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2016 (5) TMI 59 - ITAT MUMBAI

2016 (5) TMI 59 - ITAT MUMBAI - [2016] 45 ITR (Trib) 554 - Computation of the income from house property - Held that:- 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 (8) TMI 356 - BOMBAY HIGH COURT ] to determine the prevailing market ren .....

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ile of the Assessing Officer for re-determination of the income from house properties

Addition of professional income - liability to follow mercantile method of accounting in respect of income - Held that:- The law has given freedom to the assessee to regularly employ either cash basis of accounting or mercantile basis of accounting to compute correct income chargeable to tax and the plain, simple and natural language and words used in section 145 of the Act does not, in our humble op .....

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y following either of the two methods of accounting regularly, there is not likely to be distortion in computation of correct income as per the provisions of the Act and it will be only timing difference which we have seen above due to following the above methods of accounting and no prejudice will be caused to the Revenue. The said income of ₹ 22,57,000 from the profession is also stated to have been offered to tax by the assessee in the year of receipt, i.e., immediately succeeding the f .....

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of the addition of ₹ 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 ₹ 22,57,000 made to the income of the assessee by the Assessing Officer.

Addition of unexplained cash credit - Held that:- 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 the undisc .....

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r of the assessee and hence we order deletion of addition of ₹ 10 lakhs being advance on sale of these accommodations as made by the Assessing Officer and as confirmed by the Commissioner of Income-tax (Appeals) with the direction to the Assessing Officer to compute capital gains arising out of these two accommodations as per the Act which shall be brought to tax in the hands of the assessee in accordance with law after duly verifying and authenticating the claim of the assessee with respe .....

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law shall be given by the Assessing Officer to the assessee in accordance with the principles of natural justice.

Addition of cash deposit under section 68 - additional evidences before the Commissioner of Income-tax (Appeals) which are not admitted - Held that:- 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 a .....

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the evidence before the Assessing Officer and hence there was sufficient cause for not producing the evidence during the assessment proceedings and accordingly prayed before the Commissioner of Income-tax (Appeals) for admitting the additional evidence which the Commissioner of Income-tax (Appeals) 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, .....

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16-12-2015 - Joginder Singh (Judicial Member) And Ramit Kochar (Accountant Member) For the Petitioner : Sanjiv M. Shah For the Respondent : B. Yadagiri ORDER Ramit Kochar (Accountant Member) 1. This appeal, filed by the assessee, being I. T. A. No. 7976/Mum/2011, is directed against the order dated October 31, 2011 passed by the learned Commissioner of Income-tax (Appeals)-3, Mumbai (hereinafter called "the Commissioner of Income-tax (Appeals)"), for the assessment year 2007-08. 2. Th .....

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03 • 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 ₹ 1,50,000. 3. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) .....

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#8377; 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 action of the learned Assessing Officer in adding a sum of ₹ 14,19,000 as cash deposit under section 68 of the Income-tax Act. 6. That the orders of the learned Commissioner of Income-tax (Appeals) and the learned Assessing Officer are bad in law and on facts." 3. The brief .....

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uot;) from the individual balance-sheet of the assessee that the assessee owned six immovable properties, which are as under : Sl. No. Description of property Book value (Rs.) 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 May 19, 2006 5. Plot at Millat Nagar 1203 23,63,490 Purchased on May 17, 2006 6. Plot at MHADA Sheriq Hall 23,70,548 4. The Assessing Officer observed that the assessee h .....

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00 Residence 3. MHADA Premises 31,01,566 For business of M/s. Pushpa Krishna Creations 4. Flat at Millat 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 5. The Assessing Officer 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 busin .....

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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, ₹ 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 .....

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r section 143(3) read with section 143(2) of the Act. 7. Aggrieved by the assessment orders dated December 7, 2009 of the Assessing Officer, the assessee carried the matter before the Commissioner of Income-tax (Appeals) in appeal and submitted that the assessee is the owner of plot at MHADA Sheriq hall without super structure on the said property on which a partnership firm named M/s. Sing and Swing (in which the assessee is 50 per cent. partner in the capacity of HUF) has constructed a dance r .....

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ting the evidence. The assessee is also using a part of the abovesaid property for running as Ganesh Acharya Dance Academy. The assessee submitted that the assessee is owner of the plot only and not the owner of the building, hence the provisions of section 22 of the Act are not attracted with respect to this property. 8. Similarly, the assessee submitted that the flat at Malad was used as godown during the previous year but erroneously the usage was not indicated before the Assessing Officer an .....

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tion of ₹ 15 lakhs was shown as advance against MHADA properties in the balance-sheet. This property was being used for film production which was later 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 ass .....

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, 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 himself stated that the flat was vacant during assessment proceedings. The assessee has not brought any evidence to substantiate that the flat ha .....

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ntion of the assessee that the flat was acquired in May 2006 and hence annual letting value should be computed for the period of occupation of flat till the end of financial year 2006-07. 13. With respect to the claim of the assessee that the assessee is only the owner of the plot at MHADA and structure therein do not belong to the assessee as the same was constructed by partnership firm M/s. Sing and Swing, it was held by the Commissioner of Income-tax (Appeals) that the assessee has not raised .....

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the decision in the case of D. M. Vakil v. CIT [1946] 14 ITR 298 (Bom), Indian City Properties Ltd. v. CIT [1965] 55 ITR 262 (Cal), East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) wherein it is held that the owner of property is liable to be charged to house property income. Thus, the Commissioner of Income-tax (Appeals) upheld the orders of the Assessing Officer. 14. The Commissioner of Income-tax (Appeals) after considering the submission of the assessee, restri .....

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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 (Ap .....

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was used for business purposes, hence, the interest cannot be restricted to ₹ 1,50,000 as the amount has been paid by the assessee on housing loan availed of for the acquisition of Millat Nagar property and the said property is being used for business purposes. 18. The learned Departmental representative, on the other hand, relied upon the orders of the authorities below. 19. We have considered the rival contentions and perused the material available on record. We observed that the hon .....

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High Court and the judgment of this Court in the case of CIT v. J. K. Investors (Bombay) Ltd. [2001] 248 ITR 723 (Bom) were considered by the Full Bench of the Delhi High Court on which decision heavy reliance is placed by the counsel for the assessee. The Full Bench was called upon to decide as to how to determine '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 a .....

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rriving at the 'fair rent' had added notional interest on the security deposit to the actual rent received to arrive at the annual letting value. None of the cases before the Full Bench involved applicability of the Delhi Rent Control Act. Therefore, the question of fixing standard rent in terms of this Act did 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 vi .....

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sing 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 .....

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ejected in the following words : "There is no mandate of law whereby the Assessing Officer could convert the depression in the rate of rent into money value by assuming the market rate of interest on the deposit as the further rent received by way of benefit of interest-free deposit. But section 23, as already noted, does not permit such calculation of the value of the benefit of interest-free deposit as part of the rent. This situation is, however, foreseen by Schedule III to the Wealth-ta .....

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ion is not acceptable as the law itself comes short of tackling such fact-situation." This view of the Calcutta High Court has been accepted by a Divi sion Bench of this court as well in the case of CIT v. Asian Hotels Ltd. [2008] 215 CTR (Delhi) 84; [2010] 323 ITR 490 (Delhi) holding that the notional interest on refundable security, if deposited, was neither taxable as profit or gain from business or profession under section 28(iv) of the Act or income from house property under section 23 .....

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site, '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 th .....

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sible 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 property. It must be remembered 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 what is already provided for. The attempt by learned counsel for the Revenue to draw an analogy from the Wealth-tax Act, 1957 is also to no avail. .....

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"fair rent". The Assessing Officer, having regard to the aforesaid provision is expected to make an inquiry as to what would be the possible rent that the property might fetch. Thus, if he finds that the actual rent received is less than the "fair/market rent" because of the reason that the assessee has received abnormally high interest-free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can unde .....

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hat is already provided for. We may also record that even the Bombay High Court in the case of CIT v. J. K. Investors (Bombay) Ltd. [2001] 248 ITR 723 (Bom) categorically rejected the formula of addition of notional interest while determining the "fair rent". . . . It is, thus, manifest that various courts have held a consistent view that notional interest cannot form part of actual rent. Hence, there is no justification to take a different view that what has been stated in CIT v. Asia .....

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tting 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 .....

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n the deposit is not any actual rent received or receivable. Under sub-clause (b) of section 23(1) only the actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever any such perquisite or benefit is sought to be treated as income, specific provisions in that behalf have been made in .....

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a statutory deduction therefore is allowed and where on repairs expenses are incurred in excess of such statutory limit, no deduction for such excess is allowed. The deductions for municipal taxes and repairs are not allowed to the extent they are borne by the tenant. However, even such actual reimbursements for municipal taxes, insurance, repairs or maintenance of common facilities are not considered as part of the rent and added to the annual value. Accordingly, there can be no scope or justi .....

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re is no provision to this effect in section 22 or section 23 of the Income-tax Act, 1961." In fact, this is the view taken even by the Supreme Court in the case of Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 (SC) on account of similarity 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 D .....

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IT 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, viz., the annual value was fixed by the municipal authorities much e .....

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on record for taking a different valuation. We may profitably reproduce the following observations of the Supreme Court in the case of Corporation of Calcutta v. Smt. Padma Debi, AIR 1962 SC 151, 153. "A bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reaso .....

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material/evidence placed on record. This view is fortified by the decision of the Patna High Court in the case of Kashi Prasad Kataruka v. CIT [1975] 101 ITR 810 (Patna). The above discussion leads to the following conclusions : (i) Annual letting value would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances. (ii) An inflated or deflated rent based on extraneous consider ation may take it out of the bou .....

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tment. (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 .....

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"It is well-recognised principle in rating that both gross value and net annual value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits car .....

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eld is that considering the difficulties faced in either retrieving back immovable properties in metro cities and towns, so also the time spent in litigation, it is expedient to execute a leave and licence agreements. These are usually for fixed periods and renewable. In such cases as well, the conceded position is that the annual letting value will have to be determined on the same basis as noted above. In the event and as urged before us, the security deposit collected and refundable interest- .....

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ses. There must be definite and positive material to indicate that the parties have sup pressed the prevailing rate. Then, the enquiries that the Assessing Officer can make, would be for ascertaining the going rate. He can make a comparative study and make a analysis. In that regard, trans actions of identical or similar nature can be ascertained by obtaining the requisite details. However, there also the Assessing Officer must safeguard against adopting the rate stated therein straightway. He m .....

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dvantages 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 .....

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his view. 48. We are not in agreement with Shri Chhotaray that the municipal rateable value cannot be accepted as a bona fide rental value of the property and it must be discarded straightway in all cases. There cannot be a blanket rejection of the same. If that is taken to be a safe guide, then, to discard it there must be cogent and reliable material. 49. We are of the opinion that market rate in the locality is an approved method for determining the fair rental value but it is only when the A .....

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rental value' in respect of properties not covered by or covered by the Rent Control Act is to be undertaken in terms of the law laid down in the Full Bench decision of the Delhi High Court. 51. We quite see the force in the arguments of Ms. Vissanjee that ordinarily the licence fee agreed between the willing licensor or a willing licensee uninfluenced by any extraneous circumstances would afford reliable evidence of what the landlord might reasonably be expect to get from a hypothetical te .....

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be taken into account and consideration for the determination. 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 invo .....

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t 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 abide by any fixed formula and which can be universally applied. Today, it may be commercially unviable to enter into a lease and, therefore, this mode of inducting a 'third party' in the premises is adopted. This may not be the trend tomorr .....

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rent. The attempt by the Assessing Officer to override the rent control legislation and when it balances the rights between the parties has rightly been interfered with in the given case by the appellate authority. The Assessing Officer either must undertake the exercise to fix the standard rent himself and in terms of the Maharashtra Rent Control Act, 1999 if the same is applicable or leave the parties to have it determined by the court or Tribunal under that Act. Until, then, he may not be ju .....

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ot say anything more on this issue. 53. Thus, apart from the three aspects namely of a municipal valuation, of obtaining interest-free security deposit and the properties being covered by the Maharashtra Rent Control Act but no standard rent thereunder is fixed, our attention has not been invited to any other case. Suffice it to hold that in those cases and to which our attention is not invited the principles laid down in the decisions of the hon'ble Supreme Court and referred to by the Full .....

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ely 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 th .....

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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 ground Nos. 1 and 2 raised by the assessee in memo of appeal needs to be set aside to the file of the Assessing Officer for re-determination of the income from house properties in accordance with the provisions of sections 22 and 23 of the Act and the principles laid down by the hon'ble Bombay High Court in .....

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2 are accordingly treated as allowed for statistical purposes. 21. Ground No. 3 relates to the addition of ₹ 22,57,000 made by the Assessing Officer on the ground that in case of professional income, the assessee is liable to follow mercantile method of accounting in respect of income which has already been considered as income in the subsequent assessment year based on cash basis of accounting consistently followed by the assessee. During the assessment proceedings under section 143(3) re .....

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9A and 9B of the Income-tax Rules, 1962, it was show caused to the assessee by the Assessing Officer that why mercantile system of accounting should not be followed by the assessee with respect to his other individual transactions. The Assessing Officer 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 pro .....

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etails 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 with respect to professional income, the Assessing Officer added the .....

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come 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 Assessing Officer and there was no intention of the assessee of showing incorrect income. The assessee submitted that the choice of following the .....

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t on piecemeal basis and the Assessing Officer should compute the income afresh by recasting the total income and expenditure. The assessee relied upon the case of Asst. CIT v. Nana G. Patekar [2009] 27 SOT 8 (Mum) wherein it was held that rejection of books of account under section 145 while accepting the 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 Reven .....

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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 professio .....

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the action of the Assessing Officer was upheld. With respect to the inclusion of the said income by the assessee in the income of the assessee in the assessment year 2008-09 leading to taxing the same income twice, the Commissioner of Income-tax (Appeals) held that this is not the subject matter of appeal and the assessee is free to approach the Assessing Officer during the assessment proceedings for the assessment year 2008-09 for appropriate relief. 24. Aggrieved by the orders of the Commissi .....

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tted that it produced films under the banner of his proprietary concern Pushpa Krishna Creation and for the film production business the assessee followed prescribed rules 9A and 9B of the Income-tax Rules, 1962 and for this business of film production the mercantile method of accounting is adopted. Thus, in 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 producti .....

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amended provisions of section 145 of the Act. The assessee relied upon the judgment in the case of Abdulgafar A. Nadiadwala v. Asst. CIT [2004] 267 ITR 488 (Bom). The assessee submitted that as per section 28 of the Act, the assessee has followed rules 9A and 9B of the Income-tax Rules, 1962 to compute the income chargeable under the head "Profits and gains from business or profession" in accordance with section 28. The assessee submitted that the Assessing Officer has brought to tax .....

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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 Dep .....

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have observed that the assessee is following cash basis of accounting for income arising from his profession. On the other hand, the assessee is following the mercantile system of accounting by following rules 9A and 9B of the Income-tax Rules, 1962 for income arising from film production business under the proprietary concern "Pushpa Krishna Creation" which in the opinion of the Assessing Officer is mandatory. The above facts are admitted by the Assessing Officer in his assessment ord .....

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deals with film production and distribution rights of feature film, thus the finding of the Commissioner of Income-tax (Appeals) that choreographer, i.e., dance directors have to compulsorily follow rules 9A and 9B of the Income-tax Rules, 1962 is humbly rejected. The whole controversy revolves around the action of the Assessing Officer whereby the Assessing Officer held that the assessee cannot follow cash basis of accounting for income arising from his profession and at the same time follow m .....

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stem of accounting instead of cash system of accounting followed by the 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 obse .....

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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 year 2007-08 without bringing on record cogent material or evidence to justify that this income of ₹ 22,57,000 has actually accrued in the previous year 2006-07 to fasten liability of tax on the assessee while on the other hand the assessee contended that the agreement with these p .....

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axability 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 the Revenue. 28. The contention of the Assessing Officer is that the assessee in the instant case by following cash system of accounting for income from profession and by following mercantile system of accounting for film production business, has in fact followed hybrid system of accounting which is not .....

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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 of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correct ness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or .....

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e 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 accoun .....

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y 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 correct income. The Finance Act, 1995, has amended section 145 of the Income-tax Act to provide that income chargeable under the head 'Profits and gains of business or profession' or .....

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that the assessee was maintaining books of account 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 gains of business or profession' or 'Income from other sources' is, subject to provisions of sub- .....

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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." 31. The mandate 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 .....

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od 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 .....

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d correct taxes can be collected, Parliament in its wisdom permitted, by making amendment to section 145 of the Act by the 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 the provisions of the Act. At this stage it is important to understand cash method of accounting, mercantile method of accounting and hybrid or mixed method of accounting to proceed furt .....

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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 basis whereas expenses are taken on accrual ba .....

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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 acc .....

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unting 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 methods are allowed by section 145 of the Act to enable the Revenue to compute correct income char .....

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l language and words used in 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 within the head of income from "Profits 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 "Profits and gains of bu .....

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tated to have been offered to tax by the assessee in the year of receipt, i.e., immediately succeeding the 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 the 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 perm .....

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ction 68 of the Act. The Assessing Officer observed that the assessee received ₹ 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 ₹ 15 lakhs was made to the income of the assessee as unexplaine .....

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ere not produced during the assessment proceedings. The assessee made submission vide letter dated March 7, 2011 claiming that the assessee, his mother and sister has sold adjoining accommodation located at Lovely CHS, Versova, Andheri (W), Mumbai for a total consideration 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 Nos. C-18 and C20 is in the name of the mother and sister while the flat No. C-19 is owned .....

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ed in the case of the assessee, the funds utilised for purchase of aforesaid properties were assessed as undisclosed income of the assessee. It is the assessee only in whose income the capital gain/loss arising from transfer of the aforesaid properties should be included. The assessee submitted that these accomodations were purchased in September 1994 in above three names and the purchase of the same has been duly dealt with in the order of the Assessing Officer passing the block assessment orde .....

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in respect of mother and sister of the assessee is confirmed in the hands of the assessee as the MHADA properties stood in the name of the mother and sister of the assessee. The Commissioner of Income-tax (Appeals) also held that the no objection 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 Commissio .....

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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 before us. The assessee submitted that the undisclosed income wit .....

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he authorities below. 38. We have considered the rival submission and also perused the material on record. It is stated by the assessee that the accommodations are acquired out of undisclosed income of the assessee which has been brought to tax as undisclosed income in the hands of the assessee vide block assessment order dated July 31, 2001 and orders of the settlement commission framed against the assessee with tax dues paid to the Revenue. It is stated by the assessee that these accommodation .....

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ns 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 lakhs being advance on sale of these accommodations as made by the Assessing Officer and as confirmed by the Commissioner of Income-tax (App .....

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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 i .....

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Income-tax (Appeals) during the first appellate proceedings and in the remand report dated August 8, 2011 the Assessing Officer stated that the document produced are new and the same were not produced during the assessment proceedings despite sufficient opportunity had been provided to the assessee and the explanation now provided during the appellate proceedings is an afterthought. The assessee submitted before the Commissioner of Income-tax (Appeals) that the assessee has income from producti .....

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as deposited in the bank. The assessee also filed the copy of cash book and bank statement of all the concerned entities. The Commissioner of Income-tax (Appeals), however, rejected the contentions of the assessee and held that sufficient opportunity was given by the Assessing Officer during the assessment proceedings and even in remand report proceedings and the assessee is now not entitled to submit the additional evidences which was not admitted by the Commissioner of Income-tax (Appeals). Th .....

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d that the assessee has submitted additional evidences before the Commissioner of Income-tax (Appeals) which are not admitted by the Commissioner of Income-tax (Appeals). 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 suppor .....

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