2016 (9) TMI 1662 - AT - Income Tax

Tribunal favors assessee in tax case involving agricultural income, rental tax, interest, Wealth Tax

Selvi J. Jayalalithaa Versus Assistant Commissioner of Income Tax, Central Circle-II (2), Deputy Commissioner of Wealth Tax, Central Circle-II (2), Chennai.

Selvi J. Jayalalithaa Versus Assistant Commissioner of Income Tax, Central Circle-II (2), Deputy Commissioner of Wealth Tax, Central Circle-II (2), ... Issues Involved:1. Treatment of agricultural income as income from other sources.2. Disallowance of municipal tax while determining rental income.3. Assessment of accrued interest income from frozen bank deposits.4. Wealth Tax assessment and invocation of section 25 of the Wealth Tax Act.Detailed Analysis:1. Treatment of Agricultural Income as Income from Other Sources:The assessee claimed agricultural income of Rs. 21,66,959 during the assessment year. The Assessing Officer (AO) disbelieved this claim due to lack of evidence such as vouchers for fertilizers, pesticides, wages, and basic agricultural operations. The AO treated this income as 'income from other sources' and added it to the taxable income. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's decision, citing similar reasons and emphasizing the lack of signed details and evidence of landholding. The CIT(A) also noted that previous acceptance of agricultural income in earlier years does not automatically validate the claim for the current year.Before the Tribunal, the assessee argued that detailed evidence of agricultural activities and income had been submitted, including sale receipts and land details, which had been ignored by the AO. The Tribunal found that the existence of agricultural operations was not in dispute and criticized the Revenue for not estimating the agricultural income based on available facts. The Tribunal directed the AO to delete the addition of Rs. 21,66,959 and accept it as agricultural income.2. Disallowance of Municipal Tax While Determining Rental Income:The assessee did not press the ground related to the disallowance of Rs. 60,000 towards municipal tax while determining rental income. Consequently, this ground was dismissed.3. Assessment of Accrued Interest Income from Frozen Bank Deposits:The AO included Rs. 36,10,000 as accrued interest income from the assessee's frozen bank deposits, arguing that interest accrues regardless of the deposits being frozen. The CIT(A) confirmed this, noting the hybrid accounting system used by the assessee and the lack of evidence showing a risk of forfeiture of the deposits.The assessee contended that due to the deposits being frozen by the DVAC, there was significant uncertainty in realizing the interest, and thus it should not be taxed until actually received. The Tribunal agreed, citing Accounting Standard AS-9, which states that revenue should be recognized only when collection is reasonably certain. The Tribunal directed the AO to delete the interest income of Rs. 36,10,000 from the taxable income.4. Wealth Tax Assessment and Invocation of Section 25 of the Wealth Tax Act:The Wealth Tax assessment for the year 1997-98 was revised by the Commissioner under section 25 of the Wealth Tax Act, based on an order under section 263 of the Income Tax Act, which included additional assets not initially assessed. The assessee argued that the section 263 order had been annulled by the Tribunal, and thus the section 25 order should be quashed.The Tribunal noted the substantial delay in filing the appeal but condoned it, emphasizing the need for justice over technicalities. The Tribunal found that the section 25 order was based on the annulled section 263 order and thus had no basis. The Tribunal quashed the section 25 order, favoring the assessee.Conclusion:- The Tribunal directed the AO to recognize the claimed agricultural income and delete the addition of Rs. 21,66,959.- The ground related to the disallowance of municipal tax was dismissed as it was not pressed.- The Tribunal directed the AO to delete the accrued interest income of Rs. 36,10,000 from the taxable income due to significant uncertainty in realization.- The Tribunal quashed the section 25 order of the Wealth Tax Act, as it was based on an annulled section 263 order.The appeals were partly allowed in favor of the assessee.