2026 (3) TMI 134 - HC - Income Tax

Assessment validity compromised where cancelled sale deeds and reversal entries show no true accrual; reassessment quashed.

Failure to verify and consider documentary evidence of cancellation of registered sale deeds and reversal of transaction consideration vitiated the ... Cancellation of sale deeds and reversal of consideration - Computation of taxable income - During assessment proceedings under Section 148A no documents were not produced HELD THAT: - The Court found, and the respondent admitted by additional affidavit, that documents showing cancellation of the registered sale deeds and reversal of the consideration were produced before this Court for the first time and were not before the Assessing Officer during the Section 148A proceedings. Relying on the reasoning in M/s Lok Housing & Constructions Limited [2015 (4) TMI 840 - BOMBAY HIGH COURT] - a decision whose SLP [2025 (7) TMI 533 - SC ORDER] was dismissed by the Supreme Court - the Court observed that where transactions have been cancelled and consideration reversed such cancelled transactions do not, in reality, give rise to taxable income. Because the Assessing Officer failed to consider the fact of cancellation and reversal when passing the impugned orders and notices, the orders could not be sustained on the material now shown to exist but not placed before the AO. Impugned orders quashed and set aside for failure to consider cancellation of sale deeds and reversal of consideration; matter disposed in light of the cited precedent. Final Conclusion: The Court made the rule absolute and quashed and set aside the impugned assessment orders because they were passed without consideration of the cancelled sale deeds and reversal of payment - cancelled transactions were held not to give rise to taxable income. Issues: Whether the impugned assessment orders passed without considering cancellation of registered sale deeds and reversal of payments are sustainable.Analysis: The assessment proceeded without verification of documents showing cancellation of registered sale deeds and reversal of transaction consideration which were produced before the Court for the first time. Relevant legal framework includes reassessment procedure under Section 148A of the Income-tax Act, 1961 and judicial precedent addressing when transactions are found to be terminable or cancelled and whether income truly accrued. The cited precedent holds that if transactions are cancelled and accounting reflects the reversal, income may not have truly accrued and reassessment based on hypothetical accrual is impermissible. The respondent admitted non-possession of those documents during the 148A proceedings and sought remand for verification.Conclusion: The impugned assessment orders are quashed and set aside; decision is in favour of the assessee.Ratio Decidendi: An assessment or reassessment cannot be sustained where the assessing authority failed to consider documentary evidence showing cancellation of transactions and reversal of consideration such that income did not truly accrue.