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TMI Blog2021 (7) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... than that what is legitimately taxable for this year. Hence we are of the opinion that from the interest accrued for the year the interest income of earlier year which had accrued in earlier year but were accounted for on receipt basis during this year should be reduced. The resultant figure should be added to the income of the assessee. Transaction between the related concerns - After examining shareholding pattern of the person specified, learned CIT(A) has given a finding that clause (a) to (d) of section 13(3) of the Act are not applicable - CIT(A) has given a finding with respect to section 13(3)(e) of the Act the said clause is not applicable here. CIT(A) has given a finding that he has examined the shareholding pattern of ABHSL and also compared the same with the list of the trustees of the appellant trust. He has found that Mrs. Rajshree Birla, Mr. B.L. Shah and Mr. Ashwin Kothari are the three people who are the Trustees of the Appellant Trust and shareholders of ABHSL. Total shares held by these three persons collectively are 30 shares as compared to the total share capital of 50,000 shares of ABHSL. Even collectively, the shareholding of the Trustees in ABHSL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the assessee's claim without appreciating that the auditor in its report in accounting policies and notes to accounts has specifically mentioned that the foundation follows mercantile system of accounting and recognizes income and expenditure on accrued basis except leave encashment liability which is accounted on payment basis . 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting addition made by the AO u/s 13(3) of the IT. Act on account of receiving lower rent from the related party without appreciating that the DVO has determined the market value of the said property to ₹ 2,61,17,501/- being value of lease rentals of Hospital building at the rate of ₹ 4.45/- per month per sq. ft and for staff quarters at ₹ 3.94/- per months per sq. ft. which is still higher than the rate charged by the assessee trust i.e. 4.10/- per month per sq. ft. for hospital building and ₹ 3/ - per month per sq. ft. for staff quarters. The As the DVO has determined the rental value higher than the rent actually received, so t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsistently adopting Hybrid method would not validate an incorrect method. Consistency does not override correctness. The Assessing Officer held that where the assessee was following mercantile system of accounting, the same method should also be followed for accounting of interest income as well. The Ld. AO, by invoking provisions of section 144, re-worked the amount of interest and added back the amount of ₹ 3,96,94,179/- to the computation of income. 6. Further, the Assessing Officer held that assessee's proposition that only income that is received can be applied is not correct. Section 11 also provides for a situation where the income is accrued but not received by the trust. Explanation 2 to section 11(1) clearly states that if the income expended fall short of 85% of the income for the reason that the income has not been received during the year or for any other reason then an option is given to the assessee to intimate the Assessing Officer that the same would be spent in the year of receipt or in the immediately following year as the case may be. That the legislature has foreseen a situation where the income was accrued but could not be spent as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Counsel further submitted that section 145(1) of the Act does not provide any hindrance to the system of accounting in this regard being followed by the assessee. In this regard he placed reliance upon the following case laws :- PCIT Vs. Quest Investment Advisors (P) Ltd. (409 ITR 545) CIT Vs. Nagri Mills Co. Ltd. (33 ITR 681) CIT Vs. Ganga Charity Trust Fund (162 ITR 612) DCIT Vs. M/s. G.D. Birla Medical Research Education Foundation (ITA No. 4348/Mum/2018) 11. We have carefully considered the submission and perused the record. We note that the assessee is a trust. It is undisputed that the assessee is following mercantile system of accounting as per its audit report and accounts. However, it is also undisputed that the assessee is accounting for interest income on receipt basis. As a result of this finding, the Assessing Officer has found that ₹ 3,96,94,179/-being interest accrued have not been accounted by the assessee on the ground that it is accounting for the same on the basis of cash system i.e. receipt basis. We note that section 145(1) of the Act provides that income chargeable under the head profits and gains o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the trust. Explanation (2) to section 11(1) clearly states that if the income expended fall short of 85% of the income for the reason that the income has not been received during the year or for any other reason then an option is given to the assessee to intimate the Assessing Officer that the same would be spent in the year of receipt or in the immediately following year as the case may be. This further makes this case of the assessee distinguishable and the assessee cannot be allowed to circumvent the provisions of applying income by reducing income at source itself. The case laws referred by learned Counsel of the assessee where accounting on receipt basis followed in earlier year was allowed to be continued, were on the facts of each case. Accordingly, we are of the considered opinion that the system followed by the assessee of only accounting interest income on receipt basis is not sustainable. 13. In this view of the matter the Assessing Officer is correct principally in holding that the assessee is required to account for the interest on accrual basis. However, we note that the assessee is accounting for the interest on receipt basis. Hence, assessee must have accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s length. 16. The Ld. AO invoked section 13(2)(b) r.w.s 13(2) and made an addition of ₹ 8,78,94,440/- on the ground that the lease rental charged by the Assessee from ABHSL is not at fair value. The Ld. AO observed from the Balance Sheet of the ABHSL that it is earning a good amount of profit and therefore, the Assessee ought to have charged a higher rent. The Ld. AO further contended that approval of lease rent by Hon'ble Charity Commissioner u/s 36(1)(b) of the Trust Act does not validate that the lease is rent is charged appropriately as per the provisions of the Act. The Ld. AO further rejected that the government valuation report submitted by the Assessee on the view that it suffered from sampling biases. The Ld. AO relied on third party websites namely magicbricks.com and indiaproperty.com for obtaining lease rents quoted by third party in the area where the hospital is located. The quotes were obtained on 23/3/2014 and were discounted at rate of 10% to arrive at the value as on 31/3/2011. The fair rental value of the property was computed as below: Sr. No. Description Area Rate per sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores on the ground that the rent charged by the Appellant Trust is not a fair rent. The AO has also noted that approval of the lease rent by Charity Commissioner under the Bombay Public Trust Act is not relevant for the purpose of income tax Act. Therefore, to summarise, the AO after referring to certain websites computed the rent of ₹ 19/- per sq. ft. and ₹ 17/- per sq. ft. for hospital building and staff quarters respectively and made the above addition. It is noted that subsequent to the assessment order passed by the AO, on receipt of the report of DVO, the AO has passed the rectification order u/s.154 dated June 19, 2014 and restricted the addition to ₹ 0.24 crores as against the earlier determination of addition of ₹ 8.78 cores. During the course of the appellate hearing detailed submissions on these points were made by the authorized representative of the Appellant as reproduced above. The contention raised by the Appellant is that the AO has merely based on certain data assumed that ABHSL is a related party u/s. 13(3). The Appellant has in the course of the submission demonstrated that how clause (a) to (d) of section 13(3) are not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess there is any contrary material. In view of the above discussion, I delete the above addition made by the AO and accordingly Ground No. IV is allowed. 19. Against the above order the Revenue is in appeal before us. 20. We have heard both the parties and perused the records. Learned Departmental Representative submitted that the Assessing Officer s order needs to be upheld. He submitted that the Assessing Officer s finding of the person specified being beneficial owner is correct. In this regard he placed reliance upon the decision of Hon'ble Supreme Court in the case of National Travel Services Vs. CIT (300 CTR 582). He further submitted that the Assessing Officer has correctly computed the income from house property. In this regard he placed reliance upon the decision of following case laws :- ACIT Vs. CyRUS Investments (P) Ltd. (93 taxmann.com 493)(Mum Trib) CIT Vs. Tip Top Typography (48 taxmann.com 191) (Bom High Court) New Jehangir Vakil Mills Co. Ltd. Vs. CIT (49 ITR 137) 21. Per contra learned Counsel of the assessee supported the order of learned CIT(A). Learned Counsel of the assessee submitted that learned CIT(A) has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled law that mere presumption is not sustainable. Whatever material the Assessing Officer has referred in the assessment order does not prove that this transaction is transaction between the related concerns. In absence of any cogent material brought on record by learned Departmental Representative, we are not inclined to direct any further roving inquiry. In this view of the matter we are of the considered opinion that there is no infirmity in the order of learned CIT(A) in this regard. 24. As regards the other aspects in this regard i.e. quantification of rent we find that once the assessee is not falling the ambit of section 13(1) of the Act this issue does not arise. In any case, the act of the Assessing Officer of notional addition or through DVO is not sustainable on the touchstone of Hon'ble Bombay High Court decision in the case of Virendra Vs. Appropriate Authority Ors. (327 ITR 185). In as much as in the said case it was held that approval by the competent authority is fair estimate. Moreover, the decision of Hon'ble Bombay High Court in the case of Tip Top Typography (supra) does not mandate this type of computation of rental income done by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year: The section provides that where 85% of the income is not applied or is hot deemed to have been applied but the same is accumulated or set apart by furnishing a statement in the prescribed form wherein the purpose and the period of accumulation is specified, the same will not be included in the total income provided the statement of accumulation has been furnished before the date of filing the return of income as per section 139(1) and the amount so accumulated or set apart has been invested in the modes specified in section 11 (5) of the Act. The Appellant submits that it had submitted Form 10 on September 30, 2011 which is well within the time specified for filing the return of income as per section 39(1) of the Act. Further, the purpose as well as the period of accumulation was specified in Form 10. Furthermore, the Appellant even inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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