COMMISSIONER OF INCOME TAX Vs. STAR ANDHERI ESTATE

JUDGEMENT

(1.) BY this reference under section 256(1) of the Income -tax Act, 1961, the Income -tax Appellate Tribunal has referred the following question of law to this court for opinion :

(2.) THIS reference pertains to the assessment year 1976 -77. The assessee is a partnership firm. It was constituted as per deed of agreement dated October 26, 1963, for the purpose of acquiring a large area of land admeasuring about 25,000 square yards and disposing of the same. One of the partners of the said firm, Shri Manilal K. S. Vaidya, by an agreement for sale dated October 11, 1963, had agreed to purchase the said land from the Central Bank Executor and Trustee Co. Ltd., for a sum of Rs. 6,50,000. By another agreement dated November 22, 1968, entered into on behalf of the firm, he agreed to sell the said land to one Messrs. Mercury Corporation for a sum of Rs. 13,51,000. Messrs. Mercury Corporation, in turn, entered into another agreement for the sale of the said land to one Vaibhav Co -operative Housing Society Ltd. Shri Radia, a partner of the petitioner -firm, who had paid initially a sum of Rs. 65,000 to the Central Bank Executor and Trustee Co. Ltd., paid a further sum of Rs. 1,00,000 in 1964 -65. Though the sale was not completed within six months of the date of the agreement with the vendor -bank, the assessee paid interest on the unpaid balance of sale price amounting to Rs. 1,95,676 on March 31, 1970. On the other hand, the assessee also received a sum of Rs. 1,90,000 from Messrs. Mercury Corporation in pursuance of the agreement for sale entered into with them.

(3.) HOWEVER , later the Commissioner of Income -tax on perusal of the assessment records of the assessee being satisfied that the order of the Income -tax Officer was erroneous, initiated proceedings for suo motu revision of the orders of assessment for the assessment years 1975 -76 and 1976 -77 under section 263 of the Income -tax Act and on hearing the parties, held that the orders of the Income -tax Officer for the above assessment years were erroneous and prejudicial to the interests of the Revenue since the Income -tax Officer had failed to bring to assessment in either of the two years the income of Rs. 12,90,000 received by the assessee -firm from Shri Desai as per agreement dated August 19, 1974. It was submitted by the assessee that it received the above amount in full from Shri Yogendra Desai in the financial year 1974 -75 and financial year 1975 -76 as under :