GITA YOGENDRA DIVECHA, MUMBAI V. ITO 16(1)(1), MUMBAI

ITA 2430/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8201 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 12-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 28-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: S C TIWARI MS NATASHA MANGAT
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 2430/MUM/2011 ASSESSMENT YEAR 2005-06 SMT. GITA YOGENDRA DIVECHA, 807, CUMBALLA CREST, 42, PEDDAR ROAD, MUMBAI . PAN: AAIPD 2688 R VS. INCOME TAX OFFICER 16 (1) (1) , MUMBAI (APPELLANT ) (R ESPONDENT) ASSESSEE BY : SHRI S.C. TIWARI, MS. NATASHA MANGAT REVENUE BY : SHRI A.K. NAYAK DATE OF HEARING : 12-07-2012 DATE OF PRONOUNCEMENT : 01-08-2012 ORDER PER RAJENDRA, A.M. THE PRESENT APPEAL LIES AGAINST THE ORDER OF THE CI T(A)-25, MUMBAI DATED 11.02.2011, RAISING FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-25, MUMBAL ERRED IN CONFIRMING THE ADDITION OF RS.6,56,049/- ON ACCOUNT OF INTEREST ON THE CREDIT BALANCE IN THE PARTNERSHIP FIRM. 2. YOUR APPELLANT SUBMITS THAT YOUR APPELLANT HAS N OT RECEIVED ANY INTEREST FROM THE PARTNERSHIP FIRM AND AS SUCH THE LEARNED CIT(A) OUG HT TO HAVE CONSIDERED THIS AND OUGHT NOT TO HAVE CONFIRMED THE ADDITION OF RS.6,56 ,049/- MADE BY THE LEARNED A.O. ON ACCOUNT OF NON RECEIPT OF THE INTEREST FROM THE PARTNERSHIP FIRM. 3. YOUR APPELLANT SUBMITS THAT NO INTEREST HAS BEEN PAID TO THE PARTNERS BY THE PARTNERSHIP FIRM AND AS SUCH THE LEARNED A.O. CANNO T ESTIMATE THE INTEREST RECEIVABLE ON THE CREDIT BALANCE OF YOUR APPELLANT. ITA NO. 2430/MUM/2011 SMT. GITA YOGENDRA DIVECHA, 2 4. YOUR APPELLANT SUBMITS THAT THE PARTNERS HAVE DE CIDED NOT TO TAKE ANY INTEREST FROM THE PARTNERSHIP FIRM AND AS SUCH THE LEARNED A.O. C ANNOT ARBITRARILY MAKE ADDITION ON ACCOUNT OF NON CHARGING OF THE INTEREST ON THE C REDIT BALANCE OF THE PARTNERS. 5. YOUR APPELLANT CRAVES, LEAVE TO ADD, ALTER, AMEN D, WITHDRAW OR SUBSTITUTE ALL OR ANY OF THE GROUNDS OF APPEAL AS THE CIRCUMSTANCES OF TH E APPEAL MAY REQUIRE. THOUGH THEY ARE FOUR GROUNDS OF APPEAL, BUT THE EF FECTIVE GROUND OF APPEAL IS ABOUT ADDITION MADE BY THE ASSESSING OFFICER (AO) AMOUNTI NG TO RS.6.56 LAKHS TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF ACCRUED INTERE ST FOR THE YEAR UNDER CONSIDERATION. 2. THE ASSESSEE,AN INDIVIDUAL FILED HER RETURN OF INC OME ON 27.10.2005, DECLARING TOTAL INCOME OF RS.1,81,154/-WHEREAS THE ASSESSMEN T WAS COMPLETED ON 07.12.2007, ASSESSING THE TOTAL INCOME AT RS. 8,37,200/-. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO FO UND THAT THE ASSESSEE HAD ADVANCED LOAN OF RS.1.07 CRORES TO A PARTNERSHIP FI RM IN WHICH SHE WAS A PARTNER OF 25% SHARES AND THAT SHE HAD NOT SHOWN INTEREST INCO ME FROM THE SAID FIRM WHILE FILING HER RETURN OF INCOME. IN REPLY TO A QUERY OF THE AO WITH REGARD TO ISSUE OF INTEREST, THE ASSESSEE SUBMITTED THAT THE FIRM HAD INCURRED LOSS OF RS. 7.35 LACS FOR THE RELEVANT AY. HENCE, THE QUESTION OF CHARGING OF INTEREST DID NOT ARISE. ON VERIFICATION OF COMPUTATION OF INCOME THE AO FOUND THAT SHE HAD SHO WN SHARE OF PROFITS FROM THE FIRM AT RS. 10.66 LAKHS AND HAD CLAIMED THE SAME IS EXEMPT INCOME U/S.10(2A) OF THE INCOME TAX ACT, 1961(ACT). AO HELD THAT THE CLAIM OF THE ASSESSEE ABOUT INCURRING OF LOSS BY THE FIRM WAS NOT CORRECT, THAT INTEREST INCOME ACCRUED TO THE ASSESSEE WAS LIABLE FOR TAXATION. AO EXAMINED THE CLAUSE 7 OF T HE PARTNERSHIP DEED OF THE FIRM ACCORDING TO WHICH THE ASSESSEE WAS ENTITLED FOR SI MPLE INTEREST @ OF 12% ON THE AMOUNT STANDING TO THE CREDIT OF CAPITAL, CURRENT O R LOAN ACCOUNT. REFERRING TO THE SAID CLAUSE, AO WORKED OUT INTEREST RECEIVABLE BY THE AS SESSEE @ 12%, AMOUNTING TO RS. 6,56, 049/-. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER FAA HELD THAT ALTHOUGH THERE WAS LOSS FROM MANUFACTURING ACT IVITY OF THE FIRM, BUT THERE WAS INCOME OF RS. 50 LAKHS BY WAY OF SALE OF TENANCY RI GHT WHICH WAS CREDITED IN APPROPRIATION ACCOUNT, THAT THE SAID INCOME WAS PAR T AND PARCEL OF THE FIRM IN WHICH THE ASSESSEE WAS A PARTNER, THAT IT WAS INCORRECT T O CLAIM THAT FIRM HAD INCURRED LOSS, THAT ON THE BASIS OF SAID INCOME OF RS. 50 LAKHS, N ET PROFIT WAS TRANSFERRED TO THE PARTNERS' CAPITAL ACCOUNT AMOUNTING TO RS.10.6 LAKH S TO EACH OF THE PARTNERS, THAT LOSS HAD NOTHING TO DO WITH CONTRACTUAL OBLIGATION TO PA Y INTEREST, THAT IN VIEW OF THE EXPLICIT OF PROVISION OF THE PARTNERSHIP DEED A RIG HT TO RECEIVE INTERESTS HAD ACCRUED IN FAVOUR OF THE ASSESSEE PARTNER. AS A RESULT HE AFF IRMED ORDER OF THE AO. 5. BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) SUBMI TTED THAT FIRM HAD SUFFERED LOSSES AND HAD NOT PAID INTEREST TO THE AS SESSEE-PARTNER, THAT NO INCOME WAS RECEIVED BY THE ASSESSEE FROM THE FIRM DURING THE A Y UNDER CONSIDERATION. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT INC OME HAD ACCRUED TO THE ASSESSEE, THAT SAME WAS THE PART OF INCOME FOR THE AY UNDER C ONSIDERATION, THAT RECEIPT OF A PARTICULAR INCOME WAS NOT IMPORTANT-WHERE THE ASSES SEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ITA NO. 2430/MUM/2011 SMT. GITA YOGENDRA DIVECHA, 3 6. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THE AMOUNT IN QUESTION HAD ACCRUED TO THE ASSESSEE. ACCRUAL OF I NCOME IS A WELL-KNOWN CONCEPT OF TAXATION JURISPRUDENCE. IT IS A FACT THAT ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND AS PER THE ESTABLISHED PRINCIPLES OF THAT SYSTEM, WHATEVER ACCRUES TO AN ASSESSEE IN A PARTICULAR AY HAS TO BE OFFERED FOR T AXATION FOR THAT PARTICULAR YEAR. IN OUR OPINION THE CONCEPT OF REAL INCOME OR NO REAL I NCOME CAN NEVER BE A CONCEPT WHICH CAN WORK IF IT IS AT VARIANCE WITH THE STATUT ORY PROVISIONS. UNDER SECTION 5 OF THE ACT THE MOMENT THERE IS AN ACCRUAL OF INCOME BY WAY OF INTEREST INCOME, IT HAS TO BE INEVITABLY OFFERED TO TAX AND EVEN IF IT IS NOT SO OFFERED, IT IS THE DUTY OF THE INCOME- TAX AUTHORITIES TO BRING IT TO TAX. IN OTHER WORDS THE ACCRUAL OF INCOME MUST BE REAL. WHAT REALLY ACCRUES TO THE ASSESSEE HAS TO BE FOUND OUT AND WHAT ACCRUES MUST BE CONSIDERED FROM THE POINT OF VIEW OF REAL INCOME TA KING THE PROBABILITY OR IMPROBABILITY OF REALISATION IN A REALISTIC MANNER AND DOVETAILING OF THESE FACTORS TOGETHER, BUT ONCE THE ACCRUAL TAKES PLACE ON THE C ONDUCT OF THE PARTIES SUBSEQUENT TO THE YEAR OF CLOSING, AN INCOME WHICH HAS ACCRUED CA NNOT BE MADE AS NO INCOME. IN THE CASE UNDER CONSIDERATION INTEREST OF RS.6.5 LAC S HAD ACCRUED TO THE ASSESSEE- PARTNER AS PER THE PROVISIONS OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE PARTNER AND THE FIRM. IT IS ALSO A FACT THAT THE ASSESSEE HAD CLAIMED TO HAVE RECEIVED RS.10.6 LAKHS FROM THE FIRM DURING THE AY. UNDER CONSIDERAT ION. IN THESE CIRCUMSTANCES, MERE FILING OF A LOSS RETURN FOR TRADING ACTIVITIES BY T HE FIRM, CANNOT BE A BASIS FOR NOT OFFERING THE ACCRUED INTEREST TO THE ASSESSEE FOR T AXATION. GROUND NOS. 1 5 ARE DISMISSED. APPEAL FILED BY THE ASSESSEE STANDS REJECTED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST AUGUST, 2012. SD/- SD/- (VIJAY PAL RAO) (RAJENDRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE 1 ST AUGUST, 2012 TNMM ITA NO. 2430/MUM/2011 SMT. GITA YOGENDRA DIVECHA, 4 COPY TO: 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI