HEMENDRA R MERCHANT,MUMBAI vs. ASST CIT CEN CIR 35, MUMBAI

आदेश / O R D E R Per Bench: All these appeals belong to the same ground and issues urged therein arise out of common set of facts. Hence they were heard together and are being disposed of by this common order, for the sake of convenience.

6 And 15 other appeals without pointing out any defects therein and also by making vague observations. The Ld A.R submitted that the assessee has submitted all the details that were called for by the assessing officer. Accordingly, the Ld A.R submitted that the tax authorities are not justified in rejecting the books of accounts of the assessee. In the alternative, the Ld A.R submitted that the co-ordinate bench of the Tribunal, in the case of partnership concerns (referred supra), has confirmed the estimation of income at 10% of the gross receipts and accordingly prayed that the income of the assessee for AY 2007-08 may be estimated at the same level. He further submitted that the assessing officer himself has estimated the income of the assessee in AY 2008-09 and 2009-10 at 10% by rejecting the book results.

8.2 On the contrary, the Ld D.R submitted that the assessing officer has rejected the books of accounts for valid reasons and hence the Ld CIT(A) has confirmed the same. The Ld D.R further submitted that there is no parity of facts between the assessee’s case and the case of the partnership concerns and hence the order rendered by the co-ordinate bench of Tribunal should not be followed. 8.3 We have heard rival contentions and perused the record. A perusal of the paper book filed by the assessee before us would show that the assessee is in possession of various details supporting the books of accounts of the assessee. On a perusal of the assessment order, we notice that the assessing officer was influenced by the decision taken by him in AY 2001-02 to 2006-07 and accordingly he has adopted the net profit rate at 70% of the gross receipts for computing the income of the assessee. We have earlier noticed that the assessee had filed settlement petition before the Hon’ble Settlement Commission for AY 2001-02 to 2006-07, wherein the assessee had put a claim that the disclosure of Rs.5.12 crores made him should be reduced to Rs.28.00 lacs. The Ld A.R

7 And 15 other appeals has submitted that the Hon’ble Settlement Commission has restored the assessments to the file of the assessing officer. Thus, we notice that the basis on which the assessment of AY 2007-08 was made by the AO has been set aside by the Hon’ble Settlement Commission and all the matters are now restored to the file of the AO. Under these set of facts, we are of the view that the assessment of AY 2007-08 also requires to be set aside to the file of the AO, since the very basis on which the present assessment was made has been restored to the file of the AO. Further, the assessee is contesting before us that there is no sufficient ground that warrant rejection of books of account for the current year. Prima facie, there appears to be some merit in the said contentions of the assessee. Accordingly, we set aside the order of Ld CIT(A) passed for AY 2007-08 and restore all the matters, including the matters relating to unaccounted investments, to his file for carrying out the assessment de-nova. In the set aside proceedings, the AO should examine the books of account and should also give sufficient reasons, if it is found that they are not reliable and require rejection. The assessee has also raised certain additional grounds relating to deduction claimed u/s 80G of the Act; credit for tax paid on 31.1.2007 and credit for short credit of TDS amounts. The AO should also consider all these issues also in the set aside proceedings.

9.1 This appeal of the assessee relates to the penalty levied u/s 271(1)(c) of the Act for assessment year 2007-08. Since we have restored all the matters of quantum assessment to the file of the AO, the impugned penalty order shall not survive. Accordingly, we quash the orders passed by the tax authorities. However, the assessing officer may initiate penalty proceedings afresh in the set aside proceedings, if it so warranted.

10.1 This is the appeal filed by the revenue for assessment year 2008-09. The amount involved on the issues disputed in this appeal is Rs.21,51,571/- and the tax effect involved therein is less than Rs.10.00 lakhs. In view of the Circular No.21/2015 dated 10-12-2015 issued by the CBDT, the revenue is precluded from pursuing this appeal, in view of the low tax effect, i.e., less than Rs.10.00 lakhs. Accordingly we dismiss this appeal in limine.

9 And 15 other appeals 12.1 It is noticed that the assessments of these years have been completed by the assessing officer on the basis of the facts originally prevailing in these group cases. Both the parties agreed that all the issues require fresh examination, since the assessments pertaining to Shri Hemendra Merchant have been set aside to the file of the assessing officer.

12.2 The Ld A.R submitted that the assessing officer has assessed the income alleged to have been received from the partnership concerns in AT 2005-06 and 2006-07, even though the partnership concerns have been dissolved as on 31.3.2004. He further submitted that the assessing officer has estimated interest income in the hands of the assessee on the presumption that the investments made in the fixed deposits have been sourced from Partnership firms. He submitted that the income estimated in the hands of the firms have been substantially reduced by the Tribunal. He further submitted that the assessee is following cash system of accounting for accounting for interest and the same has to be determined on actual basis, since the details of all fixed deposits are available now. He further submitted that the husband of the assessee Shri Hemendra Merchant had declared all the fixed deposits, initially, in his hands and the quantum of undisclosed fixed deposits is also being disputed now.

12.3 On the contrary, the ld D.R submitted that the interest on fixed deposits should be assessed on accrual basis.

12.4 We have heard the parties and we notice that all the issues need to be set aside to the file of the assessing officer for adjudicating them afresh, since the assessments were completed initially by drawing certain presumptions and the issues relating to partnership firms has since attained finality. With regard to the assessment of interest income from 10 And 15 other appeals fixed deposits, we may note that the same is required to be assessed as per the method of accounting followed by the assessee as per the provisions of sec. 145 of the Act. Accordingly, the AO may determine about the assessability of the interest income according to the method of accounting of the assessee and also he may determine as to the hands in which they are required to be assessed. In this regard, we may mention that the interest should be deemed to have been received on the date of renewal of the fixed deposits, since the same amounts to constructive receipt of interest and redeposit of the same into fixed deposits.

12.5 At the time of determining the interest income, the assessing officer may avoid estimation of income as far as possible, since the assessee should be in a position to furnish the details relating to interest on fixed deposits. It may also be ensured that the aggregate amount of interest income assessed in the hands of all the assessees for all the assessment years does not exceed actual amount of interest.

12.6 The assessing officer has also assessed the amount credited to the capital account of the assessee in some of the years. The Ld A.R submitted that the assessee should be provided with an opportunity to explain the sources for the same. Accordingly, we direct the AO to examine this issue also in the respective years afresh.

12.7 The assessing officer has assessed a sum of Rs.3.25 lacs in assessment year 2005-06 as relating to the maturity proceeds of the National Savings Certificate (NSC). The Ld A.R submitted that the amount of Rs.3.25 lacs includes the principal portion of the NSC and submitted that the same cannot be assessed in this year. There is merit in the said contentions of Ld A.R. Accordingly, we direct the AO to examine the said claim and exclude the principal position of NSC.

11 And 15 other appeals 12.8 The Ld A.R also submitted that the assessing officer has assessed dividend income in some of the years, even though the dividend income is exempt. The AO is directed to examine this claim of the assessee and exclude the dividend income, if it exempt in the concerned year.

13.1 These cross appeals pertain to the penalty levied u/s 271(1)(c) of the Act. Since we have restored all the matters of quantum assessment to the file of the AO, the impugned penalty order shall not survive. Accordingly, we quash the orders passed by the tax authorities. However, the assessing officer may initiate penalty proceedings afresh in the set aside proceedings, if it so warranted.

14.1 The assessments in the hands of this assessee have been made on protective basis and the assessments on substantial basis have been completed in the hands of the two assessees cited above. Since all the issues have been set aside to the file of the AO, we prefer to restore these appeals also to the file of the assessing officer.