2016 (5) TMI 59 - AT - Income Tax

Computation of the income from house property - Held that - Assessing Officer 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 sections 22 and 23 of the Act and the principles laid down by the hon ble Bombay High Court in the case of CIT v. Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT to determine the prevailing market rent of these properties and rather computed annual letting value based on notional rent based on cost of properties. During the hearing, learned counsel for 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 raised by the assessee in memo of appeal needs to be set aside to the file of the Assessing Officer for re-determination of the income from house properties Addition of professional income - liability to follow mercantile method of accounting in respect of income - 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 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 within the head of income from Profits 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 Profits and gains of business or profession , viz., his professional income and also income from production of films because by following either of the two methods 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 to tax by the assessee in the year of receipt, i.e., immediately succeeding the 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 the 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 hereinabove, we order deletion of the addition of ₹ 22,57,000 made to the income of the assessee by the Assessing Officer by setting aside the orders of the Commissioner of Income-tax (Appeals) and deleting the addition of ₹ 22,57,000 made to the income of the assessee by the Assessing Officer. Addition of unexplained cash credit - 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 the undisclosed income and treated as own property by the assessee, which has been brought to tax in the hands of the assessee and taxes due paid to the 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 lakhs being advance on sale of these accommodations as made by the Assessing Officer and as confirmed by the Commissioner of Income-tax (Appeals) with the direction to the Assessing Officer to compute capital gains arising out of these two accommodations as per the 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 the undisclosed income of the assessee which has been brought to tax and taxes due paid to the Revenue as asserted by the assessee and the assessee is directed to appear before the Assessing Officer and file the necessary evidences before the Assessing Officer to support its claim and assertions for verification and authentication by the Assessing Officer. Needless to say that proper and adequate opportunity as per law shall be given by the Assessing Officer to the assessee in accordance with the principles of natural justice. Addition of cash deposit under section 68 - additional evidences before the Commissioner of Income-tax (Appeals) which are not admitted - Held that - With lot of hard work, difficulty and moral support from the family, the assessee has come so far in his profession of choreography. 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 the assessee was travelling while assessment proceedings were going on which was the main reason the assessee could not produce the evidence before the Assessing Officer and hence there was sufficient cause for not producing the evidence during the assessment proceedings and accordingly prayed before the Commissioner of Income-tax (Appeals) for admitting the additional evidence which the Commissioner of Income-tax (Appeals) 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 Assessing Officer. In our considered opinion, the interest of justice will be best served, if the orders of the authorities below are set aside and the matter is restored back to the file of the Assessing Officer with a direction to admit and examine the additional evidence filed by the assessee and decide the issue afresh on merits after giving sufficient opportunity of being heard to the assessee

Summary

Issues Involved:
1. Deemed to be let out properties and assessment under "Income from house property".
2. Restriction of interest claim to Rs. 1,50,000.
3. Method of accounting for professional income and addition of Rs. 22,57,000.
4. Addition of Rs. 10,00,000 as unexplained cash credit under section 68.
5. Addition of Rs. 14,19,000 as cash deposit under section 68.

Detailed Analysis:

1. Deemed to be Let Out Properties and Assessment under "Income from House Property":
The Assessing Officer (AO) observed that the assessee owned six immovable properties and had not offered any income under "Income from house property". The AO computed the income based on 10% of the book value after giving the benefit of one house property for residential purposes and one for business purposes. The Commissioner of Income-tax (Appeals) (CIT(A)) upheld the AO's decision, noting that the assessee did not provide evidence to substantiate the claim that the properties were used for business purposes. The Tribunal set aside the order and directed the AO to re-determine the income from house properties in accordance with sections 22 and 23 of the Act and the principles laid down by the Bombay High Court in CIT v. Tip Top Typography [2014] 368 ITR 330 (Bom).

2. Restriction of Interest Claim to Rs. 1,50,000:
The AO restricted the claim of interest against the house property to Rs. 1,50,000 by virtue of section 24(b) of the Act. The CIT(A) upheld this decision, stating that the property was deemed let out and the interest claim was rightly restricted. The Tribunal directed the AO to re-determine the income from house properties, including the interest claim, as per the law.

3. Method of Accounting for Professional Income and Addition of Rs. 22,57,000:
The AO added Rs. 22,57,000 to the assessee's income, arguing that the assessee should follow the mercantile method of accounting for professional income. The CIT(A) upheld this decision, stating that the assessee falls under the specific class required to follow the mercantile system of accounting. The Tribunal disagreed, noting that the assessee consistently followed the cash system for professional income and the mercantile system for film production, which is permissible under section 145 of the Act. The Tribunal ordered the deletion of the addition of Rs. 22,57,000.

4. Addition of Rs. 10,00,000 as Unexplained Cash Credit under Section 68:
The AO added Rs. 15,00,000 as unexplained cash credit. The CIT(A) gave partial relief, confirming the addition of Rs. 10,00,000 related to properties in the names of the assessee's mother and sister. The Tribunal held that the capital gains arising from the sale of these properties should be taxed in the hands of the assessee, as the properties were acquired with the assessee's undisclosed income. The Tribunal ordered the deletion of the addition and directed the AO to compute capital gains as per the law.

5. Addition of Rs. 14,19,000 as Cash Deposit under Section 68:
The AO added Rs. 14,19,000 as unexplained cash deposit. The CIT(A) upheld this decision, rejecting the additional evidence provided by the assessee. The Tribunal found that there was sufficient cause for not producing the evidence earlier and directed the AO to admit and examine the additional evidence. The matter was restored to the AO for a fresh decision on merits.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions to the AO to re-assess certain issues and admit additional evidence as per the principles of natural justice.