Facts
The assessee firm, following cash system of accounting, had filed its return of income, declaring the total income to be Rs. 5,36,83,629. In the original return filed, the assessee had disclosed profit of Rs. 9,73,36,034 on sale of land for a total consideration of Rs. 20,55,78,119 on 11-2-2008. contention of the DR that since the The plot of land under consideration originally belonged to Ambika Mills Ltd., a company under liquidation. The Gujrat High Court constituted a committee, headed by the Official Liquidator as the Chairman, for disposal of the assets of the company in liquidation. On the basis of the report of the Official Liquidator and the open bid in the Court, the highest bid of Rs. 14.30 crore made by M/s Bheruji Estate, was accepted by the Court by order dated 23-12-2003. As the auction purchaser subsequently could not make the full payment, he requested that the freehold land be registered in the name of his nominee, Mr. Manubhai M. Patel, who would make the balance payment. However, M/s Bheruji Estate subsequently went back on this request. On 8-8-2005, the Honourable Court directed the Official Liquidator to execute sale deed in favour of Manubhai Patel, subject to the outcome of the appeal filed by M/s Bheruji Estate. On 19-10-2007, the assessee entered into an MoU with Shri Manubhai Patel for sale of freehold land, and also acted as a mediator between the two parties i.e. M/s Bheruji Estate and Shri Manubhai M. Patel. The consent terms between the disputing parties were taken on record by the Appellate Court, and the final order was passed on 23-1-2008 disposing of the appeal by M/s Bheruji Estate. In the meantime, on 29-10-2007, the Official Liquidator executed the sale deed of the freehold land in favor of Shri Manubhai M. Patel. On 11-2-2008, a registered sale deed was executed by Shri Manubhai Patel, as vendor, the assessee as confirming party and M/s Sential Infrastructures Ltd., as purchaser for a consideration of Rs. 55,67,78,119, out of which Rs. 21,60,28,119 was to be received by the assessee.
Subsequently, one of the original bidders of the auction sale of 2003, Shri Jayesbhai Patel filed an appeal against the original sale made by the Official Liquidator in favour of M/s Bheruji Estate, and on his appeal, the Gujrat High Court vide order dated 9-3-2009 held that the sale effected on 11-2-2008 should be treated to have been made by the Official Liquidator in favour of M/s Sential Infrastructure Ltd., and the intervening parties, i.e. M/s Bheruji Estate, Shri Manubhai Patel and the assessee were only entitled to their expenditure to the extent of actual investments, services rendered and cost of litigation. It was directed that the assessee was liable to return the amount of Rs. 20 crore to the Official Liquidator within one month from the date of the order, retaining only Rs. 1,60,28,119. On the basis of this High Court order dated 9-3-2009, the assessee firm filed its revised return of income showing nil income, enclosing a profit & loss account in which no sale of land was disclosed and the liability of Rs 20 crore was disclosed in its balance sheet.
The Assessing Officer held that the assessee was not entitled to revise its return on the basis of events which had occurred after the close of the previous year as it followed cash system of accounting. He held that the effect of the Court order dated 9-3-2009 could only be reflected in AY 2009-10.
Aggrieved, the assessee preferred an appeal to CIT(A) who accepted the assessee’s contention and directed the AO to accept the revised return which was filed within time and was within four corners of law.
Aggrieved, the Revenue preferred an appeal to the Tribunal.
Held
The Tribunal noted that the only dispute of the Revenue was that there was no omission or wrong statement in the original return which may be revised. The Tribunal noted that the High Court had held that the assessee was not entitled to the profit on sale of land, but was entitled only to the expenditure to the extent of actual investment and the cost of litigation. Therefore, the assessee was not entitled to the amount credited to its profit & loss account towards profit on sale of land. The Tribunal held that there was certainly an omission in the original return of income. Though the order of the High Court was subsequent to the end of the relevant previous year, it effected the transaction entered into during the previous year which was liable to be taxed in the assessment year under consideration. Since the assessment of the said year was still pending, the Tribunal held that the assessee was fully justified in revising its return in the light of the decision of the Honourable Jurisdictional High Court.
As regards the AO’s reliance on the method of accounting followed by the assessee being cash, the Tribunal held that after the order of the High Court, when the assessee is not entitled to any profit from the sale of land, the nature of the amount received from the buyer of the land cannot be considered as sale proceed or profit in the hands of the assessee, but its nature would be only an amount received in trust which the assessee is liable to refund as per the direction of the Court. Even in the cash method of accounting, every receipt is not income but the receipt which is in the nature of income is liable to be assessed as income.
As regards the contention of the DR that since the assessee had preferred an appeal against the order of the High Court, in the event of the decision being reversed in appeal, how would the Department be able to recover the tax on such income from sale of land, the Tribunal held that if any such event happens, the Revenue would be at liberty to take appropriate action in accordance with law. The Tribunal noted that as on date of its decision, the decision of the Jurisdictional High Court holds good and is binding on the parties. The assessment of the income of the assessee cannot be made, ignoring the above decision of the Honourable Jurisdictional High Court.
The Tribunal held that the CIT(A) was justified in directing the AO to consider the revised return. It upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue.
The appeal filed by the revenue was dismissed.
