2014 (4) TMI 935 - AT - Income Tax

Validity of revised return Termination of agreement Held that - The decision in Commissioner of Income Tax v. Shoorji Vallabhdas and Co. 1962 (3) TMI 6 - SUPREME Court followed - The assessee already had this knowledge before completing the assessment and at the time of filing the revised return therefore at the first instance in the original return even if the assessee had estimated profit out of the agreement entered into with M/s Mayflower Inno Reality Private Limited immediately after understanding that the agreement would not be executed he filed the revised return restating the correct income - Even though the formal termination agreement was executed later on the assessee was very well aware before the completion of assessment that the income stated in the original return was wrong. In that way the original computation of income filed by the assessee was wrong statement . When that is so the case of the assessee is covered by Section 139(5) which enables him to file a revised return to state the real income available in hands for the purpose of assessment for the assessment year - the real question is not whether income is received on accrual basis or on receipt basis but it is whether actually there was an income at all - If no income is likely to arise in the hands of the assessee there is no fun in estimating income hypothetically on the basis of accrual concept - before the completion of assessment and before the expiry of time available for filing of revised return the assessee observed the wrong statement made in the original return regarding the quantum of income and revised the return by stating the correct income liable for taxation - It had come to the knowledge of the assessee that he was not going to earn that much of income stated in the original return filed by him - the revision made by the assessee is justified - thus the CIT(A) is justified in deleting the income from the income assessed by the AO Decided against Revenue. Disallowance of expenses Held that - The business carried on by the assessee is as a facilitator for locating and aggregating land for builders and developers - Even though the agreement with M/s Mayflower Inno Reality Private Limited was vitiated later on the expenses of Rs. 68, 40, 000/- have been incurred by the assessee in the course of carrying on of his business - It is the business of the assessee to enter into agreements with big parties for procurement of large parcels of land - even if an agreement is cancelled later on the nature of expenditure incurred remained the same - What is spent is spent - When the expenses are incurred for the purpose of business it has to be allowed as an expenditure irrespective of the income or loss from the particular agreement thus the order of the CIT(A) set aside Decided in favour of Assessee. Assessment of share from the AOP Held that - An assessee having been assessed for his share from HUF as well is entitled for the rebate in tax the AO is directed Officer to give the assessee the benefit of rebate in tax while concluding his assessment Decided in favour of Assessee.

Summary

Issues Involved:

1. Validity of the revised return filed by the assessee.
2. Inclusion of income from the agreement with M/s Mayflower Inno Reality Private Limited.
3. Disallowance of expenditure incurred by the assessee.
4. Entitlement to rebate in tax for the assessee's share from his AOP.

Issue-wise Detailed Analysis:

1. Validity of the Revised Return Filed by the Assessee:

The assessee initially filed a return showing an income of Rs. 3,45,91,540/-, which included a profit of Rs. 3,11,67,002/- from an agreement with M/s Mayflower Inno Reality Private Limited. Subsequently, the assessee filed a revised return reducing the income to Rs. 34,24,530/- after excluding the said profit, citing the cancellation of the agreement. The Assessing Officer (AO) rejected the revised return, asserting that there was no omission or wrong statement in the original return, and thus, the revised return was invalid under Section 139(5) of the Income-tax Act, 1961. The Commissioner of Income Tax (Appeals) (CIT(A)) found that the agreement was indeed terminated and directed the AO to accept the revised return. The Tribunal upheld the CIT(A)'s decision, emphasizing that the real income must be taxed and that the assessee had corrected a wrong statement in the original return by filing the revised return.

2. Inclusion of Income from the Agreement with M/s Mayflower Inno Reality Private Limited:

The AO included the profit from the agreement in the total income, arguing that the agreement was in force during the relevant assessment year and the assessee had already procured part of the land. The CIT(A) and the Tribunal, however, observed that the agreement was terminated, and no actual sale or purchase occurred. The Tribunal noted that income must be real and not hypothetical, and since the agreement was not executed, the profit could not be considered as income.

3. Disallowance of Expenditure Incurred by the Assessee:

The CIT(A) disallowed the expenditure of Rs. 68,40,000/- claimed by the assessee, which was incurred in relation to the agreement with M/s Mayflower Inno Reality Private Limited. The Tribunal disagreed with the CIT(A), stating that the expenditure was incurred in the course of the assessee's business as a facilitator for land procurement. The Tribunal directed the AO to allow the expenditure as a deductible expense, irrespective of the income or loss from the agreement.

4. Entitlement to Rebate in Tax for the Assessee's Share from His AOP:

The assessee claimed a rebate in tax for his share from his Association of Persons (AOP). The Tribunal found this claim to be just and proper in law and directed the AO to grant the benefit of rebate in tax while concluding the assessment.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the cross-objection filed by the assessee. The Tribunal upheld the validity of the revised return, excluded the profit from the cancelled agreement from the total income, allowed the expenditure incurred by the assessee as a deductible expense, and directed the AO to grant the benefit of rebate in tax for the assessee's share from his AOP. The order was pronounced on December 5, 2013, at Chennai.