COMMISSIONER OF INCOME TAX-I vs. S. ARPUTHARAJ

T.C.A.No.28 of 2015 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 28.06.2022 CORAM : THE HONOURABLE MR. JUSTICE R. MAHADEVAN and THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ Tax Case Appeal No.28 of 2015 --- Commissioner of Income Tax - I 63, Race Course Road, Coimbatore 641 018. ... Appellant Versus S. Arputharaj

... Respondent Appeal preferred under Section 260A of the Income Tax Act, 1961, against the order dated 05.12.2013 passed by the Income Tax Appellate Tribunal, “A” Bench, Chennai, in I.T.A.No.1054/Mds/2013. For Appellant : Mr. M. Swaminathan, Senior Standing Counsel Mrs. V. Pushpa, Standing Counsel For Respondent : Mr.R.Anish Kumar Page 1/8 https://www.mhc.tn.gov.in/judis T.C.A.No.28 of 2015 JUDGMENT (Judgment of the Court was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellant/Revenue, challenging the Order dated 05.12.2013 passed by the Income Tax Appellate Tribunal, “A” Bench, Chennai, in I.T.A.No.1054/Mds/2013, relating to the assessment year 2009-10. 2. By order dated 23.02.2015, this court admitted the aforesaid tax case appeal on the following substantial questions of law: “(i) Whether on the facts and circumstances of the case, the return of income dated 25.09.2009, which includes receipt of consideration for sale of land, would be revised based on a cancellation agreement said to have been entered into between the parties on 24.11.2010, in terms of Section 139(5) of the Income Tax Act? (ii) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in accepting the revised return filed by the assessee, when there was no omission or wrong statement in the original return?" 3. The assessee is engaged in the business of Realtor and Contractor. They have filed return of income for the assessment year 2009-2010 on 25.09.2009 admitting an income of Rs.3,45,91,540/-. Before completing the assessment, a revised return was filed by the assessee on 28.08.2010 admitting a reduced income of Rs.34,24,530/-. The reasons for filing the revised return Page 2/8 https://www.mhc.tn.gov.in/judis T.C.A.No.28 of 2015 are that the sale agreement entered into between the assessee and M/s.Mayflower Inno Reality Private Limited for purchase of a property has been frustrated and the same did not materialize in accordance with the terms of the agreement. Thereafter, the agreement itself was cancelled by a supplementary agreement dated 24.11.2010. However, the Assessing authority did not accept the revised return filed by the assessee and passed an order of assessment dated 30.12.2011 disallowing the amount claimed, apart from making other additions and ultimately assessed the total income of the assessee at Rs.3,99,59,980/- under Section 143 (3) of the Act. 4. Challenging the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeal), questioning the correctness of the order in not considering the revised return of income. By order dated 27.02.2013, the Appellate Authority partly allowed the appeal filed by the assessee. Aggrieved by the same, the Revenue preferred an appeal and the assessee filed cross objection before the Tribunal. The Tribunal, by the common order dated 05.12.2013 dismissed the appeal filed by the Revenue and allowed the cross-objection filed by the assessee. Challenging the same, the present appeal has been filed by the Revenue. Page 3/8 https://www.mhc.tn.gov.in/judis T.C.A.No.28 of 2015 5. The learned Senior Standing counsel appearing for the appellant / Revenue would mainly contend that the Tribunal did not consider the fact that the assessee had entered into an agreement dated 18.06.2008 with M/s.Mayflower Inno Reality Private Limited for sourcing and aggregating lands measuring 52 acres at Coimbatore pursuant to which the assessee also received consideration. Above all, the assessee also received further amount towards balance portion of the lands to be identified and aggregated. While so, the Assessing Officer is justified in not considering the revised return filed by the assessee and disallowing the claim. 6. Per contra, the learned counsel for the respondent/assessee submitted that the income liable for taxation must be real and actual income. An income can be realised and subjected to tax only if it is certain that the assessee is either going to receive certain amount or received such amount. In the present case, inspite of the revised return filed by the assessee, the Assessing Officer, on presumption, concluded that the assessee had in fact received sale consideration with the agreement holder M/s. May Flower Inno Reality Private Limited. The fact remains that the agreement itself has been terminated as unworkable. The Tribunal, on appreciation of the said facts, rightly allowed the Cross Objection filed by the respondent. In this context, the learned Page 4/8 https://www.mhc.tn.gov.in/judis T.C.A.No.28 of 2015 counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Bombay City I, Bombay v. Shoorji Vallabhdas and Co. [1962 (46) ITR 44] which was also relied on by the Tribunal. In that decision, it was held that the income said to have earned by the assessee is speculative in nature and not real. In effect, it was held that the larger income said to have earned by the assessee has neither accrued nor received by the assessee. Stating so, the learned counsel submitted that the order of the Tribunal does not call for any interference by this court. 7. We have heard the learned counsel for both sides and perused the materials placed on record. 8. In this case, the assessee had in fact entered into an agreement dated 18.06.2008 with M/s. Mayflower Inno Reality Private Limited. However, by the revised return submitted on 28.08.2010, they admitted the reduced income than the one disclosed in the original return. Further, it was specifically stated in the revised return that pursuant to the said agreement dated 18.06.2008, they have not registered any sale deed nor possession of the property was transferred in favour of the buyer; and that, the buyer refused to honour the agreement to purchase the property and demanded the return of the advance Page 5/8 https://www.mhc.tn.gov.in/judis T.C.A.No.28 of 2015 amount of Rs.16,65,53,678/- tendered by them. Hence, the Tribunal, taking note of the revised return filed by the assessee, allowed the cross objection and the findings of the Tribunal are quoted below for ready reference: "15. ........The assessee had entered into an agreement with M/s. Mayflower Inno Reality Private Limited for the purpose of procuring and aggregating land to the extent of 52 acres. 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 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 impugned assessment year.........." 9. Thus, it is evident from the order of the Tribunal that the agreement, which the assessee had entered into with M/s. Mayflower Inno Reality Private Limited, on 18.06.2008, did not materialise and they have not earned any profit thereof. More over, the agreement itself has been terminated on 24.11.2010, after a period of two years and no income has been earned by the Page 6/8 https://www.mhc.tn.gov.in/judis T.C.A.No.28 of 2015 assessee in that process. It is in those circumstances, the assessee filed the revised return on 28.08.2010 as contemplated under Section 139 (5) of the Act. However, the Assessing Officer, without taking note of the factum of frustration of the contract, has disallowed the claim made by the assessee. Even though the Appellate Authority has partly allowed the claim of the assessee, the Tribunal has rightly allowed the Cross-Objection filed by the assessee on the ground that the income said to have earned by the assessee is unreal and there was no money reached the hands of the assessee as per the contract. We do not find any infirmity or illegality in the order so passed by the Tribunal, warranting interference. Therefore, the substantial questions of law framed in this appeal are answered against the appellant / Revenue.

Internet : Yes Index : Yes / No av Page 7/8 https://www.mhc.tn.gov.in/judis T.C.A.No.28 of 2015 R. MAHADEVAN, J. and MOHAMMED SHAFFIQ, J. av To 1. The Income Tax Appellate Tribunal, “A” Bench, Chennai. 2. Commissioner of Income Tax - I 63, Race Course Road, Coimbatore 641 018. 3. The Assistant Commissioner of Income Tax, Company Circle I (1), 63, Race Course, Chennai - 641 018.