2014 (6) TMI 358 - AT - Income Tax

Tribunal maintains cash accounting, dismisses capital loss disallowance, and emphasizes detailed submissions

The Tribunal upheld the cash method of accounting followed by the Assessee, dismissed the disallowance of long-term capital loss pending further details, ... Method of accounting of income in respect of DDBs/NCD - Use of Cash System instead of Mercantile system – hybrid method of accounting - Held that:- Following Smt Punitaben K. Patel, Shri Karsanbhai K. Patel, Shri Hiren K. Patel Versus ACIT, CC-1(1), Ahmedabad [2014 (6) TMI 352 - ITAT AHMEDABAD] - The method of accounting being followed by the assessee is cash and not mercantile - As per sub-section (1) of Section 145, the assessee can follow either cash or mercantile system of accounting regularly in respect of determination of income chargeable under the head 'profits & gains of the business and profession' or 'income from other sources' - the assessee can very much follow cash method of accounting for the purpose of declaring income in respect of DDBs/NCD if the assessee is regularly following cash method of accounting - No Board's circular can override the provisions of the Act and the Board's circular is not an accounting standard notified by the Central Government in the official gazette as required u/s 145(2) of the Income tax Act, 1961 to make out an exception in respect of Section 145(1) - the assessee is following cash method of accounting - the income of the assessee cannot be assessed on the basis of hybrid method of accounting by following mercantile method for assessing income in respect of DDBs/NCD and the remaining income on the basis of cash method of accounting – Decided against Revenue. Disallowance of LTCG – Held that:- No details are available on record with respect to the land like date of purchase its purchase price, its sale price and other relevant details required for the purpose of computation of capital gain - there is no finding on these aspects either by AO or CIT(A) – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Estimation of income from house property - Held that:- the CIT(A) held that in the absence of any substantive addition, the estimated addition on house property income cannot be accepted - during the course of assessment proceedings before A.O. the necessary details with respect to the house property was not furnished by the Assessee and therefore the AO proceeded to decide the matter on the basis of material available with him – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Issues Involved:1. Method of accounting followed by the Assessee.2. Disallowance of long-term capital loss.3. Accrued interest on bonds of REC Ltd.4. Classification of capital gains on transfer of DDBs of Nirma Ltd.5. Addition under the head 'Income from House Property.'Issue-wise Detailed Analysis:1. Method of Accounting Followed by the Assessee:During the assessment proceedings, the Assessing Officer (AO) noticed that the Assessee followed the cash method of accounting, whereas in prior years, the mercantile system was applied. The AO thus followed the mercantile system. The CIT(A), referencing prior Tribunal decisions, upheld the cash method. The Tribunal found that the Assessee consistently followed the cash method, and no contrary material was presented. Thus, the Tribunal dismissed the Revenue's ground, affirming the cash method of accounting.2. Disallowance of Long-term Capital Loss:The AO disallowed the Assessee's long-term capital loss on the sale of Makarba land due to lack of details, suspecting the transaction as artificial. The CIT(A) deleted the disallowance, referencing a similar case involving the Assessee's brother. The Tribunal noted the lack of detailed findings by the AO and CIT(A) and remitted the issue back to the AO for fresh adjudication, directing the Assessee to provide necessary details promptly.3. Accrued Interest on Bonds of REC Ltd.:The AO added accrued interest on REC bonds to the Assessee's income, despite the Assessee following the cash method of accounting. The CIT(A) deleted the addition, referencing earlier Tribunal decisions. The Tribunal upheld this deletion, reiterating that the Assessee followed the cash method, and the Board's circular could not override the provisions of the Act. Thus, the Tribunal dismissed the Revenue's ground.4. Classification of Capital Gains on Transfer of DDBs of Nirma Ltd.:The AO classified the gain from the transfer of DDBs as short-term, contrary to the Assessee's claim of long-term capital gain. The CIT(A) sided with the Assessee, referencing similar cases. The Tribunal affirmed this decision, noting that the issue had been previously resolved in favor of the Assessee in earlier years. Consequently, the Tribunal dismissed the Revenue's ground.5. Addition under the Head 'Income from House Property':The AO added income from house property based on estimated rental value due to lack of details from the Assessee. The CIT(A) significantly reduced this addition, using the valuation by the local authority (AUDA). The Tribunal found the CIT(A)'s order reasonable but noted that the necessary details were not provided during the assessment. The Tribunal remitted the issue back to the AO for fresh consideration, directing the Assessee to submit the required details promptly.Conclusion:The Tribunal's judgment addressed each issue comprehensively, often referencing prior decisions and emphasizing the importance of consistent accounting methods and the provision of necessary details by the Assessee. The Tribunal largely upheld the CIT(A)'s decisions, with remands for further verification where necessary. The Revenue's appeal was partly allowed for statistical purposes, and the Assessee's cross-objection was dismissed.