1. By this order, we shall dispose of this appeal of the Revenue filed against the order of the CIT(A), Ludhiana, for the block period from 1st April, 1990 to 6th April, 2000.
2. At the outset, the Revenue has raised an additional ground of appeal to the effect that the learned CIT(A) was not justified in deleting the addition of Rs. 7,01,690, which was essentially part of the market value of the seized IVPs of face value of Rs. 16,20,000 and the said market value was required to be brought to tax under Section 69 of the IT Act. The learned Departmental Representative submitted that all the relevant facts relating to this ground of appeal are already on record and this is purely a legal issue, therefore, the Revenue should be allowed to raise this additional ground before the Tribunal.
3. The learned counsel for the assessee, Shri S.S. Kalra, vehemently opposed the admission of the additional ground. He submitted that at the time of completing the assessment, the AO has not made addition by invoking the provisions of Section 69 of the IT Act. Therefore, the assessee cannot be placed in worst position than what he was before filing the appeal before the learned CIT(A). Even on merits, the learned counsel for the assessee submitted that there is no case for the Revenue to make such addition under Section 69 of the Act, because the market value of IVPs shall remain the same, as these could be encashed only on maturity. The right to receive interest accrued only at the time of maturity and, therefore, learned counsel pleaded that the additional ground should be dismissed as such.
4. We have heard both the parties and given our thoughtful consideration to the rival contentions. From the facts discussed above, it is obvious that the AO has not made addition of Rs. 7,01,690 under Section 69 of the IT Act. Briefly stated, the facts of the case are that during the course of search, IVPs of the face value of Rs. 16.20 lakhs were found and seized from locker No. 49 with Oriental Bank of Commerce, Jalandhar. The assessee surrendered income of Rs. 16.20 lakhs to cover unexplained investment in IVPs. Such income was also disclosed in the return filed for block assessment. These IVPs can be encashed only on maturity. Therefore, assessee's case was that interest on IVPs did not accrue year to year as the assessee had no right to receive the same before the date of maturity. However, the AO was of the view that interest on IVPs accrues year to year basis and, therefore, accrued interest for the period falling in the block period was includible as undisclosed income of the assessee. Accordingly, the AO made an addition of Rs. 7,01,690 being accrued interest on the IVPs and included the same in the total income for the block period. The addition was not made under Section 69 of the IT Act. On appeal, the learned CIT(A) has deleted the addition on the ground that interest did not accrue prior to the date of maturity and, therefore, there was no income on account of accrued interest liable to be included in the block period. This is being agitated in appeal before us as the original ground relates to the deletion of an addition of Rs. 7,01,690 being accrued interest.
5. Now, the issue is whether the Department can be allowed to raise this plea about the taxability of the same under Section 69 of the IT Act, we are of the firm opinion that such ground cannot be admitted because addition has not been made under Section 69 of the IT Act. It is a settled position that the Tribunal is not competent to give a finding which is adverse to the assessee and make latter's position worst than before. Reliance in this regard is placed on the two judgments of Hon'ble Bombay High Court in the cases of Puran Mal Radha Krishan v. CIT (1957) 31 ITR 294 (Bom) and New India Life Assurance Co.
v. CIT (1957) 31 ITR 844 (Bom). In the case of J.K. Bankers v. CIT (1974) 94 ITR 107 (All), the Hon'ble Allahabad High Court has held that it is not open to the Tribunal to give a finding adverse to the assessee, which does not arise from any question raised in the appeal nor is it open to it to raise any ground which would work adversely to the assessee and pass an order which makes his position worse than it was under the order appealed against. Since the Department has not made the addition under Section 69 of the IT Act at the time of completing block assessment, it cannot be allowed to raise additional ground before us. Therefore, the additional ground raised by the Revenue is rejected.
6. Now, the only issue that requires to be adjudicated by the Bench is that whether the learned CIT(A) was justified in deleting addition of Rs. 7,01,690 made on account of accrued interest on IVPs. The facts relating to such additions have already been given in the preceding paragraphs. As mentioned earlier, the case of the Revenue is that interest accrues to the assessee on year to year basis and hence includible in the total income of the block period. However, the case of the assessee is that IVPs can be encashed only on maturity and assessee does not acquire any right to receive any income prior to the date of maturity. The learned counsel contended that until the assessee acquires any right to receive income, no income can be said to have accrued to the assessee. Reliance was placed on the judgments of Hon'ble Supreme Court in the case of CIT v. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC), the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab Tractor Co-op. Multipurpose Society Ltd. Besides, it was also submitted that the amount of interest received on maturity was duly reflected in the return filed for block assessment.
He also relied on the decision of the Tribunal, Bombay Bench, in the case of Kantilal T. Sanghvi v. Asstt. CIT (2004) 83 TTJ (Mumbai) 1047, where it has been held that the receipt of maturity amount of IVPs does not involve any transfer of capital assets. He also mentioned that in the said case, the Tribunal has drawn a distinction between IVPs and preference shares. It is like a deposit of money with the Post Office on interest and the same can be encashed by anyone. No document is necessary for effecting the transfer. The assessee gets his money back, which the Post Office had promised to pay on maturity. He submitted that no interest has accrued to the assessee prior to the date of maturity.
7. It is trite law that income can be said to accrue or arise to assessee only when he acquires right to receive such income. Now, in the present case, the undisputed fact is that the amount mentioned in the IVPs is payable to the assessee only on maturity. In case of IVPs, these cannot be encashed under any circumstances before their maturity.
Therefore, it cannot be said that interest has accrued to the assessee on year to year basis. We are, therefore, of the opinion that the learned CIT(A) was justified in deleting the impugned addition. We confirm his order and reject this ground of appeal.