2012 (11) TMI 987 - HC - Income Tax

Interest accrued - method of accounting - assessee submitted that when the Tribunal had remanded the main issue, at this stage, question of charging interest would not arise Held that - Tribunal has merely remanded the proceedings to the Assessing Officer for fresh consideration on the question whether the assessee followed mercantile system of accounting or cash. In that view of the matter no question of law arises. Charge of interest u/s 234D - assessee submitted that when the Tribunal had remanded the main issue, at this stage, question of charging interest would not arise. - held that - question would have no relation to system of accounting followed by Shiva Specific Family Trust - Assessing Officer would decide the issue in accordance with law on the basis of material on record

Summary

Issues:
1. Method of accounting - Cash vs. Mercantile
2. Interest accrued on investments
3. Charging interest under section 234D

Analysis:

Issue 1: Method of accounting - Cash vs. Mercantile
The Revenue appealed against the Tribunal's judgment on whether the assessee followed the cash system of accounting or the mercantile system. The Tribunal remanded the issue to the Assessing Officer for fresh consideration. The Revenue contended that the Tribunal heavily relied on a previous decision in another case. The counsel for the assessee argued that the Tribunal only remanded the issue to determine the accounting system used by the assessee. The High Court held that as the matter was remanded for fresh consideration, no question of law arose. The Assessing Officer was directed to decide the issue based on the material on record.

Issue 2: Interest accrued on investments
The second issue regarding interest accrued on investments was considered consequential to the outcome of the first issue. The Tribunal remanded this issue as well to the Assessing Officer for readjudication based on the accounting system followed by the assessee. The High Court concluded that since the primary issue was remanded, the question of charging interest did not arise at that stage. The decision on this issue would be dependent on the resolution of the main accounting method issue.

Issue 3: Charging interest under section 234D
The third issue involved the charging of interest under section 234D of the Income Tax Act. The counsel for the assessee argued that since the main issue was remanded, the question of charging interest should not be considered at that point. The High Court concurred, stating that the issue of charging interest would only arise if any additions were sustained. Therefore, at that stage, the question of charging interest was deemed premature. The Tax Appeal was disposed of with the clarification that no interference was necessary until the primary issues were resolved.

In summary, the High Court upheld the Tribunal's decision to remand the issues related to the method of accounting and interest accrued on investments to the Assessing Officer for fresh consideration. The Court emphasized that questions of law did not arise at that stage and that the decision on charging interest would depend on the resolution of the primary issues.