TaxTMI 
TaxTMI 
2021 (7) TMI 440
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.... in law, the Ld. CIT(A) was justified in allowing the assessee's claim without appreciating that the auditor in its report in accounting policies and notes to accounts has specifically mentioned that "the foundation follows mercantile system of accounting and recognizes income and expenditure on accrued basis except leave encashment liability which is accounted on payment basis". 3. "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting addition made by the AO u/s 13(3) of the IT. Act on account of receiving lower rent from the related party without appreciating that the DVO has determined the market value of the said property to Rs. 2,61,17,501/- being value of lease rentals of Hospital building at the rate of Rs. 4.45/- per month per sq. ft and for staff quarters at Rs. 3.94/- per months per sq. ft. which is still higher than the rate charged by the assessee trust i.e. 4.10/- per month per sq. ft. for hospital building and Rs. 3/ - per month per sq. ft. for staff quarters. The As the DVO has determined the rental value higher than the rent actually received, so there is no doubt about the fact that the assesse....
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....method. Consistency does not override correctness. The Assessing Officer held that where the assessee was following mercantile system of accounting, the same method should also be followed for accounting of interest income as well. The Ld. AO, by invoking provisions of section 144, re-worked the amount of interest and added back the amount of Rs. 3,96,94,179/- to the computation of income. 6. Further, the Assessing Officer held that assessee's proposition that only income that is received can be applied is not correct. Section 11 also provides for a situation where the income is accrued but not received by the trust. Explanation 2 to section 11(1) clearly states that if the income expended fall short of 85% of the income for the reason that the income has not been received during the year or for any other reason then an option is given to the assessee to intimate the Assessing Officer that the same would be spent in the year of receipt or in the immediately following year as the case may be. That the legislature has foreseen a situation where the income was accrued but could not be spent as it was not received. That therefore, the mixed method of accounting followed by....
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....45(1) of the Act does not provide any hindrance to the system of accounting in this regard being followed by the assessee. In this regard he placed reliance upon the following case laws :- * PCIT Vs. Quest Investment Advisors (P) Ltd. (409 ITR 545) * CIT Vs. Nagri Mills Co. Ltd. (33 ITR 681) * CIT Vs. Ganga Charity Trust Fund (162 ITR 612) * DCIT Vs. M/s. G.D. Birla Medical Research & Education Foundation (ITA No. 4348/Mum/2018) 11. We have carefully considered the submission and perused the record. We note that the assessee is a trust. It is undisputed that the assessee is following mercantile system of accounting as per its audit report and accounts. However, it is also undisputed that the assessee is accounting for interest income on receipt basis. As a result of this finding, the Assessing Officer has found that Rs. 3,96,94,179/-being interest accrued have not been accounted by the assessee on the ground that it is accounting for the same on the basis of cash system i.e. receipt basis. We note that section 145(1) of the Act provides that income chargeable under the head 'profits and gains of business or profession' or 'income from ot....
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....learly states that if the income expended fall short of 85% of the income for the reason that the income has not been received during the year or for any other reason then an option is given to the assessee to intimate the Assessing Officer that the same would be spent in the year of receipt or in the immediately following year as the case may be. This further makes this case of the assessee distinguishable and the assessee cannot be allowed to circumvent the provisions of applying income by reducing income at source itself. The case laws referred by learned Counsel of the assessee where accounting on receipt basis followed in earlier year was allowed to be continued, were on the facts of each case. Accordingly, we are of the considered opinion that the system followed by the assessee of only accounting interest income on receipt basis is not sustainable. 13. In this view of the matter the Assessing Officer is correct principally in holding that the assessee is required to account for the interest on accrual basis. However, we note that the assessee is accounting for the interest on receipt basis. Hence, assessee must have accounted for the interest of earlier year which has bee....
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.... made an addition of Rs. 8,78,94,440/- on the ground that the lease rental charged by the Assessee from ABHSL is not at fair value. The Ld. AO observed from the Balance Sheet of the ABHSL that it is earning a good amount of profit and therefore, the Assessee ought to have charged a higher rent. The Ld. AO further contended that approval of lease rent by Hon'ble Charity Commissioner u/s 36(1)(b) of the Trust Act does not validate that the lease is rent is charged appropriately as per the provisions of the Act. The Ld. AO further rejected that the government valuation report submitted by the Assessee on the view that it suffered from sampling biases. The Ld. AO relied on third party websites namely magicbricks.com and indiaproperty.com for obtaining lease rents quoted by third party in the area where the hospital is located. The quotes were obtained on 23/3/2014 and were discounted at rate of 10% to arrive at the value as on 31/3/2011. The fair rental value of the property was computed as below: Sr. No. Description Area Rate per sq.ft. per month Rental value per annum 1 Hospital building 4,48,454 19 10,22,47,512 2 Staff housing building 45,8....
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....g and staff quarters respectively and made the above addition. It is noted that subsequent to the assessment order passed by the AO, on receipt of the report of DVO, the AO has passed the rectification order u/s.154 dated June 19, 2014 and restricted the addition to Rs. 0.24 crores as against the earlier determination of addition of Rs. 8.78 cores. During the course of the appellate hearing detailed submissions on these points were made by the authorized representative of the Appellant as reproduced above. The contention raised by the Appellant is that the AO has merely based on certain data assumed that ABHSL is a related party u/s. 13(3). The Appellant has in the course of the submission demonstrated that how clause (a) to (d) of section 13(3) are not applicable to the present facts. Insofar as clause 13(3)(e) is concerned, the said clause applies in respect of a concern in which any of the Trustees/Manager etc. have a substantial interest. Further, substantial interest has been defined under Explanation 3 to section 13 to have atleast 20% of the voting power or 20% of the profits. I have examined the shareholding pattern of ABHSL and also compared the ....
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....held. He submitted that the Assessing Officer's finding of the person specified being beneficial owner is correct. In this regard he placed reliance upon the decision of Hon'ble Supreme Court in the case of National Travel Services Vs. CIT (300 CTR 582). He further submitted that the Assessing Officer has correctly computed the income from house property. In this regard he placed reliance upon the decision of following case laws :- * ACIT Vs. CyRUS Investments (P) Ltd. (93 taxmann.com 493)(Mum Trib) * CIT Vs. Tip Top Typography (48 taxmann.com 191) (Bom High Court) * New Jehangir Vakil Mills Co. Ltd. Vs. CIT (49 ITR 137) 21. Per contra learned Counsel of the assessee supported the order of learned CIT(A). Learned Counsel of the assessee submitted that learned CIT(A) has given correct finding that the persons specified are not having beneficial interest as per the provisions of the Act. He further reiterated that the rental value approved by Charity Commissioner has correctly been accepted by learned CIT(A). In this regard he placed reliance upon the following case laws : * CIT Vs. Shriram Pistons & Rings Ltd (181 ITR 230) * Virend....
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....inquiry. In this view of the matter we are of the considered opinion that there is no infirmity in the order of learned CIT(A) in this regard. 24. As regards the other aspects in this regard i.e. quantification of rent we find that once the assessee is not falling the ambit of section 13(1) of the Act this issue does not arise. In any case, the act of the Assessing Officer of notional addition or through DVO is not sustainable on the touchstone of Hon'ble Bombay High Court decision in the case of Virendra Vs. Appropriate Authority & Ors. (327 ITR 185). In as much as in the said case it was held that approval by the competent authority is fair estimate. Moreover, the decision of Hon'ble Bombay High Court in the case of Tip Top Typography (supra) does not mandate this type of computation of rental income done by the Assessing Officer. Accordingly, in the background of the aforesaid discussion and precedent, we uphold the order of learned CIT(A). Since the two decisions of Hon'ble Bombay High Court are in favour of the assessee, other decisions of the Tribunal in this regard are not being dealt with. As we are not upholding the order of learned CIT(A) on the principal o....