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2021 (7) TMI 440 - AT - Income TaxAssessment of trust - assessment of interest on accrual basis - assessee is following mercantile system of accounting as per its audit report and accounts - assessee's claim of exemption being the interest income accrued but not received during the previous year as the assessee followed the mixed system of accounting i.e. cash system for receipts and mercantile system for expenses - HELD THAT:- We are of the considered opinion that the system followed by the assessee of only accounting interest income on receipt basis is not sustainable. Assessing Officer is correct principally in holding that the assessee is required to account for the interest on accrual basis - Assessee is accounting for the interest on receipt basis. Hence, assessee must have accounted for the interest of earlier year which has been received during the year on receipt basis. Hence, by this change of method of accounting the assessee’s income would include interest income of earlier year received during this year as well as interest income accrued for the year. This will amount to taxing more interest income than that what is legitimately taxable for this year. Hence we are of the opinion that from the interest accrued for the year the interest income of earlier year which had accrued in earlier year but were accounted for on receipt basis during this year should be reduced. The resultant figure should be added to the income of the assessee. Transaction between the related concerns - After examining shareholding pattern of the person specified, learned CIT(A) has given a finding that clause (a) to (d) of section 13(3) of the Act are not applicable - CIT(A) has given a finding with respect to section 13(3)(e) of the Act the said clause is not applicable here. CIT(A) has given a finding that he has examined the shareholding pattern of ABHSL and also compared the same with the list of the trustees of the appellant trust. He has found that Mrs. Rajshree Birla, Mr. B.L. Shah and Mr. Ashwin Kothari are the three people who are the Trustees of the Appellant Trust and shareholders of ABHSL. Total shares held by these three persons collectively are 30 shares as compared to the total share capital of 50,000 shares of ABHSL. Even collectively, the shareholding of the Trustees in ABHSL is far below the threshold of 20%. Hence CIT(A) held that in view of specific provisions of section 13 of the Act he held that ABHSL is not a related party under section 13(3) of the Act and thus addition made by the Assessing Officer is deleted. Apparently there is no error in the finding of learned CIT(A). Learned CIT(A)-DR could not cogently rebut the learned CIT(A)’s finding but tried to make out of the case that the shareholder list of ABHSL may be obtained and thereafter further examination can be done. In this regard we are of the opinion that there is no such case made out by the Assessing Officer in the assessment order. He has simply made a presumption without actually analyzing the facts. It is settled law that mere presumption is not sustainable. 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. Application for accumulation of income in Form 10 for the previous year - HELD THAT:- CIT(A) has passed a correct order as held that it is not disputed that the Appellant had filed Form No. 10 along with its return of income. Thus, after giving effect to the appellate order if there is any surplus income for the current year for set off of past deficit, if any, then the AO is directed to consider Form No. 10 filed by the Appellant and compute the income as per law.
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