2016 (9) TMI 1662 - AT - Income Tax

Nature of income - Agricultural income treated as income from other sources - HELD THAT - Nothing to establish that the assessee does not have agriculture income for the relevant assessment year. The strong belief of Revenue authorities is that during the relevant assessment year the assessee could not have earned any agricultural income which appears to be quite illogical. Since the facts pertaining to the relevant assessment year 2000-01 is more than 15 years old it would be difficult to make any estimate of agricultural income for the relevant assessment year at this relevant point of time - No option but to allow the claim of the assessee. Hence we hereby direct the AO to delete the addition made under the head income from other source and accept the same as agricultural income of the assessee. Decided in favour of the assessee. Accrued interest income from bank deposits - As per AO even though the fixed deposits were frozen interest was accruing to the assessee on those deposits and therefore it will be liable to be taxed - HELD THAT - There is a great element of uncertainty for realizing the interest as well as the bank deposits by the assessee. Even if she realizes the same it would be after a period of number of years and probably at that time re-assessment may not be possible due to limitation and thus the assessee would not be able to claim refund of the tax paid if the deposits are forfeited. As interest income of the assessee can be recognized only when there is no uncertainty and a significant scope to receive the same. Therefore accrued interest on the bank deposit frozen by the DVAC wing of the Govt. of Tamilnadu cannot be treated as interest income of the assessee during the relevant assessment year - direct AO to delete the interest income while computing the total taxable income of the assessee. Revision u/s 263 - wealth tax assessment - Commissioner invoked his powers u/s 25 of the Wealth Tax Act by stating that the wealth tax assessment is found to be erroneous insofar as it is prejudicial to the interests of the Revenue - HELD THAT - What can be the subject matter of reassessment can be done only by reopening of the assessment and not by revision u/s.263. This is because there is no assessment regarding the item considered in the DVAC report. When there is no assessment itself the question of revision u/s.263 does not arise on this issue. In the present case if there is escapement of assessment on this issue and it should have been brought to assessment by virtue of sec.147 and 148 of the Act and not under section 263 of the I.T. Act and the revisionary power u/s.263 cannot be exercised for escapement of income. See Bidar Sahakar Sakkare Karkhane Ltd. Vs. State of Karnataka 1984 (7) TMI 341 - KARNATAKA HIGH COURT Addition for cost of construction - This has already been a subject matter of appeal before the CIT(A) for earlier assessment year and he has already adjudicated the issue and hence there is no question of further considering this issue - Now this is also supported by our order wherein we have confirmed the order of the ClT(A). On this ground also addition is unwarranted towards cost of construction. Addition towards jewellery vehicles and other assets and footwear and silk sarees - Additions cannot be made entirely in the hands of the assessee since there premises where these were found were shared by three and other persons and it is not possible to say to whom these assets exactly belong. Since there is no categorical evidence to believe that this could be treated as belonging only to this assessee and it is too early to come to the conclusion that these belong to the assessee and fasten the liability of payment of tax. The charge sheet alone can not be treated as conclusive evidence to make additions. Thus we annul the order of the CIT passed u/s. 263 and appeal of the assessee is accordingly allowed.

Summary

Issues Involved:
1. Treatment of agricultural income as income from other sources.
2. Disallowance of municipal tax while determining rental income.
3. Assessment of accrued interest income from frozen bank deposits.
4. Wealth Tax assessment and invocation of section 25 of the Wealth Tax Act.

Detailed Analysis:

1. Treatment of Agricultural Income as Income from Other Sources:
The assessee claimed agricultural income of Rs. 21,66,959 during the assessment year. The Assessing Officer (AO) disbelieved this claim due to lack of evidence such as vouchers for fertilizers, pesticides, wages, and basic agricultural operations. The AO treated this income as "income from other sources" and added it to the taxable income. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's decision, citing similar reasons and emphasizing the lack of signed details and evidence of landholding. The CIT(A) also noted that previous acceptance of agricultural income in earlier years does not automatically validate the claim for the current year.

Before the Tribunal, the assessee argued that detailed evidence of agricultural activities and income had been submitted, including sale receipts and land details, which had been ignored by the AO. The Tribunal found that the existence of agricultural operations was not in dispute and criticized the Revenue for not estimating the agricultural income based on available facts. The Tribunal directed the AO to delete the addition of Rs. 21,66,959 and accept it as agricultural income.

2. Disallowance of Municipal Tax While Determining Rental Income:
The assessee did not press the ground related to the disallowance of Rs. 60,000 towards municipal tax while determining rental income. Consequently, this ground was dismissed.

3. Assessment of Accrued Interest Income from Frozen Bank Deposits:
The AO included Rs. 36,10,000 as accrued interest income from the assessee's frozen bank deposits, arguing that interest accrues regardless of the deposits being frozen. The CIT(A) confirmed this, noting the hybrid accounting system used by the assessee and the lack of evidence showing a risk of forfeiture of the deposits.

The assessee contended that due to the deposits being frozen by the DVAC, there was significant uncertainty in realizing the interest, and thus it should not be taxed until actually received. The Tribunal agreed, citing Accounting Standard AS-9, which states that revenue should be recognized only when collection is reasonably certain. The Tribunal directed the AO to delete the interest income of Rs. 36,10,000 from the taxable income.

4. Wealth Tax Assessment and Invocation of Section 25 of the Wealth Tax Act:
The Wealth Tax assessment for the year 1997-98 was revised by the Commissioner under section 25 of the Wealth Tax Act, based on an order under section 263 of the Income Tax Act, which included additional assets not initially assessed. The assessee argued that the section 263 order had been annulled by the Tribunal, and thus the section 25 order should be quashed.

The Tribunal noted the substantial delay in filing the appeal but condoned it, emphasizing the need for justice over technicalities. The Tribunal found that the section 25 order was based on the annulled section 263 order and thus had no basis. The Tribunal quashed the section 25 order, favoring the assessee.

Conclusion:
- The Tribunal directed the AO to recognize the claimed agricultural income and delete the addition of Rs. 21,66,959.
- The ground related to the disallowance of municipal tax was dismissed as it was not pressed.
- The Tribunal directed the AO to delete the accrued interest income of Rs. 36,10,000 from the taxable income due to significant uncertainty in realization.
- The Tribunal quashed the section 25 order of the Wealth Tax Act, as it was based on an annulled section 263 order.

The appeals were partly allowed in favor of the assessee.