ACIT 11(1), MUMBAI V. B.R. FILMS, MUMBAI

ITA 1199/MUM/2013

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8064 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H S RAHEJA
• Assessee Lawyers: S K MISHRA
• Keywords: Audit objection; Assessment record; Tax effect; Reassessment proceedings
• Section: 143(3); 234B; 143(1); 148

Judgement Text

M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMEBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. : 1133/MUM/2013 (ASSESSMENT YEAR: 2005-06) M/S. B.R. FILMS, ANAND VILLA, PLOT NO. G-38, 15 TH ROAD, SANTACRUZ (W), MUMBAI - 400054 .: PAN: AAAFB1923B VS ASST. CIT 11(1), MUMBAI. (APPELLANT) (RESPONDENT) ITA NO. : 1199/MUM/2013 (ASSESSMENT YEAR: 2005-06) ASST. CIT 11(1), MUMBAI. VS M/S. B.R. FILMS, ANAND VILLA, PLOT NO. G-38, 15 TH ROAD, SANTACRUZ (W), MUMBAI - 400054 .: PAN: AAAFB1923B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.S. RAHEJA (AR) RESPONDENT BY : SHRI S.K. MISHRA (DR) /DATE OF HEARING : 17-12-2018 / DATE OF PRONOUNCEMENT : 21-12-2018 ORDER PER M. BALAGANESH, AM : 1. THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-3, MUMBAI, DATED 09.11.2012 FOR THE A.Y 2005-06, WHICH IN ITSELF DIRECTED AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER (FOR SHORT THE A.O) U/S. 143(3) R.W.S 147 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) DATED 23.12.2011. M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 2 2. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS, THE EFFECTIVE ISSUE TO BE ADJUDICATED IS WITH REGARD TO CHALLENGE ON VALIDITY OF RE- OPENING FOR ASSESSMENT YEAR 2005-06. THE REVENUE HAS CHALLENGED BEFORE US ON VARIOUS GROUNDS AGAINST THE ACTION OF THE LD. CIT(A) DELETING THE ADDITION MADE ON MERITS IN THE SUM OF RS. 1,82,40,000/- BEING THE CONSIDERATION RECEIVED FOR ASSIGNING TELECAST RIGHTS TO ZEE TELE FILMS LTD. 3. THE BRIEF FACTS OF THE APPEAL ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PRODUCTION, DISTRIBUTION AND EXHIBITION OF MOTION PICTURES. THE ASSESSEE HAS FILED ITS RETURN OF INCOME IN OCTOBER 2005 DECLARING TOTAL LOSS OF RS. 52,12,024/-. THE SAID RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT IN A SUMMARY MANNER IN JANUARY 2006. LATER ASSESSMENT WAS SOUGHT TO BE RE-OPENED BY ISSUE A NOTICE U/S 148 OF THE ACT DATED 29.03.2011 AFTER RECORDING THE FOLLOWING REASONS: ASSESSEE FIRM IS ENGAGED IN PRODUCTION, DISTRIBUTION AND EXHIBITION OF MOTION PICTURES. THE FIRM IS REGULARLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IT IS STATED IN NOTE NO. 3 OF ANNEXURE 4 OF TAX AUDIT REPORT THAT EXPENDITURE / INCOME IS ACCOUNTED FOR THE YEAR IN WHICH THE LIABILITY TO PAY IS INCURRED / THE RIGHT TO RECEIVE HAS ACCRUED OR ARISEN. RETURN OF INCOME FOR A.Y 2005-06 WAS FILED IN OCTOBER 2005 DECLARING LOSS OF RS. 52,12,024/- AND THE CASE WAS PROCESSED U/S 143(1) OF THE ACT IN JANUARY 2006 ACCEPTING THE RETURNED LOSS. SINCE THE CASE WAS PROCESSED IN SUMMARY MANNER NO SPECIFIC DETAILS WERE CALLED FOR BY THE DEPARTMENT. HOWEVER WHILE VERIFYING THE CASE RECORDS OF A.Y 2006-07 IT IS SEEN THAT DURING PREVIOUS YEAR 2004-05 RELEVANT TO A.Y 2005-06 ASSESSEE ENTERED INTO AN AGREEMENT WITH ZEE TELEFILMS LTD., FOR THE SALE OF THE SATELLITE BROADCASTING RIGHTS OF 9 OLD FILMS FOR A PERIOD OF FIVE YEARS FOR A TOTAL CONSIDERATION OF RS. 2.73 CRORE. OUT OF THE ABOVE, THE RIGHTS OF 5 FEATURE FILMS VALUING RS. 45 LAKHS WERE WITH M/S. B.R. FILMS INDIA P. LTD. HENCE THE ASSESSEE HAD ACTUALLY RECEIVED RS. 2.28 CRORE (I.E 2.73 CRORE 45 LAKH) AFTER PAYING RS. 45 LAKH TO M/S. B.R. FILMS INDIA P. LTD. AS PER AGREEMENT ASSESSEE HAD RECEIVED RS. 1.73 CRORE ON SIGNING OF AGREEMENT (I.E ON 22.04.2004) AND BALANCE RS. 1 CRORE AFTER DELIVERY OF DIGI BETA TAPES. AS PER SCHEDULE I OF THE AGREEMENT RIGHTS WERE GIVEN FOR A PERIOD FIVE YEARS FROM 17 TH MAY 2004 AND ACCORDINGLY THE PURCHASER WAS ENTITLED TO 1 ST TELECAST IMMEDIATELY ON OR AFTER 17 TH MAY, 2004. M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 3 ABOVE INCOME OF RS. 2.28 CRORES WAS APPORTIONED FOR FIVE YEARS (I.E. A.Y 2005-06 TO 2009-10) AND ACCORDINGLY 1/5 TH OF THE CONSIDERATION OF RS. 45.60 LAKHS WAS OFFERED DURING A.Y 2005-06. AS THE ASSESSEE GOT RIGHT TO RECEIVE THE INCOME ON THE VERY DAY ON WHICH AGREEMENT WAS EXECUTED THE ENTIRE INCOME OF RS. 2.28 CRORE WAS REQUIRED TO BE TAXED IN A.Y 2005-06 IN THE LIGHT OF PROVISIONS CITED ABOVE. SINCE THE FACT OF RECEIPT OF ENTIRE CONSIDERATION OF RS. 2.28 CRORE DURING PREVIOUS YEAR 2004-05 CAME TO NOTICE OF THE DEPARTMENT WHILE COMPLETING THE SCRUTINY PROCEEDINGS FOR A.Y. 2006-07 CORRECTLY, DEPARTMENT WAS REQUIRED TO INITIATE ACTION TO REASSESS THE INCOME OF A.Y 2005-06 CORRECTLY. HOWEVER THIS WAS NOT DONE. THE OMISSION TO TAX THE ENTIRE ACCRUED INCOME OF RS. 2.28 CRORE HAS RESULTED IN UNDERASSESSMENT OF RS. 1,82,40,000/- (RS. 2.28 CRORE RS. 45,60,000) LEADING TO SHORT LEVY OF TAX. 4. IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT, THE ASSESSEE FILED A REPLY ON 08.04.2011 STATING THAT THE RETURN ALREADY FILED BY IT IN OCTOBER 2005 MAY BE TREATED AS A RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THE ASSESSEE VIDE ITS LETTER DATED 19.07.2011 FURNISHED A REPLY TO THE REASONS RECORDED OBJECTING TO THE SAME BY STATING THAT IT HAD OFFERED THE INCOME RECEIVED FROM ZEE TELE FILMS LTD., OVER A PERIOD OF FIVE YEARS IN EQUAL INSTALLMENTS AND ACCORDINGLY PLEADED THERE WAS NO INCOME CHARGEABLE TO TAX THAT HAS ESCAPED ASSESSMENT. THE LD. AO DISPOSED OFF THE OBJECTIONS BY PASSING A SPEAKING ORDER ON 07.10.2011. THEREAFTER, HE PROCEEDED WITH THE REASSESSMENT PROCEEDINGS BY ISSUANCE OF A FRESH NOTICE U/S 143(2) OF THE ACT DATED 31.10.2011. THE LD. A.O MADE AN ADDITION OF RS. 1,82,40,000/- IN THE RE-ASSESSMENT AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 1,30,27,980/-. THE ASSESSEE SUBMITTED THAT OUT OF THE TOTAL CONSIDERATION OF RS. 2.73 CRORES, RS. 45 LAKHS PERTAINED TO FILMS OWNED BY ITS SISTER CONCERN M/S. B.R. FILMS INDIA PVT LTD AND REMAINING SUM OF RS. 2.28 CRORES PERTAINS TO IT AND THAT THE SAME HAS BEEN OFFERED TO TAX OVER THE PERIOD OF LIFE OF LICENCE PERIOD FROM 17.05.2004 TO 16.05.2009 AND ACCORDINGLY HAS BEEN SUBJECTED TO TAX FOR THE A.YS 2005-06 TO 2009-10 IN THE SUM OF RS. 45.60 LAKHS EACH. THE LD. AO HOWEVER OBSERVED THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE ENTIRE CONSIDERATION OF RS. 2.28 CRORES NEED TO BE BROUGHT TO TAX IN ASSESSMENT YEAR 2005-06 ITSELF AND ACCORDINGLY MADE AN ADDITION OF M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 4 RS. 1,82,40,000/- FOR A.Y 2005-06 AFTER REDUCING THE 1/5 TH PORTION OF RS. 45.60 LAKHS FROM RS 2.28 CRORES. 5. THE LD. CIT(A) DISMISSED THE GROUNDS RAISED BY THE ASSESSEE ON CHALLENGING THE VALIDITY OF THE RE-ASSESSMENT BUT HOWEVER GAVE RELIEF TO THE ASSESSEE ON MERITS BY OBSERVING AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT THE APPELLANT HAS ASSIGNED TELECAST RIGHTS TO ZEE TELE FILMS LTD., FOR A PERIOD OF FIVE YEARS VIDE AGREEMENT DATED 22.04.2004 FOR A TOTAL CONSIDERATION OF RS. 2.73 CRORES. OUT OF THIS, TOTAL CONSIDERATION AN AMOUNT OF RS. 45 LAKHS WAS PERTAINING TO M/S. B.R. FILMS INDIA P. LTD., BEING A SISTER CONCERN OF THE ASSESSEE. ACCORDINGLY, THE NET CONSIDERATION RECEIVED BY THE APPELLANT DURING THE YEAR UNDER APPEAL IS COMES TO RS. 2.28 CRORES. THE APPELLANT HAS OFFERED RS. 45.60 LAKHS FOR TAXATION DURING THE YEAR UNDER APPEAL ON THE GROUND THAT THE RIGHTS OF LICENSE WERE GRANTED FOR THE PERIOD FROM 17.05.2004 TO 16.05.2009 AND ACCORDINGLY, THE INCOME/RECEIPT OF RS. 2.28 CRORES WAS SPREAD OVER IN EQUAL AMOUNT OF RS. 45.60 LAKHS FOR THE A.Y 2005-06 TO 2009-10. THUS, THE INCOME HAS BEEN OFFERED OVER THE PERIOD OF CONTRACT ENTERED WITH ZEE TELE FILMS LTD. IT IS SEEN THAT AS PER CLAUSE 12 OF THE AGREEMENT THE RIGHTS OF ZEE TELE FILMS LTD FOR A PERIOD OF 5 YEARS ONLY AND IF OF AN ANY REASON WHATSOEVER, THE ASSIGNEE IS PREVENTED FROM EXPLOITING THE PROGRAMME THEN THE ASSIGNOR. FURTHER, CLAUSE 17 PROVIDES THAT IF THE ASSIGNOR FOR WHATEVER REASON FAILS TO GIVE DELIVERY OF PROGRAMME OR ANY PART THEREOF WITHIN THE STIPULATED PERIOD THEN THE ASSIGNOR SHALL BE ENTITLED PERIPHERAL OF MONIES PAID AS PER THE CLAUSE NO. 15. THUS, THE REVENUE FOR EACH YEAR IS TO BE RECOGNIZED ONLY AFTER ASSIGNEE HAS BEEN ABLE TO EXPLOIT THE RIGHTS OTHERWISE THE ASSIGNOR IS BOUND TO REFUND THE SAME TO THE ASSIGNEE ALONGWITH INTEREST AT THE PREVAILING BANK RATE. THEREFORE, THE CONSIDERATION RECEIVED IN RESPECT OF TRANSFER OF LICENCE OF TELECAST DURING THE PERIOD AGREED IN THE AGREEMENT ENTERED INTO BY THE APPELLANT. THE APPELLANT HAS OFFERED RS. 45 LAKHS IN FIVE YEARS EACH BEGINNING FROM THE A.Y 2005-06 TO 2009-10. THEREFORE, THE SPREADING OVER AND DEFERMENT OF REVENUE RECOGNITION WAS IN ACCORDANCE WITH THE ACCOUNTING METHOD EMPLOYED BY THE APPELLANT FROM THE BEGINNING AND SAME HAS BEEN ACCEPTED BY THE DEPARTMENT ALSO ORIGINALLY. IT IS THEREFORE, WOULD BE APPROPRIATE TO APPORTIONED THE WHOLE CONSIDERATION OF RS. 2.28 CRORES IN 5 YEARS FOR THE TERM OF THE CONTRACT OF EXPLOITATION OF RIGHTS/LICENCE. ACCORDINGLY, THE AMOUNT OF RS. 45.60 LAKHS OFFERED BY THE APPELLANT DURING THE YEAR UNDER APPEAL IS ONLY ASSESSABLE FOR THE YEAR UNDER APPEAL AND BALANCE AS OFFERED ALREADY FOR TAXATION IN THE SUBSEQUENT YEAR WOULD BE TAXED ACCORDINGLY. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF HONBLE JURISDICTION HIGH COURT IN THE CASE OF PRAKASH PICTURE 260 ITR 456 (BOM) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE ASSESSEE HAD EXPLOITED THE RIGHTS OF THE FILM FOR THE PERIOD OF 5 YEARS THEREFORE, WRITING OFF THE ENTIRE COST IN ONE YEAR WOULD RESULT IN DISTORTION OF PROFIT, HENCE THE AO WAS JUSTIFIED IN APPORTIONING THE EXPENSES OVER THE PERIOD OF THE CONTRACT. ON THE M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 5 SAME ANALOGY, THE INCOME OF THE APPELLANT WOULD BE APPORTIONED OVER THE PERIOD OF FIVE YEARS BEING THE TERMS OF THE AGREEMENT ENTERED WITH ZEE TELE FILMS LTD. THIS VIEW IS FURTHER FORTIFIED BY THE DECISION IN THE CASE OF DINESH KUMAR GOEL 331 ITR 19 (DEL) WHEREIN IT WAS HELD THAT COACHING FEES RECEIVED FROM THE STUDENTS FOR PREPARING THEM TO APPEAR IN ENTRANCE EXAMINATIONS WAS TO BE SPREAD OVER FOR THE PERIOD OF COACHING IMPARTED TO THEM. SINCE IN THE CASE OF APPELLANT, THE LICENCE WAS GRANTED FOR FIVE YEARS OF EXPLOITATION OF RIGHTS. THEREFORE, THE INCOME WOULD BE ASSESSABLE ON THE BASIS OF APPORTIONMENT FOR 5 YEARS IN EQUAL AMOUNT. IN THE LIGHT OF THESE FACTS AND FOLLOWING THE DECISION OF THE HONBLE JURISDICTION HIGH COURT IN THE CASE OF PRAKASH PICTURES (SUPRA), MAHINDRA HOLIDAYS RESORTS INDIA LTD (SUPRA), ROTORK CONTROL INDIA PVT. LTD. 314 ITR 62 (SC) AND SHRI K.K. KHULLAR 116 ITD 301 (DEL) AND OTHER DECISION AS DISCUSSED ABOVE, AS RELIED ON BY AR ALSO. THE A.O IS DIRECTED TO ASSESS RS. 45.60 LAKHS DURING THE YEAR UNDER APPEAL HENCE BALANCE ADDITION OF RS. 1,82,40,000/- IS DELETED. ACCORDINGLY, GROUND NO.4 TO 6 IS TREATED AS ALLOWED. 6. AGGRIEVED, BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN APPEAL CHALLENGING THE ACTION OF THE CIT(A) DISMISSING THE GROUND ON VALIDITY OF RE-ASSESSMENT. THE REVENUE IS IN APPEAL AGAINST THE DELETION OF ADDITION OF RS. 1,82,40,000/- ON MERITS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. FIRST WE WOULD LIKE TO ADDRESS THE APPEAL OF THE ASSESSEE CHALLENGING THE VALIDITY OF RE- OPENING OF ASSESSMENT. AT THE OUTSET, WE FIND THAT THE RE-OPENING WAS MADE BASED ON AUDIT OBJECTION IN THE YEAR 2010. THIS IS EVIDENT FROM THE PERUSAL OF THE ASSESSMENT RECORDS, WHEREIN THE AUDIT OBJECTION VIDE REFERENCE NO. ITRA/LAP-1/ACIT-11(1)/REVIEW/A.Q. NO. 63 DATED 29.03.2010 WAS AVAILABLE IN THE SAID ASSESSMENT RECORD. WE FIND THAT THE REASONS RECORDED BY THE LD. AO FOR RE-OPENING OF THE ASSESSMENT ARE VERBATIM EXTRACTED FROM THE AUDIT OBJECTIONS. THE REASONS RECORDED IN THE RE-OPENING OF THE ASSESSMENT HAS ALREADY BEEN EXTRACTED HEREIN ABOVE. NOW IT WOULD BE PERTINENT TO REPRODUCE THE AUDIT OBJECTION DATED 29.03.2010 RECORDED BY AUDIT OFFICER / LAP I DATED 29.03.2010. FOR THE SAKE OF CONVENIENCE THE RELEVANT PORTION IS REPRODUCED HEREUNDER: AS PER SECTION 148 OF THE IT ACT, 1961, INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS IS COMPUTED IN ACCORDANCE M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 6 WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING ANY INCOME OR EXPENDITURE IS ACCOUNTED FOR ON DUE BASIS IRRESPECTIVE OF THE FACT WHETHER IT IS RECEIVED OR PAID DURING THE RELEVANT PREVIOUS YEAR. IT IS ALSO JUDICIALLY HELD BY THE APEX COURT IN THE CASE OF STATE BANK OF TRAVANCORE VS. CIT (158 ITR 102) (SC) THAT ONCE THE INCOME HAS ACCRUED, NON-CHARGING OF THE SAME ON THE BASIS OF CERTAIN CONDUCT BASED ON THE FACTS OF A PARTICULAR ASSESSEE CANNOT BE ACCEPTED. ASSESSEE FIRM IS ENGAGED IN PRODUCTION, DISTRIBUTION AND EXHIBITION OF MOTION PICTURES. THE FIRM IS REGULARLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IT IS STATED IN NOTE NO. 3 OF ANNEXURE 4 OF TAX AUDIT REPORT THAT EXPENDITURE / INCOME IS ACCOUNTED FOR THE YEAR IN WHICH THE LIABILITY TO PAY IS INCURRED / THE RIGHT TO RECEIVE HAS ACCRUED OR ARISEN. RETURN OF INCOME FOR A.Y 2005- 06 WAS FILED IN OCTOBER 2005 DECLARING LOSS OF RS. 52,12,024/- AND THE CASE WAS PROCESSED U/S 143(1) OF THE ACT IN JANUARY 2006 ACCEPTING THE RETURNED LOSS. SINCE THE CASE WAS PROCESSED IN SUMMARY MANNER NO SPECIFIC DETAILS WERE CALLED FOR BY THE DEPARTMENT. HOWEVER WHILE VERIFYING THE CASE RECORDS OF A.Y 2006-07 IT IS SEEN THAT DURING PREVIOUS YEAR 2004-05 RELEVANT TO A.Y 2005-06 ASSESSEE ENTERED INTO AN AGREEMENT WITH ZEE TELEFILMS LTD., FOR THE SALE OF THE SATELLITE BROADCASTING RIGHTS OF 9 OLD FILMS FOR A PERIOD OF FIVE YEARS FOR A TOTAL CONSIDERATION OF RS. 2.73 CRORE. OUT OF THE ABOVE, THE RIGHTS OF 5 FEATURE FILMS VALUING RS. 45 LAKHS WERE WITH M/S. B.R. FILMS INDIA P. LTD. HENCE THE ASSESSEE HAD ACTUALLY RECEIVED RS. 2.28 CRORE (I.E 2.73 CRORE 45 LAKH) AFTER PAYING RS. 45 LAKH TO M/S. B.R. FILMS INDIA P. LTD. AS PER AGREEMENT ASSESSEE HAD RECEIVED RS. 1.73 CRORE ON SIGNING OF AGREEMENT (I.E ON 22.04.2004) AND BALANCE RS. 1 CRORE AFTER DELIVERY OF DIGI BETA TAPES. AS PER SCHEDULE I OF THE AGREEMENT RIGHTS WERE GIVEN FOR A PERIOD FIVE YEARS FROM 17 TH MAY 2004 AND ACCORDINGLY THE PURCHASER WAS ENTITLED TO 1 ST TELECAST IMMEDIATELY ON OR AFTER 17 TH MAY, 2004.A AUDIT SCRUTINY REVEALED THAT THE ABOVE INCOME OF RS. 2.28 CRORES WAS APPORTIONED FOR FIVE YEARS (I.E. A.Y 2005-06 TO 2009-10) AND ACCORDINGLY 1/5 TH OF THE CONSIDERATION OF RS. 45.60 LAKHS WAS OFFERED DURING A.Y 2005-06. AS THE ASSESSEE GOT RIGHT TO RECEIVE THE INCOME ON THE VERY DAY ON WHICH AGREEMENT WAS EXECUTED THE ENTIRE INCOME OF RS. 2.28 CRORE WAS REQUIRED TO BE TAXED IN A.Y 2005-06 IN THE LIGHT OF PROVISIONS CITED ABOVE. SINCE THE FACT OF RECEIPT OF ENTIRE CONSIDERATION OF RS. 2.28 CRORE DURING PREVIOUS YEAR 2004-05 CAME TO NOTICE OF THE DEPARTMENT WHILE COMPLETING THE SCRUTINY PROCEEDINGS FOR A.Y. 2006-07 CORRECTLY, DEPARTMENT WAS REQUIRED TO INITIATE ACTION TO REASSESS THE INCOME OF A.Y 2005-06 CORRECTLY. HOWEVER THIS WAS NOT DONE. THE OMISSION TO TAX THE ENTIRE ACCRUED INCOME OF RS. 2.28 CRORE HAS RESULTED IN UNDERASSESSMENT OF RS. 1,82,40,000/- (RS. 2.28 CRORE RS. 45,60,000) LEADING TO SHORT LEVY OF TAX OF RS. 52,43,989/- INCLUDING INTEREST U/S 234B AND POTENTIAL IMPACT OF RS. 19,07,209/-. TOTAL TAX EFFECT = RS. 71,51,198/-. M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 7 8. HENCE IT COULD BE SAFELY CONCLUDED THAT THE ENTIRE RE-OPENING OF THE ASSESSMENT HAS BEEN MADE IN THE INSTANT CASE ONLY BASED ON AUDIT OBJECTION. 9. WE FIND THAT THE AUDIT OBJECTION DOES NOT POINT OUT ANY FACTUAL ERROR COMMITTED BY THE ASSESSEE OR BY THE A.O. IT IS ONLY AN INTERPRETATION OF LAW IN A DIFFERENT MANNER THAT HAS BEEN SUGGESTED BY THE AUDIT PARTY TO THE LD. A.O. HENCE IN THAT SCENARIO, THE LD. AO OUGHT TO HAVE APPLIED HIS INDEPENDENT APPLICATION OF MIND ON THE SUBJECT MENTIONED ISSUE VIS-A-VIS THE CORRECT INTERPRETATION OF LAW, WHICH IN THE INSTANT CASE HAD NOT BEEN DONE. WE FIND FROM THE PERUSAL OF THE ASSESSMENT RECORDS, THE LD. A.O HAD PROCEEDED TO TAKE REMEDIAL ACTION AGAINST THE AUDIT OBJECTION POINTED OUT (SUPRA) BY SIMPLY RE-OPENING THE ASSESSMENT FOR THE A.Y 2005-06 BY RECORDING THE SAME REASONS IN THE SAME MANNER AS WAS POINTED OUT IN THE AUDIT OBJECTION (SUPRA). ADMITTEDLY THE RE-OPENING OF ASSESSMENT IN THE INSTANT CASE HAS BEEN MADE BEYOND FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. HENCE THE APPLICATION OF PROVISO TO SEC. 147 OF THE ACT WOULD COME INTO OPERATION, WHEREIN, RE-OPENING COULD BE VALIDLY MADE ONLY WHEN THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO MAKE FULL AND TRUE DISCLOSURE OF INCOME AND FURNISHING OF ACCURATE PARTICULARS THEREON BEFORE THE LD. A.O. WE FIND THAT THE REASONS RECORDED BY THE LD. AO NOWHERE EVEN WHISPER ABOUT THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE FULL AND TRUE DISCLOSURE OF THE INCOME AND FURNISHED NECESSARY PARTICULARS THEREON. IT IS NOW WELL SETTLED THAT THE REASONS RECORDED BY THE LD. AO SHOULD SPEAK FOR ITSELF AND STAND ON ITS OWN LEGS. THERE CANNOT BE ANY ADDITION OR DELETION TO THE SAID RECORDED REASONS. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN LEVER LTD VS. RB WADKAR REPORTED IN, [2004] 268 ITR 332 (BOM). FOR THE SAKE OF CONVENIENCE, THE RELEVANT OPERATIVE PORTION OF THE SAID ORDER IS REPRODUCED HEREUNDER: M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 8 19 . IN THE CASE IN HAND IT IS NOT IN DISPUTE THAT THE ASSESSMENT YEAR INVOLVED IS 1996-97. THE LAST DATE OF THE SAID ASSESSMENT YEAR WAS MARCH 31, 1997, AND FROM THAT DATE IF FOUR YEARS ARE COUNTED, THE PERIOD OF FOUR YEARS EXPIRED ON MARCH 31, 2001. THE NOTICE ISSUED IS DATED NOVEMBER 5, 2002, AND RECEIVED BY THE ASSESSEE ON NOVEMBER 7, 2002. UNDER THESE CIRCUMSTANCES, THE NOTICE IS CLEARLY BEYOND THE PERIOD OF FOUR YEARS. 20. THE REASONS RECORDED BY THE ASSESSING OFFICER NOWHERE STATE THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT OF THAT ASSESSMENT YEAR. IT IS NEEDLESS TO MENTION THAT THE REASONS ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE ASSESSING OFFICER. NO SUBSTITUTION OR DELETION IS PERMISSIBLE. NO ADDITIONS CAN BE MADE TO THOSE REASONS. NO INFERENCE CAN BE ALLOWED TO BE DRAWN BASED ON REASONS NOT RECORDED. IT IS FOR THE ASSESSING OFFICER TO DISCLOSE AND OPEN HIS MIND THROUGH REASONS RECORDED BY HIM. HE HAS TO SPEAK THROUGH HIS REASONS. IT IS FOR THE ASSESSING OFFICER TO REACH TO THE CONCLUSION AS TO WHETHER THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE CONCERNED ASSESSMENT YEAR. IT IS FOR THE ASSESSING OFFICER TO FORM HIS OPINION. IT IS FOR HIM TO PUT HIS OPINION ON RECORD IN BLACK AND WHITE. THE REASONS RECORDED SHOULD BE CLEAR AND UNAMBIGUOUS AND SHOULD NOT SUFFER FROM ANY VAGUENESS. THE REASONS RECORDED MUST DISCLOSE HIS MIND. REASONS ARE THE MANIFESTATION OF MIND OF THE ASSESSING OFFICER. THE REASONS RECORDED SHOULD BE SELF-EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE GUESSING FOR THE REASONS. REASONS PROVIDE LINK BETWEEN CONCLUSION AND EVIDENCE. THE REASONS RECORDED MUST BE BASED ON EVIDENCE. THE ASSESSING OFFICER, IN THE EVENT OF CHALLENGE TO THE REASONS, MUST BE ABLE TO JUSTIFY THE SAME BASED ON MATERIAL AVAILABLE ON RECORD. HE MUST DISCLOSE IN THE REASONS AS TO WHICH FACT OR MATERIAL WAS NOT DISCLOSED BY THE ASSESSEE FULLY AND TRULY NECESSARY FOR ASSESSMENT OF THAT ASSESSMENT YEAR, SO AS TO ESTABLISH VITAL LINK BETWEEN THE REASONS AND EVIDENCE. THAT VITAL LINK IS THE SAFEGUARD AGAINST ARBITRARY REOPENING OF THE CONCLUDED ASSESSMENT. THE REASONS RECORDED BY THE ASSESSING OFFICER CANNOT BE SUPPLEMENTED BY FILING AFFIDAVIT OR MAKING ORAL SUBMISSION, OTHERWISE, THE REASONS WHICH WERE LACKING IN THE MATERIAL PARTICULARS WOULD GET SUPPLEMENTED, BY THE TIME THE MATTER REACHES TO THE COURT, ON THE STRENGTH OF AFFIDAVIT OR ORAL SUBMISSIONS ADVANCED. 10. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE HOLD THAT THE ASSESSMENT REOPENED FOR THE A.Y 2005-06 DESERVES TO BE QUASHED. 11. SINCE THE REOPENING IS QUASHED BY US BASED ON THE AFORESAID PROPOSITION, WE ARE NOT INCLINED TO ADDRESS THE VARIOUS OTHER PROPOSITIONS MADE BY THE LD. AR BEFORE US AS IT WOULD ONLY BE ACADEMIC. ACCORDINGLY, WE REFRAIN TO GIVE OUR OPINION ON VARIOUS OTHER PROPOSITIONS MADE BY THE LD. AR AND ON MERITS OF THE CASE. M/S. B.R. FILMS, MUMBAI ITA NO. 1133 & 1199/MUM/2013. 9 ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED AND GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 1133/MUM/2013 IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IN ITA NO. 1199/MUM/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2018 SD/- SD/- (RAM LAL NEGI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE: 21 ST DECEMBER, 2018 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT/DRP -11, MUMBAI. 4) THE CIT/DIT CONCERNED , MUMBAI. 5) , , / THE D.R. K BENCH, MUMBAI. 6) [ \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *RAVI KUMAR. PS