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

ITA 796/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6578 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 12-03-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CK MISHRADR
• Keywords: Block assessment; Notional interest
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI MUKUL SHRAWAT,JM & SHRI A N PAHUJA,AM ITA NO.796/AHD/2009 (ASSESSMENT YEAR:-2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-10, 1 ST FLOOR, NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD V/S HARISIDDH SPECIFIC FAMILY TRUST, NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD PAN: AAATH 1941 D [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI C K MISHRA,DR ASSESSEE BY:- NONE O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATE D 22-01-2009 OF THE LD. CIT(APPEALS)-XVI, AHMEDABAD F OR THE ASSESSMENT YEAR 2004-05, RAISES THE FOLLOWING GROUN DS:- [1] THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.1,07,90,047/- MADE ON ACCOUNT OF ACC RUED INTEREST ON REC BONDS BY THE AO. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. [3] IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET ASIDE AND THAT OF THE ORDER OF THE AO BE RESTORED T O THE ABOVE EXTENT. 2. NONE APPEARED BEFORE US ON BEHALF OF THE ASSESSE E AND INSTEAD AN APPLICATION DATED 17.5.2011 FOR ADJOURNM ENT ON THE GROUND OF SOME PERSONAL DIFFICULTIES WAS PLACED BEFORE US. T HERE BEING NO COGENT REASONS FOR SEEKING ADJOURNMENT WHILE THE IMPUGNED ORDER W AS BASED ON EARLIER DECISIONS OF THE ITAT, WE, THEREFORE, DECIDED TO DI SPOSE OF THE APPEAL AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATI VE. 3. ADVERTING TO GROUND NO.1 IN THE APPEAL, FACTS, I N BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME O F RS.4,72,82,739/- ITA NO.796/AHD/2009 2 2 FILED ON 21-10-2004 BY ASSESSEE-TRUST, AFTER BEING PROCESSED ON 26.2.2005 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [ HEREINAFTER REFERRED TO AS THE ACT], WAS SELECTED FOR SCRUTIN Y WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 20-07-2005. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER[AO I N SHORT] NOTICED THAT THE ASSESSEE HAD NOT SHOWN INCOME FROM BONDS O F RURAL ELECTRIFICATION CORPORATION LTD. SINCE THE ASSESSEE HAD MADE INVESTMENT IN THE BONDS OF THE FOLLOWING COMPANIES : NAME OF THE COMPANY AMOUNT OF INVESTMENT (RS. IN LAKHS) -------------------------------------------------- --------------- ECHOLAC FINVEST LTD. 50.00 AKSHAT FINSTOCK LTD. 300.00 TURAKHIA OVERSEAS PVT. LTD. 154.00 RURAL ELECTRIFICATION BONDS OF INDIA 44.00 AND HAD NOT REFLECTED INTEREST ACCRUED ON THESE INV ESTMENTS, THE AO SHOWCAUSED THE ASSESSEE AS TO WHY INTEREST ACCRUED ON THE AFORESAID INVESTMENTS BE NOT BROUGHT TO TAX. NO REP LY WAS RECEIVED BY THE AO. ACCORDINGLY, FOLLOWING HIS OWN FINDINGS IN THE ASSESSMENT ORDER FOR THE AY 2003-04, THE AO BOUGHT TO TAX AC CRUED INTEREST OF RS.1,07,90,047/- AS COMPUTED IN PARA 4 OF THE AS SESSMENT ORDER. 4. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITI ON FOLLOWING THE DECISION OF THE ITAT, AHMEDABAD IN THE CASE OF KISAN DISCRETIONARY FAMILY TRUST VS. ACIT [2008] 113 TTJ (AHD) 918 . THE FINDINGS OF THE LD. CIT(A) REVEAL AS UNDER:- 3. THE MAIN, GROUND OF APPEAL IN THIS CASE IS REGA RDING THE ADDITION OF NOTIONAL INTEREST OF RS.1,07,90,047/- IN RESPECT OF INVESTMENT IN OFCPNS OF ECHOLAC FINVEST LTD., AKSHAT FINSTO.CK PVT. LTD, TU RKHIA OVERSEAS P LTD AND BONDS OF RURAL ELECTRIFICATION CORPN LTD & NIRM A LTD. THE ADDITION OF INTEREST WAS MADE BY THE ASSESSING OFFICER HOLDING THAT THE INTEREST IS TAXABLE ON THE DEEP DISCOUNT BONDS ON ACCRUAL BASIS IN VIEW OF CIRCULAR NO. 2 OF 2002 DATED 15-2-2002. SIMILAR ADDITIONS WE RE ALSO MADE IN THE CASES OF OTHER GROUP ENTITIES. IN THE CASE OF KISAN DISCRETIONARY FAMILY TRUST, THE ITAT, AHMEDABAD VIDE THEIR ORDER DATED 2 -11-2007 HELD THAT THE ITA NO.796/AHD/2009 3 3 INTEREST INCOME ON DEEP DISCOUNT BOND CANNOT BE TAX ED ON MERCANTILE BASIS IN RESPECT OF THOSE ASSESSES WHO ARE FOLLOWIN G CASH SYSTEM OF ACCOUNTING. IT WAS HELD IN THAT CASE THAT THE ASSES SEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. THEREFORE THE ADDITION OF ACC RUED INTEREST IN THE CASE OF KISAN DISCRETIONARY FAMILY TRUST WAS DELETE D BY THE TRIBUNAL. SHRI HEMANSHU SHAH, C A VIDE HIS WRITTEN SUBMISSIONS DAT ED 25-11-2008 RELIED UPON THIS JUDGEMENT OF KISAN DISCRETIONARY F AMILY TRUST PASSED BY THE ITAT, A'BAD ON 2-11-2007 AND REQUESTED THAT SIN CE THE FACTS IN THIS CASE ARE IDENTICAL WITH THE FACTS OF THE CASE OF KI SAN DISCRETIONARY FAMILY TRUST, THE ADDITION OF ACCRUED INTEREST MAY BE DELE TED. 3.1 I HAVE PERUSED THE ORDER OF THE ASSESSING OFFIC ER, WRITTEN SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE I TAT, AHMEDABAD IN THE CASE OF KISAN DISCRETIONARY FAMILY TRUST WHICH IS R EPORTED AT 113 TTJ 918. SINCE THE FACTS OF THIS CASE ARE IDENTICAL TO THE F ACTS OF KISAN DISCRETIONARY FAMILY TRUST, FOLLOWING THE ORDER OF THE HON'BLE TR IBUNAL, THE ADDITION OF ACCRUED INTEREST OF RS.1,07,90,047/- IS DELETED. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR MERE LY SUPPORTED THE ORDER OF THE AO. 6. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF THE ITAT IN THE CASE OF KISAN DISCRETIONARY FAMILY TRUST VS. ACIT [2008] 11 3 TTJ (AHD) 918.WE FIND THAT WHILE ADJUDICATING A SOMEWHAT SIMI LAR ISSUE IN THE LIGHT OF FACTS OBTAINING IN THE SAID CASE, THE ITAT IN THE SAID DECISION CONCLUDED THAT SINCE THE ASSESSEES CHANGE IN SYSTEM OF ACCOUNTING AS CASH SYSTEM FROM MERCANTILE SYSTEM WAS ACCEPTED , THERE WAS NO QUESTION OF TAXING THE INTEREST OR ANY OTHER INCOME FROM SO-CALLED DEEP DISCOUNT BONDS INCLUDING ON ACCRUAL BASIS . AFTER CONSIDERING THE SAID DECISION , THE ITAT VIDE THEIR ORDER DATED 30.4.201 0 IN THE ASSESSEES OWN CASE FOR THE AYS 2002-03 & 2003-04 IN ITA NOS.1 041/AHD./2006 & 1852/AHD./2007 CONCLUDED AS UNDER: 6.1 AS REGARDS OTHER FOUR APPEALS IN THE CASE OF HARSIDDH SPECIFIC FAMILY TRUST AND SMT. SHANTABEN K PATEL, SINCE THE LD. CIT(A) MAINLY RELIED UPON FINDINGS OF THE AO IN TH E BLOCK ASSESSMENT PROCEEDINGS WITHOUT ASCERTAINING THE ME THOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THESE SSESSES NOR RECORDED HIS SPECIFIC ITA NO.796/AHD/2009 4 4 FINDINGS AS TO WHETHER OR NOT ANY CHANGE WAS CLAIME D IN THE METHOD OF ACCOUNTING, WE FIND MERIT IN THE CONTENTIONS OF BOTH THE PARTIES AND ACCORDINGLY, RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTIONS TO READJUDICATE THE CLAIM IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THESE SSESSES AND RECORD HIS SPECIFIC FINDINGS ON THE METHOD OF ACCOUNTING KEEPI NG IN MIND THE PROVISIONS OF SEC. 145 OF THE ACT AND IN THE LIGHT OF OUR AFORESAID OBSERVATIONS . 18.2 UNDISPUTEDLY, SINCE THE AFORESAID INVESTMENTS HAVE BEEN MADE PRIOR TO THE DATE OF ISSUE OF CIRCULAR NO.2 OF 2002 , THE CIRCULAR NO.2 OF 2002, REQUIRING TO RETURN THE INTEREST INCOME ON ACCRUAL BASIS, IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE, AS HELD IN THE AFORESAID DECISION IN THE CASE OF PUNITABEN K PATEL(SUPRA) . WE FIND THAT THE INTEREST HAS BEEN ASSESSED IN THE ASSESSMENT ORDER UNDER THE HEAD INCOME FROM OTHER SOURCES. UNDER SECTION 145(1) OF THE A CT, INCOME CHARGEABLE UNDER THIS HEAD SHALL SUBJECT TO THE PROVISIONS SUB-SECTI ON (2) BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. SINCE WHILE ADJUDICATING GROUND NO.2 OF THE APPEAL, WE HAVE ALREADY RESTORED THE ISSUE OF METHOD OF ACC OUNTING BEING FOLLOWED BY ASSESSEE TO THE FILE OF THE AO, THEREFORE , WE CON SIDER IT FAIR AND APPROPRIATE TO RESTORE THE ISSUE RAISED IN THIS GRO UND NO. 6 IN ITA NO.1041/AHD/2006 TO THE FILE OF THE AO WITH THE DI RECTIONS TO ADJUDICATE THE ISSUE IN THE LIGHT OF HIS FINDINGS IN RELATION TO GROUND NO.2 IN THE APPEAL, AFTER ALLOWING SUFFICIENT OPPOR TUNITY TO THE ASSESSEE. 19. IN VIEW OF OUR AFORESAID FINDINGS IN PARA 18. 2, A SIMILAR ISSUE RAISED IN GROUND NOS. 3 & 4 IN ITA NO. 1852/AHD./20 07 RELATING TO ADDITION OF ACCRUED INTEREST ON OFCPN OF ECHOLAC F INVEST PVT. LTD.,AKSHAT FINSTOCK PVT. LTD.,KAUTILYA FIN SECURIT IES LTD. & TURKHIYA OVERSEAS PVT. LTD. AND BONDS OF REC LTD. & DDBS B SERIES OF NURMA LTD. AND GROUND NOS. 3,4 & 5 IN ITA NO. 185 6/AHD./2007 RELATING TO ACCRUED INTEREST ON DDBS OF TATA FINAN CE LTD. & REC AS ALSO OFCPN OF NIRMA INDUSTRIES LTD., IS ALSO RESTOR ED TO THE FILE OF THE AO WITH THE DIRECTIONS TO ADJUDICATE THE ISSU E IN THE LIGHT OF HIS FINDINGS IN RELATION TO GROUND NO.2 IN THE APPEAL, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. NEEDLESS TO SAY THAT IF INCOME IS ASSESSED ON ACCRUAL BASIS , IT CAN NOT B E TAXED AGAIN IN THE YEAR OF RECEIPT . 6.1 SINCE THE AO RELIED UPON HIS OWN FINDINGS FOR THE AY 2003-04 IN THE YEAR UNDER CONSIDERATION AND THE ITAT, VIDE TH EIR AFORESAID COMMON ORDER DATED 30.4.2010 FOR THE AYS 2002-03 & 2003-04, HAVE ALREADY RESTORED SIMILAR ISSUES TO FILE OF THE AO, WE CONSIDER IT FAIR AN D APPROPRIATE TO RESTORE ITA NO.796/AHD/2009 5 5 THE ISSUE RAISED IN THE GROUND NO.1 OF THE APPEAL BEFORE US TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS AS HAVE BEEN ISSUED IN THE PRECEDING TWO ASSESSMENT YEARS. ACCORDINGLY, THE FINDINGS OF THE LD. CIT(A) ARE VACATED AND THE AO IS DIRECTED TO READJUDICATE THE ISSUE IN THE LIGHT OF OUR DIRECTIONS ON A SIMILAR ISSUE IN THE PRECEDING TWO ASSESSMENT YEA RS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE . WITH THESE DIRECTIONS, GROUND NO.1 IS DISPOSED OF 7. GROUND NOS. 2 & 3 BEING MERE PRAYER NOR ANY S UBMISSIONS HAVING BEEN MADE ON THESE GROUNDS, DO NOT REQUIRE A NY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 8. IN THE RESULT, APPEAL IS ALLOWED BUT FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 20-05-2011 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 20-05-2011 COPY OF THE ORDER FORWARDED TO: 1. HARISIDDH SPECIFIC FAMILY TRUST, NIRMA HOUSE, AS HRAM ROAD, AHMEDABAD 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-10 , 1 ST FLOOR, NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD 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