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Issues:
- Assessment of income on accrual basis - Treatment of interest income from bank - Allowance of expenses against income - Validity of ex parte assessments - Accounting method for interest income - Allowance of expenses and interest payable to members Assessment of income on accrual basis: The Revenue appealed against the CIT(A)'s order directing the Assessing Officer to consider the income of the assessee at nil. The Assessing Officer had issued notices under the Income-tax Act as he believed the income had escaped assessment. The assessments were made ex parte as the assessee failed to comply with the notices. The Assessing Officer disagreed with the assessee's claim of showing interest income on receipt basis and taxed it on accrual basis. The Revenue contended that interest should be taxed on accrual basis and no deductions should be allowed without producing books of account. However, the CIT(A) held that the interest was accounted for on receipt basis and directed the Assessing Officer to consider the income at nil. Treatment of interest income from bank: The assessee, a Cooperative House Building Society, claimed that the interest income from the bank was not the society's income as it was to be disbursed to its members. The Assessing Officer disallowed various expenses claimed by the assessee, including interest paid to members. The CIT(A) held that interest allocated to members could not be taxed in the society's hands, and allowed the expenses, resulting in no assessable profit for the society. Allowance of expenses against income: The CIT(A) allowed the expenses debited in the profit and loss account for running the society, stating that if those expenses were considered, there was no assessable profit. The Revenue contended that no deductions should be allowed without producing books of account, but the CIT(A) upheld the allowance of expenses and interest payable to members. Validity of ex parte assessments: The assessee challenged the ex parte assessments made by the Assessing Officer, stating that the representative was unable to attend the hearing due to a reasonable request for rescheduling. The CIT(A) did not decide on the validity of the ex parte proceedings but directed the Assessing Officer to consider the income at nil based on the accounting method and allocation of interest income. Accounting method for interest income: The CIT(A) found that the assessee was following the receipt system for interest income and had shown more interest on receipt basis than taken by the Assessing Officer on accrual basis. The CIT(A) confirmed that the assessee was not following the mercantile system of accounting for interest income, as evidenced by the records presented. Allowance of expenses and interest payable to members: The CIT(A) held that interest payable to members and other expenses incurred by the assessee exceeded the receipts, resulting in no taxable income for the society. The CIT(A) concluded that there was no legal infirmity in the order and confirmed the allowance of expenses and interest payable to members. In conclusion, the Tribunal dismissed the appeals, upholding the CIT(A)'s decision to consider the society's income at nil based on the accounting method for interest income and the allowance of expenses and interest payable to members.
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