Income cannot be said to have accrued when registered sale deeds are subsequently cancelled and transactions reversed.

The petitioner challenged assessment proceedings initiated under Section 148A of the Income Tax Act, 1961.

The proceedings were based on sale deeds executed on 28.08.2018 and 29.08.2018.

It was later revealed that these sale deeds were executed by fraudulent persons and were subsequently cancelled by a competent court.

Following the cancellation, the sale consideration was reversed in the petitioner's bank accounts, and the revenue records were updated to reflect the same.

These documents regarding the cancellation and reversal of funds were not produced before the Assessing Officer during the initial Section 148A proceedings but were presented for the first time before the High Court.

Whether income can be said to have "accrued" for taxation purposes when the underlying transaction (sale deed) has been cancelled due to fraud and the consideration has been reversed.

Whether the impugned assessment orders and notices are sustainable when the Assessing Officer failed to consider the factum of cancellation of the sale deeds.

The Court applied the principle of "real income" over "hypothetical income".

The Court relied on the Bombay High Court precedent in *CIT v. M/s Lok Housing & Constructions Limited* (2015), which held that if an agreement is cancelled or terminated, the income does not accrue in a real sense.

The Court also referenced the dismissal of the SLP against the *Lok Housing* judgment by the Supreme Court in 2025.

Additionally, the court exercised its writ jurisdiction to ensure that assessment proceedings under the Income Tax Act, 1961, are based on actual transactions.

The Court noted that the respondent authority admitted the validity of the documents showing the cancellation of the registered sale deeds and the subsequent reversal of the transaction consideration in the revenue and bank records.

The Court reasoned that since the original transactions were fraudulent and legally voided, no income "accrued" to the assessee in the real sense.

Citing *Lok Housing*, the Court observed that where a transaction is reverted, the assets return to the assessee and any initial disclosure represents a "wrong statement" that must be corrected.

Consequently, bringing such non-existent/hypothetical income to tax is legally impermissible.

The Court held that since the Assessing Officer did not consider the factum of cancellation and reversal of payments, the proceedings lacked a factual foundation of taxable income.

Rule was made absolute.