The ITO, Ward-1(2), Bhavnagar V. Shri Vijay M.Parikh, Bhavnagar

ITA 1760/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6905 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS R K TOPIWALA
• Assessee Lawyers: SARJU MEHTA
• Keywords: Source of fund
• Section: 145

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND D.C.AGRAWAL, AM ASSTT. CIT, CIR-1, BHAVNAGAR. VS. SHRI VIJAY M. PARIKH, PLOT NO.1731-B, SARVODAYA SOCIETY, SARDARNAGAR, BHAVNAGAR. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MRS. R. K. TOPIWALA, DR RESPONDENT BY:- SHRI SARJU MEHTA, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS:- (1) THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION OF RS.7,00,502/- MADE BY T HE AO ON ACCOUNT OF ACCRUED INTEREST ON INVESTMENT IN FDR, W ITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. (1.2) IN DOING SO, THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT, SINCE THE IN VESTMENT IN FDR HAD NOT BEEN DISCLOSED BY THE ASSESSEE IN THE O RIGINAL RETURN FILED AND THE SAME HAD BEEN DETECTED AS A RE SULT OF THE SEARCH PROCEEDINGS CONDUCTED IN THE CASE OF THE ASS ESSEE, THE ASSESSEE HAD NO INTENTION OF OFFERING THE SAID ACCR UED INTEREST FOR TAXATION AND THEREFORE THE AO WAS JUSTIFIED IN TAXKING THE SAME ON ACCRUAL BASIS. ITA NO.1760/AHD/2010 ASST. YEAR 2007-08 ITA NO.1760/AHD/2010 ASST. YEAR2007-08 2 (1.3) IN DOING SO, THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT, SINCE THE AC COUNTS MAINTAINED WERE INCOMPLETE IN THE SENSE THAT THE IN VESTMENTS IN FDR WAS NOT ACCOUNTED FOR IN THE ACCOUNTS, THE A O, EVEN THOUGH HE ACCEPTED THE ASSESSEES METHOD OF ACCOUNT ING, WAS NOT BOUND BY THE FIGURE OF PROFITS SHOWN IN THE ACC OUNTS AND HE WAS JUSTIFIED IN COMPUTING THE SAID INCOME ON THE B ASIS DETERMINED BY HIM, KEEPING IN VIEW THE RATIO OF THE DECISION OF THE HON. SUPREME COURT REPORTED IN 33 ITR 182. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS REGARDI NG DELETION OF ADDITION OF RS.7,00,502/-. THE FACTS OF THE CASE A RE THAT DURING THE COURSE OF EXAMINATION OF BANK ACCOUNTS IN BHAVNAGAR NAGRIK CO-OP. BANK LTD., AO FOUND THAT ASSESSEE HAD INVESTED IN FDR TO THE E XTENT OF RS.45,26,540/-. THIS INVESTMENT WAS MADE IN THE PRE CEDING YEAR. THE AO MENTIONED IN THE ASSESSMENT ORDER THAT ASSESSEE IS MAINTAINING BOOKS OF ACCOUNTS ON CASH BASIS. THE AO CONSIDERED TO TAKE I NTEREST ON BANK FDR ON ACCRUAL BASIS AND WORKED OUT THE INTEREST EARNED AT RS.7,00,502/- AND TAXED IT IN ASST. YEAR 2007-08. 3. THE LD. CIT(A) DELETED THE ADDITION BY HOLDING T HAT IF ASSESSEE IS MAINTAINING CASH SYSTEM OF ACCOUNTING THEN INTEREST WOULD BE TAXED ON RECEIPT BASIS. IN THIS REGARD LD. CIT(A) OBSERVED A S UNDER :- 3.2 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LD. COUNSEL FOR THE APPELLANT AND HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS FILED AND ORALLY MADE BY HIM. IT IS AN UNDISPUTED FACT ON RECORD THAT THE APPELLANT HAS RE GULARLY EMPLOYED CASH SYSTEM OF ACCOUNTING FOR HIS ALL SOURCES OF INCOME INCLUDING INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS AND INCOME FROM OTHER SOURCES. A PLAIN READING OF SECTION 145 CONTEMPLATES THAT THE CHOICE TO FOLLOW EITHER CASH OR MERCANTILE SYST EM OF ACCOUNTING IS THAT OF THE ASSESSEE ONLY WHICH SHOULD BE REGULARLY EMPL OYED BY THE ASSESSEE. IN THE INSTANT CASE, THE AO HAS ACCEPTED THE SAME F OR ALL SOURCES OF INCOME BUT TOOK A DIFFERENT STAND FOR THE INTEREST ON FDRS THOUGH NOT RECEIVED OR CREDITED IN HIS BANK ACCOUNTS. ITA NO.1760/AHD/2010 ASST. YEAR2007-08 3 CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF A FORESAID JUDICIAL PRONOUNCEMENTS, I HAVE NO HESITATION IN HOLDING THA T THE AO HAS WRONGLY REJECTED THE CASH SYSTEM OF ACCOUNTING FOR A SINGLE SOURCE OF INCOME AND THEREBY ADDED THE INTEREST ON ACCRUAL BASIS THOUGH NOT RECEIVED OR CREDITED, DISREGARDING THE METHOD OF ACCOUNTING REG ULARLY ADOPTED, FOLLOWED BY THE APPELLANT AND ALSO ACCEPTED EARLIER BY THE DEPARTMENT. SINCE THE APPELLANT REGULARLY HAS BEEN MAINTAINING HIS BOOKS OF ACCOUNT ON THE BASIS OF CASH SYSTEM, HIS SYSTEM OF ACCOUNTI NG WITHOUT ANY SOLID REASON CANNOT BE DISTURBED OR REJECTED. 3.3 ON THE SAME ISSUE AND ON IDENTICAL FACTS, IN TH E APPELLANTS OWN CASE FOR ASST. YEAR 2001-02, 2002-03, 2003-04, 2004 -05 & 2005-06 THE APPEAL WAS DECIDED BY THE UNDERSIGNED, VIDE ORDER D ATED 13/03/2009 DELETING THE ADDITION MADE ON ABOVE LINE BY DIRECTI NG THE AO TO ACCEPT CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE APPELLANT REGULARLY. HENCE, THIS YEAR ALSO THE ADDITIONS MADE BY THE AO APPLYIN G THE MERCANTILE SYSTEM OF ACCOUNTING ON THE INTEREST ACCRUED ON FDR S ARE DIRECTED TO BE DELETED. FURTHER, HON. INCOME-TAX APPELLATE TRIBUNA L, AHMEDABAD, VIDE ORDER NO. ITA NOS. 1994, 1995, 1996, 1997, 1998 & 1 999/AHD/2009 ASST. YEAR 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 AN D 2006-07 DATED 25/06/2009 HAS ALREADY DISMISSED APPEAL MADE BY THE DEPARTMENT AGAINST ABOVE ORDER OF THE CIT(A)-XX, AHMEDABAD. AS SUCH, THE AO IS DIRECTED TO ACCEPT CASH SYSTEM OF ACCOUNTING FOLLOW ED BY THE APPELLANT REGULARLY AND HENCE, THE ADDITION MADE APPLYING THE MERCANTILE SYSTEM OF ACCOUNTING FOR THE INTEREST ACCRUED ON FDRS BUT NOT BECAUSE DUE IS DIRECTED TO BE DELETED. 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE CASE OF THE DEPARTMENT IS THAT INVESTMENT IN FDR WAS NOT DISCLOSED BY THE ASSESSEE IN THE ORIGINAL R ETURN AND IT WAS DETECTED AS A RESULT OF SEARCH. FROM THIS IT IS CLE AR THAT ASSESSEE HAS NO INTENTION TO DECLARE THE ACCRUED INTEREST FOR TAXAT ION. LD. DR ALSO ARGUED THAT ACCOUNTS MAINTAINED BY THE ASSESSEE ARE INCOMP LETE INASMUCH AS FDR WAS NOT ACCOUNTED FOR IN THE ACCOUNTS. THE AO I S NOT BOUND BY THE FIGURE OF PROFITS SHOWN IN THE ACCOUNTS IF THEY ARE NOT COMPLETE. ITA NO.1760/AHD/2010 ASST. YEAR2007-08 4 5. IN OUR CONSIDERED VIEW THERE IS NO LAW OR ACCOUN TING STANDARD THAT IF ASSESSEE IS MAINTAINING ITS ACCOUNTS ON CASH BAS IS THEN INTEREST ON FDR SHOULD BE TAXED ON ACCRUAL BASIS. ONCE FDRS HAVE BE EN DISCOVERED DURING THE SEARCH THEN IT IS FOR THE AO TO TAKE NEC ESSARY ACTION FOR TAXING THE SAME IN THE YEAR OF INVESTMENT IF IT IS LEGALLY PERMISSIBLE TO DO SO. THE TWO ASPECTS ARE DIFFERENT I.E. DISCLOSURE OF FD AND TAXING OF INTEREST INCOME. ONCE FD ARE BROUGHT ON RECORD THEN INTEREST INCOME HAS TO BE TAXED ON THE BASIS OF ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE AND NOT OTHERWISE. ACCORDINGLY, APPEAL FILED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 8/4/11. SD/- SD/- (D. K. TYAGI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 8/4/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.1760/AHD/2010 ASST. YEAR2007-08 5 1.DATE OF DICTATION 1/4/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 6/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..