TMI Blog2014 (6) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings, Assessing Officer, noticed that Assessee had followed cash method of accounting. He also noted that for A.Y. 02-03 03-04 in the block assessment order dated 28.10.2003, the Assessing Officer had considered the mercantile system of accounting in the case of Assessee. He accordingly followed the mercantile system. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT following the decision of Ahmedabad Tribunal in the case of Rakeshbhai Patel and the decision of his predecessor in assessee's case for A.Y. 2005-06 held that the method of accounting to be on cash basis. He accordingly allowed the appeal of the Assessee. 6. Aggrieved by the order of Assessing Officer, the Revenue is now in appeal before us. 7. Before us, at the outset, the Ld. A.R. submitted that in assessee's own case for A.Y. 02-03 in ITA No. 1252/Ahd/2006 and for A.Y. 03-04 in ITA No. 1082/Ahd/2010 vide order dated 15.02.2013 on identical facts, the issue has been decided in Assessee's favour. He also placed on record the copy of the aforesaid order. He therefore submitted that the issue be decided in favour of Assessee. The Ld. D.R. on the other hand reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the assessee as per Circular No.2 of 2002 and Section 145(2) of the Income tax Act, 1961 that the same cannot be declared on cash basis. We are not satisfied with this contention of the A.O. because as per the provisions of Seciton 145(2) of the Act, the Central Government may notify in the official gazette from time to time, the accounting standards to be, followed by any class of the assessees and in respect of any class of the income but this Board's circular No.2 of 2002 does not amount to any accounting standard notified by the Central Government in the official gazette and, therefore there is no merit in this contention of the A.O. that as per the provisions of Section 145(2) of the Income tax Act, 1961 read with circular NO.2 of 2002, the assessee cannot return the income from DDBs/NCD on cash basis. From the audited accounts and computation of income filed by the assessee along with the return of income, copies of which are made available to us also, we find that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b of legitimate transaction with an ultimate objective of reducing the tax incidence. He accordingly disallowed the capital loss on sale of Makarba land. 11. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) decided the issue in favour of the Assessee by holding as under:- 4.1 It was contended by the ld. A.R. the similar issue was decided in favour of appellant's brother Shri Rakeshbhai K Patel vide para 5.1.2 of my predecessor's order in appeal no. CIT(A)-XI/262/06-07 dated 13.03.2008 for A.Y. 2004-05. It is seen that one piece of the land was sold by Shri Rakeshbhai Patel. Facts remaining the same, following my predecessor's order mentioned above, the disallowance of long term capital loss is deleted. This ground of appeal is allowed. 12. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 13. Before us, the learned D.R. submitted that the assessee did not furnish any details of capital loss before the A.O. and therefore the Assessing Officer was fully justified in disallowing the loss. He thus supported the order of A.O. The Ld. A.R. on the other hand submitted that on identical facts in the case of Rakeshbha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not filed. The AO therefore on the basis of these facts that the buyer and the seller of Makarba land are brothers, took an inference against the assessee and disallowed the Long Term Capital Loss. Before the CIT(A), the assessee submitted the following details: "Land plot is situated at S.G. Road, Makarba Village, Taluka City, Dist. Ahmedabad. The, land was purchased from following six persons. 1 Shri Shantilal Budarbhai 2 Shri Rajeshbahi Shantilal 3 Shri Vasantbhai Shantilal 4 Shri Gautambhai Shantilal 5 Shri Vinodbhai Shantilal 6 Shri Mahasukhbhai Shantilal The address of the persons were mentioned in the purchase deeds which are enclosed herewith. Land plot was sold to my brother Shri Hirenbhai K Patel. His address is Nirma House, Ashram Road, Ahmedabad. The copy of the sale deed is enclosed Annexure-Ei. He is assessed to income-tax at PAN: AGGPP2907H by ACIT, Circle 5, Ahmedabad where I am assessed. Market value of the said land plot as on 31-3-03 is @ Rs.9,00,000 is based on the jantri issued by State Government. Copy enclosed - marked Annexure-F. The consideration is passed by Account Payee Cheque." The CIT(A) deleted the disallowance by observing as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided afresh by the A.O. We therefore remit this issue to the file of A.O. to decide the issue afresh in accordance with law and after considering the submissions of the assessee. The Assessee is also directed to submit the necessary details called for by the A.O. promptly and within 15 days from the date of order and without waiting for notice from the A.O. The A.O. shall thereafter considering the submissions made by the Assessee, decide the issue in accordance with law. In case no insufficient details are submitted by the Assessee, the A.O. will be free to proceed on the basis of material available with him. Thus this ground of Revenue is allowed for statistical purposes. Ground no. 3 is with respect to interest on bonds of REC Limited amounting to Rs. 49,17,994/-. 16. From the details filed by the Assessee, A.O. noticed that Assessee had invested in bonds of Rural Electrification Corporation in financial year 02-03, the issue price of which was 4,20,20,000/-. He also noticed that the maturity date of the bonds was 13.09.2007 and the maturity value was Rs. 5,78,82,550/-. The A.O. was of the view that the Assessee should have considered the interest accrued on the bonds as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al submissions and perused the material on record. We find that in ITA No. 3133/A/2007, the Assessee has raised the ground with respect to bonds of REC Limited. The issue was decided in favour of the Assessee by the Co-ordinate Bench of Tribunal vide order dated 21.06.2013 by holding as under:- 4.2.1 It was submitted by the Ld. A.R. that ground no.5 should be decided first as per which, it is the claim of the assessee that the assessee is following cash system of accounting. He submitted that although this issue is not decided by Ld. CIT(A) and, therefore, this may be an argument that this issue should go back to the file of Ld. CIT(A) for a decision but since all other issues as per grounds no.2, 3 4 are depending on the decision on this aspect and the relevant facts beings the audited balance sheet and P L account etc. are being furnished, this issue may be decided here itself. He also submitted that as per the computation of the total income filed by the assessee along with the return of income which is made available before the bench, it is submitted by the assessee on page 2 of the computation that the assessee is following cash method of accounting. He also submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t material is available on record before us being the audited balance sheet and P L account as well as computation of income filed by the assessee along with the return of income and the order passed by the A.O. is not a speaking order regarding method of accounting being followed by the assessee, we feel it proper that we should decide this aspect of the matter in the facts of the present case. We, therefore, proceed to decide this issue after examining the computation of income and the audited accounts made available before us. In the computation of income, it is specifically stated by the assessee as per note that assessee is following cash method of accounting. This was submitted by the assessee before the A.O. as per the submissions dated 08.11.2005 also as has been reproduced by the A.O. in para 5.1 on page 3 of the assessment order. Thereafter, in para 5.13 of the assessment order, it is stated by the A.O. that the method of accounting in respect of DDEs has been defined by CBDT u/s 145(2) of the Income tax Act, 1961 and as per the provisions of Section 145(2) read with Circular No.2 of 2002, the assessee is not allowed to return the income from DDBs/NCD on cash basis. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the assessee is following cash method of accounting \ in the facts of the present case in the present year and accordingly, ground no.5 of the assessee is allowed. Since this issue is decided in favour of the assessee and we have held that the assessee is following cash method of accounting, remaining grounds No.2, 3 4 are also to be allowed because 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. Hence, grounds No.2, 3 4 are allowed. 20. Before us, the Revenue could not controvert the submissions of Ld. A.R. nor has brought any contrary material on record. Further the facts of the case in the year under appeal are also identical to that of earlier years. In view of the aforesaid facts, respectfully following the order of Co- ordinate Bench, we decide the issue in favour of Assessee. Thus this ground of Revenue is dismissed. Ground no. 4 is with respect to considering the profit on transfer of DDBs of Nirma Ltd. 21. Assessing Officer noticed that Assessee had sold investments in 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d A.O. considered the income generated from the sale of 155 DDBs Series-A of Nirma Limited which were purchased from Nirav Discretionary Family Trust as STCG which comes to Rs. 1,89,31, 545/-. Further, it was observed by the AO that out of these 155 DDBs, the assessee purchased 87 DDBs on 5.11.2000 at Rs.89,l7,500/- and the balance of 68 DDBs were purchased on 28.2.2001 at Rs.72,42,000/-. Therefore, the AO computed the STCG on the same at Rs.27,72,045/-. Further, it was noticed that the assessee sold 1236 DDBs at Rs. 15,09,63,804/- which were purchased at Rs. 12,36,00,000/-. The AO had, therefore, computed STCG on the same at Rs.2,73,63,804/- thereby aggregating the computation of STCG to Rs.3,01,35,849/-. Since the income of assessee earned from sale of aforesaid DDBs by the AO against the claim of LTCG, the AO disallowed the assessee's claim of deduction u/s 54EC of the Act amounting to Rs. 4,20,20,200/- (Refer: paras 5.9 to 5.11 of the asst. order). 8.1 Aggrieved, the assessee took up the issues with the CIT (A) for relief. The learned CIT (A), however, upheld the stand of the AO by observing thus: "(On page 11) The appellant's submissions have been considered by me.This iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s asked to furnish its explanation as to why no income from house property has been offered for tax. In the absence of any information or submissions by the Assessee. A.O. noticed that Nima House was reflected as asset in the balance sheet of Shri Karsanbhai Patel and Shri Rakesh K Patel, Assessee's father and brother respectively. He thereafter considering the area, monthly rent fetching capacity determined the annual value of property to be Rs. 19.5 lacs. He thereafter considered 1/3rd share in the property to be of Assessee and thereafter proceeded to determine the value of Nima house on the basis of annual value. He accordingly considered the share of Assessee in Nima house to be at Rs. 6,50,000/- and after granting of deduction under Section 24(a) at 30%, determined the income from house property to be at Rs. 4,55,000/- and added the same to the income. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) granted substantial relief to the Assessee by holding as under:- 7.1 During the course of appeal proceedings, it is submitted by the A.R. of the appellant that valuation is too exorbitant and excessive. He submitted that the valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther of the Assessee had decided the issue by following the order in the case of Assessee. The relevant finding of CIT(A) reads as under:- 5.2 I have considered the submissions made by the A.R. of the appellant and the observations of the assessing officer in the assessment order. Similar issue arose in the case of Shri Hiren K. Patel, one of the co-owners of the said property. The same has already been decided by me vide order in appeal No. CIT(A)-XI/270/2006-07 dated 02.08.2010, wherein it was held by me as under:- "7.2. I have considered the submissions made by the A. R. of the appellant and the observations of the assessing officer in the assessment order. A. O. observed that as per information gathered, rent-fetching capacity of the property is Rs. 20 per Sq.ft. However, the basis of such information is not mentioned. A.R.'s contention that the valuation made by the local authority i.e. AUDA should be taken as the base is tenable. I hold that the Rs. 800 should be capitalized @ 8% which comes to Rs. 10,000. The income in the hands of appellant being co- owner should be worked out after taking the annual value of Rs. 10,000/- p.a. The income would be as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed house property was not furnished by the Assessee and therefore the A.O. proceeded to decide the matter on the basis of material available with him. We are therefore of the view that the Assessing Officer be granted one more opportunity to decide the issue afresh after considering the submissions of the Assessee and the relevant material. We therefore remit the issue to the file of Assessing Officer to decide the issue afresh after giving reasonable opportunity of hearing to the Assessee. The Assessee is also directed to submit promptly the details called for by the A.O. for adjudication of issue suo motu within 15 days from the date of order and without waiting for the notice from the A.O. The A.O. shall after considering the submissions made by the Assessee decide the issue in accordance with law. In case, no details are submitted by the Assessee, the A.O. shall be free to proceed and decide the issue on the basis of material available with him. Thus this ground of Revenue is allowed for statistical purposes. 33. In the result the appeal of the Revenue is partly allowed for statistical purposes. 34. Now we take up Assessee's CO. The only effective ground raised in C.O. read ..... X X X X Extracts X X X X X X X X Extracts X X X X
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