The Tax Publishers2020 TaxPub(DT) 3335 (Del-Trib)

INCOME TAX ACT, 1961

Sectopm 145

Where the assessee revised audited accounts to re-file true state of affairs and then revised sales declared in original accounts then the CIT(A) rightly held that the artificial and hypothetical income created by mere general entries which were subsequently reversed cannot be brought to tax. Besides that the assessee made the statement us that the income derived from the said project in subsequent assessment years has been offered to tax by the assessee. Thus, the Revenue was not at loss at any point of time and hence the treatment given by the CIT(A) by directing the assessing officer to allow the claim of Rs. 9,00,00,000 on account of revision of financial accounts was just and correct.

Accounting method - Revision of financial accounts - Cancellation of sales in respect of sales effected during the year under review -

The agreement entered with M/s Ansal Properties and Infrastructure Ltd. could not be implemented resulting thereby the proposed project of industrial and residential township redundant in July, 2009. In the meanwhile, the assessee Company had entered into an agreement to sell on pre-launch basis with M/s Estate Investment Solution and Rs. 9,00,00,000. On this account had been incorporated as sale in assessee's books of accounts. But as per the guidelines issued by the State Government of Punjab for Mega Project, no money could be collected from the proposed buyers till such time layout/zoning plans are cleared from the competent authority. Therefore, the assessee company created the sale account and debited the account of M/s Estate Investment Solution and grouped under Sundry debtors. As the project become redundant, the management during the Financial Year 2008-09, decided to require its rights of the areas sold to M/s Estate Investment Solutions by mutually terminating the Agreement to sale. The cancellation of the Agreement to Sale has resulted into reduction in gross sale of Rs. 9,00,00,000. Though the cancellation of sales in respect of sales effected during the year under review has happened during the Financial Year 2008-09, the Company was advised that the cancellation effect in respect of the above transactions should be effected in the year of assessment only and not at the time when actual cancellation took place. Accordingly, the Company redrafted its financial statements as if the transaction for sale has not occurred at all. Consequently, during the year under consideration, sales had been reduced by Rs. 9,00,00,000 and revised financial statements were prepared and got in audited and were duly approved by the Board of Directors of the Company. Held: Assessee had revised the audited account and had given the relevant documentary evidence before CIT(A) upon which AO had also commented through remand report. AO had not pointed out any defects in audited accounts which are allowed to be revised as per the guidelines issued by Ministry of Finance and Company Affairs. CIT(A) rightly held that the artificial and hypothetical income created by mere general entries which were subsequently reverse cannot be brought to tax. Besides that the assessee made the statement that income derived from the said project in subsequent Assessment Years was offered to tax by the assessee. Thus, Revenue was not at loss at any point of time and hence treatment given by CIT(A) by directing AO to allow the claim on account of revision of financial accounts was just and correct.

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