The DCIT, Circle-10, Ahmedabad V. Nima Specific Family Trust, Ahmedabad

ITA 1655/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6243 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 20-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Notional interest; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI D K TYAGI,JM & SHRI A N PAHUJA, AM ITA NO.1655/AHD/2009 (ASSESSMENT YEAR:-2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-10, FIRST FLOOR, NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD V/S NIMA SPECIFIC FAMILY TRUST, NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD PAN: AABTN 0269 J [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI RAVINDRA KUMAR, DR ASSESSSEE BY:- SHRI S N SOPARKAR, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 05-03-2009 OF THE LD. CIT(APPEALS)-XVI, AHMEDABAD FOR THE ASSESSMENT YEAR 2004-05, RAISES THE FOLLOWING GROUN DS:- [1] THE LD. CIT(A) ERRED IN LAW IN DELETING THE AD DITION BY THE ASSESSING OFFICER ON ACCOUNT OF ACCRUED INTEREST ON REC BOND OF RS.1,95,90,156/-. [2] THE LD. CIT(A) ERRED IN LAW IN DELETING THE ADD ITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST ON FDR OF RS.4,78,213/- & RS.9,26,435/- HOLDING THAT ASSESSEE IS FOLLOWING CA SH SYSTEM OF ACCOUNTING. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. C IT(A) MAY BE QUASHED AND THAT OF THE AO BE RESTORED TO THE EXTEN T MENTIONED ABOVE. 2. ADVERTING TO GROUND NOS.1 & 2 IN THE APPEAL, F ACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING IN COME OF RS.3,63,92,470/- FILED ON 21-10-2004 BY THE ASSESS EE WAS TAKEN UP FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2 ) OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] ON 2 6.7.2005.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FOLLOWING HIS OWN ORDER FOR THE AY 2003-04, THE ASSESSING OFFICER[ AO IN SHORT] ,CONSIDERED THE 2 ITA NO.1655/AHD/2009 METHOD OF ACCOUNTING OF THE ASSESSEE MERCANTILE I NSTEAD OF CASH METHOD CLAIMED BY THE ASSESSEE. ACCORDINGLY, THE AO ADDED INTEREST OF RS.4,78,213/- AND RS.9,26,435/- ON FDRS WITH KAL UPUR COMMERCIAL CO-OP. BANK LTD. AS ALSO WITH ADESH FIN STOCK PVT. LTD. AND AKSHAT FINSTOCK PVT. LTD.. 2.1 FURTHER ,N PERUSAL OF DETAILS FURNISHED BY THE ASSESSEE IN RESPECT OF INVESTMENTS IN THE VARIOUS DEBENTURES, T HE AO NOTICED THAT THE ASSESSEE DID NOT FOLLOW THE CIRCULAR NO. 2 OF 2002 DATED 15- 02-2002 IN CASE OF THE INVESTMENTS IN VARIOUS OFCPN / DDB / REC BONDS. IN THE LIGHT OF SAID CIRCULAR NO.2 OF 2002; LETTER NO. 225 DATED 12-3-1996;PRESS RELEASE OF CBDT DATED 20-03-2002 AN D AFTER DISCUSSING THE ISSUE IN GREAT LENGTH IN PARA 5 AND 6 OF THE ASSESSMENT ORDER, THE AO BROUGHT TO TAX ACCRUED INT EREST OF RS.1,95,90,156/- ON THE FOLLOWING INVESTMENTS:- (I) REC BONDS OF 12.7 CRORES RS.87,15,309 (II) REC BONDS OF 3.7 CRORES RS.52,38,296 (III) OFCPN OF ECHOLAC FINVEST P. LTD. 3 CR. RS. 787 (IV) OFCPN OF ECHOLAC FINVEST P. LTD. 1 CR. RS. 8, 80,756 (V) OFCPN OF AKSHAT FINSTOCK P. LTD. 4 CR. RS.38,96 ,879 (V) OFCPN OF NETWORLD 1 CR. RS. 8,58,129 -------------------- TOTAL RS.1,95,90,156/- 3. ON APPEAL, THE LEARNED CIT(A) DELETED BOTH THE A FORESAID ADDITIONS IN THE FOLLOWING TERMS:- 7 GROUND NO.6 IS REGARDING ADDITION OF NOTIONAL IN TEREST OF RS.1,95,90,156/-. THE ITAT, AHMEDABAD VIDE THEIR OR DER DATED 2-11-2007 IN THE CASE OF THE APPELLANT FOR AY 2003-04 HAS HEL D THAT SINCE THE APPELLANT IS FOLLOWING CASH SYSTEM OF ACCOUNTING, T HE NOTIONAL INTEREST OF RS.1,95,90,156/- CANNOT BE ADDED IN THE TOTAL INCOM E OF THE APPELLANT ON THE GROUND OF MERCANTILE SYSTEM ON THE BASIS OF CIR CULAR NO.2 OF 2002. RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT, AHMED ABAD, THE ADDITION OF RS.1,95,90,156/- IS DELETED. 3 ITA NO.1655/AHD/2009 7. GROUND NO. 8 IS REGARDING ADDITION ON ACCOUNT O F INTEREST ON FOR OF RS.4,78,213/-. DURING THE PREVIOUS YEAR RELEVANT TO A Y 2004-05, THE APPELLANT RECEIVED THE TDS CERTIFICATE FOR RS.57,85 7/- FROM THE KALUPUR COMM. CO-OP. BANK LTD. AS PER THE TDS CERTIFICATE T HE INTEREST INCOME FOR A Y 2004-05 IS RS.5,78,570/-. THE KALUPUR COMM CO O P BANK LTD MADE THE PROVISION FOR INTEREST PAYMENT TO THE APPELLANT OF RS.5,78,570/- ON THE FIXED DEPOSIT AND DEDUCTED THE TAX OF RS.57,587/- O N THE SAID INTEREST. SINCE THE APPELLANT WAS FOLLOWING CASH SYSTEM OF AC COUNT, THE APPELLANT SHOWED THE AMOUNT OF TDS OF RS.57,857/- AS INTEREST INCOME BEING THE AMOUNT OF TAX DEDUCTED AT SOURCE BY KALUPUR COMM CO OP BANK LTD. THE ASSESSING OFFICER HOWEVER MADE THE ADDITION OF RS.4 ,78,213/- ON ACCOUNT OF ACCRUED INTEREST ( I.E. RS.5,78,570/- MINUS RS.5 7,857/-. IN SHORT THE APPELLANT SHOWS RS. 57,8577- BEING THE TAX DEDUCTED AT SOURCE BY THE KALUPUR COMM CO OP BANK LTD IN RESPECT OF THE INTER EST OF .RS.5,78,570/- ON FDR KEPT BY APPELLANT WITH THE BANK. THE REMAINI NG INTEREST INCOME IS ACCOUNTED FOR BY THE APPELLANT IN THE F Y 2004-05 . PERTAINING TO A Y 2005- 06 IN WHICH IF IS ACTUALLY RECEIVED BY THE APPELLAN T. THE ASSESSING OFFICER HAS ALSO ASSESSED THE DIFFERENTIA! .INCOME ON SUBST ANTIVE BASIS IN A Y 2005-06. SINCE THE APPELLANT HAS BEEN FOLLOWING CAS H SYSTEM OF ACCOUNTING AS HELD BY THE ITAT AHMEDABAD IN THEIR O RDER DT 26-2-2007, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE WHOLE AMOUNT OF RS.5,78,570/- AS THE INTEREST INCOME ON THE FOR WIT H KALUPUR COMM CO OP BANK LTD. FURTHER SINCE THE APPELLANT HAS ONLY S HOWN THE INTEREST INCOME OF RS.57,857/-BEING THE AMOUNT OF TAX DEDUCT ED AT SOURCE BY THE KALUPUR COMM CO OP BANK LTD, THE APPELLANT WOULD NO T BE ENTITLED TO TAKE THE CREDIT OF TDS OF RS.57,857/- BECAUSE THE CORRES PONDING INTEREST INCOME HAS NOT BEEN SHOWN BY THE APPELLANT IN THIS ASSESSMENT YEAR. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO GIVE THE CREDIT ON TDS OF RS.57,857/- IN A Y 2005-06 WHEN THE INCOME HAS BEEN SHOWN BY THE APPELLANT IN ITS RETURN OF INCOME. IN THIS YEAR I.E . 2004-05 THE APPELLANT WILL NOT BE ENTITLED TO THE CREDIT OF TDS OF RS.57,857/- . HOWEVER THE ADDITION OF RS.4,78,213/- CANNOT BE SUSTAINED. 8. GROUND NO. 9 IS REGARDING MAKING ADDITION OF INT EREST INCOME OF RS.9,26,435/-. THIS GROUND IS SAME AS GROUND NO.8. IN GROUND NO.8 THE IDS WAS DEDUCTED BY THE KALUPUR COMM CO OP BANK LTD WHEREAS IN GROUND NO.9 THE TDS CERTIFICATE OF RS.74,366/- AND RS.1,71,902/- WERE RECEIVED FROM ADESH FINSTOCK PVT LTD AND AKSHAT FIN STOCK PVT LTD RESPECTIVELY. THE INTEREST 'INCOME AS PER THE TDS C ERTIFICATE IS OF RS.3,54,122/- AND RS. 8,18,5817- RESPECTIVELY. ADES H FINSTOCK PVT LTD AND AKSHAT FINSTOCK PVT LTD HAVE MADE THE PROVISION FOR INTEREST PAYMENT TO THE APPELLANT TRUST OF RS.3,54,122/- AND RS.8,18,58 1/- AND DEDUCTED THE TAX OF RS.74,366/- AND RS.1,71,902/- RESPECTIVELY, ON THE SAID INTEREST. BUT AS THE APPELLANT TRUST IS FOLLOWING CASH METHOD OF ACCOUNTING, THE INTEREST 4 ITA NO.1655/AHD/2009 INCOME ACCOUNTED WAS FOR RS.74,366/- AND RS.1,71,90 2/- BEING THE TAX DEDUCTED AT SOURCE. THE REMAINING INTEREST INCOME I S ACCOUNTED IN THE ACCOUNTING YEAR 06-07 PERTAINING TO A Y 07-08 IN WH ICH IF IS ACTUALLY RECEIVED BY THE APPELLANT. THE ASSESSING OFFICER MA DE THE ADDITION OF INTEREST INCOME OF RS.9,26,435/- ON THE BASIS OF TD S CERTIFICATE. AS HELD BY ME IN GROUND NO.8, THE APPELLANT WILL NOT BE ENTITL ED TO THE CREDIT OF TDS CERTIFICATE OF RS.74,366/- AND RS.1,71,902/- RESPEC TIVELY RECEIVED FROM ADESH FINSTOCK PVT. LTD. IN A Y 2004-05 AND THE ASS ESSING OFFICER WOULD DELETE THE ADDITION OF RS.9,26,435/-. THE CREDIT WO ULD BE GIVEN BY THE ASSESSING OFFICER ONLY WHEN THE INTEREST INCOME IN RESPECT OF THE ABOVE MENTIONED TWO PARTIES IS SHOWN BY THE APPELLANT.' 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). AT THE OUTSET, BOTH THE PARTIES AGREED THAT THE ISSUES ARE SQUARELY COVERED BY THE DECIS ION DATED 02-11- 2007 OF THE ITAT, AHMEDABAD BENCH-A IN THE ASSESSEE S OWN CASE FOR THE AY 2003-04 IN ITA NO.1854/AHD/2007 . THE LE ARNED AR ALSO REFERRED TO THE DECISION DATED 30-06-2009 OF THE IT AT, AHMEDABAD IN THE ASSESSEES OWN CASE FOR AY 2005-06 IN ITA NO.1342/AHD/2009. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORECITED DECISIONS OF THE IT AT . WE FIND THAT BOTH THE ISSUES HAVE BEEN DEALT WITH IN THE AFORESA ID DECISION 02- 11-2007 OF THE ITAT AHMEDABAD IN THE ASSESSEES OWN CASE FOR AY 2003-04 IN ITA NO.1854/AHD/2007 AND THE CONCLUSIONS OF THE BENCH IN PARA-14 OF THE DECISION WERE AS UNDER:- 14. TO REITERATE, WE IN VIEW OF AFORESAID FACTS A ND CIRCUMSTANCES OF THE CASE, ARE OF THE OPINION THAT (I) THE ASSESSEES SYSTEM OF ACCOUNTING FOR ASST.YE AR 2003-04 WAS CASH SYSTEM. (II) IN VIEW OF OUR CONCLUSION, AS AFORESAID, AND T HE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS WELL AS VARIO US DECISIONS DISCUSSED HEREINABOVE, WE ARE OF THE OPIN ION THAT INCOME/INTEREST FROM DDBS, WHICH, ADMITTEDLY, WERE HELD BY THE ASSESSEE AS INVESTMENTS, WAS NOT TAXABLE ON ACC RUAL 5 ITA NO.1655/AHD/2009 BASIS AND, THEREFORE, INCOME OF RS.3,67,08,576/- H AVING BEEN ASSESSED ON ACCRUAL BASIS IS DELETED. (III) THE CIRCULAR NO.2 OF 2002 IS INVALID CIRCULA R AND, THEREFORE, INCOME/INTEREST FROM DDBS AS WELL AS OFCPN IN ASSE SSEES CASE WHO HAS HELD THE SAME AS INVESTMENTS, CANNOT B E TAXED ON ACCRUAL AS PROPOSED BY THIS CIRCULAR. CONSEQUEN TLY, THE INTEREST FROM DDBS AMOUNTING TO RS.3,67,08,576/- AS WELL AS THE INCOME ON ACCOUNT OF SO-CALLED NOTIONAL INTERES T ON INVESTMENT IN OPTIONALLY FULLY CONVERTIBLE PREMIUM NOTE OF NIRMA INDUSTRIES LTD. AMOUNTING TO RS.2,22,19,653/- INTEREST ON OFCPN OF NIRMA INDUSTRIES LTD. AND 10,62,264/- I NTEREST ON OFCPN OF ECHOLAC FINVEST PVT.LTD. WHICH WAS DECLAR ED BY THE ASSESSEE IN THE REVISED RETURN, IS DELETED. (IV) WITHOUT PREJUDICE TO OUR FINDINGS IN AT SL.NO. (III) ABOVE, EVEN IF THE CIRCULAR IS CONSIDERED TO BE VALID, THEN ALSO T HE SAME BEING, IN OUR OPINION, APPLICABLE ONLY TO THE DDBS/ OFCPN PURCHASED AFTER 15/02/2002, THE INCOME/INTEREST FRO M DDBS/OFCPN PURCHASED PRIOR TO 15/02/2002, IN ASSESS EES CASE, WHO HAS HELD THE SAME AS INVESTMENT, WAS NOT LIABLE TO BE TAXED ON ACCRUAL BASIS. (V) THE INCOME/INTEREST FROM OPTIONALLY FULLY CONV ERTIBLE PREMIUM NOTE OF NIRMA INDUSTRIES LTD. AND OF ECHOLAC FINVES T (P) LTD. COULD NOT BE TAXED ONLY BECAUSE THE ASSESSEE HAD D ECLARED THE SAME IN THE REVISED RETURN. ONCE THE ASSESSEE S SYSTEM OF ACCOUNTING HAS BEEN HELD TO BE CASH SYSTEM, T HE CIRCULAR NO.2 OF 2002, SO FAR AS ASSESSEES CASE IS CONCERNE D, WILL NOT BE APPLICABLE TO THE DDBS OR OFCPN PURCHASED EVEN A FTER 15/02/2002. THE INCOME OF RS.2,22,19,653 + 10,62,2 64 ALSO, THEREFORE, STANDS DELETED. 5.1 INDISPUTABLY, FACTS OBTAINING IN THE YEAR UN DER CONSIDERATION ARE IDENTICAL WITH THE FACTS AND CIRCUMSTANCES IN T HE AY 2003-04. THEREFORE, FOLLOWING THE VIEW TAKEN IN THE AFORECIT ED DECISION OF THE ITAT FOR THE AY 2003-04, ESPECIALLY WHEN REVENUE HA VE NOT PLACED BEFORE US ANY MATERIAL OR CONTRARY DECISION, SO A S TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INC LINED TO INTERFERE. THEREFORE, GROUND NOS.1 & 2 IN THE APPEAL ARE DISMI SSED. 6 ITA NO.1655/AHD/2009 6. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 30 -06-2011 SD/- SD/- (D K TYAGI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 30 -06-2011 COPY OF THE ORDER FORWARDED TO: 1. NIMA SPECIFIC FAMILY TRUST, NIMA HOUSE, ASHRAM R OAD, AHMEDABAD 2. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-10, A HMEDABAD 3. CIT CONCERNED 4. CIT(A)-XVI, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD