TaxTMI 
TaxTMI 
2016 (5) TMI 59
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....et out : * Flat at Malad * Flat at Millat nagar 1103 * Flat at Millat Nagar 1203 * Plot at MHADA Shariq Hall and confirming the assessment of the same under the head "Income from house property". 2. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in confirming the action of the learned Assessing Officer in restricting the claim of interest to Rs. 1,50,000. 3. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in conforming the action of the learned Assessing Officer in holding that for professional income appellant is liable to follow mercantile method of accounting and accordingly adding a sum of Rs. 22,57,000 in respect of income which has already been considered as income in subsequent assessment year. 4. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in confirming the action of the learned Assessing Officer to the extent of Rs. 10,00,000 as unexplained cash-credit under section 68 of the Income- tax Act. 5. On the facts ....
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....of the six house properties to be used for his business purposes while the assessee is not claiming depreciation with respect to these four properties stated to be used for business purposes and since no evidence were submitted by the assessee to substantiate its claim of usage of above properties for the purpose of business, the Assessing Officer after giving benefit of one house property for residential purpose and one for the purpose of business, computed the income under the head "Income from house property" based on 10 per cent. of the book value as under : Sl. No. Description of property Book value (Rs.) 1. Flat at Malad 5,42,902 2. Flat at Millat Nagar 1103 27,03,545 3. Flat at Millat Nagar 1203 23,63,490 4. Plot at MHADA Sheriq Hall 23,70,548 Total 79,80,485 (Rs.) Total book value 79,80,485 10% of the book value of the property 7,98,048 Less : 30% standard deduction 2,39,414 5,58,634" 6. Thus, Rs. 5,58,634 was added to the income of the assessee under the head "Income from house property" by the Assessing Officer vide assessment orders dated December 7, 2....
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....her due to requirements of business necessities. The assessee also submitted that MHADA premises were actually sold during the year and the sale consideration of Rs. 15 lakhs was shown as advance against MHADA properties in the balance-sheet. This property was being used for film production which was later transferred to Millat Nagar premises and no income can be assessed in respect of Millat Nagar premises. The Commissioner of Income-tax (Appeals) noted that the Assessing Officer has observed that no depreciation has been claimed by the assessee on these properties which the assessee replied that even if no depreciation is claimed by the assessee but that does not mean that businesses are not carried on by the assessee from the said premises. 9. The Commissioner of Income-tax (Appeals) after considering the submission of the assessee observed that the assessee has not claimed any depreciation on the business premises. 10. With respect to MHADA property, the Commissioner of Income-tax (Appeals) held that the assessee himself has shown advance of Rs. 15 lakhs and also NOC for sale of property by the society was given on October 2, 2007 which means that property was not sold du....
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....ppeals) after considering the submission of the assessee, restricted the disallowance to 8 per cent. of market value of the property after referring to the provisions of section 7(1) of the Wealth-tax Act, 1957 read with Schedule III, from which the assessee will be granted deduction of municipal taxes and the standard deduction at 30 per cent. as provided under the Act. 15. Similarly, the Commissioner of Income-tax (Appeals) restricted the claim of interest of the assessee to Rs. 1,50,000 by virtue of the provisions of section 24(b) of the Act as in the opinion of the Commissioner of Income-tax (Appeals), the property was lying vacant during the year and has been rightly considered to be deemed let out property by the Assessing Officer. 16. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before the Tribunal. 17. Learned counsel for the assessee submitted that the assessee has filed additional evidences before the Commissioner of Income-tax (Appeals) which the Commissioner of Income-tax (Appeals) refused to admit and the said evidences were not considered by the Commissioner of Income-tax (Appeals). It was submitted be....
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....#39;fair rent' had added notional interest on the security deposit to the actual rent received to arrive at the annual letting value. None of the cases before the Full Bench involved applicability of the Delhi Rent Control Act. Therefore, the question of fixing standard rent in terms of this Act did not arise. However, it was admitted that if the property is covered by Delhi Rent Control Act then the standard rent under the said Act can be treated as 'fair rent' in view of various judgments. 45. In the above backdrop, the Full Bench held as under (pages 51 to 58 of 333 ITR) : 'With this, we revert back to the moot question, viz., how to determine the "fair rent" of the property and then to find out as to whether actual rent received is less or more than the "fair rent" so that higher of two is taken as annual letting value under section 23(1)(b) of the Act. For this purpose, we first discuss the validity of approach taken by the Assessing Officer, viz., whether it is permissible to add notional interest of interest-free security deposit and add the same to the actual rent received for arriving at annual letting value. Even the Division Bench while ....
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....of the provisions indicates that the question of any notional interest on an interest-free deposit being added to the income of an assessee on the basis that it may have been earned by the assessee if placed as a fixed deposit, does not arise. Section 28(iv) is concerned with business income and is distinct and different from income from house property. It talks of the value of any benefit on perquisite, 'whether convertible into money or not' arising from 'the business or the exercise of a profession'. It has been explained by this court in Ravinder Singh [1994] 205 ITR 353 that section 28(iv) can be invoked only where the benefit or perquisite is other than cash and that the term 'benefit or amenity or perquisite' cannot relate to cash payments. In the instant case, the Assessing Officer has determined the monetary value of the benefit stated to have accrued to the assessed by adding a sum that constituted 18 per cent. simple interest on the deposit. On the strength of Ravinder Singh, it must be held that this rules out the application of section 28(iv) of the Act. Section 23(1)(a) is relevant for determining the income from house property and con....
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....while determining the "fair rent". . . . It is, thus, manifest that various courts have held a consistent view that notional interest cannot form part of actual rent. Hence, there is no justification to take a different view that what has been stated in CIT v. Asian Hotels Ltd. [2010] 323 ITR 490 (Delhi). The next question would be as to whether the annual letting value fixed by the municipal authorities under the Delhi Municipal Corporation Act can be the basis of adopting annual letting value for the purposes of section 23 of the Act. This question was answered in affirmative by the Calcutta High Court in CIT v. Satya Co. Ltd. [1997] 140 CTR (Cal) 569 on the ground that the provisions contained in the Delhi Municipal Corporation Act for fixing annual letting value is in pari materia with section 23 of the Act. The court opined that the fair rent fixed under the municipal laws, which takes into consideration everything, would form the basis of arriving at annual value to be determined under section 23(1)(a) and to be compared with actual rent and notional advantage in the form of notional interest on interest-free security deposit could not be taken into consider....
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....computing the income of the assessee under other heads. In our view there is no scope for making any addition on account of so-called notional interest on the deposit made by the tenant, since there is no provision to this effect in section 22 or section 23 of the Income-tax Act, 1961." In fact, this is the view taken even by the Supreme Court in the case of Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 (SC) on account of similarity of the provisions under the municipal enactments and section 23 of the Act. It is on this basis that in the present case, the Commissioner of Income-tax (Appeals) gave primacy to the rateable value of the property fixed by the Municipal Corporation of Delhi vide its assessment order dated December 31, 1996 and on this basis, opined that the actual rent was more than the said rateable value and therefore, as per section 23(1)(b), the actual rent would be the income from house property and there could not have been any further additions. Since the provisions of fixation of annual rent under the Delhi Municipal Corporation Act are in parimateria of section 23 of the Act, we are inclined to accept the aforesaid view of t....
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....e uninfluenced by any extraneous circumstances. (ii) An inflated or deflated rent based on extraneous consider ation may take it out of the bounds of reasonableness. (iii) Actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration. (iv) Such annual letting value, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property. (v) If standard rent has not been fixed by the Rent Controller, then it is the duty of the Assessing Officer to determine the standard rent as per the provisions of rent control enactment. (vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as annual letting value and not the standard rent. . . . We would like to remark that still the question remains as to how to determine the reasonable/fair rent. It has been indicated by the Supreme Court that extraneous circumstances may inflate/deflate the "fair rent". The question would, therefore, be as to what would be circumstances which can be taken....
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.... parties have concealed the real position. He must not make a guess work or act on conjectures and surmises. There must be definite and positive material to indicate that the parties have sup pressed the prevailing rate. Then, the enquiries that the Assessing Officer can make, would be for ascertaining the going rate. He can make a comparative study and make a analysis. In that regard, trans actions of identical or similar nature can be ascertained by obtaining the requisite details. However, there also the Assessing Officer must safeguard against adopting the rate stated therein straightway. He must find out as to whether the property which has been let out or given on leave and licence basis is of a similar nature, namely, commercial or residential. He should also satisfy himself as to whether the rate obtained by him from the deals and transactions and documents in relation thereto can be applied or whether a departure therefrom can be made, for example, because of the area, the measurement, the location, the use to which the property has been put, the access thereto and the special advantages or benefits. It is possible that in a high rise building because of special advantages....
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.... be expect to get from a hypothetical tenant. She has in making this sub mission, answered the issue and summed up the conclusion as well. Then, it is but natural and logical that in the event, the transaction is influenced by any extraneous circumstances or vitiated by fraud, or the like that the Assessing Officer can adopt a "fair rent" based on the opinion obtained from reliable sources. There as well, we do not see as to how we can uphold the submissions of Mr. Chhotaray that the notional rent on the security deposit can be taken into account and consideration for the determination. If the transaction itself does not reflect any of the aforestated aspects, then, merely because a security deposit which is refundable and interest-free has been obtained, the Assessing Officer should not presume that this sum or the interest derived therefrom at bank rate is the income of the assessee till the determination or conclusion of the transaction. The Assessing Officer ought to be aware of several aspects and matters involved in such transactions. It is not necessary that if the licence is for three years that it will be operative and continuing till the end. There are terms and condition....
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....from the three aspects namely of a municipal valuation, of obtaining interest-free security deposit and the properties being covered by the Maharashtra Rent Control Act but no standard rent thereunder is fixed, our attention has not been invited to any other case. Suffice it to hold that in those cases and to which our attention is not invited the principles laid down in the decisions of the hon'ble Supreme Court and referred to by the Full Bench of the Delhi High Court would govern the enquiry. 54. As a result of the above discussion, we are of the opinion that wherever the Assessing Officer has not adhered to the above principles, and his finding and conclusion has been interfered with, by the higher appellate authorities, the Revenue cannot bring the matter to this court as no substantial question of law can be arising for deter mination and consideration of this court. Then, the findings by the last fact finding authority, namely the Tribunal and against the Revenue shall have to be upheld as they are consistent with the facts and circumstances brought before it. If they are not vitiated by any per versity or error of law apparent on the face of the record, the app....
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....ions and mercantile system of accounting for transactions in his proprietorship concern M/s. Pushpa Krishna Creations. As per section 145 of the Act, method of accounting should be either cash or mercantile to be followed by the assessee and since the assessee is following mercantile system of accounting in view of the compulsory requirements of rules 9A and 9B of the Income-tax Rules, 1962, it was show caused to the assessee by the Assessing Officer that why mercantile system of accounting should not be followed by the assessee with respect to his other individual transactions. The Assessing Officer asked for the agreement pursuant to which the receipts are credited in the profit and loss account. The assessee in reply submitted that the assessee is an individual and allowed to follow cash method of accounting for his various business or professions as per section 145 of the Act. However, for the purpose of film production business, method of accounting as prescribed in rules 9A and 9B is followed. Thus, the assessee submitted before the Assessing Officer that the assessee has followed the provisions of the Income-tax Act in both the cases. The assessee also submitted that with re....
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....09] 27 SOT 8 (Mum) wherein it was held that rejection of books of account under section 145 while accepting the books as correct and complete was invalid. The assessee submitted that this professional income of Rs. 22.57 lakhs has already been offered to tax and due taxes have been paid to the Revenue in the assessment year 2008-09 and the same income cannot be taxed twice and if it be so added then equivalent credit of income should be given in the assessment year 2008-09. However, the Commissioner of Income-tax (Appeals) rejected the contentions of the assessee and held that as per section 145(1) of the Act, the income chargeable to profits and gains of business or profession shall subject to provisions of section 145(1) be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The Commissioner of Income-tax (Appeals) held that the assessee falls under the class of choreographer, film producers and hence the assessee falls under the specific class of the assessee for which rules 9A and 9B has been made applicable and the assessee would be required to follow the mercantile system of accounting for his profession. He held that....
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....ng Officer, the assessee by following both cash and mercantile basis of accounting for different sources of income is following hybrid system of accounting which is not permitted by law as per the amended provisions of section 145 of the Act. The assessee relied upon the judgment in the case of Abdulgafar A. Nadiadwala v. Asst. CIT [2004] 267 ITR 488 (Bom). The assessee submitted that as per section 28 of the Act, the assessee has followed rules 9A and 9B of the Income-tax Rules, 1962 to compute the income chargeable under the head "Profits and gains from business or profession" in accordance with section 28. The assessee submitted that the Assessing Officer has brought to tax in the impugned assessment year, the income of Rs. 22,57,000 which was earned in the financial year 2007-08 and already subjected to tax in assessment year 2008-09 and taxes due have been paid to the Revenue and no prejudice is caused to the Revenue while bringing to tax the same in the impugned assessment year, the assessee is prejudiced as the same income is taxed twice once in the assessment year 2007-08 by action of the Assessing Officer and secondly in the assessment year 2008-09 by the assessee's ow....
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....ccounting for income arising from his profession and at the same time follow mercantile system of accounting for film production business, which in the opinion of the Assessing Officer is not permissible in view of the amendment in section 145 of the Act by the Finance Act, 1995 as it leads to following hybrid system of accounting because the assessee with respect to both the sources of income is the same being an individual, i.e., Mr. Vishwanath Acharya. The Assessing Officer has taken a view that income from profession has to be computed in accordance with mercantile system of accounting instead of cash system of accounting followed by the assessee because for the film production business carried on by the assessee, rules 9A and 9B of the Income-tax Rules, 1962 is mandatory and has to be compulsorily followed and hence income from profession also need to be computed following the mercantile system of accounting so that mandate of amended section 145 of the Act is complied with which do not permit the assessee to follow hybrid system of accounting. We have observed that the Assessing Officer has added Rs. 22,57,000 to the income of the assessee from the profession for the impugned....
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....nce with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correct ness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assess ment in the manner provided in section 144." 29. Section 145 of the Act, inter alia, stipulate that the income chargeable to tax under the head "Profits and gains of business" or "Income from other sources" shall be computed in accordance with cash or mercantile system of accounting regularly employed by the assessee and where the above method of accounting is not regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144 of the Act. Prior to amendment, section 145 of the Act did not restrict method of accoun....
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....arlier the provision was that such income was to be computed in accordance with the method of accounting regularly employed by the assessee. In the present case, the learned Tribunal has found that this is undisputed and settled principle of fiscal law, that only the real income is to be taxed, and that the same income cannot be taxed twice. It was also taken to be settled principle of law, that realities of life have to be considered while arriving at the taxable income. It was noticed that amendment in section 145 has been carried out with the sole aim of checking the escapement of income, which occurred due to heterogeneous system of accounting followed by the assessee." 31. The mandate of the Income-tax Act, 1961 is to collect correct taxes at the correct applicable tax rates from the correct assessee for the correct assessment year on the correct income to be computed in accordance with the provisions of the Act. Thus, the method of accounting regularly employed by the assessee should enable the Revenue to compute correct/real income of the assessee as per the provisions of the Act. Prior to amendment in section 145 of the Act by the Finance Act, 1995, the income was genera....
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....unting and accrual basis of accounting is the timing difference in the recognition of expenses and income. 3. Hybrid or mixed method of accounting : Under this method, both cash basis and accrual basis are followed. Incomes are recorded on cash basis whereas expenses are taken on accrual basis. The net income is ascertained by matching expenses on accrual basis with income on cash basis. This is the most conservative basis of ascertaining income because all possible expenses relating to the period whether actually paid or not are considered whereas income only received in cash is taken into consideration. 32. As we have seen above hybrid or mixed method of accounting postulate combining of both the cash and accrual method of accounting whereby incomes are recorded on receipt basis while expenses are booked on accrual basis which was leading to distortion of computation of correct income for bringing to charge to tax as per the provisions of the Act and the Finance Act, 1995 amended section 145 of the Act whereby the hybrid or mixed method of accounting was not permitted to be allowed for computing income under the Act. However, the lawmakers still left....
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....n above due to following the above methods of accounting and no prejudice will be caused to the Revenue. The said income of Rs. 22,57,000 from the profession is also stated to have been offered to tax by the assessee in the year of receipt, i.e., immediately succeeding the financial year 2007-08 by following consistently and regularly cash basis of accounting for his source of income from profession. Thus, we hold that the assessee is not following the hybrid or mixed method of accounting and the assessee is following cash system of accounting for his income from profession and mercantile system of accounting for his income from film production which are permitted by section 145 of the Act. Based on our discussions and reasoning given hereinabove, we order deletion of the addition of Rs. 22,57,000 made to the income of the assessee by the Assessing Officer by setting aside the orders of the Commissioner of Income-tax (Appeals) and deleting the addition of Rs. 22,57,000 made to the income of the assessee by the Assessing Officer. We order accordingly. 33. Ground No. 4 relates to addition of unexplained cash credit of Rs. 10 lakhs under section 68 of the Act. The Assessing Officer....
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....the block assessment order in the case of the assessee. Accordingly the assessee submitted that the Assessing Officer be directed to assess capital gains in the hands of the assessee and delete the addition made under section 68 of the Act. The Commissioner of Income-tax (Appeals) after considering the facts, gave relief to the assessee with respect to the accommodation No. C-19 as the same was owned by the assessee while the addition with respect to accommodation C-18 and C-20 of Rs. 10 lakhs being advance receipt in respect of mother and sister of the assessee is confirmed in the hands of the assessee as the MHADA properties stood in the name of the mother and sister of the assessee. The Commissioner of Income-tax (Appeals) also held that the no objection certificate from sale of the above properties were given by society on October 2, 2007 which means that the property was not sold during the year under consideration and hence the amount was shown as advance. 35. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before the Tribunal. 36. Learned counsel for the assessee submitted that the purchases with respect to three a....
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....name of close family members being sister and mother shall be chargeable to tax in the hands of the assessee although the accommodations are technically held in the name of close family members, i.e., mother and sister of the assessee and hence we order deletion of addition of Rs. 10 lakhs being advance on sale of these accommodations as made by the Assessing Officer and as confirmed by the Commissioner of Income-tax (Appeals) with the direction to the Assessing Officer to compute capital gains arising out of these two accommodations as per the Act which shall be brought to tax in the hands of the assessee in accordance with law after duly verifying and authenticating the claim of the assessee with respect to acquisition and ownership of the above accommodations C-18 and C-20 out of the undisclosed income of the assessee which has been brought to tax and taxes due paid to the Revenue as asserted by the assessee and the assessee is directed to appear before the Assessing Officer and file the necessary evidences before the Assessing Officer to support its claim and assertions for verification and authentication by the Assessing Officer. Needless to say that proper and adequate opport....
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.... how it is accounted for in the various concerns as these so called cash books were not produced before the Assessing Officer. 40. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before the Tribunal. 41. Learned counsel for the assessee submitted that the assessee has submitted additional evidences before the Commissioner of Income-tax (Appeals) which are not admitted by the Commissioner of Income-tax (Appeals). The assessee has also submitted in his written submissions filed before the authorities below that the assessee originally hailed from very lower strata of society. With lot of hard work, difficulty and moral support from the family, the assessee has come so far in his profession of choreography. Due to lack of financial support, the assessee could not even complete his basic education and as such he is not well versed with the terms of accountancy, tax and other laws and regulations. The assessee has once again hit as he had incurred huge losses in the film business. The assessee's accountant also left the job without even handing over the charge of the books of account. The assessee was not having the proper....