VIDYASAGAR B. WAHI HUF, MUMBAI v. DCIT 20(3), MUMBAI

ITA 3551/MUM/2010 | 2006-2007
Pronouncement Date: 22-07-2011 | Result: Allowed

Appeal Details

RSA Number 355119914 RSA 2010
Assessee PAN AACHV6206K
Bench Mumbai
Appeal Number ITA 3551/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 16 day(s)
Appellant VIDYASAGAR B. WAHI HUF, MUMBAI
Respondent DCIT 20(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 22-07-2011
Date Of Final Hearing 13-07-2011
Next Hearing Date 13-07-2011
Assessment Year 2006-2007
Appeal Filed On 06-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH MUMBAI BEFORE SHRI N.V. VASUDEVAN JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 3551/MUM/2010 (ASSESSMENT YEAR: 2006-07) SHRI VIDYASAGAR B. WAHI HUF D C I T 20(3) 100/104 KAZI SYED STREET ROOM NO. 506 5TH FLOOR BASEMENT MANDAVI VS. PIRAMAL CHAMBERS LALBAUG MUMBAI 400003 MUMBAI 400012 PAN - AACHV 6206 K APPELLANT RESPONDENT APPELLANT BY: SHRI HARESH P. SHAH RESPONDENT BY: SHRI SUBACHEN RAM O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A) XXI MUMBAI DATED 23.03.2010 BRINGING TO TAX THE INTERES T ON RBI 8% TAXABLE BONDS IN THE YEAR UNDER CONSIDERATION. 2. THE A.O. NOTICED THAT ASSESSEE HAD PURCHASED RBI BO NDS CARRYING 8% INTEREST OF ABOUT ` 34 00 000/-. IN THE ASSESSMENT ORDER HE CONSIDERED THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND SHOULD HAVE ACCOUNTED FOR THE INTEREST ACCRUED THEREON DURING T HE YEAR AND THEREFORE HE WORKED OUT THE INTEREST AT ` 2 40 000/-. IN ADDITION TO THE ABOVE THE A.O. ALSO CONSIDERED THE RELIEF BONDS WHICH ARE TAX FREE . THEREFORE ON THE TOTAL INVESTMENT OF ` 44.10 LAKHS THE A.O. MADE AN ADDITION OF ` 3 52 800/- AS INCOME ACCRUED DURING THE YEAR ON RBI BONDS. THE MA TTER WAS CARRIED TO THE CIT(A) WHO ON EXAMINATION NOTICED THAT SOME OF THE RBI RELIEF BONDS WHICH THE ASSESSEE WAS HOLDING ARE NOT TAXABLE BONDS AND INTEREST TO THAT EXTENT WAS NOT JUSTIFIED TO BE ACCRUED AND GIVEN RELIEF OF ` 1 12 800/-. HE HELD THAT THE RBI TAXABLE BONDS PERMITS 8% OF INTEREST THERE FORE AN AMOUNT OF ` 2 40 000/- HAS ACCRUED TO THE ASSESSEE DURING THE Y EAR. HE UPHELD THE ADDITION TO THAT EXTENT. ITA NO. 3551/MUM/2010 SHRI VIDYASAGAR B. WAHI HUF 2 3. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE IS FOLLOWING HYBRID SYSTEM OF ACCOUNTING AND THE 8% RBI BONDS WHICH WE RE REDEEMABLE ON MATURITY DOES NOT INDICATE THE PAYMENT OF INTEREST EITHER HALF YEARLY OR YEARLY AS THE INTEREST WAS PAYABLE ONLY ON MATURITY AS PER THE SCHEME. HE PLACED ON RECORD THE DECISION OF THE BANGALORE A BENCH IN THE CASE OF K. NAGENDRASA VS. DCIT 135 TTJ (BANG) 253 TO SUBMIT TH AT SAME ISSUE WAS CONSIDERED AND HELD THAT ASSESSEES WERE ALLOWED TO RECOGNISE THE INTEREST INCOME ATTRIBUTABLE TO 8% RBI BONDS ON CASH BASIS T O BE RECKONED AT THE TIME OF REDEMPTION OF THE BONDS. THEREFORE THE A.O. WAS NOT JUSTIFIED IN MAKING THE ADDITION ON YEARLY ACCRUAL BASIS MORE S O WHEN INTEREST WAS PAYABLE ON MATURITY. 4. THE LEARNED D.R. HOWEVER RELIED ON THE ORDERS OF THE A.O. AND THE LEARNED CIT(A) TO SUBMIT THAT INTEREST ON RBI BONDS HAD ACCRUED TO THE ASSESSEE DURING THE YEAR AND SINCE ASSESSEES ACCOU NTING SYSTEM OF MERCANTILE INTEREST IS TAXABLE. 5. WE HAVE CONSIDERED THE ISSUE AND THE ARGUMENTS OF T HE RIVAL PARTIES. IT IS A FACT THAT ASSESSEE HAS SUBSCRIBED TO 8% RBI BONDS WHICH ARE REDEEMABLE ON MATURITY ALONGWITH INTEREST. SIMILAR ISSUE WAS CONSIDERED BY THE COORDINATE BENCH IN ITAT BANGALORE A BENCH IN THE CASE OF K. NAGENDRASA VS. DCIT 135 TTJ (BANG) 253 WHERE IN ON THE FOLLOWING FACTS IT WAS HELD AS UNDER: - INCOME-ACCRUAL-INTEREST ON RBI BONDS-ASSESSEES HAV E SUBSCRIBED 8 PER CENT RBI BONDS WHICH WERE REDEEMABLE ON MATURIT Y ALONGWITH INTEREST ON 9 TH MAY 2001 AO COMPUTED THE INTEREST DUE ON THE BONDS AND ADDED THE SAME TO THE TAXABLE INCOME OF T HE ASSESSEE-NOT JUSTIFIED-ASSESSEES HAVE THE RIGHT TO CHOOSE THE ME THOD UNLESS THE STATUTORY PROVISIONS PRESCRIBE ANY OTHER METHOD TO BE FOLLOWED MANDATORILY-IN THIS CASE THERE IS NO SUCH MANDATE BY THE STATUTORY AND THEREFORE THEY ARE ENTITLED TO RECOGNISE THE INTEREST INCOME ON RBI BONDS EITHER ON ACCRUAL BASIS OR ON CASH BASIS FURTHER RBI MADE IT CLEAR THAT NO INTEREST WOULD BE CREDITED OR PAID ON YEARLY BASIS AND INTEREST WILL BE PAID ONLY AT THE TIME OF REDEMPTION OF THE BONDS AND THEREFORE NO TDS WILL BE MADE. HELD: THE REFERENCE MADE BY THE CIT(A) ON THE BOARD S CIRCULAR NO. 2 OF 2002 DT. 15 TH FEB. 2002 ISSUED IN THE CONTEXT OF DEEP DISCOUNT BONDS IS NOT APPLICABLE TO THE PRESENT CASE OF 8 PE R CENT RBI BONDS. THE GENERAL RULE ON RECOGNITION OF INCOME IS EITHER ACCRUAL OR CASH METHOD. THE ASSESSEES HAVE THE RIGHT TO CHOOSE THE METHOD UNLESS ITA NO. 3551/MUM/2010 SHRI VIDYASAGAR B. WAHI HUF 3 THE STATUTORY PROVISIONS PRESCRIBE ANY OTHER METHOD TO BE FOLLOWED MANDATORIY. IN THIS CASE THERE IS NO SUCH MANDATE BY THE STATUTORY AND THEREFORE THEY ARE ENTITLED TO RECOGNISE THE INTEREST INCOME ON RBI BONDS EITHER ON ACCRUAL BASIS OR ON CASH BASIS . THE OPTION OF THE ASSESSEES WILL FOR ALL PRACTICAL PURPOSES BE FURTHER DETERMINED BY THE TERMS OF THE 8 PER CENT RBI BONDS . IF THE RBI CREDITS THE INTEREST IN THE ACCOUNT OF INVESTORS ON EVERY Y EAR-END OR THE RBI PERMITS THE INVESTORS TO WITHDRAW SUCH INTEREST CRE DIT IN THEIR FOLIO IT IS POSSIBLE FOR THE ASSESSEES TO TREAT THE INCOME GENE RATED ON THE ACCRUAL BASIS FROM ASSESSMENT YEAR TO ASSESSMENT YEAR. IN S UCH CIRCUMSTANCES THE RBI MIGHT HAVE DEDUCTED TAX AT S OURCE ATTRIBUTABLE TO THE AMOUNT OF INTEREST CREDITED IN THE ACCOUNTS OF THE ASSESSEES. IN THE PRESENT CASE THE SITUATION IS JUST CONTRARY. R BI HAS MADE IT CLEAR THAT NO INTEREST WOULD BE CREDITED OR PAID ON YEARL Y BASIS AND INTEREST WILL BE PAID ONLY AT THE TIME OF REDEMPTION OF THE BONDS AND THEREFORE NO TDS WILL BE MADE. IN SUCH CIRCUMSTANCES AND IN THE LIGHT OF THE OPTION AVAILABLE IN THE HANDS OF THE ASSESSEE TO CH OOSE THE METHOD OF ACCOUNTING THE ASSESSEES MIGHT HAVE REASONABLY OPT ED FOR CASH METHOD OF RECOGNITION OF INCOME. HERE THE RBI MAKE S THE DEDUCTION OF TAX ONLY AT THE TIME OF REDEMPTION. HOW IT IS POSSI BLE FOR AN ASSESSEE TO CLAIM CREDIT FOR THE TDS MADE BY THE RBI? THIS I S ALMOST IMPOSSIBLE. THIS IMPOSSIBILITY DEFEATS THE CONTENTION OF THE AS SESSING AUTHORITY THAT THE INTEREST INCOME ATTRIBUTABLE TO 8 PER CENT RBI BONDS SHOULD HAVE BEEN OFFERED ON ACCRUAL BASIS. 6. SINCE THE FACTS ARE SIMILAR TO THE PRESENT CASE AND ASSESSMENT YEAR ALSO THE SAME AS THAT OF A.Y. 2006-07 WE HAVE NO HESITA TION IN HOLDING THAT INTEREST HAS NOT ACCRUED TO ASSESSEE DURING THE YEA R SINCE NO SUCH INTEREST WAS PAYABLE BY RBI TILL THE BONDS HAVE MATURED. THE REFORE WHETHER ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING OR CAS H SYSTEM OF ACCOUNTING AS NO INTEREST WAS PAYABLE OR GIVEN CREDIT TO THE ASSE SSEES ACCOUNT THE QUESTION OF CONSIDERING ACCRUAL OF INTEREST DURING THE YEAR DOES NOT ARISE. RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION THE A.O. I S DIRECTED TO DELETE THE ADDITION SO MADE. GROUNDS RAISED BY THE ASSESSEE AR E ALLOWED. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY 2011. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 22 ND JULY 2011 ITA NO. 3551/MUM/2010 SHRI VIDYASAGAR B. WAHI HUF 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXI MUMBAI 4. THE CIT XX MUMBAI CITY 5. THE DR F BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.