TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 59
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....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 and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in conforming the a....
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....see 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, 2009 passed under section 143(3) read with section 143(2) of the Act. Further, it was observed by the Assessing Officer that the assessee has debited in his profit and loss account with interest on housing loan of Rs. 8,77,110 and as the house properties were deemed to be let out properties, the said a....
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....r 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 during the previous year and hence amount was shown as advance. The Commissioner of Income-tax (Appeals) held that the Assessing Officer has rightly treated the said property as deemed let out property. 11. With regard to the flat at Malad, the Commissioner of Income-tax (Appeals) held that the assessee has hi....
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....rd 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 before us that the notional income based upon the book value/market value of the property cannot be brought to tax as there is no scheme or provisions in the Act to compute the annual letting value (ALV) to compute income from house property based upon the book value/market value of the property. Similarly, the assessee subm....
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....hat 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 making reference did not countenance the aforesaid formula adopted by the Assessing Officer as is clear from para 12 of the reference order wherein it is observed as under : "12. In this backdrop, the important question which arises for determination is : what is the fair rent of the properties, which were let out in the instant case ? The mistake comm....
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....t 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 concerns determination of the annual letting value of such property. That provision talks of 'the sum for which the property might reasonably be expected to let from year to year'. This contemplates the possible rent that the property might fetch and not certainly the interest in fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such prop....
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....rities 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 consideration. It is clear from the following discussion therein : "6. With regard to question Nos. (5) and (6) which are only for the assessment years 1984-85 and 1985-86 the further issue involved is whether any addition to the annual rental value can be made with reference to any notional interest on the deposit made by the tenant. When the annual value is determined under sub-clause (a) of sub-section (1) of section 2....
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....milarity 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 the Calcutta High Court in CIT v. Satya Co. Ltd. [1997] 140 CTR (Cal) 569 that in such circumstances, the annual value fixed by the municipal authorities can be a rational yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income-tax laws. If there is a change in circumstances because of passage of time, vi....
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.... 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 into consideration by the Assessing Officer while determining the fair rent. It is not necessary for us to give any opinion in this behalf, as we are not called upon to do so in these appeals. However, we may observe that no particular test can be laid down and it would depend on facts of each case. We would do nothing more than to extract the following passage from the Supreme Court judgment in the case of Motichand Hirachand v. Bombay Municipal Corporation, AIR 1968 SC 441, 442 : "It is well-recognised principle in ratin....
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....t 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 and benefits an office or a block on the upper floor may fetch higher returns or vice versa. Therefore, there is no magic formula and everything depends upon the facts and circumstances in each case. However, we emphasise that before the Assessing Officer determines the rate by the above exercise or similar permissible process he is bound to disclose the material in his possession to the parties. He must not proceed to rely upon the material in his possession and disbelieve the parties. The satisfaction of the Assessing Officer that the bargain ....
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....etermination. 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 conditions on which the leave and licence agreement is executed by parties. These terms and conditions are willingly accepted. They enable the licence to be determined even before the stated period expires. Equally, the licensee can opt out of the deal. A leave and licence does not create any interest in the property. Therefore, it is not as if the security deposit being made, it will be necessarily refundable after the third year and not otherwise. Everything depends upon the facts and circumstances in each case and the nature of the deal or transaction. These are not matters which....
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....ing 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 appeals of the Revenue cannot be entertained. They would have to be accord ingly dismissed." 20. We have also observed that the Assessing Officer has not made any enquiry with respect to the computation of the income from house property with respect to the respective properties in accordance with sections 22 and 23 of the Act and the principles laid down by the hon'ble Bombay High Court in the case of CIT v. Tip Top Typography [2014] 368 ITR 330 (Bom) to determine the prevailing market rent of these properties and rather computed annual letting value based on notional rent based on cost of pr....
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....er 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 respect to his professional receipt, there are no written agreements as all the contracts are oral. The Assessing Officer asked the assessee to submit the details of professional receipts party-wise for the financial years 2007-08 and 2008-09 against which the assessee submitted the details for the financial year 2007-08 from whom he has received the professional income as under : Sl. No. Name TDS Gross amount 1. Real Good Films 41,475 7,83,000 2. Shabbo Arts - 6,00,000 3. Himesh Reshammiya Movie Culture 44,598 8,74,000 22. Since the assessee did not provide the written agreements wi....
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....o 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 the Assessing Officer was correct in applying the mercantile system of accounting for his professional income as section 145 of the Act was amended to prohibit use of hybrid system of accounting. The Commissioner of Income-tax (Appeals) held that the assessee also did not produce the agreement entered into with real goods, Shaboo Art and Himesh Reshamiya movie culture before the Assessing Officer and even during the appellate proceedings before the Commissioner of Income-tax (Appeals), therefore, it is difficult to ascertain as to what method the assessee has actually employed and accordingly the action of the Assessing Officer was ....
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....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 own action of voluntarily offering the same to tax in the return of income filed under section 139 of the Act. 26. On the other hand, the learned Departmental representative submitted that the assessee is following the hybrid system of accounting whereby the assessee following cash basis of accounting for choreography business and mercantile system of accounting for film production business which method of accounting is not allowable as per section 145 of the Act. The learned Departmental representative submitted that the Assessing Officer may be directed to verify the system of accounting consistently followed by the assessee with respec....
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.... 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 previous year by following the mercantile system of accounting although the assessee was consistently and regularly following cash system of accounting for the said profession, by assuming that the income of Rs. 22,57,000 which was received in the next financial year 2007-08 has actually accrued in the impugned previous year, i.e., 2006-07 merely on the pretext that the assessee has not produced the agreements with the three parties, namely, Real Goods, Shaboo Art and Himesh Reshamiya Movie Culture from whom the income of Rs. 22,57,000 was received in the next financial year 2007-08 without bringing on record cogent material or evidence to ....
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.... 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 accounting to only cash or mercantile system of accounting and the assessee were also allowed to follow hybrid system of accounting which was leading to distortion of income whereby correct income chargeable to tax was not reflected in hybrid system of accounting. The rationale of introduction of amendment of section 145 of the Act by Finance Act, 1995 as stipulated therein was as under : "Methods of accounting and accounting standards for computing income 44.1 Section 145(1) of the Income-tax Act prior to its amendment by the Finance Act, 1995, provided for computation of income from business or profession or income from other sources in accordance with the method of....
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....te 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 generally computed by following one of the three methods of accounting, namely, (i) cash or receipts basis, (ii) accrual or mercantile basis, and (iii) mixed or hybrid method which has elements of both the aforesaid methods. It was noticed by the Revenue that many assessees are following the hybrid method of accounting in a manner that does not reflect the correct income. Post amendment to section 145 of the Act by the Finance Act, 1995, the income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed only in accordance with either the cash or the mercantile system of accounting, regularly employed by an assessee. Thus, in a nutsh....
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....thod 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 the choice of regularly employing either of the two methods, viz., cash method of accounting or mercantile method of accounting for computing income chargeable to tax as per the provisions of the Act. Thus, as we have seen above the major difference between the cash method of accounting and accrual basis of accounting is the timing difference in the recognition of expenses and income. In the instant case, the assessee has two sources of income within the head 'Profits and gains of business', viz., income from profession and secondly income from film production. The assessee is employing cash basis of accounting regularly and consistently for his one source (under the head "Income from business or profession"), i.e. income from profession ....
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.... 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 observed that the assessee received Rs. 15 lakhs as advance against MHADA properties as reflected in the balance-sheet of the assessee under the head "Current liabilities". The assessee was asked to submit the agreement against which the said advance was received by the assessee. However, no reply was submitted by the assessee before the Assessing Officer and addition of Rs. 15 lakhs was made to the income of the assessee as unexplained cash credit under section 68 of the Act under the head "Income from other sources". 34. Aggrieved by the orders of the Assessing Officer, the assessee carried the matter before the Commissioner of Income-tax (Appeals) in appeal. The Commissioner of Income-tax (Appeals) asked for the remand report from the Assessing....
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....ection 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 accommodations C-18, C-19 and C20 has already been assessed to tax in the hands of the assessee as undisclosed income vide the block assessment order framed by the Revenue. Learned counsel submitted that when these assets have already been assessed to tax in the assessee's hands by the Revenue in the block assessment order framed against the assessee then the income arising from the sale of these accommodations being capital gain should be taxed in the hands of the assessee only as the Revenue has accepted that these accommodations are purchases out of undisclosed income of the assessee. The block assessment order dated July 30, 2001 was placed before the learned Commissioner of Income-tax (Appeals) and is also placed in paper book pages 187 to 194 bef....
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....ons 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 opportunity as per law shall be given by the Assessing Officer to the assessee in accordance with the principles of natural justice. We order accordingly. 39. Ground No. 5 relates to confirming the action of the Assessing Officer in adding a sum of Rs. 14,19,000 as cash deposit under section 68 of the Act. From the ITS details, the Assessing Officer observed that cash deposit of Rs. 14.19 lakhs was made by the assessee in the bank account during the financial year 2006-07. The assessee was asked to substantiate the same but no reply was filed by the assessee and cash deposit of Rs. 14.19 lakhs was added to the income of the assessee under section 68 of the Act. A remand report was called by the Commissioner of Income-tax (Appeals) during the first appellate procee....