TaxTMI 
TaxTMI 
2019 (7) TMI 429
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....ssee. Thereafter, the assessee filed a Miscellaneous Application (MA) before the Tribunal seeking rectification/recalling of the order dated 25.05.2017 u/s 254 (2) of the Income Tax Act, 1961 [in short 'the Act']. The ITAT "F" Bench, Mumbai vide order dated 16.01.2018 dismissed the MA filed by the assessee. 3. Thereafter, the assessee filed a Writ Petition before the Hon'ble Bombay High Court challenging the order dated 16.01.2018 passed by the Tribunal rejecting the application for rectification. The Hon'ble High Court vide order dated 28.06.2018 held: "3. The primary grievance of the petitioner in its rectification application to the Tribunal is that the order passed on 25th May, 2017 after recording the petitioner's submission that the provisions of Section 11(1) Explanation-2 of the Act would warrant its appeal being allowed was not considered and its appeal was dismissed. This led to the filing of the Rectification Application under Section 254 (2) of the Act. 4. On 16th January, 2018 the impugned order was passed dismissing the Rectification Application. The impugned order while disputing the submission of the petitioner leading to the order dated 25th May, 2017 did no....
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....IT(A) failed to note that the amount of Rs. 3,55,45,600 was not factually received during the year under appeal and that in this circumstances the same should be deemed to be applied towards charitable purposes in terms of clause (2) of Explanation to Section 11(1) of the Income Tax 1961. This is more particularly so because the provision, for exercising option in writing under the said Explanation before the expiry of time allowed for furnishing return u/s 139 (1) is not mandatory, but directory in nature and must therefore be liberally interpreted to confer exemption u/s 11 and not deny it. 3. Both the lower authorities erred in passing their respective orders without granting your appellant adequate opportunity of being heard. The order passed by them are in contravention of the principles of natural justice and hence, bad in law." The Assessment 6. During the course of assessment proceedings, the AO found that the assessee had sold immovable property of Rs. 3,55,45,600/-; however the assessee failed to disclose this transaction while filing its return of income for the impugned assessment year. In response to a query raised by the AO vide order sheet noting dated 12.03.....
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....to an Addendum dated 20.01.2011. Photocopy of the signed, stamped and duly notarized Addendum is enclosed. We are also producing the original for Your Honour's verification. The said Addendum was agreed between the parties Universal Education Foundation as Assignor and Super Value Properties Pvt. Ltd as Assignee. Following clauses was included in the agreement a. The consideration of the sum of Rs. 3,55,45,600/- to be paid by the assignee to the assignor on 31st March, 2015 or on the date B.C.C. of the building is obtained, whichever is earlier. b. The cost for construction of this school building will be incurred by the assignee. c. The agreement shall be terminated without any further notice to Assignee in case of any further delay in making the payment and in such event the amount paid by the Assignee shall be forfeited. 7. Thus, no amount was received by Universal Education Foundation as on 31.03.2011. Also, there was no definite possibility of receipt of the same in future. The agreement of Assignment will be terminated if the payment is not received on time. 8. Assessee is committed to make payment in the year of receipt. We are not denying the agreement of assi....
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....l statements of the period in which the change occurs. The assessee is committed to tax the consideration in the year in which it is certain the payment is receivable. 15 . Thus it is not certain on the date of entering into the Deed of assignment whether the consideration will be received or not. The addendum makes it further clearer that the consideration will be received on 32.03.2015 or B.C.C of the building whichever is earlier. 16. Thus as the possibility of the inflow in future in not certain, assessee has not taxed the consideration in the year of deed of assignment i.e AY 2011-12 but will offer the same in the year of actual receipt of the same. Assessee is committed to make the payment of tax in the year of receipt of the same. 17. Hence there is no tax incidence in AY 2011-12 because: 1. There was no incidence of accrual of income in the hands of the assessee 2. No amount has been actually received from the transferee against the sale of rights. 3. There is no definite possibility of inflow in the future years. 4. An enforceable legal right to receive an income should vest with the assessee. 5. Accrual of income depends upon the terms of an agreement and ....
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....ee Crore Fifty Five Lakhs Forty Five Thousands Six Hundred only) paid by the Assignee to Assignor (the payment and receipt whereof the Assignor hereby admits and acknowledge and of and from the same and every part whereof doth hereby acquit, release and discharge the Assignee forever), the Assigner with the consent and confirmation of the Confirming Party hereby assigns its right, title and interest in respect of land bearing Survey Nos. 124/1A, 124/2, 124/4/2....." From the above, the Ld. CIT (A) noted that the said amount is stated to have been paid by the assignee to the assignor which has been acknowledged by the assessee as received and in consequence, it has discharged the assignee forever and in confirmation of which, the deed has been signed. It is not only been signed by all the three parties but also by the witnesses and has also been duly registered on 19.01.2011 itself. The assessee claimed that subsequently it has entered into an addendum on 20.01.2011, wherein the conditions of this payment have been modified. The Ld. CIT (A) observed that the addendum has not been registered with the registering authority and also the assessee failed to explain as to why the subsequ....
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....lls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculati....
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....factory explanation for his failure to submit the same in time, the ITO may consider the same and examine the claim of the assessee for deduction u/s 80J on the basis of his report. We, however, do not subscribe to the view taken by the Tribunal that it is the duty of the ITO to tell the assessee that as he had not submitted the report of audit required by sub-section (6A), his claim would not be allowed and to give him an opportunity to file the same." In Smt. Archana R. Dhanwatey (supra), it is held that "the ITO's jurisdiction is to compute the total taxable income in accordance with law. If, in fact and in law, the assessee was entitled to a deduction ultimately affecting taxable income, the assessment could not be made on a larger income. The ITO was therefore to consider whether the assessee was entitled to a deduction from other sources even though no such specific claim was made by the assessee. Therefore, the question whether the impugned amount was deductible from the assessee's any other income should have been considered by the ITO even in the absence of specific claim for such deduction." In Ziarat Mir Syed Ali Hamdani (supra), in the context of exercise of option to....
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....ated herein, the AO has kept in mind the facts disclosed in the return of income and the law holding the field. In M/s Whistling Woods International Ltd. (supra), it is held that "the AO should not take undue advantage of ignorance of the assessee and should follow a fair approach by allowing legitimate claims of the assessee so that only that amount of tax is recovered from the assessee which is due as per law. In this manner, the faith of the taxpayers upon the working of Income Tax Department shall increase, which shall in turn give a boost to voluntary compliance by the assessee." Also referring to Circular No. 14 (XI-35) of 1955, dated 11.04.1955, the Ld. counsel submits that: 'Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence....
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....dmeasuring 4,900.125 square meters....." At page 8, which is the Schedule to the "Deed of Assignment" dated 19.01.2011, the following is mentioned in clear terms: RECEIVED from the withinnamed Assignee the sum of Rs. 3,55,45,600/- (Rupees Three Crore Fifty Five Lakhs Fourty Five Thousand Six Hundred only) being the full and final consideration paid by (it) to us, under these presents, as follows: Chq/P.O. No. Date Drawn on Amount 889388 18/01/2011 UBI, Juhu Tara R'd 3,55,45,600/- 14. That the assessee has received the above sum is supported by the fact that the above amount of Rs. 3,55,45,600/- was drawn by cheque No. 889388 dated 18.01.2011 on UBI, Juhu Tara Road. 15. As per 'Schedules to the Accounts for the year ended 31.03.2011', we are informed the following: Basis of Accounting All the Income and Expenditure items having a method bearing on the financial statement are recognized on accrual basis. Revenue Recognition The income is recognized on accrual basis The assessee in the present case follows mercantile system of accounting .The Hon'ble Bombay High Court in the case of Taparia Tools Ltd. v. JCIT [2003] 260 ITR 102 has described the mercantile ....
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.... in a previous year amounted to Rs. 1,00,000/- out of which an amount of Rs. 40,000/- was not received during the previous year, the person in receipt of income could obviously not apply Rs. 85,000/- to such purposes. In such a case if an amount not less than Rs. 60,000/- has actually been applied to such purposes in the year in which the income of Rs. 1,00,000/- was derived, the deficiency could be made up in the year in which the balance of income is received or in the previous year next following. For availing of the benefit of the extended time beyond the relevant previous year, the trust or institution will, in either case, have to exercise an option in writing under clause (2) of the Explanation to section 11(1) within the time allowed under subsection (1) of section 139 for furnishing the return of income. Income applied to such purposes shall be deemed to have been applied to such purposes during the previous year to which it was derived. 17. In the instant case, the assessee has received Rs. 3,55,45,600/- during the financial year 2010-11 relevant to the impugned assessment year. This is crystal clear from the (i) Deed of Assignment dated 19.01.2011 and the Schedule (ii)R....