2014 (1) TMI 400 - AT - Income Tax

Whether revenue be recognized on the basis of agreement to sell - Revision of order u/s 263 - Held that - Following Padmasundara Rao v. State of Tamil Nadu 2002 (3) TMI 44 - SUPREME Court - Through the Agreement of Sale dated 2.11.2005, the assessee is entitled to receive Rs. 5,01,60,000/- towards sale consideration of the property and it is accrued to the assessee as the assessee has right to receive the same - As the assessee has been following the mercantile system of accounting and the whole amount of sale should be considered as accrued to the assessee - The CIT is justified in directing the Assessing Officer to examine the issue afresh - The Sale Agreement cited supra is not yet cancelled and it is still in force. It is valid and enforceable by law. If there is any dispute it could be settled mutually or before a court of law - During the financial year relevant to assessment year nothing has been brought on record to show that the Sale Agreement has become invalid or cancelled or advance money has been refunded by the assessee to the purchaser - Decided in favour of Revenue.

Summary

Issues Involved:
1. Erroneous order of the CIT(A) in law and facts.
2. Accrual of the whole amount of sale under mercantile system of accounting.
3. Entitlement to receive the amount as per the agreement of sale.
4. Previous ITAT decision on the matter.

Issue-wise Detailed Analysis:

1. Erroneous order of the CIT(A) in law and facts:
The Revenue contended that the CIT(A)'s order was erroneous both in law and in facts. The Tribunal found that the CIT(A)'s decision was contrary to the earlier findings of the ITAT, which had already decided the matter against the assessee. The Tribunal emphasized that the CIT(A) should not have taken a contrary view on the same issue previously adjudicated by the Tribunal.

2. Accrual of the whole amount of sale under mercantile system of accounting:
The CIT(A) failed to appreciate that under the mercantile system of accounting, the entire sale amount should be considered as accrued to the assessee. The Tribunal upheld that the assessee, following the mercantile system, should have treated the agreed sale consideration of Rs. 5,01,60,000 as accrued income. The Tribunal referenced the agreement of sale dated 2.11.2005, noting that the assessee received Rs. 36,55,000 as an advance, and the balance was due within nine months.

3. Entitlement to receive the amount as per the agreement of sale:
The Tribunal observed that the assessee was entitled to receive the sale consideration as per the agreement dated 2.11.2005. The Tribunal noted that the agreement was valid and enforceable, and there was no evidence of its cancellation or invalidation by 31st March 2006. The Tribunal directed the Assessing Officer to re-examine the transactions and ensure the assessability of Rs. 5.01 crores, as the sale agreement was still in force.

4. Previous ITAT decision on the matter:
The Tribunal referred to its earlier decision (ITA No. 1080/Hyd/2011 dated 18.5.2012) where it had decided against the assessee. The Tribunal reiterated that the Assessing Officer must adopt a permissible course of law and take a conscious decision after analyzing the facts. The Tribunal found that the Assessing Officer had not properly examined the facts or applied the relevant law, thus justifying the CIT's revisional jurisdiction under Section 263.

Conclusion:
The Tribunal reversed the CIT(A)'s order, aligning with its previous decision that the entire sale amount should be considered accrued income under the mercantile system of accounting. The Tribunal directed the Assessing Officer to follow the CIT's instructions and pass a consequential order in accordance with the law. The appeal of the Revenue was allowed, and the order was pronounced in the open court on 12th December, 2013.