2012 (11) TMI 163 - AT - Income Tax

Validity of revised returns u/s 139(5) - condition no. (ii) of sec. 139(5) discovery of any omission or any wrong statement - whether there was any wrong statement made in the original return of which the assessee was not aware at the time of filing the same. - Held that - such examination of the assessee s claim on merit only will reveal as to whether the condition No. (ii) was satisfied in the present case in order to enable the assessee to furnish the revised return u/s 139(5). No income can be said to have really accrued to the assessee as a result of the five relevant transactions in the immovable properties which is chargeable to tax in its hands for the year under consideration. The declaration of such income, which was not accrued to the assessee in the real sense in the original return thus represented a wrong statement which was corrected by the assessee by filing the revised return and the AO 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 assesse 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 has to be taken into consideration in completing the assessment. The earlier return, after a revised return has been furnished, cannot form the basis of assessment. - In favor of assessee. Deemed income u/s 41(1) - Principal amount under Scheme of OTS waived - addition to income - Held that - As decided in Solid Containers Ltd. vs. DCIT 2008 (8) TMI 156 - BOMBAY HIGH COURT that although the loan was taken by the assessee for trading activity but upon waiver, the said loan was returned by the assessee in the business and the same, therefore, was taxable in its hands as income - against assessee.

Summary

Issues Involved
1. Validity of the revised return filed by the assessee.
2. Taxability of profit from five transactions in immovable property.
3. Addition of Rs. 9,42,021/- on account of waiver of principal amount.

Detailed Analysis

1. Validity of the Revised Return Filed by the Assessee
The assessee, a listed company engaged in real estate development and construction, filed a revised return declaring its total income as Nil after initially declaring Rs. 135.47 crores. The AO rejected the revised return, holding it invalid under section 139(5) of the Income Tax Act, which allows revision only for omissions or wrong statements discovered post-filing. The AO argued that the cancellation of sale agreements in subsequent years did not amount to an omission or wrong statement in the original return. The CIT(A) upheld this view, stating that the original return was based on audited accounts and consistent accounting policies. The Tribunal, however, found that the original return did contain a wrong statement as the income declared was hypothetical and not real, thus validating the revised return.

2. Taxability of Profit from Five Transactions in Immovable Property
The AO and CIT(A) held that the profit from the five transactions in immovable property, initially recognized in the original return, should be taxed. They argued that the agreements were collusive and the cancellation was not bona fide. The Tribunal disagreed, noting that the properties remained with the assessee and were reflected in subsequent balance sheets. The Tribunal emphasized that income tax is levied on real income, not hypothetical income. It cited several Supreme Court rulings, including Godhra Electric Co. Ltd. and Shoorji Vallabhdas & Co., to support the principle that only real income, not merely book entries, should be taxed. The Tribunal concluded that no real income accrued from the transactions, and thus, the addition made by the AO was deleted.

3. Addition of Rs. 9,42,021/- on Account of Waiver of Principal Amount
The AO added Rs. 9,42,021/- to the assessee's income, representing the principal amount waived under a One-Time Settlement (OTS) scheme. The AO relied on the Bombay High Court decision in Solid Containers Ltd., which held that waived loans returned to business are taxable as income. The Tribunal confirmed this addition, finding no substantial argument from the assessee to counter the AO's reliance on the cited case.

Conclusion
The Tribunal partly allowed the appeal, validating the revised return and deleting the addition of income from the five immovable property transactions, but upheld the addition related to the waiver of the principal amount.