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2016 (4) TMI 117 - AT - Income TaxComputation of the income from house property - computation of actual rent - determination of prevailing market rent - Held that - A.O. has not made any enquiry with respect to the computation of the income from house property with respect to the respective properties in accordance with section 22 and 23 of the Act and the principles laid down by the Hon ble Bombay High Court in the case of Tip Top Typography (2014 (8) TMI 356 - BOMBAY HIGH COURT) to determine the prevailing market rent of these properties and rather computed ALV based on notional rent based on cost of properties. During the hearing , the ld. Counsel of the assessee also contended that the assessee has produced additional evidences before the authorities below which has not been considered by the authorities and principles of natural justice are vitiated. In view of the above, we are of the considered view that the matter with respect to ground raised by the assessee in memo of appeal needs to be set aside to the file of the A.O. for re-determination of the income from house properties in accordance with the provisions of section 22 and 23 of the Act and the principles laid down by the Hon ble Bombay High Court in the case of Tip Top Typography (supra) after considering the additional evidences filed by the assessee in his defense. Addition on professional income - whether the assessee is liable to follow mercantile method of accounting in respect of income which has already been considered as income in the subsequent assessment year based on cash basis of accounting consistently followed by the assessee?- Held that - The law has given freedom to the assessee to regularly employ either cash basis of accounting or mercantile basis of accounting to compute correct income chargeable to tax and the plain , simple and natural language and words used in the Section 145 of the Act does not , in our humble opinion, cast any bar on the assessee to follow regularly either cash basis or mercantile basis of accounting by the assessee having more than one source of income with in the head of income from Profit and gains of business or profession or income from other sources as in the instant case the assessee has two stream and sources of income under the head of income from Profit and gains of business or profession viz. his professional income and also income from production of films because by following either of the two method of accounting regularly , there is not likely to be distortion in computation of correct income as per the provisions of the Act and it will be only timing difference which we have seen above due to following the above methods of accounting and no prejudice will be caused to the Revenue . The said income of ₹ 22,57,000/- from the profession is also stated to have been offered for tax by the assessee in the year of receipt i.e. immediately succeeding financial year 2007-08 by following consistently and regularly cash basis of accounting for his source of income from profession . Thus, we hold that the assessee is not following hybrid or mixed method of accounting and the assessee is following cash system of accounting for his income from profession and mercantile system of accounting for his income from film production which are permitted by Section 145 of the Act. Based on our discussions and reasoning given here-inabove , we order deletion of the addition made to the income of the assessee by the AO - Decided in favour of assessee Addition of unexplained cash credit u/s 68 - addition made to the income of the assessee as unexplained cash credit u/s 68 of the Act under the head Income from other sources - Held that - Once the income is stated to be assessed in the hands of the assessee and the said accommodations C-18 and C-20 have been stated to be acquired out of undisclosed income and treated as own property by the assessee , which has been brought to tax in the hands of the assessee and due taxes paid to Revenue , then the capital gains arising on sale of these accommodations C-18 and C-20 owned by the assessee and held by the assessee in the name of close family members being sister and mother shall be chargeable to tax in the hands of the assessee although the accommodations are technically held in the name of close family members i.e. mother and sister of the assessee and hence we order deletion of addition of ₹ 10 lacs being advance on sale of these accommodations as made by the AO and as confirmed by the CIT(A) with the direction to the AO to compute capital gains arising out of these two accommodations as per Act which shall be brought to tax in the hands of the assessee in accordance with law after duly verifying and authenticating the claim of the assessee with respect to acquisition and ownership of the above accommodations C-18 and C-20 out of undisclosed income of the assessee which has been brought to tax and due taxes paid to Revenue as asserted by the assessee and the assessee is directed to appear before the A.O. and file the necessary evidences before the AO to support its claim and assertions for verification and authentication by the AO Addition of cash deposit u/s 68 - Held that - Due to lack of financial support, the assessee could not even complete his basic education and as such he is not well versed with the terms of accountancy, tax and other laws and regulations. The assessee has once again hit as he had incurred huge losses in the film business. The assessee s accountant also left the job without even handing over the charge of the books of account. The assessee was not having the proper information about the books of account and assessee was traveling while assessment proceedings are going on which was the main reason the assessee could not produce the evidence before the A.O. and hence there was sufficient cause for not producing the evidence during the assessment proceedings and accordingly prayed before the CIT(A) for admitting the additional evidence which the CIT(A) declined to admit the same. We find that there was sufficient cause shown by the assessee which prevented the assessee from producing the additional evidence during the assessment proceedings, hence, we direct the admission of the additional evidences by the AO .
Issues Involved:
1. Deemed Let Out Properties and Income from House Property 2. Restriction of Interest Claim 3. Method of Accounting for Professional Income 4. Unexplained Cash Credit under Section 68 5. Addition of Cash Deposit under Section 68 Issue-Wise Detailed Analysis: 1. Deemed Let Out Properties and Income from House Property: The assessee contended that certain properties were used for business purposes and should not be assessed under "Income from House Property." The AO did not accept this claim due to a lack of evidence and computed income based on 10% of the book value of the properties. The CIT(A) upheld the AO's decision, noting the absence of depreciation claims and evidence of business use. The Tribunal set aside this issue to the AO for re-determination, directing adherence to the principles laid down by the Bombay High Court in the case of Tip Top Typography and to consider additional evidence provided by the assessee. 2. Restriction of Interest Claim: The AO restricted the assessee's claim of interest on housing loans to Rs. 1,50,000 under Section 24(b), considering the properties as deemed let out. The CIT(A) upheld this restriction. The Tribunal directed the AO to re-examine this issue in line with the principles established in the Tip Top Typography case and to consider the additional evidence submitted by the assessee. 3. Method of Accounting for Professional Income: The AO added Rs. 22,57,000 to the assessee's income, asserting that the assessee should follow the mercantile system of accounting for professional income, as per Section 145, which prohibits hybrid accounting. The CIT(A) upheld this view. The Tribunal, however, observed that the assessee consistently followed cash accounting for professional income and mercantile accounting for film production, which is permissible under Section 145. The Tribunal deleted the addition, noting that the income was already taxed in the subsequent year and no prejudice was caused to the Revenue. 4. Unexplained Cash Credit under Section 68: The AO added Rs. 10,00,000 as unexplained cash credit, questioning the advance received against MHADA properties. The CIT(A) partially upheld this addition, confirming it for properties held in the names of the assessee's mother and sister. The Tribunal deleted the addition, directing the AO to compute capital gains on the sale of these properties in the hands of the assessee, considering the properties were acquired with the assessee's undisclosed income and taxes were paid. 5. Addition of Cash Deposit under Section 68: The AO added Rs. 14,19,000 as unexplained cash deposits. The CIT(A) upheld this addition, refusing to admit additional evidence. The Tribunal found sufficient cause for the assessee's failure to produce evidence earlier and directed the AO to admit and examine the additional evidence, deciding the issue afresh on merits. Conclusion: The Tribunal allowed the appeal partly for statistical purposes, directing the AO to re-examine the issues of deemed let out properties, restriction of interest claim, and unexplained cash deposits, considering additional evidence and adhering to legal principles. The addition of Rs. 22,57,000 for professional income was deleted, and the AO was directed to compute capital gains on the sale of properties held in the names of the assessee's family members.
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