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2016 (4) TMI 117 - ITAT MUMBAI

2016 (4) TMI 117 - ITAT MUMBAI - TMI - Computation of the income from house property - computation of actual rent - determination of prevailing market rent - Held that:- A.O. 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 section 22 and 23 of the Act and the principles laid down by the Hon’ble Bombay High Court in the case of Tip Top Typography (2014 (8) TMI 356 - BOMBAY HIGH COURT) to determ .....

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peal needs to be set aside to the file of the A.O. for re-determination of the income from house properties in accordance with the provisions of section 22 and 23 of the Act and the principles laid down by the Hon’ble Bombay High Court in the case of Tip Top Typography (supra) after considering the additional evidences filed by the assessee in his defense.

Addition on professional income - whether the assessee is liable to follow mercantile method of accounting in respect of income w .....

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ularly either cash basis or mercantile basis of accounting by the assessee having more than one source of income with in the head of income from ‘Profit and gains of business or profession’ or ‘income from other sources’ as in the instant case the assessee has two stream and sources of income under the head of income from ‘Profit and gains of business or profession’ viz. his professional income and also income from production of films because by following either of the two method of accounting r .....

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gularly cash basis of accounting for his source of income from profession . Thus, we hold that the assessee is not following 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 here-inabove , we order deletion of the addition made to the income of the assessee by .....

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of the assessee and due taxes paid to Revenue , then the capital gains arising on sale of these accommodations C-18 and C-20 owned by the assessee and held by the assessee in the 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 ₹ 10 lacs being advance on sale of thes .....

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enue as asserted by the assessee and the assessee is directed to appear before the A.O. and file the necessary evidences before the AO to support its claim and assertions for verification and authentication by the AO

Addition of cash deposit u/s 68 - Held that:- 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 a .....

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ordingly prayed before the CIT(A) for admitting the additional evidence which the CIT(A) declined to admit the same. We find that there was sufficient cause shown by the assessee which prevented the assessee from producing the additional evidence during the assessment proceedings, hence, we direct the admission of the additional evidences by the AO . - I .T.A. No. 7976/Mum/2011 - Dated:- 16-2-2016 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : .....

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ase and in law the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as Ld CIT(A)] in confirming the action of the Ld Assistant Commissioner of Income-Tax-11(l),Mumbai [hereinafter referred to as Ld AO] in respect of the following properties as deemed to be let out :- • Flat at Malad • Flat at Millat nagar I 103 • 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 .....

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income in subsequent assessment year. 4. On the facts and circumstances of the case and in law the Ld CIT (A) erred in confirming the action of Ld AO to the extent of ₹ 10,00,000/- as unexplained cash-credit u/s 68 of IT Act. 5. On the facts and circumstances of the case and in law the Ld CIT (A) erred in conforming the action of the LD AO in adding a sum of Rs. l,419,000/- as cash deposit u/s 68 of IT Act. 6. That the orders of Ld CIT(A) and Ld AO are bad in law and on facts. 3. The Brie .....

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heet of the assessee that the assessee owned six immovable properties, which are as under:- Sl. No. Description of property Book value Remarks 1 Flat at Malad 5,42,902 2 Flat at Yashodeep CHS Ltd. 33,79,000 3 MHADA Premises 31,01,566 4 Flat at Millat Nagar 1103 27,03,545 Purchased on 19.5.2006 5 Plot at Millat Nagar 1203 23,63,490 Purchased on 17.5.2006 6 Plot at MHADA Sheriq Hall 23,70,548 The AO observed that the assessee has not offered any income under the head Income from house property . T .....

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Nagar 1103 27,03,545 5 Flat at Millat Nagar 1203 23,63,490 Personal office 6 Plot at MHADA Sheriq Hall 23,70,548 Ganesh Acharya Dance Academy The A.O. observed that the assessee has claimed four out 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 fo .....

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roperty 7,98,048 Less: 30% Standard Deduction 2,39,414 5,58,634 . Thus, ₹ 5,58,634/- was added to the income of the assessee under the head Income from house property by the AO vide assessment orders dated 07-12- 2009 passed u/s 143(3) read with Section 143(2) of the Act. Further, it was observed by the A.O. that the assessee has debited in his P&L account with interest on housing loan of ₹ 8,77,110/- and as the house properties were deemed to be let out properties, the said amou .....

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uper structure on the said property on which a partnership firm named M/s Sing and Swing (in which the assessee is 50% partner in the capacity of HUF) has constructed a dance rehearsal hall named as Sheriq Hall and this hall is being used as dance rehearsal hall. The assessee has filed copy of partnership deed, P&L account & balance sheet showing that the hall was constructed on the said property and the premises is being used as dance rehearsal hall. The assessee submitted that the said .....

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lad was used as godown during the previous year but erroneously the usage was not indicated before the AO and hence it being used for business purpose, it cannot be brought to tax under the head Income from house property . The assessee further submitted that the flat No. 1103 and 1203 at Millat Nagar are being used by the assessee as choreography and film production businesses separately as they cannot be used in conjunction with each other due to requirements of business necessities . The asse .....

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that even if no depreciation is claimed by the assessee but that does not mean that businesses are not carried by the assessee from the said premises. 4. The CIT(A) after considering the submission of the assessee observed that the assessee has not claimed any depreciation on the business premises. With respect to Mhada property, the CIT(A) held that the assessee himself has shown advance of ₹ 15 lacs and also NOC for sale of property by the Society was given on 02/10/2007 which means tha .....

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ith respect to claim of Flat No. 1103 and 1203 , the CIT(A) observed that these are newly acquired properties during the previous year. The claim of the assessee that these flats were used for businesses was not supported by any documentary evidence and the finding of the AO was upheld . The CIT(A) upheld the contention of the assessee that the flat was acquired in May 2006 and hence ALV should be computed for the period of occupation of flat till end of financial year 2006-07. With respect to t .....

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t is received from the partnership firm by the assessee and no copy of utilization of plot by the firm has been filed by the assessee. The CIT(A) relied upon the decision in the case of D M Vakil v. CIT(Bom.) 14 ITR 298 , Indian City Properties Ltd. v. CIT (Cal) 55 ITR 262, East India Housing and Land Development Trust Limited v. CIT (SC) 42 ITR 49 wherein it is held that the owner of property is liable to be charged to House Property Income. Thus, the CIT(A) upheld the orders of the AO. The CIT .....

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n the opinion of the CIT(A), the property was lying vacant during the year and has been rightly considered to be deemed let out property by the A.O. 5. Aggrieved by the orders of the CIT(A), the assessee is in further appeal before the Tribunal. 6. The ld. Counsel for the assessee submitted that the assessee has filed additional evidences before the CIT(A) which the CIT(A) refused to admit and the said evidences were not considered by the CIT(A). It was submitted before us that the notional inco .....

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led for the acquisition of Millat Nagar property and the said property is being used for business purposes. 6. The ld. D.R., on the other hand, relied upon the orders of authorities below. 7. We have considered the rival contentions and perused the material available on record. We observed that the Hon ble Bombay High Court in the case of CIT v. Tip Top Typography, (2014) 48 Taxmann.com 191 (Bom) has laid down the principles for computation of income from house property u/s 22 and 23 of the Act. .....

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etermine "fair rent" of the property and, then, to find out as to whether the actual rent received is less or more than the "fair rent" so that higher of the two is taken as Annual Letting Value under section 23(1)(b) of the Income-tax Act. 44. The factual and admitted position before the Delhi Full Bench was in addition to the contractual rent, substantial amount by way of interest free deposit is given, the security deposit is many time more than the annual rent received by .....

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id 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:- '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 high .....

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served 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 committed by the AO was that he did not address this issue and straightway proceeded to add notional interest on the interest free security deposit. The aforesaid conclusion is correct. We may record that permissibility of adding notional interest into actual market rent received was not approved by the .....

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art of the rent. This situation is, however, foreseen by Schedule III to the WT Act and it authorises computation of presumptive interest at the rate of 15 per cent as an integral part of rent to be added to the ostensible rent. No such provision, however, exists in the Act. That being so, the act of the AO in presuming such notional interest as integral part of the rent is ultra vires the provision of section 23(1) and is, therefore, unauthorised. Though what has been urged on behalf of the Rev .....

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m house property under Section 23(1)(a) of the Act. Rationale given in this behalf was as under (page 493): "A plain reading of the provisions indicates that the question of any notional interest on an interest free deposit being added to the income of an assessed 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 th .....

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o the assessed by adding a sum that constituted 18% 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 possib .....

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is an admitted position that there is a specific provision in the Wealth-tax Act which provides for considering of a notional interest whereas Section 23(1)(a) contains no such specific provision." We approve the aforesaid view of the Division Bench of this Court and Operative words in Section 23 (1)(a) of the Act are "the sum for which the property might reasonably be expected to let from year to year". These words provide a specific direction to the Revenue for determining the & .....

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ake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest free security can be taken as determinative factor to arrive at a "fair rent". The Provisions of section 23(1)(a) do not mandate this. The Division Bench in CIT v. Asian Hotels Ltd. [2010] 323 ITR 490 (Delhi), thus, rightly observed that in a taxing statute it would be unsafe for the Court to go beyond the letter of the law and try to read into the provision more than wha .....

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[2010] 323 ITR 490/[2008] 168 Taxman 59 (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 .....

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gard 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 23 with reference to the fair rent then to such value no further addition can be made. The fair rent, takes into consideration everything. The notional in .....

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made in the Act by including such benefit, etc., in the definition of the income under section 2(24) of the Act. Specific provisions have also been made under different heads for adding such benefits or perquisites as income while computing income under those heads, e.g., salary, business. The computation of the income under the head 'House property' is on a deemed basis. The tax has to be paid by reason of the ownership of the property. Even if one does not incur any sum on account of .....

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or justification whatsoever for making any addition for any notional interest for determining the annual value. Whatever benefit or advantage which is derived from the deposits - whether by way of saving of interest or of earning interest or making profits by investing such deposit - the same would be reflected in computing the income of the assessee under other heads. In our view there is no scope for making any addition on account of socalled notional interest on the deposit made by the tenant .....

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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 pari materia of section 23 of the Act, we are inclined to accept the aforesaid view of the Calcutta High Court in Satya Co. .....

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of time on the basis of rent than received, this may not provide a safe yardstick if in the Assessment Year in question when assessment is to be made under Income-tax Act. The property is let-out at a much higher rent. Thus, the Assessing Officer in a given case can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the "fair rent" in the market and there is sufficient material on record for t .....

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; Thus the rateable value, if correctly determined, under the municipal laws can be taken as ALV under Section 23(1)(a) of the Act. To that extent we agree with the contention of the learned Counsel of the assessee. However, we make it clear that rateable value is not binding on the Assessing Officer. If the Assessing Officer can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/evidence placed on recor .....

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umstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration. (iv) Such ALV, 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 th .....

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ssary 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-recognized principle in rating that both gross value and net annual value are estimated .....

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provision in question and the conclusion of the Full Bench of the Delhi High Court councluded that a different view cannot be taken. We respectfully concur with the view taken in this Full Bench decision of the Delhi High Court. 47. We are of the view that where Rent Control Legislation is applicable and as is now urged the trend in the real estate market so also in the commercial field is that considering the difficulties faced in either retrieving back immovable properties in metro cities and .....

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to deflate or inflate the rent by such methods, then, as held by the Delhi High Court, the Assessing Officer is not prevented from carrying out the necessary investigation and enquiry. He must have cogent and satisfactory material in his possession and which will indicate that the 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 suppressed the prevailing rate .....

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ature, 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 off .....

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essing Officer that the bargain reveals an inflated or deflated rate based on fraud, emergency, relationship and other considerations makes it unreasonable must precede the undertaking of the above exercise. After the above ascertainment is done by the Officer he must, then, comply with the principles of fairness and justice and make the disclosure to the Assessee so as to obtain his view. 48. We are not in agreement with Shri Chhotaray that the municipal rateable value cannot be accepted as a b .....

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e can resort to enquire about the prevailing rate in the locality. We are of the view that municipal rateable value may not be binding on the Assessing Officer but that is only in cases of afore-referred nature. It is definitely a safe guide. 50. We have broadly agreed with the view taken by the Full Bench of the Delhi High Court. Hence, the issue of determination of the "fair rental value" in respect of properties not covered by or covered by the Rent Control Act is to be undertaken i .....

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atural 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 th .....

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ntinuing till the end. There are terms and conditions on which the leave and license agreement is executed by parties. These terms and conditions are willingly accepted. They enable the license to be determined even before the stated period expires. Equally, the licensee can opt out of the deal. A leave and license 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. Eve .....

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s of Shri Ahuja. We are of the opinion that even in the cases and matters brought by him to our notice, it is evident that the Assessing Officer cannot brush aside the rent control legislation, in the event, it is applicable to the premises in question. Then, the Assessing Officer has to undertake the exercise contemplated by the rent control legislation for fixation of standard rent. The attempt by the Assessing Officer to override the rent control legislation and when it balances the rights be .....

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desires to undertake the determination himself, he will have to go by the Maharashtra Rent Control Act, 1999. Merely because the rent has not been fixed under that Act does not mean that any other determination and contrary thereto can be made by the Assessing Officer. Once again having respectfully concurred with the judgment of the Full Bench of the Delhi High Court, we need not say anything more on this issue. 53. Thus, apart from the three aspects namely of a municipal valuation, of obtaini .....

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n 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 determination 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 circumstance .....

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e of Tip Top Typography (supra) to determine the prevailing market rent of these properties and rather computed ALV based on notional rent based on cost of properties. During the hearing , the ld. Counsel of the assessee also contended that the assessee has produced additional evidences before the authorities below which has not been considered by the authorities and principles of natural justice are vitiated. In view of the above, we are of the considered view that the matter with respect to gr .....

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O. with the above directions and to decide the issue de-novo as per law. The A.O. shall also afford sufficient opportunity of being heard to the assessee in accordance with principles of natural justice. Ground No. 1 & 2 are accordingly treated as allowed for statistical purposes. 8. Ground No. 3 relates to the addition of ₹ 22,57,000/- made by the A.O. on the ground that in case of professional income, the assessee is liable to follow mercantile method of accounting in respect of inco .....

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g 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 Rule 9A & 9B of the Income Tax Rules, 1962 , it was show caused to the assessee by the A.O. that why mercantile system of accounting should not be followed by the assessee with respect to his other individual transactions. The A.O. asked for the agreement pursuant to which the receipts are credited in the P&L ac .....

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essional receipt , there are no written agreements as all the contracts are oral. The A.O. asked the assessee to submit the details of professional receipts party wise for the financial year 2007-08 and 2008-09 against which the assessee submitted the details for 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 Since the asse .....

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he CIT(A) in appeal and submitted that income from production of films have been accounted for on accrual basis since according to the nature of business , in the opinion, it was the most appropriate method of accounting. The assessee submitted that the assessee computed the income separately for both the business based on different methods of accounting and no mistake has been pointed by the A.O. and there was no intention of the assessee of showing incorrect income. The assessee submitted that .....

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basis and the AO should compute the income afresh by recasting the total income and expenditure. The assessee relied upon the case of ACIT v. Nana G Patekar, 27 SOT 8 (Mum) wherein it was held that rejection of books of account u/s 145 while accepting books as correct and complete was invalid. The assessee submitted that this professional income of ₹ 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 ca .....

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ls under the class of choreographer, film producers and hence the assessee falls under the specific class of assessee for which Rule 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 A.O. 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 CIT(A) held that the assessee a .....

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e CIT(A) held that this is not the subject matter of appeal and the assessee is free to approach the AO during assessment proceedings for the assessment year 2008-09 for appropriate relief . 10. Aggrieved by the orders of the CIT(A), the assessee is in further appeal before the Tribunal. 11. The ld. Counsel for the assessee submitted that the assessee is a choreographer which falls under the definition of film artist as professional defined in Rule 6F of Income Tax Rules, 1962 , whereby the asse .....

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nut-shell, the income from profession of choreography was accounted for on cash basis consistently and regularly for several years which was accepted by the Revenue and for the film production business, Rule 9A & 9B was mandatory and was followed by assessee whereby mercantile method of accounting was followed . The ld. Counel submitted that the A.O. has directed the assessee to follow accrual basis of accounting for choreography business also because as per the AO, the assessee by followin .....

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ts and gains from business or profession in accordance with section 28. The assessee submitted that the A.O. has brought to tax in the impugned assessment year, the income of ₹ 22,57,000/- which was earned in the financial year 2007-08 and already subjected to tax in assessment year 2008- 09 and due taxes have been paid to the Revenue and no prejudice is caused to Revenue while bringing to tax the same in the impugned assessment year, the assessee is prejudiced as the same income is taxed .....

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llowable as per the Act as per Section 145 of the Act. The ld. D.R. submitted that the A.O. may be directed to verify the system of accounting consistently followed by the assessee with respect to choreography business whereby cash system of accounting is followed following Rule 6F of Income Tax Rules,1962 while for film production mercantile system of followed as per Rule 9A and 9B of Income Tax Rules, 1962 is concerned. 14. We have considered the rival submissions and perused the material avai .....

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ted 07-12-2009 . The CIT(A) has observed that the choreographer, film producer has to follow rule 9A and 9B of Income Tax Rules, 1962 which in our humble opinion is not correct as the Rule 6F of the Income Tax Rules, 1962 provides that film artist include dance director and are professionals vide explanation (c) to sub-rule 2 to Rule 6F of Income Tax Rules,1962 while Rule 9A and 9B of the Income Tax Rules , 1962 deals with film production and distribution rights of feature film, thus the finding .....

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e Act by 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 AO 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 , Rule 9A and 9B of Income Tax Rules, 1962 .....

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s consistently and regularly following cash system of accounting for the said profession , by assuming that the income of ₹ 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 ₹ 22,57,000/- was received in the next financial .....

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hole premise of the Revenue treating the income of ₹ 22,57,000/- to have accrued in the impugned previous year 2006-07 is based on conjectures, surmises and assumptions not backed with any cogent material or evidence which is not permissible under the Act to bring it within the ambit of taxability to fasten liability on the assessee and more so the said amount of ₹ 22,57,000/- has already suffered tax in the immediately succeeding assessment year 2008-09 and due taxes paid to Revenue .....

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95 as applicable to relevant assessment year which reads as under: [Method of accounting. 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance 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 .....

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eable 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 AO 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 .....

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omputation of income from business or profession or income from other sources in accordance with the method of accounting regularly employed by the assessee. Income is 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 that many assessees are following the hybrid method in a manner that does not reflect the co .....

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d Finance Limited has held as under: 5. So far as the first question is concerned, of course, it has come that the assessee was maintaining books of accounts by both manners viz., by receipt basis, and on mercantile basis as well, inasmuch as, with respect to accrual of lease income, mercantile system was adopted. However, for lease and hire income, the receipt basis was adopted. True it also is that by virtue of section 145, as amended, the income chargeable under the head "Profits and gai .....

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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. The mandate of Income Tax Act, 1961 is to collect correct taxes at the correc .....

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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 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 .....

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e situation so that correct income could be computed and correct taxes can be collected , the Parliament in its wisdom permitted ,by making amendment to Section 145 of the Act by Finance Act,1995 either of two methods of accounting viz. cash basis of accounting or mercantile basis of accounting regularly employed by the assessee to compute the correct taxes as per provisions of the Act. At this stage it is important to understand cash method of accounting, mercantile method of accounting and hyb .....

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er the same has actually been received or not. Similarly, expenses are charged to the period in which they relate irrespective of the fact that they have actually been paid or not. Thus, as could be seen 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. 3. Hybrid or Mixed Method of Accounting: Under this method, both cash basis and accrual basis are followed. Incomes are recorded on cash .....

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eby income 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 the 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 .....

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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 which was accepted by the Revenue in the earlier years while for the second source (again under the head Income from Business or Profession ) i.e. income from film production, the assessee is employing mercantile method of accounting and both the methods are allowed by Section 145 of the Act to enable revenue to compute correct income ch .....

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al language and words used in the Section 145 of the Act does not , in our humble opinion, cast any bar on the assessee to follow regularly either cash basis or mercantile basis of accounting by the assessee having more than one source of income with in the head of income from Profit and gains of business or profession or income from other sources as in the instant case the assessee has two stream and sources of income under the head of income from Profit and gains of business or profession viz. .....

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tax by the assessee in the year of receipt i.e. immediately succeeding 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 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 .....

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DA 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 A.O. and addition of ₹ 15 lakhs was made to the income of the assessee as unexplained cash credit u/s 68 of the Act under the head Income from other sources . 16. Aggrieved by the orders of the AO, the assessee carried the mat .....

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on of ₹ 15 lakhs, i.e. ₹ 5 lakhs each for each accommodation bearing No. C-18, C-19 and C-20. The registered sale deed of flat no. C-18 & C20 is in the name of mother and sister while the flat no C-19 is owned by the assessee for which no registered sale deed was produced before the CIT(A) . The assessee submitted before the CIT(A) that with respect to the two properties i.e. accommodation no. C-18 and C-20, assessee s mother and sister are registered owners but it was essentiall .....

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4 in above three names and the purchase of the same has been duly dealt with in the order of the A.O. passing the block assessment order in the case of assessee. Accordingly the assessee submitted that the A.O. be directed to assess capital gains in the hands of the assessee and delete the addition made u/s 68 of the Act. The CIT(A) 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 res .....

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f the CIT(A), the assessee is in further appeal before the Tribunal. 18. The ld. Counsel for the assessee submitted that the purchases with respect to three accommodations C-18, C-19 & C20 has already assessed to tax in the hands of the assessee as undisclosed income vide the block assessment order framed by the Revenue,. The ld. 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 a .....

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ceedings before settlement commission which are also placed in the paper book filed before us page 195- 218 . The ld counsel submitted that all due taxes were paid to the Revenue while offering undisclosed income utilized for purchase of these accommodations in the name of mother and sister of the assessee being close family members. 19. The ld. D.R., on the other hand, relied on the orders of authorities below. 20. We have considered the rival submission and also perused the material on record. .....

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In our considered opinion, once the income is stated to be assessed in the hands of the assessee and the said accommodations C-18 and C-20 have been stated to be acquired out of undisclosed income and treated as own property by the assessee , which has been brought to tax in the hands of the assessee and due taxes paid to Revenue , then the capital gains arising on sale of these accommodations C-18 and C-20 owned by the assessee and held by the assessee in the name of close family members being .....

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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 undisclosed income of the assessee which has been brought to tax and due taxes paid to Revenue as asserted by the assessee and the assessee is directed to appear before the A.O. and file the necessary evidences before the AO to support its claim and assertions for verification and authentication by the .....

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ed to substantiate the same but no reply was filed by the assessee and cash deposit of ₹ 14.19 lakhs was added to the income of the assessee u/s 68 of the Act. A remand report was called by the CIT(A) during the first appellate proceedings and in the remand report dated 8-8-2011 the A.O. stated that the document produced are new and the same were not produced during the assessment proceedings despite sufficient opportunity been provided to the assessee and the explanation now provided duri .....

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ash of ₹ 53.81 lakhs out of which the cash of ₹ 14.91 lakhs was not required for business purpose which was deposited in the bank. The assessee also filed the copy of cash book and bank statement of all the concerned entities. The CIT(A), however, rejected the contentions of the assessee and held that the sufficient opportunities was given by the AO during assessment proceedings and even in remand report proceedings and assessee is now not entitled to submit the additional evidences .....

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before the CIT(A) which are not admitted by the CIT(A) . 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 .....

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