2015 (4) TMI 840 - HC - Income Tax

Bogus transactions - tribunal part deletion - whether the Tribunal lost sight of the legal provisions and particularly, Section 139(4) and Section 139(5) of the I.T. Act? - Held that - If the Revenue is trying to show that the relevant transactions were sham and not real, then it has to bring in satisfactory material. The Tribunal found in paras 37 to 40 of the impugned order that the income which was earlier disclosed was not as such because the Agreements were terminable or could have been cancelled. Once they were cancelled, the properties have reverted back to the assessee. They are duly reflected in the balance sheet and as assets of the assessee. There were revised accounts and which were also scrutinized. They were found to be in order and meeting the accounting practice adopted. Therefore, the accounting policy also could not have been faulted. In para 42 of the impugned order, the Tribunal held that income could not have really accrued because of the fact that these Agreements were cancelled. Then the issue of their cancellation has been gone into, and in extensive details. The correct legal principles were applied and a finding of fact is arrived at in para 48, that no income could be said to have really accrued to the assessee as a result of the five transactions in the immovable properties and which income was chargeable to tax in the year under consideration. Once income had not accrued to the assessee in the real sense, then the original return represents wrong statement which was corrected by the assessee by filing a revised return. Therefore, no hypothetical income of the assessee could have been brought to tax. The Tribunal has also found that the requirement of sub-section (5) of Section 139 is thus complied with. It is also found on merits of the revised return that a scrutiny thereof reveals no income accruing to the assessee from the five transactions in the immovable properties, which were cancelled subsequently. Such findings of the Tribunal are essentially on facts. They are consistent with the material placed on record. We do not find that any re-appreciation or re-appraisal thereof is permissible, as such findings of fact are neither perverse nor vitiated by any error of law apparent on the face of the record. The Appeal does not raise any substantial question of law.- Decided against revenue.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding assessment year 2007-08, validity of revised return filed by assessee, taxation of income from sale of land/FSI, factual findings on cancellation of sale agreements, compliance with legal provisions under Section 139(5) of the Income Tax Act.

Analysis:

1. Validity of Revised Return:
The appeal challenges the Income Tax Appellate Tribunal's order on the validity of the revised return filed by the assessee. The Revenue contended that the Tribunal erred in considering the revised return due to non-fulfillment of requirements under Section 139(4) and Section 139(5) of the Income Tax Act. However, the High Court clarified that Section 139 allows for filing a revised return within the stipulated time upon discovery of any omission or wrong statement in the original return. The Tribunal correctly assessed whether there was a genuine discovery of such omission, concluding that the revised return was valid under the law.

2. Taxation of Income from Sale of Land/FSI:
The Assessing Officer had taxed the income from the sale of land/FSI, leading to an appeal by the assessee. The Commissioner of Income Tax (Appeals) dismissed the appeal, prompting the appeal before the Income Tax Appellate Tribunal. The Tribunal, after detailed analysis, found that the income declared by the assessee could not be taxed as the sale agreements were subsequently canceled. The Tribunal examined the factual details extensively, concluding that no income actually accrued to the assessee from the transactions in question. The High Court upheld the Tribunal's findings, emphasizing that no hypothetical income could be taxed if it did not genuinely accrue to the assessee.

3. Factual Findings on Cancellation of Sale Agreements:
The Revenue argued that the cancellation of the sale agreements was not genuine and was an attempt to avoid tax liability. However, the Tribunal, in a thorough discussion spanning over 40 paragraphs, found no substance in the Revenue's objections. It was established that the canceled agreements resulted in the properties reverting back to the assessee, duly reflected in the balance sheet. The Tribunal scrutinized the revised accounts and confirmed their compliance with accounting practices, thereby rejecting the Revenue's contentions regarding the legitimacy of the transactions and the subsequent cancellations.

4. Compliance with Legal Provisions under Section 139(5):
The High Court emphasized that the Tribunal's findings were based on factual analysis and compliance with the legal provisions under Section 139(5) of the Income Tax Act. The Tribunal concluded that no income accrued to the assessee from the canceled transactions, aligning with the requirements of the law. The High Court upheld the Tribunal's decision, stating that the findings were consistent with the material on record and did not exhibit any legal errors or perversity. Consequently, the appeal was dismissed, with no substantial question of law raised.

In conclusion, the High Court's judgment upheld the Income Tax Appellate Tribunal's decision, affirming the validity of the revised return, the non-taxability of income from canceled transactions, and the compliance with legal provisions under Section 139(5) of the Income Tax Act. The detailed factual analysis conducted by the Tribunal supported the conclusion that no income accrued to the assessee, leading to the dismissal of the appeal by the Revenue.