HC Quashes Reassessment Where Cancelled Sale Deeds Show No Real Income Accrued

Gopal Bhachabhai Jatiya challenged reassessment proceedings initiated by the Income Tax Officer under the Income Tax Act, 1961 in relation to two registered sale deeds concerning immovable property transactions. During the proceedings, the petitioner placed on record that both sale deeds had subsequently been cancelled by the competent authority and the cancellations were reflected in the revenue records. It was also shown that the sale consideration received earlier had been reversed in the petitioner’s bank account.

The Revenue filed an additional affidavit stating that these documents had not been produced during the proceedings under Section 148A and requested that the matter be remanded to the Assessing Officer for verification.  The matter came up before the High Court.

Main Issue: Whether reassessment proceedings could continue when the underlying property transactions had been cancelled, and the sale consideration reversed, thereby negating accrual of real income.

HC’s Order: The High Court allowed the writ petition and quashed the reassessment notices and orders. The Court observed that the documents on record clearly established cancellation of the registered sale deeds and reversal of the transaction consideration, which was also reflected in the revenue records.

Relying on Commissioner of Income Tax‑8 v. Lok Housing & Constructions Limited, where it was held that no real income accrues when property agreements are cancelled and the transaction reverts to the assessee, the Court held that the very basis of the reassessment proceedings failed. Thus, the impugned notices and orders were set aside.

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