ACIT 11(1), MUMBAI V. BONY S. KAPOOR, MUMBAI

ITA 1869/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5842 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 13-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: R PRASAD RAO

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J B ENCH, MUMBAI , , ! '#$ , % & BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K. BILL AIYA, AM ./ I.T.A. NO.1869/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR :2006-07 THE ACIT-11(1), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. SHRI BONY S. KAPOOR, LENS VIEW, 5 TH FLOOR, VEERA DESAI ROAD, ANDHERI(W), MUMBAI-400 053 ( % ./ ) ./ PAN/GIR NO. : AABPK 6087E ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / APPELLANT BY: SHRI S.D. SRIVASTAVA +,(* . - / RESPONDENT BY: SHRI R. PRASAD RAO . /0% / DATE OF HEARING : 13.03.2014 12' . /0% / DATE OF PRONOUNCEMENT : 28.03.2014 3 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-3, MUMBAI DT.1.12.2010 PERTAINING TO A. Y. 2006-07. 2. THE GRIEVANCES OF THE REVENUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) MUMBAI ERRED IN DELETING THE ADDITION ITA NO.1869/M/2011 2 OF RS. 5,05,13,901/- MADE BY THE AO U/S. 41(1) BY H OLDING THAT THERE HAS BEEN NO REMISSION OR CESSATION OF AN Y LIABILITY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) MUMBAI ERRED IN DELETING THE ADDITION OF RS. 1,51,77,174/- MADE BY THE AO IN WHICH THE AO TREATED THE ADVANCES RECEIVED BY THE ASSESSEE AS HIS INCOME SINCE THE ADVANCES WERE STILL SHOWN AS PAYABLES EVEN AFTE R THE MOVIE HAS BEEN RELEASED AND HENCE THE ADVANCES OUGH T TO HAVE TAKEN THE COLOR OF INCOME AS HELD BY THE AO IN HIS ASSESSMENT ORDER. 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT IN ASSESSEES PERSON AL BALANCE SHEET AND IN THE BALANCE SHEET OF M/S. NARSIMHA ENTERPRISES AND IN THE BALANCE SHEET OF M/S. NARSIMHA PICTURES, THERE WERE HUGE AMOUNT O F TRADE CREDITORS WHICH WERE LYING UNPAID. THE AO HAS EXHIBITED THE BALANCE SHEET IN HIS ASSESSMENT ORDER ON PAGES 2 TO 4. THE ASSESSEE WAS ASKED TO PROVIDE DETAILS OF TRADE CREDITORS LYING OUTSTANDING IN THE IR BOOKS AS ON 31.3.2008. THE ASSESSEE FILED A DETAILED WORKINGS OF THE ASSES SEE WHICH HAS BEEN MADE PART OF THE ASSESSMENT ORDER AS ANNEXURE-I. A FTER CONSIDERING THE DETAILS, THE AO SOUGHT EXPLANATION FROM THE ASSESSE E AS TO WHY THE PROVISIONS OF SEC. 41(1) OF THE ACT SHOULD NOT BE I NVOKED. 3.1. THE ASSESSEE FILED A DETAILED REPLY ALONGWITH COPIES OF ACCOUNT OF ALL THE CREDITORS. IT WAS CONTENDED THAT THESE ARE NOT IN A NATURE OF TRADE LIABILITIES FALLING WITHIN THE PROVISIONS OF SEC. 4 1(1) OF THE ACT. IT WAS EXPLAINED THAT THE TRANSACTIONS PERTAIN TO INTER-BA NK TRANSFERS AND OTHER TRANSACTIONS WITH THE PARTIES AFFECTING THE RESPECT IVE ENTITIES WHICH HAVE BEEN DULY RECOGNIZED THROUGH APPROPRIATE JOURNAL EN TRIES. IT WAS FURTHER SUBMITTED THAT THE BALANCES OUTSTANDING AND PAYABLE ARE ALL ACTUAL, SUBSISTING AND PAYABLE AND HAVE NEITHER BEEN REMITT ED OR CEASED. ALL THE ITA NO.1869/M/2011 3 BALANCES ARE DULY CONFIRMED BY RESPECTIVE ENTITIES TOGETHER WITH THEIR PERMANENT ACCOUNT NUMBER AND THEY ARE ALL REGULAR TAX ASSESSEES. 3.2. THE EXPLANATION OF THE ASSESSEE WAS DULY CONSI DERED. THE AO NOTICED THAT SOME OF THE CREDITORS WERE PAID BACK D URING 2007-08. THE AO FURTHER OBSERVED THAT MAJORITY OF PAYMENTS WERE STILL OUTSTANDING AS ON 31.3.2008. THE AO WENT ON TO DISCUSS THE PROVIS IONS OF SEC. 41(1) OF THE ACT ON THE FACTS OF THE CASE AND WENT ON TO MAK E AN ADDITION OF RS. 5,05,13,901/- U/S. 41(1) OF THE ACT. 4. THE ASSESSEE CARRIED THIS MATTER BEFORE THE LD. CIT(A). IT WAS STRONGLY CONTENDED THAT THE INFERENCES DRAWN BY THE AO ARE CONTRARY TO AND OUTSIDE THE AMBIT OF THE PROVISIONS OF SEC. 41( 1) OF THE ACT. THE ASSESSEE CLAIMED THAT THE AO HAS FAILED TO BRING ON RECORD ANY MATERIAL WHATSOEVER TO SHOW THAT THE MANDATORY CONDITIONS PR ECEDENT TO INVOKING THE PROVISIONS OF SEC. 41(1) OF THE ACT HAVE BEEN F ULFILLED IN ANY MANNER IN THE YEAR UNDER CONSIDERATION. IT WAS ALSO POINT ED OUT THAT THE OUTSTANDING LIABILITY OF RS. 5,05,13,901/- HAS COME DOWN TO RS. 3,84,58,040/- AS ON 31.10.2010. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S, THE LD. CIT(A) OBSERVED THAT THE AO HAS NOT VERIFIED NOR ESTABLISH ED ANY OF THE FACTS OF THE CASE IN TERMS OF WHETHER LIABILITIES SHOWN OUTS TANDING HAD BEEN ALLOWED AS DEDUCTION OR LOSS IN EARLIER YEARS OR WH ETHER THERE ACTUALLY WAS A REMISSION OR CESSATION OF LIABILITY IN RESPECT OF ANY OF THE SUNDRY CREDITORS OUTSTANDING. THE LD. CIT(A) FURTHER OBSE RVED THAT THE ASSESSMENT ORDER DOES NOT INDICATE WHEN ANY SPECIFI C CONFIRMATION BY SUNDRY CREDITORS WAS ASKED FOR BY THE AO, IF AT ALL , WHICH WAS REFUSED OR NOT FURNISHED. THE LD. CIT(A) CONSIDERED THE DECIS IONS OF THE HONBLE ITA NO.1869/M/2011 4 SUPREME COURT IN THE CASE OF CIT VS KESARIA TEA CO 122 TAXMAN 91 AND CIT VS SUGAULI SUGARWORKS (P) LTD. 236 ITR 518 AND FINALLY CONCLUDED THAT THE DISALLOWANCE AND CONSEQUENT ADDI TION MADE BY THE AO U/S. 41(1) IS INADEQUATE IN LAW AND ON FACTS AND IS ACCORDINGLY NOT SUSTAINABLE, THE SAME WAS DELETED. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELYING UPON THE ASSESSMENT ORDER SUBMITTED. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. IT IS NOT IN DISPUTE THAT THE AO HAS NOT BROUGHT ANYTHING ON RECORD WHICH COULD SUGGEST THAT THE LIABILITIES SHOWN OUTSTANDIN G HAVE BEEN ALLOWED AS DEDUCTION OR LOSS IN EARLIER YEARS. IT IS ALSO AN UNDISPUTED FACT THAT THERE IS NOTHING ON RECORD WHICH COULD SUGGEST THAT THERE WAS A REMISSION OR CESSATIONS OF LIABILITY IN RESPECT OF ANY OF THE SU NDRY CREDITORS. IT IS A SETTLED PROPOSITION OF LAW THAT EXPIRY OF THE PERIO D OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT COULD NOT EXTIN GUISH THE DEBT BUT IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCING THE DEBT. FOR THIS WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF CIT VS SUGAULI SUGAR WORKS (SUPRA). CONSIDERING ALL THE FACTS ON RECORD, WE DO NOT FIND ANY ERROR OR INFIRMITY IN TH E FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. ITA NO.1869/M/2011 5 9. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT ADVANCE AMOUNT RECEIVED FROM RAKSHA DISTRIBUTORS WA S STILL LYING OUTSTANDING. IT WAS EXPLAINED THAT IT PERTAINS TO A MOVIE KHUSI WHICH WAS RECEIVED IN FINANCIAL YEAR 2002-03. THE FILM W AS RELEASED ON 7.2.2003. THE AO FURTHER OBSERVED THAT THERE WAS A NOTHER ADVANCE RECEIVED FROM THE SAME RAKSHA DISTRIBUTORS WHICH WA S ALSO OUTSTANDING. IT WAS EXPLAINED THAT IT PERTAINS TO THE MOVIE KYON HO GAYA NA WHICH WAS RECEIVED IN FINANCIAL YEAR 2004-05. THE FILM W AS RELEASED ON 13.8.2004. IT WAS EXPLAINED THAT THESE AMOUNTS REP RESENTS THE UNRECOUPED ADVANCES FOR THE ABOVE MENTIONED FILMS F OR THE TERRITORY OF BOMBAY. THE ASSESSEE EXPLAINED THE BUSINESS OPERAT ION IN THE LINE OF FILM INDUSTRY. IT WAS EXPLAINED THAT THE TERMS OF DISTRIBUTION ARE ON ADVANCE BASIS AS GENERALLY UNDERSTOOD IN THE FILM T RADE, WHEREIN THE DISTRIBUTOR AGREES TO DISTRIBUTE THE FILM ON ADVANC E BASIS. THE REALIZATION ARE APPROPRIATED FIRSTLY TOWARDS RECOUPMENT OF ADVA NCE MADE BY THE DISTRIBUTOR, SECONDLY TOWARDS COMMISSION ON REALIZA TION AND THIRDLY RECOUPMENT OF THE COST OF PRINTS AND PUBLICITY AND THEREAFTER THE OVERFLOW IS SHARED ON AGREED PROPORTION. IF THE REALIZATION DO NOT COVER THE AMOUNT OF ADVANCES, THE UNRECOUPED ADVANCE WOULD BE REFUND ABLE TO THE DISTRIBUTOR AND AS SUCH A LIABILITY TO BE DISCHARGE D BY THE PRODUCER TO THE DISTRIBUTOR. 9.1. THE STATEMENT OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE AO. THE AO WAS OF THE FIRM BELIEF THAT THE ADVANCES AR E NOT PAID BACK EVEN AFTER LAPSE OF FAIR AMOUNT OF TIME SUCH ADVANCES WO ULD BECOME REVENUE RECEIPTS/INCOME IN THE HANDS OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT AFTER THE RELEASE OF THE MOVIES IF THE AMOUNTS STILL REMAIN AS PAYABLE, IT IS MORE THAN APPROPRIATE TO TAX IT IN THE HANDS OF THE ASSESSEE AS HIS ITA NO.1869/M/2011 6 REVENUE AGAINST THE PROJECT FOR WHICH THE AMOUNT WA S ADVANCED TO HIM. THE AO ACCORDINGLY MADE AN ADDITION OF RS. 1,51,77, 174/-. 10. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MAT TER BEFORE THE LD. CIT(A). 11. THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. IT WAS STRONGLY CON TENDED THAT THE OUTSTANDING AMOUNT CAN BY NO STRETCH OF IMAGINATIO N BE ARBITRARILY REVERSED AND TREATED AS REVENUE AND THE ACTION OF THE AO IS BASED ON MERELY ON PRESUMPTIONS, SUSPICION , IMAGINATION, CO NJECTURES AND SURMISES. AFTER CONSIDERING THE FACTS AND MATERIAL S ON RECORD, THE LD. CIT(A) OBSERVED THAT THE FACTS OF THE CASE HAVE NO T BEEN ESTABLISHED BY THE AO. THE AO HAS NOT ASCERTAINED HOW MUCH OF THE ADVANCE WAS APPROPRIATED/SETTLED OUT OF THE EARNINGS OF THE FIL MS. THE LD. CIT(A) FURTHER OBSERVED THAT THE REASON FOR OUTSTANDING IN DICATES THAT THE FILMS DID NOT RECOVER ENOUGH MONEY TO RECOUP THE ADVANCES GIVEN TO THE ASSESSEE AND BY THE TERMS OF AGREEMENT THE ASSESSE E HAS TO PAY BACK THE UNRECOUPED ADVANCE. THE LD. CIT(A) CONCLUDED THAT FINDINGS OF THE AO ARE NOT SUPPORTED FROM THE FACTS OF THE CASE AND AC CORDINGLY DELETED THE ADDITION. 12. AGGRIEVED BY THIS, REVENUE IS BEFORE US. 13. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE FINDINGS OF THE AO. 14. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHA T HAS BEEN SUBMITTED BEFORE THE LD. CIT(A) AND STRONGLY RELIED UPON THE FINDINGS OF THE LD. CIT(A). ITA NO.1869/M/2011 7 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS AN UNDI SPUTED FACT THAT IN THE LINE OF FILM TRADE, THE PRODUCERS GET ADVANCES FROM THE DISTRIBUTORS FOR THE TERRITORY ALLOTTED TO THE DISTRIBUTOR. IT IS ALSO AN ADMITTED FACT THAT THE REALIZATIONS FROM THE MOVIES ARE ADJUSTED AGAINST S UCH ADVANCES. HOWEVER, IF FOR SOME REASONS OR THE OTHER, THE FILM IS UNABLE TO RECOVER ITS COST, THE DISTRIBUTORS ARE NOT IN A POSITION TO ADJ UST THEIR ADVANCES. HOWEVER, THE RELATIONSHIP OF THE PRODUCERS AND THE DISTRIBUTORS DO NOT COME TO AN END IF THE FILM IS FLOP. THE RELATIONSHI P CONTINUES AND SO ALSO THE LIABILITY. FACTS ON RECORD SUGGEST THAT THE A DVANCES GIVEN BY RAKSHA DISTRIBUTORS FOR THE MOVIES KHUSI AND KYON HO GAYA NA COULD NOT BE RECOVERED BECAUSE BOTH THE MOVIES DID NOT DO WEL L AT THE BOX OFFICE. BUT THE ADVANCES REMAINED OUTSTANDING IN THE BALANC E SHEET. IN THIS LINE OF TRADE, SUCH OUTSTANDING LIABILITIES CANNOT IPSO FACTO BECOME THE INCOME OF THE ASSESSEE, THEREFORE WE DO NOT AGREE WITH THE AO TO TREAT SUCH OUTSTANDING LIABILITY AS INCOME OF THE ASSESSEE. T HE LD. CIT(A) HAS VERY CORRECTLY DELETED THE ADDITION. WE AGREE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MARCH, 2014 . 3 . 2' % 4 5 6 28.3.2014 2 . 7 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 5 DATED 28.3.2014 . . ./ RJ , SR. PS ITA NO.1869/M/2011 8 3 3 3 3 . .. . +/ +/ +/ +/ 8'/ 8'/ 8'/ 8'/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :7 +/ , , / DR, ITAT, MUMBAI 6. 7; < / GUARD FILE. 3 3 3 3 / BY ORDER, ,/ +/ //TRUE COPY// = == = / > > > > (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI