ACIT 20(1), MUMBAI vs. ALBERT K KALLATI, MUMBAI

The assessee is a manufacturer of Diamond studded gold jewellery and his manufacturing unit is located in SEZ. He filed return of income for the year under consideration initially on 30-09-2009. Subsequently he revised the return twice. In all the three returns of income, the assessee did not show any claim for deduction u/s 10A of the Act, even though the total income was shown at NIL figure in the original return. Hence the AO did not allow deduction u/s 10A

We heard the parties on this issue. The Ld D.R submitted that the assessee has not claimed the deduction u/s 10A of the Act in the return of income and hence the same should not have been allowed by Ld CIT(A). On the contrary, the Ld A.R submitted that the assessee has shown the total income at NIL after claiming the deduction. However, the relevant details were omitted to be entered in the return of income. He submitted that the audit report in Form No.56F was filed along with all the returns filed by the assessee, which showed that the assessee had claimed the deduction. He submitted that the AO has also asked specific queries with regard to the deduction u/s 10A and 10AA of the Act. He submitted that the deduction u/s 10A has been allowed by the AO in assessment year 2007-08 and 2008-09, which were completed u/s 143(3) of the Act.

We notice that there is no dispute with regard to the fact that the assessee is eligible for deduction u/s 10A of the Act for the year under consideration. The AO did not allow the claim, since it was not claimed in the return of income. However, the conduct of the assessee shows that the assessee had intended to claim the same, but the relevant details were omitted to be entered in the return of income. In our view, the inadvertent omission so 3 Mr. Albert K. Kallati made should not come in the way of the assessee to claim the deduction, which he is legally entitled to. Accordingly, we do not find any infirmity in the order passed by Ld CIT(A) on this issue.

The next issue relates to the deletion of interest from bank assessed on accrual basis. The AO noticed that the assessee has not declared interest income that accrued on the bank deposits for the year under consideration and accordingly assessed a sum of Rs.8,87,273/-. Before Ld CIT(A), the assessee submitted that he has offered the interest income on receipt basis in AY 2011- 12. The Ld CIT(A) was convinced with the same and accordingly directed the AO to delete this addition.

We heard the parties on this issue. The Ld D.R supported the order passed by the AO by stating that the assessee is following mercantile system of accounting and hence the interest income should have been offered on accrual basis. On the contrary, the Ld A.R submitted that the assessee is entitled to follow cash system or mercantile system for interest income, since the same was assessed under the head Income from other sources.

We notice that the AO has assessed the interest income under the head Income from other sources in the year under consideration. However, the head of income under which interest income declared by the assessee or assessed in AY 2011-12 was not known. If the assessee himself has offered the interest income under the head Income from other sources and in the past also the assessee had offered it in the same manner, then there is merit in the contention of the Ld A.R and in that case, the order passed by Ld CIT(A) on this issue would not call for any interference.

However, if the interest income has been assessed under the head income from business in AY 2011-02, then the assessing officer would be right in assessing the interest income on accrual basis. Since these facts require verification, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO to examine this issue afresh in the light of discussions made supra.

If the assessing officer, upon examination of the record and after hearing the assessee, came to the conclusion that the interest income should be assessed on accrual basis, then the AO should also give corresponding TDS credit during the year under consideration, since the TDS credit is allowed in the year in which the corresponding income was assessed. The TDS credit so allowed and also the corresponding interest income may also be excluded in AY 2011-12. If so advised, the assessee may also move a petition before the AO in this regard.

In the result, the appeal filed by the revenue is treated as partly allowed for statistical purposes. Order has been pronounced in the Court on 3.8.2016