELL SETTLED THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS IS NO T DETERMINATIVE OF THE QUESTION 35 ITA NO.8485/MUM/2011 WHETHER THE ASSESSEE EARNED ANY PROFIT OR SUFFERED ANY LOSS. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF SATLEJ COTTON MILLS LT D. 116 ITR 1, THE ASSESSEE MAY, BY MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER ACCOUNTING PRINCIPLES, CONCEAL PROFITS OR SHOW LOSS AND THE EN TRIES MADE BY HIM CANNOT, THEREFORE, BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT IS TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER I N FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT 82 ITR 363, IT WAS HELD BY THE HONBLE SUPREME COUR T THAT WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPE ND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGH T TAKE NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNTS BE DECI SIVE OR CONCLUSIVE IN THE MATTER. IN THE CASE OF H.M. KASHIPAREKH & CO. LTD. VS. CIT 39 ITR 706, HONBLE BOMBAY HIGH COURT HELD THAT THE INCOME-TAX IS A LEV Y ON INCOME AND ALTHOUGH THE INCOME-TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIM E AT WHICH THE LIABILITY TO TAX IS ATTRACTED VIZ. THE ACCRUAL OF THE INCOME OR ITS REC EIPT, THE SUBSTANCE OF THE MATTER IS THE INCOME. IT WAS HELD THAT IF INCOME DOES NOT RES ULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK KEEPING ENTRIES ARE MADE ABOUT A HYPOTHETICAL INCOME WHICH DOES NOT MATERIALIZE. IN OUR OPINION, THE RATIO LAI D DOWN IN THESE DECISIONS OF THE HONBLE SUPREME COURT AND OF THE HONBLE JURISDICTI ONAL HIGH COURT MAKES IT ABUNDANTLY CLEAR THAT THE ENTRIES MADE BY THE ASSES SEE IN THE BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSES SEE HAS EARNED ANY INCOME AND WHAT IS TO BE CONSIDERED TO DECIDE THE SAID QUESTIO N IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT TO THE ASSESSEE. WE, THEREFORE, HOLD THAT THE VARIOUS OBJECTIONS RAISED BY THE REVENUE BASED ON THE ACCOUNTING ENTRIES AS MADE ORIGINALLY IN THE BOOKS OF ACCOUNTS OR THE REVISION THEREOF ARE NOT SUSTAINABLE AND OVERRULING THE SAME , WE HOLD THAT THE QUESTION AS TO WHETHER THE INCOME CAN BE SAID TO HAVE REALLY ACCRU ED TO THE ASSESSEE FROM THE 36 ITA NO.8485/MUM/2011 RELEVANT FIVE TRANSACTIONS IN IMMOVABLE PROPERTY IS REQUIRED TO BE CONSIDERED KEEPING IN VIEW THE TRUE NATURE OF THE SAID TRANSAC TIONS AND WHETHER IN FACT THE SAID TRANSACTIONS HAVE RESULTED IN PROFIT TO THE ASSESSE E. 38. ANOTHER OBJECTION RAISED BY THE REVENUE IS THAT AS A RESULT OF HUGE PROFITS SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS ARIS ING FROM THE RELEVANT FIVE TRANSACTIONS IN IMMOVABLE PROPERTIES, THE SHARE PRI CE OF THE ASSESSEE COMPANY HAD GONE UP SUBSTANTIALLY AND ITS SISTER CONCERNS EXPLO ITED THIS SITUATION BY SELLING THE SHARES OF THE ASSESSEE COMPANY HELD BY THEM AT HIGH ER MARKET PRICE. WE REALLY FAIL TO UNDERSTAND HOW THIS ASPECT IS RELEVANT FOR THE P URPOSE OF DETERMINING WHETHER THERE WAS ANY INCOME ACTUALLY ACCRUED TO THE ASSESS EE AS A RESULT OF THE SAID TRANSACTIONS. IF THE ALLEGATION OF THE REVENUE IS A BOUT INSIDER TRADING OR RIGGING OF SHARE PRICES ON THE PART OF THE ASSESSEE COMPANY OR ITS SISTER CONCERNS, THE ASSESSEE CAN BE LIABLE FOR SUITABLE ACTION BY THE SEBI. HOWE VER, AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, NO SUCH ACTION HAS BEEN I NITIATED BY THE SEBI AGAINST THE ASSESSEE COMPANY OR EVEN AGAINST THE SISTER CONCERN . THE REVENUE AUTHORITIES, IN OUR OPINION, THEREFORE, WERE NOT JUSTIFIED TO MAKE SUCH ALLEGATIONS WITHOUT THERE BEING ANY ACTION TAKEN BY THE AUTHORITY COMPETENT T O DO SO AND TO MAKE ASSESSMENT ON A HUGE INCOME IN THE HANDS OF THE ASSESSEE ON TH E BASIS OF SUCH ALLEGATION. IN ANY CASE, EVEN IF THE REVENUE IS TRYING TO SHOW BY MAKING SUCH ALLEGATION THAT THE RELEVANT TRANSACTIONS WERE SHAM AND NOT THE REAL ON E, NO INCOME CAN BE SAID TO HAVE ACTUALLY ACCRUED TO THE ASSESSEE AS A RESULT O F SUCH SHAM TRANSACTION. 39. THE REVENUE HAS ALSO DOUBTED THE GENUINENESS OF THE CANCELLATION OF THE RELEVANT AGREEMENTS ON THE GROUND THAT IT WAS NOT A BONAFIDE ACTION OF THE ASSESSEE. THE MAIN OBJECTION RAISED BY THE LEARNED CIT(APPEAL S) IN THIS REGARD IS THAT THERE WAS NO CLAUSE IN THE ORIGINAL AGREEMENTS ALLOWING C ANCELLATION OR TERMINATION OF 37 ITA NO.8485/MUM/2011 THE AGREEMENTS. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD, ANY AGREEMENT ENTERED INTO BY THE PARTIES C AN BE TERMINATED OR CANCELLED BY MUTUAL CONSENT EVEN IN THE ABSENCE OF ANY CLAUSE SP ECIFICALLY PERMITTING TO DO SO. MOREOVER, AS A RESULT OF CANCELLATION OF THE AGREE MENTS, THE RELEVANT IMMOVABLE PROPERTIES HAVE COME BACK TO THE ASSESSEE COMPANY A ND THE SAME ARE DULY REFLECTED IN ITS BALANCE SHEET FOR THE SUBSEQUENT YEARS AS DE MONSTRATED BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN OUR OPINION, THERE IS THUS NO REASON TO DOUBT THE GENUINENESS OR BONAFIDE OF THE ACTION OF THE ASSESS EE IN CANCELLING THE AGREEMENTS WHICH HAS BEEN ACCEPTED AND DULY ACTED UPON BY ALL THE PARTIES CONCERNED. IT IS PERTINENT TO NOTE HERE THAT THE REASON FOR CANCELLA TION OF AGREEMENTS WAS EXPLAINED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS CHA NGE IN THE MARKET SCENARIO RELATING TO REAL ESTATE AND THIS REASON GIVEN BY TH E ASSESSEE TO JUSTIFY THE DECISION TAKEN TO CANCEL THE AGREEMENTS AS A HONEST AND PRUD ENT BUSINESS MAN HAS NOT BEEN DOUBTED OR DISPUTED BY THE AUTHORITIES BELOW BY BRI NGING ANY MATERIAL OR EVIDENCE ON RECORD. 40. THE REVENUE AUTHORITIES HAVE DOUBTED THE AUTHEN TICITY OF THE REVISED ACCOUNTS WHEN THE ACCOUNTS PREPARED ORIGINALLY HAD ALREADY BEEN APPROVED BY THE SHARE HOLDERS AND FILED WITH THE REGISTRAR OF COMP ANIES. THEY HAVE REFERRED TO THE RELEVANT CIRCULARS IN THIS CONTEXT WHICH PERMIT SUC H REVISION ONLY IN EXCEPTIONAL CIRCUMSTANCES STIPULATED THEREIN. ALTHOUGH THE LEAR NED COUNSEL FOR THE ASSESSEE HAS MADE ELABORATE SUBMISSIONS IN ORDER TO MEET THESE O BJECTIONS OF THE REVENUE, WE ARE OF THE VIEW THAT NOTHING REAL TURNS ON THIS ASP ECT KEEPING IN VIEW THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SUTLEJ COTT ON MILLS LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT AND WHAT IS TO BE CONSIDERED TO DECIDE THIS QUESTION IS THE TRUE NATURE OF THE TRANSACTION AND 38 ITA NO.8485/MUM/2011 WHETHER IN FACT IT HAS RESULTED IN PROFIT TO THE AS SESSEE. IT IS, HOWEVER, WORTHWHILE TO NOTE HERE THAT THE REVISED ACCOUNTS WERE APPROVE D BY THE SHAREHOLDERS OF THE ASSESSEE COMPANY AND THE SAME WERE DULY FILED WITH THE REGISTRAR OF COMPANIES IS SHOWN BY THE LEARNED COUNSEL FOR THE ASSESSEE FROM THE RELEVANT EVIDENCE PLACED ON RECORD. 41. IN THE PRESENT CASE, AS PER THE ACCOUNTING POLI CY FOLLOWED BY THE ASSESSEE COMPANY, REVENUE IN RESPECT OF PROPERTY SALE TRANSA CTIONS IS CLAIMED TO BE RECOGNIZED ON THE BASIS OF AGREEMENT OF SALE SUBJEC T TO EXECUTION OF CONVEYANCE AND COMPLIANCE OF APPLICABLE LEGAL FORMALITIES. ACC ORDINGLY, THE ASSESSEE IS CLAIMED TO HAVE RECOGNIZED THE INCOME IN RESPECT OF FIVE TRANSACTIONS OF PROPERTIES IN THE BOOKS OF ACCOUNTS FOR THE YEAR UNDER CONSIDE RATION AS ORIGINALLY PREPARED AND WHEN THE SAME WAS NOT FOLLOWED BY EXECUTION OF CONV EYANCE AND COMPLIANCE OF APPLICABLE LEGAL FORMALITIES RESULTING INTO CANCELL ATION OF THE AGREEMENTS, ACCOUNTS WERE REVISED AS PER WHAT IS CALLED AS SECOND LIMB O F THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE. THE REVENUE HAS NOT ACCEPTED THIS STAND OF THE ASSESSEE MAINLY ON THE GROUND THAT IN THE EARLIER YEARS, CANCELLATION OF TRANSACTIONS WAS GIVEN EFFECT TO IN THE YEAR OF CANCELLATION AS TAKEN PLACE SUBSEQU ENTLY. HOWEVER, AS EXPLAINED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE HAS FOLLOWED PROJECT COMPLETION METHOD IN RESPECT OF PROJECTS ACTUALLY UNDERTAKEN A ND EXECUTED BY IT AND THE CANCELLATION AS REFERRED TO BY THE AUTHORITIES BELO W WHICH HAD TAKEN PLACE IN THE EARLIER YEARS WAS OF TENEMENTS IN THE SAID PROJECTS WHICH WERE RESOLD AFTER THE CANCELLATION. THE RELEVANT TRANSACTIONS IN DISPUTE, HOWEVER, WERE RELATING TO TRANSFER OF LAND OR RIGHTS THEREIN AND THE CANCELLA TION OF SUCH TRANSACTIONS, IN OUR OPINION, CANNOT BE EQUATED WITH THE CANCELLATION OF TENEMENTS OF THE HOUSING PROJECT UNDERTAKEN AND EXECUTED BY THE ASSESSEE. IN OUR OPINION, AS PER THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE COMPANY, THE REVENUE IN RESPECT OF 39 ITA NO.8485/MUM/2011 PROPERTY SALE TRANSACTION WAS RECOGNIZED ORIGINALLY IN THE BOOKS OF ACCOUNTS OF THE YEAR UNDER CONSIDERATION ON THE BASIS OF AGREEMENT OF SALE WHICH WAS SUBJECT TO EXECUTION OF CONVEYANCE AND COMPLIANCE OF APPLICABL E LEGAL FORMALITIES. ACCORDINGLY, IN THE ORIGINAL RETURN OF INCOME, THE REVENUE SO RECOGNIZED IN THE ACCOUNTS WAS OFFERED TO TAX BY THE ASSESSEE COMPANY . HOWEVER, AS A RESULT OF CANCELLATION OF THE RELEVANT TRANSACTIONS, THERE WA S NO INCOME REALLY ACCRUED TO THE ASSESSEE WHICH WAS CHARGEABLE TO TAX AND THE DECLAR ATION OF SUCH INCOME TURNED OUT TO BE A WRONG STATEMENT OF WHICH THE ASSESSEE B ECAME AWARE ONLY ON CANCELLATION. IT, THEREFORE, REVISED THE ACCOUNTS W HICH, IN OUR OPINION, WAS IN CONFORMITY WITH THE ACCOUNTING POLICY FOLLOWED BY I T AND ALSO REVISED THE RETURN OF INCOME TO CORRECT THE WRONG STATEMENT MADE IN THE O RIGINAL RETURN. 42. AFTER HAVING FOUND THAT THE OBJECTIONS OF THE R EVENUE ARE NOT SUSTAINABLE, WE NOW PROCEED TO CONSIDER AND DECIDE ON MERIT THE MAIN ISSUE AS TO WHETHER INCOME CAN BE SAID TO HAVE REALLY ACCRUED TO THE AS SESSEE COMPANY AS A RESULT OF THE RELEVANT FIVE TRANSACTIONS OF PROPERTY HAVING R EGARD TO THE TRUE NATURE OF THE TRANSACTIONS. THE FIRST AND FOREMOST ISSUE IN THIS CONTEXT IS THAT THE RELEVANT PROPERTIES, THE SALE OF WHICH HAS GIVEN RISE TO THE DISPUTE RELATING TO THE TAXABILITY OF THE PROFIT ARISING FROM TRANSACTIONS THEREIN, WE RE HELD BY THE ASSESSEE COMPANY AS STOCK IN TRADE. THE CONTENTION RAISED BY THE LEA RNED COUNSEL FOR THE ASSESSEE IN THIS REGARD IS THAT THE SALE OF IMMOVABLE PROPERTY BEING STOCK IN TRADE IS GOVERNED BY THE PROVISIONS OF TRANSFER OF PROPERTY ACT AND NOT THE SALE OF GOODS ACT. HE HAS CONTENDED THAT SECTION 2(47) GIVING THE DEFINIT ION OF TRANSFER IN RELATION TO CAPITAL ASSET THUS IS NOT RELEVANT AND SINCE THERE WAS NO SALE OF IMMOVABLE PROPERTY BEING STOCK IN TRADE IN THE YEAR UNDER CONSIDERATIO N AS PER THE TRANSFER OF PROPERTY ACT, NO INCOME CAN BE SAID TO HAVE ACCRUED TO THE A SSESSEE FROM THE RELEVANT TRANSACTIONS IN THE YEAR UNDER CONSIDERATION. WE FI ND THAT THIS CONTENTION OF THE 40 ITA NO.8485/MUM/2011 LEARNED COUNSEL FOR THE ASSESSEE IS DULY SUPPORTED BY THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL AT CHENNAI IN THE CASE OF R. GOPINATH (HUF) VS. CIT 42 DTR 127 WHEREIN IT WAS HELD THAT SALE/TRANSFER OF I MMOVABLE PROPERTY WHICH IS STOCK IN TRADE, CANNOT BE EQUATED WITH THE TRANSFER OF CAPITAL ASSET AND SECTION 2(47) DEALING WITH TRANSFER OF CAPITAL ASSET CANNOT BE AP PLIED IN CASE OF SALE/TRANSFER OF STOCK IN TRADE. IT WAS HELD THAT THE SALE/TRANSFER OF IMMOVABLE PROPERTY BEING STOCK IN TRADE IS GOVERNED BY THE TRANSFER OF PROPERTY AC T AND AS HELD BY HONBLE SUPREME COURT IN THE CASE OF ALAPATTI VENKATARAMAIA H VS. CIT 57 ITR 185, THERE CANNOT BE A SALE OR TRANSFER OF IMMOVABLE PROPERTY UNTIL AND UNLESS THE TITLE OF THE PROPERTY IS PASSED ON TO THE PURCHASER. THE PROVISI ON OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT WAS ALSO CONSIDERED BY THE TRIBUNAL AS INCORPORATED IN SECTION 2(47) AND IT WAS HELD THAT DELIVERY OF THE POSSESSION UNDER THE DEVELOPMENT AGREEMENT OF THE PROPERTY WHICH IS STOCK IN TRADE O F THE ASSESSEE CANNOT BE TREATED AS A TRANSFER BY APPLYING THE DEFINITION OF TRANSFE R IN SECTION 2(47) OF THE INCOME- TAX ACT, 1961 AS IN THE CASE OF STOCK IN TRADE, THE TRANSFER U/S 2(47) OF THE INCOME- TAX ACT, 1961 IS NOT APPLICABLE AND WHAT IS APPLICA BLE IS THE CONTEXTUAL OR THE ORDINARY MEANING OF THE WORD TRANSFER. IT WAS HEL D THAT WHEN THE LEGAL TITLE AND POSSESSION OF THE PROPERTY WERE WITH THE ASSESSEE, THEN THE TRANSFER OR SALE WAS NOT POSSIBLE MERELY BY ALLOWING THE DEVELOPER TO CARRY OUT THE CONSTRUCTION WORK AND UNLESS AND UNTIL THE TITLE OF THE PROPERTY IS PASS ED ON TO THE CUSTOMER, THERE CANNOT BE A SALE OR STOCK OF THE IMMOVABLE PROPERTY WHICH IS STOCK IN TRADE. IN OUR OPINION, IF THE RATIO OF THE DECISION OF THE TRIBUN AL IN THE CASE OF R. GOPINATH (HUF) (SUPRA) IS APPLIED TO THE FACTS OF THE PRESEN T CASE, IT BECOME ABUNDANTLY CLEAR THAT THE RELEVANT AGREEMENTS ENTERED INTO BY THE ASSESSEE DID NOT RESULT IN SALE OR TRANSFER OF IMMOVABLE PROPERTIES CONSTITUTING ST OCK IN TRADE AS THE TITLE OF THE SAID PROPERTIES WAS NOT PASSED ON TO THE PURCHASERS AND THE SAME REMAINED WITH THE ASSESSEE ALL THROUGHOUT. IT, THEREFORE, CANNOT BE SAID THAT THERE WAS ACCRUAL OF 41 ITA NO.8485/MUM/2011 INCOME TO THE ASSESSEE AS A RESULT OF THE SAID TRAN SACTIONS/AGREEMENTS IN THE YEAR UNDER CONSIDERATION AND DECLARATION OF SUCH INCOME IN THE ORIGINAL RETURN WHICH HAD NOT ACCRUED TO THE ASSESSEE CLEARLY REPRESENTED A WRONG STATEMENT. 43. IT HAS BEEN CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US THAT EVEN IF IT IS ASSUMED FOR THE SAKE OF ARGUMENT THAT THERE WAS ACCRUAL OF INCOME TO THE ASSESSEE AS A RESULT O F THE RELEVANT TRANSACTIONS/AGREEMENTS IN IMMOVABLE PROPERTIES IN THE YEAR UNDER CONSIDERATION, THE SAID TRANSACTIONS/AGREEMENTS HAVING BEEN CANCEL LED SUBSEQUENTLY, THERE WAS REALLY NO ACCRUAL OF SUCH INCOME WHICH CAN BE BROUG HT TO TAX IN THE HANDS OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE LEARN ED DR IN THIS REGARD HAS CONTENDED THAT THE CANCELLATION OF THE AGREEMENT TO OK PLACE SUBSEQUENTLY AFTER A GAP OF MORE THAN TWO YEARS AND SUCH SUBSEQUENT EVEN T TAKING PLACE IN THE SUCCEEDING YEAR CANNOT AFFECT THE ACCRUAL OF INCOME WHICH HAD TAKEN PLACE IN THE YEAR UNDER CONSIDERATION. IN SUPPORT OF THIS CONTEN TION, SHE HAS RELIED ON CERTAIN JUDICIAL PRONOUNCEMENTS. A PERUSAL OF THE SAME, HOW EVER, SHOWS THAT THE SAID CASE LAWS CANNOT BE OF ANY HELP TO THE REVENUES CASE ON THE ISSUE INVOLVED IN THE PRESENT APPEAL AS THE ISSUE INVOLVED THEREIN WAS R ELATING TO ACCRUAL OF INTEREST INCOME AND SINCE THE INTEREST INCOME ACCRUES PERIOD ICALLY WHEN IT FALLS DUE, COURTS HELD THAT INTEREST HAD ALREADY ACCRUED TO THE ASSES SEE ON THE DUE DATES AND WAIVER OF SUCH INTEREST SUBSEQUENTLY WAS NOT RELEVANT IN T HIS CONTEXT. 44. IT IS OBSERVED THAT THE CASE LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THIS POINT, ON THE OTHER HAND, ARE DIRECTLY APPL ICABLE TO THE ISSUE INVOLVED IN THE PRESENT CASE. IN THE CASE OF GODHRA ELECTRIC CO. L TD. (SUPRA), THE ASSESSEE COMPANY HAD DECIDED TO ENHANCE THE RATES OF ELECTRI CITY IN 1963 AND ALSO MADE ENTRIES IN ITS BOOKS OF ACCOUNTS RECOGNIZING THE IN COME AS A RESULT OF ENHANCED 42 ITA NO.8485/MUM/2011 CHARGES FOR THE SUPPLY MADE TO THE CUSTOMERS. THE E NHANCEMENT IN THE RATES WAS CHALLENGED BY THE CONSUMERS AND AFTER THE PROLONGED LITIGATION, HONBLE SUPREME COURT FINALLY DECREED IN FAVOUR OF THE CONSUMERS ON 23 RD JUNE, 1974. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE QUESTION THAT AR OSE FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT WAS WHETHER THERE WAS REAL AC CRUAL OF INCOME TO THE ASSESSEE IN RESPECT OF THE ENHANCED CHARGES FOR SUP PLY OF ELECTRICITY AND THE HONBLE APEX COURT HELD THAT THIS QUESTION HAS TO B E CONSIDERED BY TAKING THE PROBABILITY OR IMPROBABILITY OF REALIZATION IN THE REALISTIC MANNER. HONBLE SUPREME COURT HELD THAT IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, IT WAS NOT POSSIBLE TO HOLD THAT THERE WAS REAL ACCRUAL OF INC OME TO THE ASSESSEE COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECT RICITY AND THE CLAIM MADE BY THE ASSESSEE AT THE INCREASED RATES ON THE BASIS OF WHI CH NECESSARY ENTRIES WERE MADE REPRESENTED ONLY HYPOTHETICAL INCOME WHICH COULD N OT BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE COMPANY DURING THE RELEVANT PREVIOUS YEARS. TO COME TO THIS CONCLUSION, HONBLE SUPREME COURT, INTER ALIA, RELIED ON ITS EARLIER JUDGMENT IN THE CASE OF SHOORJI VALLABHDAS & CO. (SUPRA) WHEREI N IT WAS HELD THAT INCOME-TAX IS A LEVY ON INCOME AND ALTHOUGH INCOME-TAX ACT TAK ES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED VIZ . THE ACCRUAL OF INCOME OR ITS RECEIPT, THE SUBSTANCE OF THE MATTER IS THE INCOME. IT WAS HELD THAT IF THE INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX EVEN THOUGH IN BOOK KEEPING ENTRIES WERE MADE ABOUT HYPOTHETICAL INCOME WHICH DOES NOT MATERIALIZE. 45. IN HIS IMPUGNED ORDER, THE LEARNED CIT(APPEALS) HAS HEAVILY RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MO RVI INDUSTRIES LTD. (SUPRA) IN SUPPORT OF THE REVENUES CASE. IT IS OBSERVED THAT THE SAID DECISION IN THE CASE OF MORVI INDUSTRIES LTD. WAS ALSO RELIED UPON ON BEHAL F OF THE REVENUE BEFORE THE HONBLE SUPREME COURT IN THE CASE OF BIRLA GWALIO R P. LTD. 89 ITR 266 AND AFTER 43 ITA NO.8485/MUM/2011 CONSIDERING THE SAME, IT WAS HELD BY THE HONBLE SU PREME COURT THAT ALTHOUGH EMPHASIS WAS ALSO PLACED IN THE COURSE OF JUDGMENT DELIVERED IN THE CASE OF MORVI INDUSTRIES LTD. (SUPRA) ON THE FACT THAT THE ASSESS EE WAS MAINTAINING ITS ACCOUNTS ON THE BASIS OF MERCANTILE SYSTEM, IT WAS NOT ON THAT BASIS ALONE THAT THE COURT CAME TO THE CONCLUSION THAT THE INCOME IN QUESTION HAD ACCR UED ON 31 ST DECEMBER, 1955 AND 31 ST DECEMBER, 1956. IT WAS HELD THAT IN ARRIVING AT TH AT CONCLUSION, THE COURT PRIMARILY TOOK INTO CONSIDERATION THE TERMS OF THE AGREEMENT. HONBLE SUPREME COURT IN THE JUDGMENT DELIVERED IN THE CASE OF BIRL A GWALIOR P. LTD. (SUPRA) FOUND THAT ITS JUDGMENT IN THE CASE OF SHOORJI VALLABHADA S & CO. (SUPRA), ON THE OTHER HAND, WAS DIRECTLY ON THE POINT AND FOLLOWING THE S AME, IT WAS HELD BY THE HONBLE SUPREME COURT THAT IT IS NOT HYPOTHETICAL ACCRUAL O F INCOME THAT HAS GOT TO BE TAKEN INTO CONSIDERATION BUT THE REAL ACCRUAL OF INCOME. 46. IN THE CASE OF H.L. KESHARIPAREKH & CO. LTD. (S UPRA), THE CONCEPT OF REAL INCOME WAS EXPOUNDED BY THE HONBLE BOMBAY HIGH C OURT WHICH HAS BEEN APPROVED BY THE HONBLE SUPREME COURT IN THE CASE O F POONA ELECTRIC SUPPLY CO. LTD. VS. CIT 57 ITR 521. IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF H.L. KESHARIPAREKH & CO. LTD. (SUPRA) THAT THE PRINCIPLE OF REAL INCOME IS NOT TO BE SO SUBORDINATED AS TO AMOUNT VIRTUALLY T O A NEGATION OF IT WHEN A SURRENDER OR CONCESSION OR REBATE IN RESPECT OF MAN AGING AGENCY COMMISSION IS MADE, AGREED TO OR GIVEN ON THE GROUND OF COMMERCIA L EXPEDIENCY, SIMPLY BECAUSE IT TAKES PLACE SOMETIME AFTER THE CLOSE OF ACCOUNTI NG YEAR. IT WAS HELD THAT IN EXAMINING ANY TRANSACTION AND SITUATION OF THIS NAT URE, THE COURT WOULD HAVE MORE REGARD TO THE REALITY AND SPECIALITY OF THE SITUATI ON RATHER THAN PURE THEORETICAL OR DOCTRINAIRE ASPECT OF IT. 47. A SOME WHAT SIMILAR ISSUE AGAIN AROSE BEFORE TH E HONBLE BOMBAY HIGH 44 ITA NO.8485/MUM/2011 COURT IN THE CASE OF CIT VS. SHIVSAGAR ESTATE (AOP) REPORTED IN 204 ITR 1. IN THE SAID CASE, THE ASSESSEE HAD LEASED A PLOT ON RENT A ND HAD MADE CERTAIN ADVANCES ON INTEREST TO M UNDER AN AGREEMENT. M WAS TO CONSTRUC T THE HOTEL ON THE SAID PLOT WHICH HE WAS UNABLE TO DO. A FRESH AGREEMENT, THERE FORE, WAS ENTERED INTO BETWEEN THE ASSESSEE AND M SUBSEQUENTLY UNDER WHICH THE ASS ESSEE WAIVED RENT AND INTEREST AND RECEIVED BACK THE PLOT. IN THESE FACTS AND CIRC UMSTANCES, THE DOCTRINE OF REAL INCOME WAS HELD TO BE APPLICABLE BY THE HONBLE BOM BAY HIGH COURT HOLDING THAT NO RENTAL OR INTEREST INCOME COULD BE CHARGED IN TH E HANDS OF THE ASSESSEE ON THE BASIS OF EARLIER AGREEMENT WITH M. IN THE PRESENT C ASE, THE ORIGINAL AGREEMENTS/TRANSACTIONS IN RESPECT OF IMMOVABLE PRO PERTIES HAVE BEEN SUBSEQUENTLY CANCELLED/TERMINATED AND AS A RESULT O F THE SAID CANCELLATION/TERMINATION, THE RELEVANT IMMOVABLE PR OPERTIES HAVE BEEN RETURNED BACK TO THE ASSESSEE WHICH ARE DULY REFLECTED IN IT S BALANCE SHEET AS STOCK IN TRADE IN THE SUCCEEDING YEARS AS DEMONSTRATED BY THE LEAR NED COUNSEL FOR THE ASSESSEE FROM THE RELEVANT BALANCE SHEET PLACED ON RECORD. A S FURTHER SUBMITTED BY HIM, THE ASSESSEE COMPANY IS STILL HOLDING THE SAID IMMOVABL E PROPERTIES AS STOCK IN TRADE. HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE AR E OF THE VIEW THAT NO INCOME CAN BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE FROM THE RELEVANT TRANSACTIONS/AGREEMENTS IN RESPECT OF THE IMMOVABLE PROPERTIES AND THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ALLEGING ACCRUAL OF SUCH INCOME IN THE YEAR UNDER CONSIDERATION CANNOT BE SUSTAINED BY THE DOCTRINE OF REAL INCOME. 48. KEEPING IN VIEW THE LEGAL POSITION EMANATING FR OM THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND HAVING REGARD TO ALL THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT NO INCOME CAN BE SA ID TO HAVE REALLY ACCRUED TO THE ASSESSEE AS A RESULT OF THE FIVE RELEVANT TRANSACTI ONS IN THE IMMOVABLE PROPERTIES 45 ITA NO.8485/MUM/2011 WHICH IS CHARGEABLE TO TAX IN ITS HANDS FOR THE YEA R UNDER CONSIDERATION. THE DECLARATION OF SUCH INCOME, WHICH WAS NOT ACCRUED T O THE ASSESSEE IN THE REAL SENSE IN THE ORIGINAL RETURN THUS REPRESENTED A WRONG STA TEMENT WHICH WAS CORRECTED BY THE ASSESSEE BY FILING THE REVISED RETURN AND THE A O AS WELL AS THE LEARNED CIT(APPEALS), IN OUR OPINION, WAS NOT JUSTIFIED IN BRINGING TO TAX SUCH HYPOTHETICAL INCOME IN THE HANDS OF THE ASSESSEE COMPANY ON THE BASIS OF ORIGINAL RETURN OF INCOME IGNORING THE REVISED RETURN FILED BY THE ASS ESSEE. WE, THEREFORE, DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE ON MERIT AND DELETE THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON THIS I SSUE. 49. HAVING DECIDED THE ISSUE ON MERIT IN FAVOUR OF THE ASSESSEE, NOW WE REVERT BACK TO THE ISSUE RELATING TO THE VALIDITY OF THE R EVISED RETURN FILED BY THE ASSESSEE. WE HAVE ALREADY HELD THAT THE ASSESSEE HAVING FILE D THE ORIGINAL RETURN IN RESPONSE TO NOTICE U/S 142(1) AND REVISED THE SAME BEFORE T HE ASSESSMENT IS MADE AND WITHIN THE PERIOD OF ONE YEAR FROM THE END OF THE R ELEVANT ASSESSMENT YEAR, TWO OF THE THREE CONDITIONS FOR FILING THE REVISED RETURN IN ACCORDANCE WITH THE RELEVANT PROVISIONS OF SECTION 139(5) WERE DULY SATISFIED. R EGARDING THE THIRD CONDITION THAT THERE SHOULD BE SOME OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN WHICH THE ASSESSEE HAS DISCOVERED LATER ON, THE STAND TAKEN BY THE REVENUE IS THAT THERE WAS NO WRONG STATEMENT IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE OF WHICH THE ASSESSEE WAS NOT AWARE OF. ACCORDING TO THE REV ENUE AUTHORITIES, THERE WAS NO SUCH WRONG STATEMENT AS THE INCOME OFFERED BY THE ASSESSEE IN THE ORIGINAL RETURN HAD ACCRUED TO IT IN THE YEAR UNDER CONSIDERATION A ND IF AT ALL THERE WAS SUCH WRONG STATEMENT, THE ASSESSEE WAS AWARE OF THE SAME AS TH E EXECUTION OF THE ORIGINAL AGREEMENTS WITH THE SISTER CONCERNS AND CANCELLATIO N THEREOF SUBSEQUENTLY WAS A PREPLANNED AFFAIR WITH AN INTENTION TO RIG THE PRIC ES OF ITS SHARES SO THAT THE SISTER CONCERNS COULD SALE THE SHARES OF THE ASSESSEE COM PANY AT HIGHER PRICE IN ORDER TO 46 ITA NO.8485/MUM/2011 MAKE HUGE PROFITS. WE ARE UNABLE TO ACCEDE TO THIS THEORY OF THE REVENUE. IN OUR OPINION, IF THE PROFITS REFLECTED IN THE ACCOUNTS A S FOUND DURING THE COURSE OF SURVEY REPRESENTED FIGURES INFLATED BY THE ASSESSEE COMPA NY WITH AN INTENTION AS ALLEGED BY THE REVENUE, THERE WAS NO REASON FOR ITS CHAIRMA N-CUM-MANAGING DIRECTOR TO AGREE TO PAY TAX ON SUCH HUGE INCOME. IF HE WAS AWA RE OF THE FACT THAT THE SAID PROFITS REPRESENTED INFLATED FIGURES WHICH WAS NOT REAL, THERE WAS NOTHING TO PREVENT HIM FROM SAYING SO IN HIS STATEMENT RECORDE D DURING THE COURSE OF SURVEY INSTEAD OF AGREEING TO PAY TAX THEREON. EVEN IN THE LETTER SUBMITTED BY THE ASSESSEE COMPANY AFTER THE SURVEY TO THE AO, IT OFFERED TO P AY SUCH TAX. 50. AS REGARDS THE ALLEGATION OF THE REVENUE THAT IT WAS DONE BY THE ASSESSEE WITH AN INTENTION THAT ITS SISTER CONCERNS MAKE HUG E PROFITS BY SELLING ITS SHARES AT JACKED UP HIGHER PRICE, IT IS OBSERVED THAT SUCH PR OFIT ALLEGED TO HAVE BEEN MADE BY THE SISTER CONCERNS OF THE ASSESSEE COMPANY AS PER THE WORKING GIVEN BY THE AO IN THE ASSESSMENT ORDER WAS RS.77 CRORES WHILE THE DEM AND RAISED AGAINST THE ASSESSEE AS A RESULT OF THE DISPUTED TRANSACTIONS O N ACCOUNT OF TAX AND INTEREST IS RS.75.68 CRORES. IT IS DIFFICULT TO COMPREHEND HOW AND WHY THE ASSESSEE WOULD ACCEPT THE LIABILITY OF RS.75.68 CRORES ON ACCOUNT OF TAX AND INTEREST IN ORDER TO ENABLE ITS SISTER CONCERNS TO MAKE A PROFIT OF RS.7 7 CRORES. THE ALLEGATION MADE BY THE REVENUE ABOUT THE SO CALLED INTENTION OF THE AS SESSEE BEHIND EXECUTING THE AGREEMENTS AND CANCELLING THE SAME THUS IS BASED PU RELY ON CONJECTURES AND SURMISES AND IT IS VERY DIFFICULT TO ACCEPT THE STA ND OF THE REVENUE THAT EVERY THING WAS DONE BY THE ASSESSEE WITH THAT INTENTION. ON TH E OTHER HAND, WE ARE OF THE VIEW THAT THE PROFITS REFLECTED IN THE ACCOUNTS FOUND DU RING THE COURSE OF SURVEY WAS OFFERED TO TAX AS ITS INCOME BY THE ASSESSEE IN THE BONAFIDE MANNER AND ACCORDINGLY RETURN OF INCOME WAS ALSO ORIGINALLY FILED DECLARIN G THE SAID INCOME. THE RELEVANT TRANSACTIONS/AGREEMENTS, HOWEVER, WERE SUBSEQUENTLY CANCELLED/TERMINATED AS A 47 ITA NO.8485/MUM/2011 RESULT OF WHICH THE DECLARATION OF INCOME AS MADE B Y THE ASSESSEE IN THE ORIGINAL RETURN TURNED OUT TO BE A WRONG STATEMENT AND AFTER BECOMING AWARE OF THE SAME, THE REVISED RETURN WAS FILED BY THE ASSESSEE WHICH, IN OUR OPINION, WAS VALID IN THE EYE OF LAW AS THE CONDITIONS STIPULATED U/S 139(5) WERE DULY SATISFIED. IT IS WELL SETTLED THAT WHEN A REVISED RETURN IS FILED BY THE ASSESSEE, THE ORIGINAL RETURN IS TOTALLY SUBSTITUTED AND THE REVISED RETURN ALONE HA S TO BE TAKEN INTO CONSIDERATION IN COMPLETING THE ASSESSMENT. THE EARLIER RETURN, AFTE R A REVISED RETURN HAS BEEN FURNISHED, CANNOT FORM THE BASIS OF ASSESSMENT. FOR THE PURPOSE OF ASSESSMENT OF INCOME, THE EFFECTIVE RETURN THUS IS THE REVISED RE TURN FILED BY THE ASSESSEE ULTIMATELY. IN ANY CASE, THERE IS NO BAR ON THE APP ELLATE AUTHORITIES TO CONSIDER THE CLAIM OF THE ASSESSEE ON MERIT EVEN IN THE ABSENCE OF REVISED RETURN FILED BY HIM MAKING SUCH CLAIM AS HELD BY HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT 284 ITR 323 AND AS A MATTER OF FACT, T HE LEARNED CIT(APPEALS) HAS CONSIDERED AND DECIDED THE SAME ON MERIT BY HIS IMP UGNED ORDER. 51. THE LAST ISSUE RAISED BY THE ASSESSEE IN ITS AP PEAL AS TAKEN IN GROUND NO. 2(M) RELATES TO THE ADDITION OF RS.9,42,021/- MADE BY THE AO ON ACCOUNT OF WAIVER OF PRINCIPAL AMOUNT. 52. IN ITS PROFIT & LOSS ACCOUNT FILED ALONG WITH T HE RETURN OF INCOME, PRINCIPAL AMOUNT OF RS.9,42,021/- UNDER SCHEME OF OTS WAIVED DURING THE YEAR UNDER CONSIDERATION WAS CREDITED BY THE ASSESSEE. FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME, THE SAID AMOUNT, HOWEVER, WAS EXCLUDED BY T HE ASSESSEE ON THE GROUND THAT IT WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX EITHER U/S 41(1) OR EVEN U/S 28(IV). THIS STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO KEEPING IN VIEW THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F SOLID CONTAINERS LTD. VS. DCIT 308 ITR 417 WHEREIN IT WAS HELD THAT ALTHOUGH THE LOAN WAS TAKEN BY THE 48 ITA NO.8485/MUM/2011 ASSESSEE FOR TRADING ACTIVITY BUT UPON WAIVER, THE SAID LOAN WAS RETURNED BY THE ASSESSEE IN THE BUSINESS AND THE SAME, THEREFORE, W AS TAXABLE IN ITS HANDS AS INCOME. RELYING ON THE SAID DECISION OF HONBLE JUR ISDICTIONAL HIGH COURT, THE PRINCIPAL AMOUNT WAIVED OF UNDER THE SCHEME OF OTS WAS TREATED BY THE AO AS THE INCOME OF THE ASSESSEE AND ADDITION WAS MADE BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. 53. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ADDITIO N MADE BY THE AO ON THIS ISSUE WAS DISPUTED BY THE ASSESSEE IN AN APPEAL FILED BEF ORE THE LEARNED CIT(APPEALS) BY TAKING A SPECIFIC GROUND. IT APPEARS THAT THE LEARN ED CIT(APPEALS), HOWEVER, HAS NOT DECIDED THE SAID ISSUE VIDE HIS IMPUGNED ORDER. IN ANY CASE, NO MATERIAL CONTENTION HAS BEEN RAISED BY THE LEARNED COUNSEL F OR THE ASSESSEE BEFORE US TO SHOW THAT HOW THE DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA) RELIED UPON BY THE AO TO DE CIDE THIS ISSUE AGAINST THE ASSESSEE IS NOT APPLICABLE. ON THE OTHER HAND, AS HELD BY THE AO, THE ISSUE INVOLVED IN THE PRESENT CASE AS WELL AS ALL THE MAT ERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF THE CASE OF SOLID CONTAINERS LT D. (SUPRA) DECIDED BY THE HONBLE BOMBAY HIGH COURT AND THIS BEING SO, WE RESPECTFULL Y FOLLOW THE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT AND CONFIRM THE ADDITION MADE BY THE AO ON THIS ISSUE. 49 ITA NO.8485/MUM/2011 54. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 23 RD DAY OF OCT. , 2012. SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 23 RD OCT., 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENC HES, WAKODE MUMBAI.