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TMI Blog2014 (4) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... te Limited for sourcing and aggregating land to the extent of 52 acres. On the basis of this agreement, the assessee estimated his profit and included the same amount of profit in the original return filed by him. In the original return filed by the assessee on 25.9.2009, he had returned an income of Rs. 3,45,91,540/-. This income included, as already stated, the profit worked out on sale agreement entered into with M/s Mayflower Inno Reality Private Limited. Before completing the assessment, a revised return was filed by the assessee on 28.8.2010 admitting a reduced income of Rs. 34,24,530/-. The income shown in the revised return was reduced for the reason that the assessee had excluded an income of Rs. 3,11,67,002/- from his business income, which amount related to the transaction with M/s Mayflower Inno Reality Private Limited. The assessee filed the revised return for the purpose of excluding the amount of Rs. 3,11,67,002/- for the reason that the sale agreement entered into between the assessee and M/s Mayflower Inno Reality Private Limited has been frustrated and the agreement was not materialized in accordance with the terms of the agreement. Later on, the agreement itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be treated as an accrued or arisen only when the assessee procured the entire area of land as required by the property developers. In the present case, the assessee made a mistake by offering a sum of Rs. 3,11,67,002/- as his income in the original return in the nature of profit arising from sourcing of land. This was an error committed by the assessee. This is because the assessee treated the amount received for sourcing of land for an area of 13.2 acres as purchase and the amount which the property developer agreed to pay as the sales. But, in fact, neither there was any purchase of land nor was any sale of land. The land was only identified and sourced on behalf of the property developer. It is after realizing this error that the return was revised and therefore, Assessing Officer ought to have acted upon the revised return of income filed by the assessee. 5. The Commissioner of Income Tax (Appeals), on verifying the facts of the case in a detailed manner, found that M/s Mayflower Inno Reality Private Limited has terminated the agreement and has asked for compensation and damages from the assessee in addition to the return of advance money. He observed that the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken placed based on the original agreement dated 18.06.2008 between the two parties. 4. The learned CIT(A) failed to appreciate the fact that even in business the land purchased shall be treated as stock in trade once the land is in possession of the assessee. It indicates that the assessee has purchased the land through power of attorney as per the agreement and handed over the document of power of attorney to M/s Mayflower Inno Reality Private Limited." 8. Shri Shaji P. Jacob, the learned Additional Commissioner of Income Tax, appearing for the Revenue, contended that filing of a revised return is directly governed by the provisions of law stated in Section 139(5). Section 139(5) provides for filing of a revised return only if any of the two conditions are satisfied. Those conditions are that the assessee must discover any omission or any wrong statement in the original return filed before the Assessing Officer. Either there must be an omission or there must be a wrong statement, or both. In the present case, there is no case of any omission. As far as the impugned previous year is concerned, the agreement entered into between the assessee and M/s Mayflower I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or wrong statement, which required the assessee to file a revised return. The reason for filing the revised return was that the company had passed a resolution to change its method of valuation of closing stock as it did not correctly show the profit or loss for each accounting year and the new method adequately reflected the position in regard to the previous year's operations. The only reason for the change in the method of valuation of closing stock does not amount to any omission or wrong statement as construed in Section 139(5). The Court observed that the reason was not bonafide as well. Therefore, accordingly held that the revised return was not valid. 10. The learned Additional Commissioner of Income Tax again relied on an order of ITAT, Chennai Bench "A", rendered in the case of M/s Beacon Maritime Carriers P. Ltd. v. The Deputy Commissioner of Income Tax in I.T.A. No. 2414/Mds/2003 dated 8th June, 2007. 11. Shri V. Jagadisan, the learned Chartered Accountant, appearing for the assessee, on the other hand, submitted that the assessee had in fact made the wrong statement in the original return filed by him. The assessee had estimated profit from transaction arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.5% as commission and gave up 75% of its earnings. The Income-tax Department sought to assessee the amounts of Rs. 1,36,903/- and Rs. 2,00,625/- being the 75%, which the assessee had given up, on the ground that the commission at 10% had already accrued to the assessee in the year of account and the agreement in December, 1948, after the close of previous year to give up a portion of that income could not save that portion from liability to income-tax. In the above circumstances, the Hon'ble Supreme Court held that the subsequent agreement had altered the rate of commission in a way as to make the income which really accrued to the assessee different from what had been entered in the books of accounts. This was not a case of a gift by the assessee to the managed companies of a portion of income which had already accrued, but an agreement to receive a lesser remuneration that what had been agreed upon. The assessee had in fact received only the lesser amount in spite of the entries in the account books and this lesser amount alone was taxable. The Court observed that income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . But, later on, the parties deferred on implementation of agreement and finally the agreement was terminated on 24.11.2010, after the closure of the relevant previous year ended on 31st March, 2009. But, termination of agreement is not happening on a fine morning. Difference arises between the parties and they negotiate for some time and it is only after a reasonable period that the formal termination agreement would be executed. By the time the termination agreement is executed, the assessee is well aware of the fact that the agreement is not going to be executed or if it is going to be terminated on the other hand and as such, the assessee is not going to earn any income from the agreement. In the present case, 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 agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. Sometimes, certain agreements may fail and assessee would not get any income at all from the particular agreement. That does not mean that the corresponding expenditure incurred by the assessee on such cancelled agreements were not expenses incurred for the purpose of business. Therefore, 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. 20. Therefore, we set aside the order of Commissioner of Income Tax (Appeals) disallowing the expenditure to the extent of Rs. 68,40,000/-. The Assessing Officer is directed to allow the said amount as deductible expenditure while computing the income of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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