TMI Blog2024 (3) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... here is any other claim of Revenue against Petitioner that would permit Revenue to legally adjust the refund amount, the refund with interest shall be paid over within two weeks of passing the assessment order. The order shall be passed within six weeks from the date this order is being uploaded, after giving a personal hearing to Petitioner, notice whereof shall be communicated atleast seven working days in advance. - K. R. SHRIRAM DR. NEELA GOKHALE, JJ. For the Petitioner : Mr. Madhur Agrawal a/w Mr. Upendra Lokegaonkar i/b Mint Confreres. For the Respondents : Mr. Suresh Kumar. ORAL JUDGMENT : (PER K. R. SHRIRAM, J.) 1. Heard parties finally by consent. 2. Petitioner is impugning an order dated 23rd March 2016 passed by Respondent No. 1 under Section 264 of the Income Tax Act, 1961 ( the Act ). 3. Petitioner was one of the promoters along with two other individuals of a company viz. WMI Cranes Ltd. Petitioner held 3,34,700 equity shares, i.e., 33.47% of total equity shares of the company. Petitioner and the other promoters entered into Share Subscription and Purchase Agreement dated 11th October 2010 with M/s. Konecranes Finance Corporation, a company formed under the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid to the promoters which effectively was working out to about Rs. 3212.31 per share. SPA also provided that out of Rs. 155,00,00,000/- that was payable as sale consideration, a sum of Rs. 30,00,00,000/- would be kept in escrow, based on which a separate escrow agreement was entered into between promoters, purchasers and the escrow agent. At the time of closure of the deal, promoters received Rs. 125,00,00,000/- as sale consideration and the shares were transferred. Balance Rs. 30,00,00,000/- was kept in escrow account. SPA provided for specific promoter indemnification obligations and it provides that if there is no liability as contemplated under the specific promoter indemnification obligations (clause 7.2.1 of SPA) within a particular period, this amount of Rs. 30,00,00,000/would be released by the escrow agent to the promoters. Clause 7.8 of SPA provides for escrow arrangement. The escrow account was to be in force for 2 years from the closing date. These specifics were given to give a background of the matter. 3. Petitioner filed his return of income for A.Y.-20112012 on 29th July 2011 declaring income of Rs. 22,51,60,130/-. The return of income included Rs. 20,98,08,685/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 1 by an order dated 13th February 2015 passed under Section 264 of the Act rejected petitioner s application holding:- (a) The Petitioner was entitled to receive consideration at Rs. 3,213.31 per share as per the purchase price defined in the agreement. From the said amount, only cost of acquisition, cost of improvement or expenditure incurred exclusively in connection with the transfer can be reduced to compute capital gains. The agreement between the seller and buyer for meeting certain contingent liability which may arise subsequent to the transfer cannot be considered for reduction from the consideration received i.e, @ Rs. 3,213.31 per share in computing capital gains under Section 48 of the Act. (b) Respondent No. 1 further held that in the absence of specific provision by which an assessee can reduce returned income filed by it voluntarily, the same cannot be permitted indirectly by resorting to provisions of Section 264 of the Act. Respondent No. 1 further relied on the proviso to Section 240 of the Act which states that if an assessment is annulled the refund will not be granted to the extent of tax paid on the returned income. Respondent no. 1 held that this shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the agreement. 11. Respondent No. 1 has gone wrong in not appreciating that income or gain is chargeable to tax under the Act on the basis of the real income earned by an assessee, unless specific provisions provide to the contrary. The Apex Court in CIT Vs. Shoorji Vallabhdas and Co. has observed as under: Income-Tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping an entry is made about a hypothetical income which does not matrialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. 12. In the present case, the real income (capital gain) can be comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed period, to reduce the returned income or increase the returned income. Petitioner filed an application under Section 264 because the assessment under Section 143 had been completed by the time the amount of Rs. 9,17,04,240/- was deducted from the escrow account. Section 264 of the Act in our view, has been introduced to factor in such situation because if income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about hypothetical income which does not materialize. Section 264 of the Act does not restrict the scope of power of respondent no. 1 to restrict a relief to an assessee only upto the returned income. Where the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income even though an entry that might, in certain circumstances, have been made in the books of account. Therefore, respondent no. 1 ought to have directed the Assessing Officer to recompute income as per the provisions of the Act, irrespective of whether the computation results in income being less than returned income. It is the obligation of the revenue to tax an assessee on the income chargeable to tax under the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h interest shall be paid over within two weeks of passing the fresh assessment order. 20. Petition accordingly disposed. 6. The facts in the case at hand are identical and in fact, on 19th October 2016, when Rule was issued, the Court had directed this petition to be heard along with Writ Petition No. 2475 of 2015. 7. The Counsels agree that the facts are identical, save and except that in the case of Petitioner herein, the RoI was processed under Section 143(1) of the Act, whereas in the case of Petitioner in Writ Petition No. 2475 of 2015, the assessment had been completed under Section 143(3) of the Act. 8. Petitioner s application under Section 264 of the Act was rejected by the impugned order on the ground that intimation under Section 143(1) of the Act is not an order amenable to revisional jurisdiction under Section 264 of the Act. 9. Since we have held in Diwaker Tripathi v. Principal Commissioner of Income tax 17 Ors. that the intimation under Section 143(1) of the Act was amenable to revisional jurisdiction under Section 264 of the Act, we hereby quash and set aside the impugned order dated 23rd March 2016 passed by Respondent No. 1. 10. Matter is remanded to Respondent N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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