2019 (4) TMI 1019 - AT - Income Tax

Accrual of income - Addition towards accrued interest - assessment completed U/s.143(3) / 144 - AO made addition by estimating the interest income on the unaccounted bank deposits @ 9% and advance made to private parties @ 24% - HELD THAT - Tribunal in the assessee's own case 2019 (4) TMI 922 - ITAT CHENNAI had deleted the addition towards promissory notes, there is no scope for estimating the interest income on such advance for all the relevant assessment years. Further with respect to the other additions towards interest accrued from deposits in RD account, towards interest accrued from money advanced to BMB Promoters, it is apparent from record that the assessee has not received/realized the interest income and since the assessee being HUF, it has the legitimate right to maintain its books of accounts in cash system of accounting as per Section 145(1) of the Act, therefore the interest income can be taxed in the hands of the assessee only in the year in which it receives the interest. Therefore we hereby direct the AO to delete the interest income estimated in the hands of the assessee towards interest accrued from deposits in RD account towards interest accrued from money advanced to BMB Promoters since the assessee has not received the same during the relevant assessment years. Estimation of busniss income - assessee had filed its return of income beyond the time limit it is invalid and non-erst - HELD THAT - We find that the assessee has filed the return of income though not within due date but belatedly. AO has simply rejected the return filed by the assessee treating it to be non-erst. However we are of the view that though the Ld.AO had rejected the return of income filed by the assessee, it would have been appropriate on his part to examine the details submitted in the return filed by him and thereafter arrive at the apt conclusion based on merits rather than assessing the income by mere estimation. Since the AO has failed to do so, we are of the considered view that estimating the business income of the assessee is not correct. Therefore we hereby direct the Ld.AO to assess the income as stated in the return of income belatedly filed by the assessee. It is ordered accordingly. Levy of Penalty U/s.271F - assessee did not file his return of income for the assessment year 2007-08 in spite of notice issued U/s.142(1) - HELD THAT - The assessee though had not filed its return of income within the stipulated period, it has filed the return of income belatedly. Further the penal provisions of Section 271F of the Act has been withdrawn with effect from 1st April 2018. It is also apparent that the affairs of the HUF assessee having been managed by the karta who is preoccupied with various commitments, there could have been some lapse on the part of the assessee to comply with the provisions of the Act within the stipulated period of time. Therefore taking a lenient view and drawing strength from the provisions of Section 273B of the Act, we hereby direct the Ld.AO to delete the penalty levied for ₹ 5000/- by invoking the provisions of Section 271F of the Act.

Summary

Issues Involved:
1. Addition towards accrued interest on investments.
2. Estimation of income for the assessment year 2007-08.
3. Levy of penalty under Section 271F for the assessment year 2007-08.

Analysis:

1. Addition towards accrued interest on investments:
The appeals by the assessee were against the order passed by the Commissioner of Income Tax (Appeals) for the assessment years 2005-06 to 2007-08. The issue raised was regarding the addition made by the Assessing Officer towards accrued interest on investments. The Tribunal noted that the interest income can only be taxed when received, and since the assessee had not received the interest income during the relevant assessment years, the additions were unjustified. The Tribunal directed the Assessing Officer to delete the estimated interest income amounting to Rs. 27,281 and Rs. 36,000 for the relevant years.

2. Estimation of income for the assessment year 2007-08:
For the assessment year 2007-08, the Assessing Officer estimated the business income of the assessee at Rs. 3,00,000 due to the belated filing of the return. The Tribunal observed that although the return was filed beyond the due date, the Assessing Officer should have examined the details submitted before making an estimation. The Tribunal directed the Assessing Officer to assess the income as per the belatedly filed return, overturning the estimation made by the Assessing Officer.

3. Levy of penalty under Section 271F for the assessment year 2007-08:
The penalty under Section 271F was levied on the assessee for not filing the return within the stipulated period. However, the Tribunal considered the circumstances, noting that the assessee had filed the return belatedly and that the penal provisions of Section 271F had been withdrawn. Taking a lenient view, the Tribunal directed the Assessing Officer to delete the penalty of Rs. 5,000 levied under Section 271F.

In conclusion, the appeals of the assessee for the assessment years 2005-06 to 2007-08 and the penalty appeal for the assessment year 2007-08 were allowed by the Tribunal, with directions to delete the additions towards accrued interest, reassess the income for 2007-08 as per the belatedly filed return, and remove the penalty levied under Section 271F.