Where after filing of return, any agreement of sale gets cancelled and assessee files revised return declaring NIL income then no hypothetical income shall be taxed. Hence, income not accrued due to for cancellation of agreement shall not be taxed.

Case: Commissioner of Income Tax vs. Lok Housing & Constructions Ltd.

Facts:

The company- assessee filed its Income Tax Return and declared income in respect of sales of land/FSI to five parties which were its associates/sister concerns. Subsequent to filing of return, assessee filed another return and declared NIL income.

AO passed assessment order under section 143 (3) and taxed the income of sale of land/FSI. On assessee’s appeal, the Commissioner (Appeals) confirmed the order of AO. Aggrieved by the order, assessee appealed to the tribunal. The tribunal partly allowed the appeal.

On this, revenue appealed to the High Court.

Held:

The Court observed that the income declared in the original return in respect of the five transactions of sale of land/FSI to the five parties stood withdrawn due to cancellation of sale agreements. The revenue doubted that cancellation was not genuine and bona fide. On this, it was confirmed that the revenue shall prove that the relevant transactions were sham and not real.

It was also noticed that the agreements were terminable and once cancelled the properties shall revert back to the assessee. The revised accounts were scrutinized and found to be correct. The correct legal principles were applied and thus, no income could be said to have really accrued to the assessee which income was chargeable to tax in the year under consideration. In addition, requirements of section 139(5) were also complied while filing revised return.

Thus, it was held that the income which did not accrue in the real sense shall not be taxable.

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