ACIT, CHENNAI V. Shri Jaswant Chand Bhandari, CHENNAI

ITA 203/CHNY/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6527 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 19-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Search and seizure; Document seized; Bad and doubtful debts; Procedural lapse; Retraction; Revised return
• Section: 131; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NOS. 201, 202, 203 & 204/MDS/2010 ASSESSMENT YEARS : 1999-2000, 2002-03, 2003-04 & 2 004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II(2), CHENNAI 600 034. (APPELLANT) V. SHRI JASWANT CHAND BHANDARI, NO.20, ERULAPPAN STREET, CHENNAI 600 079. PAN : AANPB5388H (RESPONDENT) I.T.A. NO. 205/MDS/2010 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II(2), CHENNAI 600 034. (APPELLANT) V. SMT. SARITA BHANDARI, NO.20, ERULAPPAN STREET, CHENNAI 600 079. PAN : AADPB9261D (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENTS BY : SHRI T. B ANUSEKAR O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE DEPARTMENT AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNAI , FOR RESPECTIVE ASSESSMENT YEARS IN RESPECT OF THE ASSESSEES CONCER NED. I.T.A. NOS. 201 TO 205/MDS/10 2 I.T.A. NO. 201/MDS/2010 (FOR ASSESSMENT YEAR 1999-2000) 2. IN THIS APPEAL, REVENUE HAS TAKEN THREE EFFECTIV E GROUNDS. GROUNDS ONE AND TWO HAVE THEIR MOORINGS ON SIMILAR FACTUAL BACKGROUND, AND HENCE THESE ARE CONSIDERED TOGETHER . VIDE GROUND NO.1, GRIEVANCE OF THE REVENUE IS THAT THE CIT(APPE ALS) GRANTED A RELIEF OF ` 3,60,000/- TO THE ASSESSEE AGAINST AN ADDITION MAD E BY THE A.O. FOR A DIFFERENCE IN LAND ACCOUNT AS BETWEEN TH E BOOKS OF ACCOUNTS MAINTAINED MANUALLY AND ON TALLY SOFTWARE. VIDE ITS GROUND NO.2, GRIEVANCE OF THE REVENUE IS THAT THE CIT(APPE ALS) DELETED AN ADDITION OF ` 44,08,081/- MADE ON ACCOUNT OF DIFFERENCE IN CAPIT AL ACCOUNT AS BETWEEN THE BOOKS OF ACCOUNTS MAINTAINED MANUALLY AND IN TALLY SOFTWARE. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE WAS MAINTA INING HIS BOOKS OF ACCOUNTS MANUALLY UPTO 31.3.99 AND THEREAF TER USING TALLY SOFTWARE PACKAGE. THERE WAS A SEARCH AND SEIZURE O PERATION IN THE PREMISES OF THE ASSESSEE ON 12.8.2004 AND DURING SU CH SEARCH, THE ABOVE FACTUM CAME TO BE NOTED BY THE REVENUE. THE A.O. COMPARED THE CLOSING BALANCE AS PER THE MANUALLY MAINTAINED BOOKS OF ACCOUNTS AS ON 31.3.99 WITH OPENING BALANCE AS ON 0 1.04.1999 AS I.T.A. NOS. 201 TO 205/MDS/10 3 APPEARING IN THE COMPUTERIZED BOOKS OF ACCOUNTS MAI NTAINED USING TALLY SOFTWARE AND FOUND THE FOLLOWING DIFFERENCE A MONG OTHERS:- HEAD OF ACCOUNT CLOSING BALANCE AS ON 31.3.99 AS PER MANUALLY MAINTAINED BOOKS OF ACCOUNTS OPENING BALANCE AS PER TALLY PACKAGE AS ON 1.4.99 DIFFERENCE LAND ACCOUNT ` 3,60,000 0 ` 3,60,000 CAPITAL ACCOUNT ` 8,40,076 ` 52,48,157 ` 44,08,081 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EE WAS ASKED TO EXPLAIN THE DIFFERENCE. WITH REGARD TO DIFFEREN CE ON ACCOUNT OF LAND ACCOUNT, IT SEEMS SUBMISSION OF THE ASSESSEE WAS TH AT CONSTRUCTION ACCOUNT HAD A BALANCE OF ` 19,80,575/- IN THE MANUALLY MAINTAINED BOOKS OF ACCOUNTS AGAINST WHICH OPENING BALANCE AS PER THE BOOKS OF ACCOUNTS MAINTAINED IN TALLY SOFTWARE PACKAGE CAME TO ` 40,95,575/-, WHICH INTER-ALIA INCLUDED THEREIN THE VALUE OF THE LAND ` 3,60,000/-. HOWEVER, THE A.O. WAS OF THE OPINION THAT NO EXPLAN ATION WAS FORTHCOMING FROM THE ASSESSEE WITH REGARD TO THESE DIFFERENCES. THEREFORE, HE MADE ADDITIONS OF ` 3,60,000/- AND ` 44,08,081/- AMONG OTHERS, AS UNEXPLAINED INCOME FOR THE IMPUGNE D ASSESSMENT YEAR. IN HIS APPEAL BEFORE THE CIT(APPEALS), SUBMI SSION OF THE ASSESSEE WITH REGARD TO THE ADDITION FOR DIFFERENCE IN LAND ACCOUNT AGAIN WAS THAT THE AMOUNT SHOWN UNDER THE HEAD CON STRUCTION I.T.A. NOS. 201 TO 205/MDS/10 4 ACCOUNT WHEN CARRIED FORWARD FROM THE MANUALLY MAI NTAINED BOOKS OF ACCOUNTS AS ON 31.3.99 TO THE ACCOUNTS AS PER TH E TALLY PACKAGE, INCLUDED THE LAND ACCOUNT AND THE DIFFERENCE STOOD EXPLAINED. IN SO FAR AS DIFFERENCE IN CAPITAL ACCOUNT WAS CONCERNED, EXPLANATION OF THE ASSESSEE WAS THAT THE OPENING CAPITAL AS ON 31. 3.96 OF ` 6,16,561.46 WHEN CONSIDERED ALONG WITH THE ACCRETIO NS TO SUCH CAPITAL, ON ACCOUNT OF INCOME OF VARIOUS INTERVENIN G PREVIOUS YEARS UPTO 1.4.99, AND PROFITS ON SALE OF GOLD AND SILVER DECLARED UNDER VDIS, FAIRLY EXPLAINED SUCH DIFFERENCE. LD. CIT(AP PEALS) WAS APPRECIATIVE OF THESE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, IN SO FAR AS ` 3,60,000/- WAS CONCERNED, THE CONSTRUCTION ACCOUNT OPENING BALANCE AS PER TALLY PACKAGE, EXCEEDED THE CLOSING BALANCE IN SUCH ACCOUNT AS PER THE MANUALLY MAINTAINED BOOK S OF ACCOUNTS, BY AN AMOUNT FAR MORE THAN THE SAID SUM AND THEREFO RE, THERE WAS NO BASIS FOR ANY ADDITION IN THIS REGARD. IN SO FAR A S INCREASE IN CAPITAL WAS CONCERNED, THE CIT(APPEALS) MADE A WORK OUT OF THE CAPITAL AS ON 1.4.99 WHICH IS REPRODUCED HEREUNDER:- OPENING CAPITAL AS PER THE BALANCE SHEET FILED WITH THE DEPT AS ON 31.3.96 ` 6,16,651 TOTAL ACCRETION OF CAPITAL ON ACCOUNT OF THE COMPUT ATION OF INCOME FOR ASST. YEAR 97-98 AS DISCUSSED ABOVE ` 4,14,802 ACCRETION IN CAPITAL DUE TO VDIS,97 ` 21,61,809 ACCRETION IN CAPITAL ACCOUNT OF COMPUTATION FOR A.Y . 98-99 ` 2,37,255 SALE OF JEWELLERY DISCLOSED UNDER VDIS ` 22,61,846 TOTAL ` 56,92,363 I.T.A. NOS. 201 TO 205/MDS/10 5 AS PER THE CIT(APPEALS), ` 56,92,563/- WAS THE POSSIBLE CAPITAL AS ON 1.4.99, AGAINST WHICH ASSESSEE IN HIS BOOKS OF ACCO UNTS MAINTAINED IN THE TALLY PACKAGE HAD SHOWN ` 52,48,157/- ONLY. THEREFORE, ACCORDING TO HIM, THERE WAS NO REASON WHY ANY ADDIT ION WAS REQUIRED IN THIS REGARD. HE THEREFORE DELETED BOTH THESE AD DITIONS. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT IN SO FAR AS ISSUE OF LAND ACCOUNT WAS CONCERNED, THERE WAS NOTHING BROUGHT ON RECORD BY T HE ASSESSEE TO SHOW THAT INCREASE IN THE CONSTRUCTION ACCOUNT BALA NCE AS BETWEEN MANUAL BOOKS OF ACCOUNTS AND BOOKS TALLY IN SOFTWAR E WAS ON ACCOUNT OF SUCH LAND VALUE. IN SO FAR AS THE CAPIT AL ACCOUNT AND RECONCILIATION GIVEN BY THE ASSESSEE BEFORE THE CIT (APPEALS), LEARNED D.R. SUBMITTED THAT ASSESSEE HAD NOT FILED ANY RETU RN OF INCOME FOR ASSESSMENT YEAR 1997-98 AND THEREFORE, THE CIT(APPE ALS) WAS NOT JUSTIFIED IN TAKING THE NET PROFIT FROM THE PROFIT AND LOSS ACCOUNT WHICH WAS NEVER BEFORE THE INCOME-TAX AUTHORITIES FOR WOR KING OUT ACCRETION TO THE CAPITAL ACCOUNT. ON THE SECOND YEAR, VIZ. A SSESSMENT YEAR 1998-1999, SUBMISSION OF THE LEARNED D.R. WAS THAT THERE WAS NO DOCUMENTS FILED BY THE ASSESSEE JUSTIFYING THE ACCR ETIONS CLAIMED. ACCORDING TO LEARNED D.R., EXCEPT ACCRETION ON ACCO UNT OF VDIS I.T.A. NOS. 201 TO 205/MDS/10 6 DECLARATION OF ` 21,61,809/-, ASSESSEE COULD NOT SUBSTANTIATE WITH SUFFICIENT EVIDENCE ANY OF THE OTHER ITEMS OF INCOM E, AND CIT(APPEALS) HAD SIMPLY GONE BY THE WORK-OUTS GIVEN BY THE ASSESSEE. IN SO FAR AS SALE OF JEWELLERY SHOWN BY THE ASSESSEE FOR ASSESSMENT YEAR 1998-1999, CLAIMED AS A SOURCE OF A CCRETION TO CAPITAL, LEARNED D.R. SUBMITTED THAT THE VALUE OF J EWELLERY BEING PART OF VDIS DECLARATION ALREADY CONSIDERED AS A PART OF CAPITAL ACCRETION FOR ASSESSMENT YEAR 1997-98, THE CIT(APPEALS) ERRED IN CONSIDERING WHOLE OF THE SALE PROCEEDS THEREOF AS AVAILABLE TO THE ASSESSEE FOR FURTHER AUGMENTING HIS CAPITAL. LEARNED D.R. FURTH ER SUBMITTED THAT CIT(APPEALS) HAD ACCEPTED THE EVIDENCE FURNISHED BY THE ASSESSEE IN THE FORM OF COMPUTATION STATEMENT WITHOUT PUTTIN G IT TO THE A.O. AND THERE WAS CLEAR VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962. AGAIN AS PER THE LEARNED D.R., EVEN IF THE RETURNED INCOME OR INCOME COMPUTED WAS TO BE CONSIDERED AS SOURCE FOR ACCRETI ON TO THE CAPITAL ACCOUNT, LD. CIT(APPEALS) FELL IN GROSS ERROR, IN N OT MAKING ALLOWANCE FOR ANY PERSONAL EXPENSES OF THE ASSESSEE, WHILE WO RKING OUT THE ACCRETIONS. 5. PER CONTRA, LEARNED A.R. IN SUPPORT OF THE RECON CILIATION FILED BY HIM BEFORE THE CIT(APPEALS) FOR ASSESSMENT YEAR 199 8-99, CLAIMED THAT ASSESSEE HAD FILED RETURN FOR THE SAID YEAR, A ND I.T.A. NOS. 201 TO 205/MDS/10 7 ACCORDING TO HIM, EVEN OTHERWISE THE INCOME FOR THA T ASSESSMENT YEAR COULD NEVER HAVE BEEN CONSIDERED AS NON EXISTE NT SINCE ASSESSEE HAD GIVEN CLEAR SOURCE FOR EACH ITEM OF SU CH INCOME. HOWEVER, HE FAIRLY ADMITTED THAT FOR ASSESSMENT YEA R 1997-98, NO RETURN WAS FILED BY THE ASSESSEE. LEARNED A.R. STA TED THAT CAPITAL ACCOUNT ACCRETIONS ARISING OUT OF COMPUTATION OF IN COME MADE AVAILABLE BEFORE THE CIT(APPEALS) COULD NEVER BE DI SREGARDED WITHOUT ANY EVIDENCE BEING PRODUCED BY THE REVENUE FOR PROV ING SUCH COMPUTATION TO BE WRONG OR INCORRECT. IN ANY CASE, ACCORDING TO LEARNED A.R., THE AMOUNTS DECLARED BY THE ASSESSEE UNDER VDIS AND PROFIT ON SALE OF GOLD JEWELLERY WERE AVAILABLE AS ACCRETION TO THE CAPITAL ACCOUNT AND ATLEAST TO THIS EXTENT THE DIFF ERENCE STOOD EXPLAINED WITHOUT DISPUTE. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. IN SO FAR AS THE ISSUE RELATING TO VALUE OF LAND NOT A PPEARING IN THE OPENING BALANCE AS ON 01.04.1999 IN THE TALLY PACKA GE ACCOUNTS, WHEN COMPARED TO THE CLOSING BALANCE AS ON 31.3.199 9 AS PER THE MANUALLY MAINTAINED ACCOUNTS, WE FIND THAT THE CONS TRUCTION ACCOUNT HAD SHOWN AN INCREASE OF ` 21,15,000/- IN BETWEEN THESE DATES. THEREFORE, ASSESSEES EXPLANATION THAT THE LAND ACC OUNT OF ` 3,60,000/- WAS MERGED WITH CONSTRUCTION ACCOUNT IS A PLAUSIBLE ONE I.T.A. NOS. 201 TO 205/MDS/10 8 AND LD. CIT(APPEALS) CANNOT BE FAULTED FOR ACCEPTIN G IT. THERE IS NO DISPUTE RAISED BY THE REVENUE THAT THE CONSTRUCTION ACCOUNT AS PER THE BOOKS OF ACCOUNTS MAINTAINED UNDER TALLY PACKAG E HAD INCREASED BY ` 21,15,000/-, WHEN COMPARED WITH THE CLOSING BALANC E AS PER MANUAL ACCOUNTS. THEREFORE, WE DO NOT FIND ANY LAC UNAE IN THE ORDER OF THE CIT(APPEALS) IN THIS REGARD. 7. COMING TO DIFFERENCE IN CAPITAL ACCOUNT, FIRST I SSUE RAISED BY THE REVENUE IS THAT THE CIT(APPEALS) HAD CONSIDERED THE COMPUTATION OF INCOME FILED FOR ASSESSMENT YEAR 1997-98 SUBMITTED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS WITHOUT PUTTING IT BEFORE THE A.O. THE AMOUNT CONSIDERED BY THE CIT(APPEALS) FOR ACCRETION TO CAPITAL, ON ACCOUNT OF INCOME COMPUTED FOR ASSESSME NT YEAR 1997-98 WAS ` 4,14,802/- ASSESSEE HAD FILED NO RETURN FOR THAT ASSESSMENT YEAR. NEVERTHELESS, ASSESSEE HAD FILED A COMPUTATI ON OF INCOME FOR THAT ASSESSMENT YEAR BEFORE THE LD. CIT(APPEALS) IN WHICH HE HAD STARTED FROM NET PROFIT AS PER PROFIT AND LOSS ACCO UNT, AGGREGATED PROFITS ON SALE OF LAND THERETO AND ARRIVED AT THE TOTAL INCOME AFTER DEDUCTING REBATES AVAILABLE UNDER SECTION 88 OF THE ACT. THOUGH ASSESSEE HAD NOT FILED RETURN FOR ASSESSMENT YEAR 1 997-98, HIS CLAIM THAT HE HAD INCOME AS MENTIONED IN HIS COMPUTATION CANNOT BE BRUSHED ASIDE ESPECIALLY SINCE HE HAD PAID SELF ASS ESSMENT TAX OF ` I.T.A. NOS. 201 TO 205/MDS/10 9 1,002/- AND ALSO ADVANCE TAX OF ` 2,52,000/- FOR THAT YEAR. JUST BECAUSE ASSESSEE HAD NOT FILED RETURN FOR ASSESSMEN T YEAR 1997-98, IT WOULD NOT, IN OUR OPINION, BE FAIR TO IGNORE HIS INCOME FOR THAT YEAR, ESPECIALLY SINCE THERE WAS CONSIDERABLE PAYMENT OF ADVANCE TAX. NEVERTHELESS, THERE HAS BEEN A VIOLATION OF RULE 46 A OF THE INCOME- TAX RULES, IN THAT THE A.O. HAS NOT BEEN GIVEN A CH ANCE TO GO THROUGH THE DETAILS OF COMPUTATION FILED BY THE ASSESSEE FO R ASSESSMENT YEAR 1997-98. IN SO FAR AS THE AMOUNT DECLARED BY THE A SSESSEE UNDER VDIS IS CONCERNED, LD. CIT(APPEALS) HAD TAKEN THE V ALUE OF GOLD AND SILVER JEWELLERY SO DECLARED, AS ACCRETION TO THE C APITAL AND THE FACTUM OF VDIS DECLARATION HAVING NOT BEEN DISPUTED, LD. C IT(APPEALS) WAS JUSTIFIED IN TAKING THIS VIEW. HOWEVER, LD. CIT(AP PEALS) FELL IN ERROR WHEN HE CONSIDERED THE WHOLE OF THE AMOUNT REALIZED BY THE ASSESSEE ON SALE OF SUCH JEWELLERY AS AGAIN AVAILAB LE FOR CAPITAL ACCRETION. WHAT WOULD HAVE BEEN AVAILABLE TO THE A SSESSEE FOR INTRODUCTION IN HIS CAPITAL ACCOUNT ON ACCOUNT OF S ALE OF JEWELLERY COULD NEVER BE MORE THAN THE PROFITS REALIZED ON SU CH SALE WHICH AS PER THE LD. CIT(APPEALS) CAME TO ` 12,73,950/-. HENCE THE ACCRETION TO CAPITAL ON ACCOUNT OF SALE HAS TO BE LIMITED TO ` 12,73,950/-. 8. COMING TO THE COMPUTATION STATEMENT FOR ASSESSME NT YEAR 1998-99, THOUGH THE ASSESSEE HAD FILED A COPY OF CO MPUTATION ALONG I.T.A. NOS. 201 TO 205/MDS/10 10 WITH ITS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AT PAPER-BOOK PAGES 12 TO 15, WE ARE UNABLE TO ASCERTAIN WHETHER HE HAD FILED HIS RETURN OF INCOME FOR THAT ASSESSMENT YEAR. NEVERTH ELESS, FOR ASSESSMENT YEAR 1998-99, AS PER THE COMPUTATION FIL ED, ASSESSEE HAD PAID ADVANCE TAX OF ` 75,000/- AND CLAIMED A REFUND OF ` 76/-. SINCE ADVANCE TAX HAD BEEN PAID BY THE ASSESSEE, AS OBSERVED BY US WITH REFERENCE TO ASSESSMENT YEAR 1997-98, THERE IS EVERY CHANCE THAT HIS CLAIM REGARDING BUSINESS INCOME AND OTHER INCOME GIVING RAISE TO NET SURPLUS RESULTING IN ACCRETION TO CAPI TAL ACCOUNT CANNOT BE RULED OUT. NEVERTHELESS, THE LD. CIT(APPEALS) HAVI NG NOT PUT SUCH COMPUTATION BEFORE THE A.O., BEFORE ACCEPTING IT, T HERE IS A VIOLATION OF RULE 46A. 9. IN VIEW OF THE FOREGOING DISCUSSION, THE CLAIM O F THE ASSESSEE, VIS--VIS ACCRETION TO THE CAPITAL ACCOUNT ON ACCOU NT OF VDIS ` 21,61,809/-, AND ON ACCOUNT OF SALE OF JEWELLERY O F ` 12,73,950/- HAS TO BE ACCEPTED. THE OPENING BALANCE OF ` 6,60,651/- AS ON 01.04.1996 HAS NOT BEEN DISPUTED BY THE REVENUE. I N SO FAR AS THE ACCRETION TO THE CAPITAL ACCOUNT ON ACCOUNT OF INCO ME COMPUTED FOR ASSESSMENT YEARS 1997-98 AND 1998-99 ARE CONCERNED, AS NOTED BY US, THERE WAS VIOLATION OF SECTION 46A AND THEREFOR E REQUIRE A RE-VISIT BY A.O. WE THEREFORE SET ASIDE THE ORDER OF THE LD . CIT(APPEALS) AS I.T.A. NOS. 201 TO 205/MDS/10 11 WELL AS A.O. WITH REGARD TO ADDITION MADE FOR DIFFE RENCE IN CAPITAL ACCOUNT, AND REMIT THE ISSUE BACK TO THE FILE OF A. O. FOR FRESH CONSIDERATION. A.O. IS DIRECTED TO ACCEPT ACCRETIO N DUE TO VDIS DECLARATION OF ` 21,61,809/- AND PROFITS ON JEWELLERY ` 12,73,950/-. A.O. SHALL VERIFY CORRECTNESS OF COMPUTATIONS SUBMI TTED BY THE ASSESSEE BEFORE THE CIT(APPEALS), FOR ASSESSMENT YE AR 1997-98 AND 1998-99 AND ALLOW ACCRETION TO THE CAPITAL TO THE E XTENT INCOME IS AVAILABLE, ALSO CONSIDERING THE ADVANCE TAX PAYMENT S MADE BY THE ASSESSEE. ONLY ANY DEFICIT IN MEETING THE DIFFEREN CE CAN BE CONSIDERED FOR ADDITION. ORDERED ACCORDINGLY. 10. IN THE RESULT, GROUND NO.1 STANDS DISMISSED, WH EREAS, GROUND NO.2 IS ALLOWED TO THE EXTENT CITED ABOVE FOR STATI STICAL PURPOSES. 11. VIDE ITS GROUND NO.3, GRIEVANCE OF THE REVENUE IS THAT THE CIT(APPEALS) GRANTED RELIEF TO THE ASSESSEE FOR AN UNDISCLOSED INTEREST INCOME OF ` 1,80,000/- CONSIDERED BY THE ASSESSING OFFICER. 12. SHORT FACTS APROPOS ARE THAT DURING THE COURSE OF INVESTIGATION AFTER SEARCH, IT CAME TO THE KNOWLEDGE OF THE REVEN UE AUTHORITIES THAT THE ASSESSEE HAD ADVANCED LOAN TO VARIOUS PARTIES, WHICH INTER-ALIA INCLUDED A SUM OF ` 5,00,000/- TO ONE SHRI GIRIDHARLAL FOR THE PRODUCTION OF A FILM CALLED SWAYAMVARAM. A STATE MENT UNDER I.T.A. NOS. 201 TO 205/MDS/10 12 SECTION 131 OF THE ACT WAS RECORDED FROM SHRI GIRID HARLAL WHEREIN HE STATED THAT THERE WAS AN AGREEMENT BETWEEN HIM AND ASSESSEE FOR A LOAN OF ` 5,00,000/-, BUT ONLY A SUM OF ` 3,20,000/- WAS RECEIVED BY HIM. THE A.O. AFTER GOING THROUGH THE SWORN STATEM ENT OF SHRI GIRIDHARLAL, WAS OF THE OPINION THAT ASSESSEE HAD D EDUCTED AN INTEREST OF ` 1,80,000/- UPFRONT AT THE TIME OF GIVING THE ADVAN CE ITSELF. ACCORDING TO A.O., BOOKS OF ACCOUNTS OF THE ASSESSE E REFLECTED THE LOAN AMOUNT TO SHRI GIRIDHARLAL AS ` 3,20,000/- AND THE INTEREST WAS NOT ACCOUNTED. THE A.O. MADE AN ADDITION OF ` 1,80,000/- TO THE INCOME OF THE ASSESSEE. 13. IN ITS APPEAL BEFORE THE CIT(APPEALS), SUBMISSI ON OF THE ASSESSEE WAS THAT HE WAS FOLLOWING CASH BASIS OF AC COUNTING. ACCORDING TO THE ASSESSEE, ONLY WHEN AN INCOME WAS ACCRUED AND RECEIVED, IT WOULD BE ACCOUNTED AND NOT BEFORE THAT . AS PER THE ASSESSEE, THERE WAS NO RECEIPT EITHER TOWARDS PRINC IPAL OR INTEREST. CONSIDERING THE TRUE NATURE OF TRANSACTION, AS PER THE ASSESSEE, THERE WAS NO INTEREST INCOME OF ` 1,80,000/- AS ALLEGED BY THE A.O. LD. CIT(APPEALS) ACCEPTED THIS CONTENTION OF THE ASSESS EE. ACCORDING TO HIM, SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS CASH, AND ACCRUED INTEREST COULD NOT BE TAXED IN THE IMPUGNED ASSESSMENT YEAR. I.T.A. NOS. 201 TO 205/MDS/10 13 14. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT THE PRINCIPAL AMOUNT OUTSTANDING WAS ` 5,00,000/- AND ASSESSEE HAD AT THE POINT OF ADVANCING THE AMOUNT, DEDUCTED UPFRONT INTEREST OF ` 1,80,000/- FROM SHRI GIRIDHARLAL. THEREFORE, ACCORDING TO LEA RNED D.R., ASSESSEE HAD RECEIVED AN INTEREST OF ` 1,80,000/- AT THE POINT OF GIVING THE LOAN AND HAVING RECEIVED SUCH INTEREST, THE A.O. WAS ABS OLUTELY JUSTIFIED IN CONSIDERING SUCH INTEREST FOR ADDITION. FURTHER, A CCORDING TO HIM, SUCH PAYMENT OF PRINCIPAL AND COLLECTION OF INTERES T AT THE POINT OF DISBURSEMENT WAS A METHOD OF RECOVERY GENERALLY ADO PTED BY FINANCING AGENTS. IRRESPECTIVE OF THE SYSTEM OF AC COUNTING, AS PER THE LEARNED A.R., SUCH INTEREST RECEIVED WAS A PART OF THE INCOME OF THE ASSESSEE. RELIANCE WAS PLACED BY THE LEARNED D.R. ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. A.R. SANTHANAKRISHNAN & ANOTHER (256 ITR 187) AND T.V.S. FINANCE & SERVICES LTD. V. JCIT (318 ITR 435). ACCORDING TO HIM, IN THE FORMER CASE IT WAS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT THAT DISCOUNT RECEIPT IN LUMP SUM BY AN ASSESSEE, IN THE YEAR OF ISSUE OF A DEEP DISCOUNT BOND, WAS INCOME OF THE SAME ASSESSMENT YE AR EVEN WHEN THE ASSESSEE WAS FOLLOWING A CASH SYSTEM OF ACCOUNT ING. ACCORDING TO LEARNED D.R., IN THE LATTER CASE, HON'BLE JURISD ICTIONAL HIGH COURT HELD THAT DISCOUNTS ON BILLS WHEN BILLS ARE DISCOUN TED WAS EQUIVALENT I.T.A. NOS. 201 TO 205/MDS/10 14 TO INTEREST AND INCOME OF THE YEAR IN WHICH DISCOUN TING WAS DONE. THEREFORE, IN HIS OPINION, THE SUM OF ` 1,80,000/- WAS INCOME OF THE ASSESSEE FOR IMPUGNED ASSESSMENT YEAR, AND LD. CIT( APPEALS) FELL IN ERROR WHEN HE DELETED THIS ADDITION. 15. PER CONTRA, THE LEARNED A.R. SUBMITTED THAT ADD ITION OF ` 1,80,000/- WAS MADE BASED ON ONE STATEMENT TAKEN FR OM SHRI GIRIDHARLAL, AND THERE WAS NO OTHER EVIDENCE WITH T HE REVENUE. ACCORDING TO HIM, ASSESSEE HAD ADVANCED A SUM OF 3, 20,000/- ONLY AND NOT ` 5 LAKHS. LEARNED A.R. FURTHER ARGUED THAT SHRI GI RIDHARLAL WAS NEVER ALLOWED TO BE CROSS-EXAMINED BY THE ASSES SEE. FURTHER, ACCORDING TO HIM, CASE OF ADVANCE GIVEN FOR FILM CO ULD NOT BE CONSIDERED AS EQUIVALENT TO A DEEP DISCOUNT BOND OR A DISCOUNTING OF BILL. ASSESSEE HAD GIVEN ONLY ` 3,20,000/-. AS AND WHEN THE PRINCIPAL WAS REFUNDED, THE INTEREST RECEIVED WAS A CCOUNTED. LEARNED A.R. FURTHER ARGUED THAT IN A CASH SYSTEM O F ACCOUNTING, NOT ONLY THERE HAS TO BE ACCRUAL BUT ALSO ACTUAL RECEIP T, WHEREAS, IN MERCANTILE SYSTEM ONLY ACCRUAL WAS NECESSARY. FURT HER, AS PER THE LEARNED A.R., THERE WAS NO AGREEMENT TO SHOW THAT A SSESSEE HAD ADVANCED ` 5,00,000/- OR ANY PAYMENT WAS RECEIVED UPFRONT BY HIM. LEARNED A.R. ALSO RELIED ON A DECISION OF CO-ORDINA TE BENCH IN THE ASSESSEES OWN CASE (I.T.A. NO. 590/MDS/2010 DATED 30 TH I.T.A. NOS. 201 TO 205/MDS/10 15 SEPTEMBER, 2010) IN SUPPORT OF HIS CONTENTION THAT WHEN INTEREST HAS NOT BEEN RECEIVED, AND WHERE ASSESSEE WAS MAINTAINI NG BOOKS ON CASH BASIS, SUCH INTEREST COULD NOT BE TAXED MERELY CITING ACCRUAL. RELIANCE WAS ALSO PLACED ON ANOTHER DECISION OF A C O-ORDINATE BENCH IN THE CASE OF ACIT V. SMT. SARITA BHANDARI (I.T.A. NO. 1484 & 1485/MDS/2009 DATED 19 TH NOVEMBER, 2010) ON THIS ASPECT. 16. LEARNED D.R. IN REPLY SUBMITTED THAT THE CASES OF CO-ORDINATE BENCH RELIED ON BY THE ASSESSEE, ONE IN ASSESSEES OWN CASE AND THE OTHER IN THE CASE OF SMT. SARITA BHANDARI (I.T. A. NO. 590/MDS/2010 AND I.T.A. NOS. 1484 & 1485/MDS/2009) WERE DECIDED WITHOUT CONSIDERING THE DECISION OF HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF A.R. SANATHANAKRISHNAN (SUPRA) AND HEN CE COULD NOT BE CONSIDERED AS BINDING. 17. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THE BASIS ON WHICH THE ASSESSING OFFICER MADE AN AD DITION OF ` 1,80,000/- CONSIDERING THE AMOUNT TO BE INTEREST RE CEIVED BY THE ASSESSEE FROM SHRI GIRIDHARLAL, IS A STATEMENT RECO RDED FROM SHRI GIRIDHARLAL UNDER SECTION 131 OF THE ACT. RELEVANT PORTION OF SWORN STATEMENT AS APPEARING IN PAGES 2 AND 3 OF THE ASSE SSMENT ORDER IS REPRODUCED HERE FOR BREVITY:- I.T.A. NOS. 201 TO 205/MDS/10 16 Q.6 : PLEASE FURNISH THE SOURCES FOR THE ABOVE PRODUCTIONS? ANS. : THE MAIN SOURCES INCLUDE ADVANCES FROM THE DISTRIBUTORS AND LOANS FROM FINANCIER MR. CHAINRAJ, ALWARPET, CHENNAI-18. Q.7 : PLEASE FURNISH THE NAMES AND ADDRESSES OF THE FINANCIERS WHO ADVANCED LOANS? ANS : THE DETAILS ARE AS UNDER: FROM MR. JASWANT BHANDARI, FILM FINANCIER, NO.20, ERULAPPAN STREET, SOWCARPET, CHENNAI-79, A SUM OF ` 5 LAKHS BY WAY OF PARTLY BY CASH AND PARTLY BY CHEQUE WAS RECEIVED BY ME PRODUCING THE FILM SWAYAMVARAM. . Q.8 : HAVE YOU ENTERED INTO ANY AGREEMENT OR HAVE YOU OFFERED ANY SECURITY, PROMOTES, POST DATED CHEQUES ET C. WITH THE ABOVE FINANCIERS? ANS : I HAVE NOT ENTERED INTO ANY AGREEMENT FOR THE ABOVE TRANSACTION. HOWEVER, I GAVE GEMINI LAB LETTER T O BOTH MR. JASWANT BHANDARI AND MR. CHAINRAJ, I HAVE REPAI D THE ENTIRE LOAN TO BOTH IN THE CASE OF SWAYAMVARAM. A SIMPLE READING OF THE ABOVE STATEMENT SHOW THAT S HRI GIRIDHARLAL THOUGH HE MENTIONS RECEIPT OF ` 5,00,000/- AS ADVANCE FROM SHRI JASWANT BHANDARI, HAD NOT STATED ANYTHING REGARDING INTEREST PAID OR DEDUCTED. ASSESSING OFFICER AFTER COMPARING THE AB OVE STATEMENT WITH THE SUM OF ` 3,20,000/- SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AS ADVANCE TO SHRI GIRIDHARLAL, CAME TO A CONCLUSION THAT THE BALANCE AMOUNT WAS INTEREST. IN OUR OPINION, S UCH A CONCLUSION WAS NOT WARRANTED. IT WAS ONLY A PRESUMPTION TAKEN BY THE I.T.A. NOS. 201 TO 205/MDS/10 17 ASSESSING OFFICER THAT THE DIFFERENCE WAS INTEREST. NO AGREEMENT WAS SHOWN BY SHRI GIRIDHARLAL NOR WAS ANY AGREEMENT FOUND DURING THE COURSE OF SEARCH TO CONSIDER THAT ASSESSEE HAD GIVEN ` 5,00,000/- TO SHRI GIRIDHARLAL. WHEN THE ACTUAL AMOUNT OF ADV ANCE ITSELF WAS DOUBTFUL, THERE CANNOT BE ANY QUESTION OF ADDITION FOR INTEREST. EVEN OTHERWISE, ASSESSEE WAS FOLLOWING CASH SYSTEM OF AC COUNTING. IN CASH BASIS OF ACCOUNTING, INCOME CAN BE CONSIDERED ONLY ON ACTUAL RECEIPT OF MONEY. THERE WAS NO BOND ISSUED BY SHRI GIRIDHARLAL TO ASSESSEE NOR WAS ANY BILL OF SHRI GIRIDHARLAL DISCO UNTED BY THE ASSESSEE. THEREFORE, IN OUR OPINION, THE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASES OF A.R. SANT HANAKRISHNAN (SUPRA) AND T.V.S. FINANCE & SERVICES LTD. (SUPRA) HAVE NO RELEVANCE. IN SO FAR AS THE ARGUMENT OF THE LEARNE D D.R. THAT DECISIONS OF THE CO-ORDINATE BENCH IN ASSESSEES OW N CASE FOR ASSESSMENT YEAR 2005-06 (I.T.A. NO. 590/MDS/2010) A ND IN THE CASE OF SMT. SARITA BHANDARI FOR ASSESSMENT YEARS 2002-0 3 AND 2004-05 (I.T.A. NO. 1484 & 1485/MDS/2009), CANNOT BE RELIED UPON, SINCE THESE WERE GIVEN WITHOUT CONSIDERING THE DECISION O F HON'BLE JURISDICTIONAL HIGH COURT IN A.R. SANTHANAKRISHNAN S CASE (SUPRA) WE ARE NOT INCLINED TO ACCEPT. IN THE FIRST PLACE, HO N'BLE JURISDICTIONAL HIGH COURT WAS CONSIDERING THE ISSUE OF DEEP DISCOU NT BONDS, AND I.T.A. NOS. 201 TO 205/MDS/10 18 TREATMENT OF UPFRONT DISCOUNT WHEN THE BONDS WERE I SSUED. HERE THE BORROWER HAD NOT ISSUED ANY BOND TO THE ASSESSEE NO R HAD IT GIVEN ANY BILL OF EXCHANGE. EXCEPT FOR THE STATEMENT FRO M SHRI GIRIDHARLAL, THERE WAS NOTHING WHATSOEVER FOUND. EVEN THE STATE MENT GIVEN BY SHRI GIRIDHARLAL WAS VAGUE. WE ARE, THEREFORE, OF THE OPINION THAT DECISIONS OF CO-ORDINATE BENCHES CITED BY THE LEARN ED A.R. DO GREATLY AID ASSESSEES CONTENTION THAT AN ASSESSEE FOLLOWIN G CASH BASIS COULD NEVER BE FASTENED WITH A TAX LIABILITY ON AN INCOME WHICH MIGHT HAVE ACCRUED, BUT NOT RECEIVED. IN ANY CASE, CASH SYSTEM DOES NOT MEAN THAT EVERY RECEIPT IS AN INCOME. INCOME HAS T O FIRST ACCRUE AND THEN IT HAS TO BE RECEIVED. THIS TEST DOES NOT GET SATISFIED HERE EITHER FACUALLY OR LEGALLY. WE ARE OF THE OPINION THAT RE CEIPT OF INTEREST HAS NOT BEEN BORNE OUT OF ANY RECORD AND THEREFORE, THE ADDITION WAS NOT CALLED FOR. LD. CIT(APPEALS) FOR WHATEVER REASON H E HAD DELETED THE ADDITION, WE FIND NO REASON TO INTERFERE. GROUND N O.3 STANDS DISMISSED. 18. IN THE RESULT, APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 1999- 2000 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL P URPOSES. I.T.A. NO. 202/MDS/2010 (FOR ASSESSMENT YEAR 2002-03) I.T.A. NOS. 201 TO 205/MDS/10 19 19. THE SOLE GROUND RAISED BY THE REVENUE IN THIS A PPEAL IS THAT THE CIT(APPEALS) DIRECTED THE A.O. TO TAX INCOME AR ISING OUT OF SALE OF PROPERTY SHOWN BY THE ASSESSEE AS SHORT TERM CAPIT AL GAINS, AS LONG TERM CAPITAL GAINS. AS PER REVENUE, ASSESSE E HAD HIMSELF ADMITTED THE INCOME ARISING ON THE SALE OF PROPERTY AS SHORT TERM CAPITAL GAINS AND WITHOUT FILING A REVISED RETURN, THERE WAS NO WAY, CIT(APPEALS) COULD HAVE CONSIDERED SUCH CLAIM AS LO NG TERM CAPITAL GAINS, IN VIEW OF THE DECISION OF HON'BLE A PEX COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (284 ITR 323). 20. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD IN IT S RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR SHOWN CAPIT AL GAIN OF ` 1,35,68,322/- FROM SALE OF A PROPERTY AT 40, NORTH BOAG ROAD, T. NAGAR, CHENNAI. ASSESSEE HAD ENTERED INTO AN AGREE MENT FOR TRANSFER OF 40% OF UNDIVIDED SHARE OF THE ABOVE PRO PERTY IN FAVOUR OF ONE MRS. JEEVA RAJA. AS PER THE ASSESSEE, THE CONS TRUCTION WAS COMPLETED IN THE YEAR 2002. THE SAID LAND WAS PURC HASED BY THE ASSESSEE IN JUNE, 1996. A SUM OF ` 2,05,00,000/- WAS RECEIVED BY THE ASSESSEE FROM M/S ILAYARAJA & FAMILY AS ADVANCE TOWARDS 2/5 TH UNDIVIDED SHARE OF LAND AND 40% OF THE BUILT UP ARE A ON COMPLETION OF PROPOSED BUILDING. THE CONSTRUCTION WAS STARTED IN 1996-97 AND UPTO 31.3.2002 THE COST INCURRED WAS ` 44,34,175/-. THEREAFTER ONE OF THE I.T.A. NOS. 201 TO 205/MDS/10 20 PROSPECTIVE TENANTS, UNDERTOOK THE BALANCE CONSTRUC TION AT ITS COST AND THE SAID TENANT NAMED M/S SLASH SUPPORT INDIA P VT. LTD. INCURRED CONSTRUCTION EXPENSES OF ` 85,20,292/-. AGAINST SUCH CONSTRUCTION COST INCURRED BY M/S SLASH SUPPORT INDIA PVT. LTD., THE AMOUNT WORKED OUT BY THE ASSESSEE AS ATTRIBUTABLE TO HIS S HARE, CAME TO ` 30,00,000/- AND THIS AS PER THE ASSESSEE, WAS ADJUS TED AGAINST THE ADVANCE GIVEN BY THE SAID PARTY. ASSESSEE ALSO SUB MITTED BEFORE THE A.O. THAT HE HAD PAID A SUM OF ` 4,02,600/- ON 29 TH JUNE, 2002 TO M/S CMDS AS BUILDING REGULARIZATION FEE. THUS TOTAL CO ST AS PER ASSESSEE WAS ` 78,36,775/-. THE CAPITAL GAIN COMPUTED BY THE ASS ESSEE WAS AS UNDER:- ` PAYMENT RECEIVED 1,67,03,032 LESS: 40% OF COST OF CONSTRUCTION ` 78,36,775 31,34,710 SHORT TERM PROFIT 1,35,68,322 THE COST OF CONSTRUCTION ` 78,36,775/- WAS SPLIT-UP AS UNDER:- ` (I) COST INCURRED BY ASSESSEE DIRECTLY 44,34,175 (II) COST INCURRED BY M/S SLASH SUPPORT INDIA PVT. L TD. ATTRIBUTABLE TO ASSESSEE 30,00,000 (III) PAID BY THE ASSESSEE TO M/S CMDS TOWARDS BUILD ING REGULARIZATION FEES 4,02,600 78,36,775 I.T.A. NOS. 201 TO 205/MDS/10 21 ASSESSING OFFICER DID NOT DISTURB THIS COMPUTATION BUT ON THE OTHER HAND ACCEPTED IT. 21. NEVERTHELESS, ASSESSEE WAS AGGRIEVED AND IN ITS APPEAL BEFORE THE CIT(APPEALS), SUBMISSION WAS THAT THE AMOUNT OF ` 1,35,68,322/- HAD TO BE CONSIDERED AS LONG TERM CAPITAL GAINS ONL Y. AS PER THE ASSESSEE, THE ADVANCE RECEIVED BY THE ASSESSEE FROM M/S SLASH SUPPORT INDIA PVT. LTD., AGAINST WHICH CONSTRUCTION COST WAS ADJUSTED, WAS IN FINANCIAL YEAR 1995-96 AND THE LAND ITSELF W AS PURCHASED IN JUNE 1996. FURTHER, AS PER THE ASSESSEE, THOUGH TH E CONSTRUCTION WAS STARTED IN 1996-97, SUCH CONSTRUCTION WAS STOPP ED DUE TO CERTAIN DISPUTE WITH M/S ILAYARAJA. AS PER THE ASSESSEE, N O CONSTRUCTION WAS CARRIED OUT DURING THE YEAR 1998-99 AND 1999-2000 E XCEPT FOR INCIDENTAL EXPENSES INCURRED. THEREAFTER, THE CONS TRUCTION WAS DONE BY M/S SLASH SUPPORT INDIA PVT. LTD. AND ASSESSEE W AS NOT INVOLVED IN SUCH CONSTRUCTION. AS PER THE ASSESSEE, THE INV ESTMENT WAS MORE THAN 36 MONTHS OLD AND ASSESSEE HAD NOT INCURRED AN Y CONSTRUCTION EXPENSES DURING THE IMMEDIATELY PRECEDING 36 MONTHS . THEREFORE, THE PLEA OF THE ASSESSEE WAS THAT THE AMOUNT ARISIN G FROM THE SALE HAD TO BE CONSIDERED AS LONG TERM CAPITAL GAINS ONL Y. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF NTPC V. CIT (229 ITR 383) (SC). I.T.A. NOS. 201 TO 205/MDS/10 22 22. LD. CIT(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE AND DIRECTED THE A.O. TO CONSIDER THE GAINS AS LONG TER M CAPITAL GAINS. 23. NOW BEFORE US, THE LEARNED D.R. STRONGLY ASSAIL ING THE ORDER OF THE LD. CIT(APPEALS), SUBMITTED THAT THE GAINS COUL D NEVER BE CONSIDERED AS LONG TERM CAPITAL GAINS ASSESSEE HAVI NG NOT FILED ANY REVISED RETURN BEFORE THE ASSESSING OFFICER. R ELIANCE WAS PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE O F GOETZE (INDIA) LTD. (SUPRA). 24. PER CONTRA, THE LEARNED A.R. SUBMITTED THAT THE DECISION OF THE HON'BLE APEX COURT SPOKE ONLY ABOUT THE POWER OF A. O. AND DID NOT RESTRICT THE POWER OF THE APPELLATE AUTHORITIES. R ELIANCE WAS ALSO PLACED ON THE DECISION OF DELHI HIGH COURT IN THE C ASE OF CIT V. JAI PARABOLIC SPRINGS LTD. (306 ITR 42) (DEL.). 25. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. GRIEVANCE OF THE REVENUE IS THAT CIT(APPEALS) ALLOW ED A CLAIM OF THE ASSESSEE WHICH WAS MADE FIRST TIME BEFORE HIM. THE RE IS NO DISPUTE REGARDING THE AMOUNT COMPUTED UNDER THE HEAD CAPITA L GAIN. THE ONLY DISPUTE IS WHETHER IT SHOULD BE CONSIDERED AS SHORT TERM CAPITAL GAINS OR LONG TERM CAPITAL GAINS. LD. CIT(APPEALS) HAD ACCEPTED I.T.A. NOS. 201 TO 205/MDS/10 23 THE CLAIM OF ASSESSEE AS LONG TERM CAPITAL GAINS FO R THREE REASONS (I) THE PROPERTY ITSELF WAS PURCHASED IN 1996; (I I) THERE WAS NO CONSTRUCTION UNDERTAKEN BY THE ASSESSEE AFTER 1997- 98; AND (III) POSSESSION WAS GIVEN ONLY IN FINANCIAL YEAR 2001-02 . NONE OF THESE THREE REASONS WERE ASSAILED BY THE REVENUE. NO DOU BT, THE ASSESSEE HAD CLAIMED THE GAIN AS SHORT TERM AND NOT AS LONG TERM. NEVERTHELESS, IT WAS ABLE TO PERSUADE LD. CIT(APPEA LS) THAT THE CLAIM WAS LONG TERM CAPITAL GAINS AND NOT SHORT TERM CAPI TAL GAINS. NO DOUBT, IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA), HON'BLE APEX COURT HELD THAT THERE WAS NO PROVISION IN LAW TO AMEND A RETURN OF INCOME BY FILING AN APPLICATION AT THE ASSESSMENT STAGE, W ITHOUT REVISING THE RETURN. TWO IMPORTANT POINTS COME OUT OF THIS DECI SION OF HON'BLE APEX COURT. PRIMARILY, HON'BLE APEX COURT HELD THA T MODIFICATION AT THE STAGE OF ASSESSMENT WITHOUT REVISING THE RETURN WAS NOT POSSIBLE. SECONDLY, IT WAS HELD AT PARA 4 OF THIS DECISION TH AT THIS WAS A LIMITATION ON THE POWER OF THE ASSESSING AUTHORITY AND IT NO WAY IMPINGED ON THE POWERS OF THE TRIBUNAL UNDER SECTIO N 254 OF THE ACT. HERE, THE AUTHORITY WHICH HAD GIVEN DIRECTIONS TO T HE A.O. TO CONSIDER THE GAINS UNDER THE HEAD LONG TERM CAPITAL GAINS WA S CIT(APPEALS). THE MODIFICATION SOUGHT BY THE ASSES SEE WAS NOT AT THE STAGE OF ASSESSMENT ALSO. HON'BLE DELHI HIGH C OURT IN THE CASE I.T.A. NOS. 201 TO 205/MDS/10 24 OF JAI PARABOLIC SPRINGS LTD. (SUPRA) AFTER CONSIDE RING A PLETHORA OF DECISIONS ON THE ISSUE INCLUDING THAT OF HON'BLE AP EX COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA), HELD THAT EVEN WHERE THE CLAIM WAS NOT MADE IN THE RETURN, TRIBUNAL HAD POWER TO A LLOW SUCH DEDUCTION WHEN ASSESSEE WAS ENTITLED TO SUCH CLAIM. WE ARE, THEREFORE, OF THE OPINION THAT LD. CIT(APPEALS) COU LD GIVE SUCH DIRECTION SINCE HE HAD POWERS CO-TERMINUS THAT OF T HE ASSESSING OFFICER. WE DO NOT HAVE ANY REASON TO INTERFERE IN THE DIRECTION OF THE CIT(APPEALS) TO CONSIDER THE GAINS AS LONG TERM CAP ITAL GAINS. NO INTERFERENCE IS CALLED FOR. APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2002-03 STANDS DISMISSED. I.T.A. NO. 203/MDS/2010 (FOR ASSESSMENT YEAR 2003-04) 26. VIDE ITS GROUND NO.1, GRIEVANCE OF THE REVENUE IS THAT CIT(APPEALS) GRANTED RELIEF TO THE EXTENT OF ` 3 CRORES, ON AN ADDITION MADE BY THE A.O. FOR ALLEGED UNEXPLAINED INVESTMENT REPRESENTING ADVANCE GIVEN TO ONE M/S G.V. FILMS. AS PER THE RE VENUE, SUCH A DELETION IN EFFECT CANCELLED OUT AN ADMISSION OF ` 95,50,000/- BY THE ASSESSEE IN HIS RETURN AGAINST SUCH ADVANCE. 27. SHORT FACTS APROPOS ARE THAT ASSESSEE IN THE RE TURN FILED FOR THE IMPUGNED ASSESSMENT YEAR, HAD DISCLOSED AN AMOUNT O F ` 95,50,000 I.T.A. NOS. 201 TO 205/MDS/10 25 AS LOAN ADVANCED TO M/S G.V. FILMS. LD. A.O. BROUG HT TO THE ATTENTION OF THE ASSESSEE THAT IN A MEMO OF COMPROMISE DATED 14.1.2003 ENTERED INTO BY THE ASSESSEE WITH M/S G.V. FILMS AN D ONE M/S PRASAD LAB, THERE WAS REFERENCE TO A CLAIM MADE BY THE ASSESSEE BEFORE HON'BLE JURISDICTIONAL HIGH COURT THAT HE HA D ADVANCED A SUM OF ` 2.5 CRORES TO M/S G.V. FILMS AS PER AN AGREEMENT D ATED 19.3.2002. AS PER THE A.O., HON'BLE JURISDICTIONAL HIGH COURT HAD ISSUED A DECREE FOR A SUM OF ` 3 CRORES IN FAVOUR OF ASSESSEE ON THE PLAINT OF THE ASSESSEE. EXPLANATION OF THE ASSESSE E WAS THAT HE HAD ADVANCED A SUM OF ` 87,20,000/- TO M/S G.V. FILMS BY CHEQUES ON VARIOUS DATES AND ALSO ANOTHER ` 4,50,000/- IN CASH WHICH WERE ALL REFLECTED IN HIS BOOKS OF ACCOUNTS. ACCORDING TO T HE ASSESSEE, THE LATTER SUM OF ` 4,50,000/- WAS WITHDRAWN FROM ONE M/S BHANDARI EXPORTS IN WHICH HE WAS A PARTNER. ASSESSEE ALSO B ROUGHT TO THE NOTICE OF THE A.O. THAT A SUM OF ` 95,50,000/- WAS ADMITTED BY HIM IN THE RETURN OF INCOME ON THE PART OF ADVANCE GIVEN T O M/S G.V. FILMS, NOT RECORDED IN HIS BOOKS OF ACCOUNTS. THEREFORE, ACCORDING TO ASSESSEE, HE HAD GIVEN PROPER EXPLANATION FOR ` 1,87,20,000/-. IN SO FAR AS BALANCE OF ` 62,80,000/- WAS CONCERNED, AVERMENT OF THE ASSESSEE WAS THAT THE SAID SUM WAS ON ACCOUNT OF RO YALTY. ACCORDING TO THE ASSESSEE, M/S G.V. FILMS DEFAULTED IN MAKING THE I.T.A. NOS. 201 TO 205/MDS/10 26 REPAYMENT AND THEREFORE, ASSESSEE HAD NO WAY OUT, B UT TO FILE A PLAINT FOR A TOTAL SUM OF ` 3 CRORES COMPRISING ` 2.5 CRORES PRINCIPAL AND ROYALTY AND ` 45,00,000/- TOWARDS INTEREST. AS PER THE ASSESSEE , THOUGH THE HIGH COURT INDEED GAVE DECREE FOR A SUM OF ` 3 CRORES IN HIS FAVOUR, ONLY A SMALL AMOUNT WAS RECEIVED BACK B Y HIM AND THE BALANCE WAS NOT RECOVERABLE. ASSESSEE BROUGHT TO THE ATTENTION OF THE A.O. A COUNTER CLAIM FILED BY M/S G.V. FILMS FO R ` 61,00,000 AND ALSO INFORMED THAT SAID M/S G.V. FILMS HAD FILED A SUIT FOR RECOVERY. NEVERTHELESS, THE A.O. WAS NOT IMPRESSED. ACCORDIN G TO HIM, IN SO FAR AS THE ROYALTY OF ` 62,80,000/- WAS CONCERNED, THERE WAS NOTHING MENTIONED IN THE AGREEMENT DATED 19.3.2002 OR IN TH E PLAINT FILED BEFORE THE HON'BLE HIGH COURT. ACCORDING TO THE A. O., ASSESSEE HAD CLAIMED ` 45,00,000/- AS INTEREST AND ` 2.5 CRORES AS PRINCIPAL FROM M/S G.V. FILMS IN THE PLAINT FILED BEFORE THE HON'B LE HIGH COURT. THEREFORE, AS PER THE A.O., ASSESSEES SUBMISSION T HAT IT HAD NOT ADVANCED A SUM OF ` 2.5 CRORES COULD NOT BE ACCEPTED. BASED ON THE DECREE OF HON'BLE HIGH COURT AND THE COMPROMISE AGREEMENT BETWEEN THE ASSESSEE AND THE CONCERNED PARTIES, THE A.O. WAS OF THE OPINION THAT AN ADVANCE OF ` 2.5 CRORES TO M/S G.V. FILMS STOOD FAIRLY EVIDENCED. ACCORDING TO HIM, ASSESSEES SUBMISSION THAT IT HAD ONLY ADVANCED ` 1,87,20,000/- AND NOT ` 2,50,00,000/- COULD NOT BE I.T.A. NOS. 201 TO 205/MDS/10 27 ACCEPTED IN VIEW OF THE AVERMENT FILED BEFORE THE H ON'BLE HIGH COURT. A.O. ALSO NOTED THAT HON'BLE HIGH COURT HAS PASSED A DECREE IN FAVOUR OF ASSESSEE FOR ` 3 CRORES. HE, THEREFORE, CONSIDERED THE ENTIRE AMOUNT OF ` 3 CRORES COMPRISING OF PRINCIPAL ` 2.5 CRORES AND INTEREST ` 50,00,000/- FOR ADDITION FOR THE IMPUGNED ASSESSME NT YEAR. 28. IN HIS APPEAL BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT HE HAD ADVANCED ` 87,20,000/- TO M/S G.V. FILMS BY CHEQUES ON VARIOUS DATES DURING THE RELEVANT PRE VIOUS YEAR FOR A FILM CHOKKATHANGAM. AS PER THE ASSESSEE, A FURTH ER SUM OF ` 1 CRORE WAS ALSO GIVEN IN CASH, OUT OF WHICH A SUM OF ` 4,50,000/- WAS PROPERLY REFLECTED IN HIS BOOKS, BEING WITHDRAWALS FROM M/S BHANDARI EXPORTS, IN WHICH ASSESSEE WAS A PARTNER. AS PER T HE ASSESSEE, THIS LEFT BALANCE OF ` 95,50,000/- WHICH WAS OFFERED BY HIM AS A PART OF HIS UNDISCLOSED INCOME FOR THE IMPUGNED ASSESSMENT YEAR . WITH REGARD TO MEMO OF COMPROMISE ENTERED INTO BY ASSESSEE WITH M/S G.V. FILMS, RELIED ON BY THE A.O., ASSESSEES STAND WAS THAT OUT OF A SUM OF ` 2.5 CRORES, HE HAD CLEARLY ACCOUNTED FOR A SUM OF ` 87,20,000/- PAID BY CHEQUES, ` 4,50,000/- PAID BY CASH OUT OF WITHDRAWALS FROM M/S BHANDARI EXPORTS AND RETURNED ` 95,50,000 AS UNDISCLOSED INCOME, THUS LEAVING A BALANCE OF ` 62,80,000/-, IF THE FIGURE OF ` 2.5 CRORES WAS CONSIDERED AS PRINCIPAL. AS PER THE ASS ESSEE, THIS I.T.A. NOS. 201 TO 205/MDS/10 28 DIFFERENCE WAS ON ACCOUNT OF ROYALTY. FURTHER CONT ENTION OF THE ASSESSEE WAS THAT THOUGH THERE WAS A DECREE FOR A S UM OF ` 3 CRORES IN FAVOUR OF ASSESSEE, ONLY A SMALL PART WAS RECEIV ED AND BALANCE WAS NOT RECOVERABLE. ASSESSEE ONCE AGAIN BROUGHT T O THE NOTICE OF THE CIT(APPEALS) ALSO THAT A SUM OF ` 61,00,000/- WAS CLAIMED BY M/S G.V. FILMS AS DUE FROM THE ASSESSEE. IN SO FAR AS INTEREST OF ` 50 LAKHS INCLUDED IN TOTAL SUM OF ` 3 CRORES WAS CONCERNED, SUBMISSION OF THE ASSESSEE WAS THAT NO SUCH INTEREST WAS EVER RECEIVED AND SINCE THE ASSESSEE MAINTAINED BOOKS ON CASH BASIS, THERE WAS NO QUESTION OF RETURNING ANY SUCH INCOME. ROYALTY OF ` 62,80,000/- WAS ALSO NOT RECEIVED NOR ACCOUNTED BY THE ASSESSEE. A SSESSEE ALSO RELIED ON A STATEMENT OF SHRI MAHADEVAN GANESH, CHA IRMAN OF M/S G.V. FILMS RECORDED ON 16.8.2004 SUBSEQUENT TO SEAR CH PROCEEDINGS IN WHICH SHRI MAHADEVAN GANESH HAD STATED THAT M/S G.V. FILMS RECEIVED ONLY 1,53,80,000/- FROM THE ASSESSEE. ASS ESSEE ALSO SUBMITTED THAT THE BOOKS OF M/S G.V. FILMS REFLECTE D ONLY AN ADVANCE OF ` 1,53,80,000/- FROM THE ASSESSEE. HENCE, AS PER TH E ASSESSEE, NO ADDITION WHATSOEVER WAS CALLED FOR. 29. LD. CIT(APPEALS) SOUGHT A REMAND REPORT FROM TH E A.O. ON THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE. IN THE R EMAND REPORT, A.O. STATED THAT ASSESSEE WAS NOT MAINTAINING PROPE R BOOKS OF I.T.A. NOS. 201 TO 205/MDS/10 29 ACCOUNTS AND IN SO FAR AS TRANSACTION WITH M/S G.V. FILMS WAS CONCERNED, IT WAS IMMATERIAL WHAT SYSTEM OF ACCOUNT ING THE ASSESSEE WAS FOLLOWING. LD. A.O. ONCE AGAIN RELIED ON THE PLAINT FILED BY THE ASSESSEE AGAINST M/S G.V.FILMS FOR RECOVERY OF ` 3 CRORES, AGAINST THE ADVANCE OF ` 2.5 CRORES TO M/S G.V. FILMS. WHEN THE REMAND REPORT WAS BROUGHT TO THE NOTICE OF THE ASSE SSEE, HE FILED A COPY OF LETTER DATED 22.7.2004 OF THE CHAIRMAN OF M /S G.V. FILMS ADDRESSED TO ASSESSEE, EARLIER SUBMITTED BY THE ASS ESSEE BEFORE THE INVESTIGATION WING. IT WAS STATED THEREIN THAT ONL Y ` 1,38,80,000/- WAS DUE TO ASSESSEE AS PER ITS BOOKS OF ACCOUNTS. THE SAID LETTER ALSO MENTIONED REPAYMENTS OF ` 75,00,000/- AND ` 65,00,000/-, IN ADDITION TO ` 59,99,985/- WITHDRAWN BY THE ASSESSEE FROM THE COU RT DEPOSIT. IN OTHER WORDS, M/S G.V. FILMS CLAIMED A REFUND OF ` 61,19,985/- FROM THE ASSESSEE. 30. CIT(APPEALS) AFTER GOING THROUGH THE LETTER OF M/S G.V. FILMS CITED ABOVE AND BASED ON A READING OF THE DECREE OF HON'BLE JURISDICTIONAL HIGH COURT IN THE SUIT FILED BY THE ASSESSEE AGAINST M/S G.V. FILMS, CAME TO A CONCLUSION THAT THE ACTUAL AM OUNT ADVANCED BY THE ASSESSEE WAS ONLY ` 1,87,20,000/- REPRESENTED BY THE FOLLOWING:- CHEQUE PAYMENT ACCOUNTED IN ASSESSEES BOOKS ` 87,20,000 CASH PAYMENT ACCOUNTED IN ASSESSEES BOOKS I.T.A. NOS. 201 TO 205/MDS/10 30 WITHDRAWAL FROM M/S BHANDARI EXPORTS ` 4,50,000 DISCLOSED BY THE ASSESSEE IN HIS STATEMENT UNDER SECTION 132(4) OF THE ACT AS WELL AS IN THE RETURN ` 95,50,000 TOTAL ` 1,87,20,000 31. VIS--VIS BALANCE AMOUNT OF ` 1,12,80,000/- VIZ. AFTER DEDUCTION OF ` 1,87,20,000/- FROM ` 3 CRORES, THE CIT(APPEALS) WAS OF THE OPINION THAT ` 62,80,000/- WAS ROYALTY AND ` 50,00,000/- WAS INTEREST BOTH OF WHICH WERE NEVER RECEIVED BY THE ASSESSEE. SINCE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING WHICH WAS A CCEPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, AS PER T HE CIT(APPEALS), NO SUCH INCOME COULD BE CONSIDERED IN THE HANDS OF THE ASSESSEE. THE NET RESULT WAS THAT THE ADDITION OF ` 3 CRORES WAS DELETED. 32. NOW BEFORE US, THE LEARNED D.R., STRONGLY ASSAI LING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT PAGES 1 TO 4 OF HI S PAPER-BOOK WAS THE COPY OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S G.V. FILMS ON 19 TH MARCH, 2002 WHEREIN THE SUM WHICH WAS PROPOSED TO BE GIVEN BY THE ASSESSEE AS LOAN TO M/S G.V. FILMS WAS MENTIONED AS ` 2,50,00,000/-. THEREFORE, ACCORDING TO HIM, THE INTENTION OF THE ASSESSEE TO LEND ` 2,50,00,000/- WAS BEYOND DOUBT. THEN, LEARNED D.R. BROUGHT TO OUR ATTENTION TO PAPE R-BOOK PAGES 5 TO 12 WHICH IS A COPY OF THE PLAINT FILED BY THE ASSES SEE BEFORE HON'BLE JURISDICTIONAL HIGH COURT. RELYING ON PARAS 4,5 AN D 11 OF THIS PLAINT, I.T.A. NOS. 201 TO 205/MDS/10 31 LEARNED D.R. SUBMITTED THAT THE ADVANCE OF ` 2,50,00,000/- MADE BY THE ASSESSEE TO M/S G.V. FILMS COULD NEVER BE CONTR OVERTED. ACCORDING TO LEARNED D.R., APART FROM THIS PRINCIPA L AMOUNT INTEREST OF ` 45,00,000/- WAS ALSO CLAIMED IN THIS PLAINT. LEAR NED D.R. ALSO BROUGHT TO OUR ATTENTION THAT THE A.O. HAD MADE THE ADDITION BASED ON THE DECREE PASSED BY THE HON'BLE JURISDICTIONAL HIG H COURT AND SUCH DECREE WAS PASSED BASED ON THE PLAINT FILED BY THE ASSESSEE. ASSESSEE CANNOT BE HEARD TO SAY IN ANY WAY, THAT HE HAD NOT ADVANCED A SUM OF ` 2.5 CRORES, NOR CAN IT BE HEARD TO SAY THAT HE HAD NOT RECEIVED AN INCOME OF ` 50,00,000/- AS INTEREST. OUR ATTENTION WAS ALSO BROUGHT TO MEMO OF COMPROMISE DA TED 14.01.2003 PLACED AT PAPER-BOOK 14 TO 16 AND 17 TO 18 WHICH AGAIN MENTIONED THAT A SUM OF ` 3 CRORES AS DUE TO THE ASSESSEE OUT OF WHICH M/S G.V. FILMS HAD PAID ` 75,00,000/- ON 14 TH JANUARY, 2003 AND HAD FURTHER AGREED TO PAY ` 25,00,000/- BEFORE 25 TH JANUARY, 2003. IN ANY CASE, AS PER LEARNED D.R., THE CIT(AP PEALS) GROSSLY ERRED IN DELETING THE WHOLE OF THE ADDITION OF ` 3 CRORES, WHICH INCLUDED THE AMOUNT OF ` 95.5 LAKHS OFFERED BY THE ASSESSEE AS UNDISCLOSED INCOME, ON ACCOUNT OF ADVANCE TO M/S G. V. FILMS IN HIS RETURN. IN SO FAR AS THE ISSUE OF INTEREST WAS CON CERNED, LEARNED D.R. RELYING ON A DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF DR. I.T.A. NOS. 201 TO 205/MDS/10 32 MARY KOSHY & OTHERS V. CWT (232 ITR 81), SUBMITTED THAT DECREE WAS AN ASSET, TRANSFER OF WHICH HAD MONEY VALUE AND THEREFORE, EQUIVALENT TO RECEIPT OF CASH. ACCORDING TO HIM, I RRESPECTIVE OF THE ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE, THE AMO UNT OF ` 50,00,000/- INCLUDED AS INTEREST IN THE DECREE WAS CORRECTLY CONSIDERED AS INCOME BY THE ASSESSING OFFICER. LEA RNED D.R. SUBMITTED THAT LD. CIT(APPEALS) FAILED TO NOTE THAT DECREE INTEREST WAS ALWAYS RECEIPT AND OUGHT NOT HAVE DELETED THE ADDIT ION SIMPLY FOR A REASON THAT SYSTEM OF ACCOUNTING FOLLOWED BY THE AS SESSEE, WAS CASH. 33. IN REPLY, LEARNED A.R. SUBMITTED THAT REVENUE H AD NEVER DISPUTED THE FACT THAT THE ASSESSEE HAD ADVANCED ` 87,20,000/- OUT OF THE TOTAL ALLEGED SUM OF ` 2.5 CRORES, BY CHEQUES ONLY AND THESE WERE PROPERLY REFLECTED IN THE BOOKS OF ACCOUNT. A CCORDING TO HIM, REVENUE HAD ALSO NOT REBUTTED OR CONTROVERTED ITS S UBMISSION THAT ` 4.5 LAKHS WAS FURTHER GIVEN BY THE ASSESSEE IN CASH OUT OF WITHDRAWAL FROM A PARTNERSHIP FIRM CALLED BHANDARI EXPORTS. L EARNED A.R. FURTHER BROUGHT TO OUR ATTENTION THAT ASSESSEE HAD DISCLOSE D A SUM OF ` 95,50,000/- AS PART OF ITS INCOME FOR COVERING THE UNEXPLAINED PART OF THE ADVANCE GIVEN TO M/S G.V. FILMS AND THE BUSINES S INCOME OF ` 20,31,858/- ULTIMATELY RETURNED BY IT IN THE IMPUGN ED ASSESSMENT I.T.A. NOS. 201 TO 205/MDS/10 33 YEAR WAS AFTER CONSIDERING SUCH AMOUNT OF ` 95,50,000/-. THEREFORE, HE SUBMITTED THAT AT LEAST TO THE EXTENT OF ` 1,87,20,000/- SOURCE OF THE LOAN STOOD EXPLAINED. EVEN IF ` 2.5 CRORES WAS CONSIDERED AS THE AMOUNT OF ADVANCE GIVEN BY THE ASSESSEE, ACCORDING TO LEARNED A.R., THE AMOUNT THAT WAS LEFT TO BE EXPLAINED WAS ` 62,80,000/- ONLY. IN SO FAR THIS AMOUNT WAS CONCERNED, LEARNED A.R. SUBM ITTED THAT IN THE NATURE OF BUSINESS OF THE ASSESSEE, WHICH WAS FINAN CING FOR PRODUCTION OF FILMS, ROYALTY WAS A PART WHICH WAS N EVER MENTIONED AND IT WAS USUAL FOR FINANCIERS TO GET AGREEMENTS S IGNED FOR HIGHER AMOUNTS THAN WHAT WAS ACTUALLY GIVEN SO AS TO TAKE CARE OF DELAYS AND DEFAULTS IN REPAYMENTS. AS PER THE LEARNED AR. SUCH ROYALTY AMOUNT WAS NEVER EVER RECEIVED BY THE ASSESSEE. RE GARDING THE LETTER OF M/S G.V FILMS WHICH WAS AVAILABLE BEFORE THE INVESTIGATION WING, LD. A.R. SUBMITTED THAT M/S G.V FILMS HAD ALW AYS MENTIONED ` 1,38,80,000/- AS THE SUM DUE TO THE ASSESSEE OUT OF WHICH THEY HAD CLAIMED REPAYMENTS TO THE EXTENT OF ` 1,99,99,985/-. THEREFORE, JUST BECAUSE ASSESSEE HAD FILED A PLAINT BEFORE THE HON' BLE JURISDICTIONAL HIGH COURT, WHICH WAS DECREED IN ITS FAVOUR, AS PER THE LD AR THE AMOUNT ADVANCED COULD NOT BE CONSIDERED AS ` 2.5 CRORES AGAINST THE ACTUAL AMOUNT OF ` 1,87,20,000/-. IN SO FAR AS THE INTEREST PART WAS CONCERNED, LEARNED A.R. SUBMITTED THAT ASSESSEE HAD NEVER I.T.A. NOS. 201 TO 205/MDS/10 34 RECEIVED ANY INTEREST, AND THE PRINCIPAL ITSELF WAS NOT RECOVERED FULLY. ACCORDING TO LEARNED A.R., THE LOAN ITSELF BEING DO UBTFUL OF RECOVERY, THERE WAS NO QUESTION OF ACCOUNTING ANY INTEREST, E SPECIALLY SINCE ASSESSEE WAS FOLLOWING CASH SYSTEM. AS PER THE LEA RNED A.R., A DECREE BY ITSELF CANNOT BE CONSIDERED AS INCOME, WH EN AN ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNTS ON CASH BASIS. T HEREFORE, UNLESS AND UNTIL INTEREST WAS RECEIVED, ASSESSEE WAS NOT B OUND TO ACCOUNT. ACCORDING TO HIM, THE RELIANCE PLACED BY LEARNED D. R. ON THE DECISION OF KERALA HIGH COURT WAS INAPPROPRIATE ON THE FACTS OF HIS CASE. 34. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THE PLAINT FILED BY THE ASSESSEE BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT PLACED AT PAPER-BOOK PAGES 5 TO 12 OF THE REV ENUE CLEARLY MENTIONS AT PARA 11 THAT M/S G.V. FILMS WAS DUE TO PAY THE PLAINTIFF A SUM OF ` 2,50,00,000/- TOWARDS PRINCIPAL AND ` 45,00,000/- TOWARDS INTEREST. BASED ON SUCH PLAINT, HON'BLE JURISDICTI ONAL HIGH COURT HAD PASSED A DECREE ALSO AND THEREFORE, THE ASSESSEE CA NNOT NOW BE ALLOWED TO TURN BACK FROM ITS OWN AVERMENT BEFORE T HE HON'BLE JURISDICTIONAL HIGH COURT, HAVING OBTAINED A DECREE IN ITS FAVOUR. ASSESSEE CANNOT BE ALLOWED TO APROBATE AND REPROBAT E ACCORDING TO HIS SWEET WILL, TO SUIT HIS CONTENTIONS IN CASES BE FORE DIFFERENT AUTHORITIES. THEREFORE, WHATEVER MAY BE THE LETTER S GIVEN BY M/S G.V. I.T.A. NOS. 201 TO 205/MDS/10 35 FILMS DURING THE COURSE OF ASSESSMENT PROCEEDINGS O R BEFORE THE INVESTIGATION WING, REGARDING THE AMOUNTS RECEIVED BY THEM AS ADVANCE FROM THE ASSESSEE, THE SUM OF ` 2.5 CRORES HAS TO BE CONSIDERED THE ACTUAL AMOUNT ADVANCED BY THE ASSESS EE TO M/S G.V. FILMS. ALONG WITH THE INTEREST OF ` 50,00,000/- THE TOTAL AMOUNT CAME TO ` 3 CRORES AND A.O. CONSIDERED THE WHOLE OF SUCH AMO UNT AS UNEXPLAINED AND MADE AN ADDITION. BUT, IN OUR OPIN ION, CONSIDERING THE WHOLE OF SUCH AMOUNT AS INCOME OF THE ASSESSEE WHICH WAS UNDISCLOSED WAS NOT CORRECT. ASSESSEE HAD CLEARLY MENTIONED THAT ` 87,20,000/- WAS PAID TO M/S G.V. FILMS BY CHEQUES O NLY AND ACCOUNTED BY IT. THIS WAS MENTIONED BY THE ASSESSE E IN HIS REPLY DATED 08.11.2006 FILED BEFORE THE ASSESSING OFFICER . ASSESSING OFFICER HAS AT NO STAGE MENTIONED IN THE ASSESSMENT ORDER THAT THE CLAIM OF PAYMENT OF ` 87,20,000/- BY CHEQUES TO M/S G.V. FILMS WAS INCORRECT. ASSESSEE HAD ALSO BROUGHT TO THE ATTENT ION OF THE LD. A.O. THAT ` 4,50,000/- WAS GIVEN TO M/S G.V. FILMS IN CASH OUT OF WITHDRAWALS MADE FROM A PARTNERSHIP FIRM CALLED BHA NDARI EXPORTS. THIS ALSO HAS NOT BEEN DISPUTED BY REVENUE. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAD DISCLOSED ` 95,50,000/- IN THE RETURN FILED FOR THE IMPUGNED ASSESSMENT YEAR AS EVIDENCED AT PARA 3 OF THE ASSESSMENT ORDER, WHICH IS REPRODUCED HEREUNDER FOR BREVITY:- I.T.A. NOS. 201 TO 205/MDS/10 36 IN THE RETURN FILED FOR THE ASSESSMENT YEAR 2003-04, THE ASSESSEE DISCLOSED THE FOLLOWING AMOUNTS OF ADVANCE S AS UNACCOUNTED ADVANCES: 1. LOAN ADVANCE (PRINCIPAL) (M/S G.V. FILMS) ` 95,50,000 2. ON ACCOUNT OF INTEREST (UNACCOUNTED INTEREST): (I) SUPER ART MOVIES (II) HUSH BUSH (III) THIRUVALLUVAR KALAI KOODAM (IV) PRISM FILMS ` 2,80,000 ` 50,000 ` 50,000 ` 1,00,000 ` 4,80,000 TOTAL DISCLOSURE ` 1,00,30,000 IN THE COMPUTATION SHEET, THE ASSESSEE CLAIMED BAD DEBTS AMOUNTING TO ` 95,50,000/- FROM OUT OF THE ABOVE DISCLOSED AMOUNT . THE ADVANCE OF ` 95,50,000/- MADE TO M/S G.V. FILMS LTD. WAS CLAIME D AS BAD DEBTS. 35. THUS, IN OUR OPINION, AN AMOUNT OF ` 1,87,20,000/- OUT OF THE TOTAL AMOUNT OF ` 2.5 CRORES CLEARLY STOOD EXPLAINED. SO, THE BALAN CE OUT OF THE PRINCIPAL AMOUNT WHICH REMAINS TO BE SEE N IS ` 62,80,000/- ONLY. STAND OF THE ASSESSEE WAS THAT THIS AMOUNT W AS ROYALTY. NEVERTHELESS, WE DO NOT FIND SUCH EXPLANATION TO BE CONVINCING. THIS IS FOR A REASON THAT NOTHING REGARDING ROYALTY WAS MENTIONED EITHER IN THE AGREEMENT DATED 19.3.2002 BETWEEN THE ASSESSEE AND M/S G.V. FILMS, PLACED AT PAPER-BOOK PAGES 1 TO 4 OF DEPARTM ENTS PAPER-BOOK NOR IN THE PLAINT FILED BY THE ASSESSEE ON 13.2.200 3 AGAIN PLACED AT DEPARTMENTS PAPER-BOOK PAGES 5 TO 12. EVEN IF WE ACCEPT THAT THERE IS A PRACTICE OF SHOWING HIGHER AMOUNT OF ADVANCE I N THE AGREEMENT I.T.A. NOS. 201 TO 205/MDS/10 37 THAN WHAT WAS ACTUALLY GIVEN, IT CANNOT BE ACCEPTED SINCE SUCH PRACTICE HAS NOT BEEN PROVED. HENCE, WE HAVE TO CO NSIDER THE SUM OF ` 62,80,000/- OUT OF THE TOTAL PRINCIPAL AMOUNT OF ` 2.5 CRORES AS UNEXPLAINED BY THE ASSESSEE. LD. CIT(APPEALS) FELL IN ERROR IN DELETING THE ADDITION OF THE WHOLE OF THE AMOUNT CO NSIDERING ` 62,80,000/- AS ROYALTY, NOT RECEIVED BY THE ASSESSE E. 36. COMING TO THE ASPECT OF THE INTEREST AMOUNT OF ` 50,00,000/-, THE AVERMENT OF THE LEARNED D.R. IS THAT THE DECREE BY ITSELF WAS SUFFICIENT FOR SUCH AMOUNT TO BE TREATED AS INCOME OF THE ASSESSEE, FOR THE IMPUGNED ASSESSMENT YEAR. RELIANCE WAS PLA CED ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF DR. MA RY KOSHY & OTHERS (SUPRA) IN THIS REGARD. BUT, WE FIND THAT THE DECI SION OF HON'BLE KERALA HIGH COURT WAS GIVEN IN THE CONTEXT OF WEALTH TAX A CT. THE QUESTION THERE WAS WHETHER DECREE WAS TO BE CONSIDERED AS AN ASSET FOR THE PURPOSE OF VALUATION, ON THE VALUATION DATE, AS PER THE WEALTH TAX ACT. HON'BLE KERALA HIGH COURT DID HOLD THAT DECRE E WAS AN ASSET AND A TRANSFERABLE PROPERTY WHICH HAD MONEY VALUE A ND IT HAD ESTIMATED IN TERMS OF MONEY VALUE, AND INCLUDED AS AN ASSET ON THE RESPECTIVE VALUATION DATES. THIS, IN OUR OPINION, CANNOT BE EXTENDED TO MEAN THAT AN ASSESSEE FOLLOWING CASH SYSTEM HAD TO CONSIDER AN AWARD THROUGH A DECREE, AS ITS INCOME, EVEN WHEN IT WAS STILL TO I.T.A. NOS. 201 TO 205/MDS/10 38 RECEIVE ANY AMOUNT. ALL ALONG, THE CONTENTION OF T HE ASSESSEE WAS THAT IT HAD NOT RECEIVED ANY INTEREST IN CASH, EITH ER IN PURSUANCE OF DECREE OR OTHERWISE. WHEN THE ASSESSEE HAD NOT ACC OUNTED ANY INTEREST, AND IT WAS FOLLOWING CASH BASIS FOR ITS A CCOUNTING, SUCH INTEREST, EVEN IF ACCRUED, CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. MIGHT BE, THE INCOME HAD ACCRUED TO THE ASSESSEE ON THE DATE OF DECREE BUT, NEVERTHELESS IT HAD NOT RECEIVE D THE SUM OR ANY PART THEREOF IN CASH. THE DECREE WILL DEFINITELY H AVE A MONEY VALUE, BUT IT WOULD NOT MEAN THAT THE DECREE WOULD BE EQUI VALENT TO CASH FROM THE MOMENT IT WAS PASSED. ASSESSEE FOLLOWING CASH SYSTEM, IN OUR OPINION, WOULD NOT BE OBLIGED TO RETURN SUCH DE CREE AMOUNT AS HIS INCOME. NOR COULD IT BE CONSIDERED AS UNDISCLO SED INCOME. LD. CIT(APPEALS) WAS VERY WELL JUSTIFIED IN HOLDING THA T ` 50,00,000/- COULD NOT BE CONSIDERED AS INCOME OF THE ASSESSEE B ASED ON THE SYSTEM OF ACCOUNTING FOLLOWED BY IT. TO SUMMARISE, OUT OF ` 3 CRORES CONSIDERED BY THE A.O. FOR ADDITION, AND DELETED BY THE LD. CIT(APPEALS), ADDITION TO THE EXTENT OF ` 62,80,0000/- ALONE IS REINSTATED AND TO THIS EXTENT WE SET ASIDE THE ORDE R OF THE CIT(APPEALS). ORDERED ACCORDINGLY. GROUND NO.1 OF THE REVENUE IS PARTLY ALLOWED. I.T.A. NOS. 201 TO 205/MDS/10 39 37. VIDE ITS GROUND NO.2, GRIEVANCE OF THE REVENUE IS THAT THE CIT(APPEALS) DIRECTED THE A.O. TO CONSIDER ` 95,50,000/- CLAIMED AS BAD DEBTS BY THE ASSESSEE FOR THE IMPUGNED ASSESSME NT YEAR, AS ALLOWABLE FOR THE SUBSEQUENT ASSESSMENT YEAR, NAMEL Y, ASSESSMENT YEAR 2004-05. 38. SHORT FACTS APROPOS ARE THAT AS MENTIONED BY US AT PARA ABOVE, ASSESSEE HAD RETURNED A SUM OF ` 95,50,000/- BEING A PART OF ITS ADVANCE TO M/S G.V. FILMS, AS UNDISCLOSED INCOM E FOR THE IMPUGNED ASSESSMENT YEAR. THIS SUM OF ` 95,50,000/- WAS IN TURN CLAIMED BY THE ASSESSEE AS BAD DEBT. A.O. WAS OF T HE OPINION THAT THE BASIC CONDITION LAID DOWN IN SECTION 36(2) WAS NOT SATISFIED SINCE THE DEBT WHICH WAS CLAIMED AS BAD, WAS NOT TAKEN IN TO ACCOUNT BY THE ASSESSEE IN COMPUTING HIS INCOME. AS PER THE A .O., ASSESSEE HAD NEVER ACCOUNTED SUCH ADVANCE IN HIS BOOKS OF AC COUNTS AND WHEN NO SUCH ENTRY WAS IN THE BOOKS, IT COULD NOT CLAIM BAD DEBT. REPLY OF THE ASSESSEE WAS THAT HE WAS ENGAGED IN MO NEY LENDING BUSINESS AND THEREFORE, FULLY ENTITLED TO WRITE-OFF THE LOANS WHICH WERE NOT RECOVERABLE. LD. A.O. WAS NOT IMPRESSED BUT DI SALLOWED THE CLAIM. I.T.A. NOS. 201 TO 205/MDS/10 40 39. IN HIS APPEAL BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE FACTUM OF ASSESSEE HAVING GIV EN ADVANCE TO M/S G.V. FILMS WAS NEVER DOUBTED BY THE A.O. THERE FORE, ACCORDING TO ASSESSEE, WHEN THE DEBT BECAME IRRECOVERABLE, HE HAD EVERY RIGHT TO CLAIM THE AMOUNT AS BAD DEBT. ACCORDING TO THE ASSESSEE, THE AMOUNT HAVING BEEN A PART OF HIS INCOME RETURNED, A ND DEFINITELY TAKEN INTO ACCOUNT FOR COMPUTING THE TOTAL INCOME, THERE WAS NOTHING WHICH DEBARRED HIM FROM MAKING SUCH A CLAIM. CIT(A PPEALS) REQUIRED REMAND REPORT FROM THE A.O. AND DURING REM AND PROCEEDINGS, ASSESSEE REITERATED THAT M/S G.V. FILM S HAD DEFAULTED THE PAYMENT OF PRINCIPAL AMOUNT AND HE HAD ONLY REC EIVED NEGLIGIBLE AMOUNT FROM THEM AGAINST THE SUM OF ` 3 CRORES DECREED BY HON'BLE JURISDICTIONAL HIGH COURT. 40. LD. CIT(APPEALS) WAS OF THE OPINION THAT FACTS MENTIONED BY THE ASSESSEE WERE NOT DISPUTED BY THE A.O. IN THE REMAN D REPORT. ACCORDING TO HIM, A SUM OF ` 95,50,000/- HAD, INDEED, BECOME IRRECOVERABLE. CIT(APPEALS) ALSO NOTED THAT ASSESS EE HAD RECEIVED ONLY ` 32,99,985/- ON THE AUCTION OF A PROPERTY ATTACHED PURSUANT TO DECREE OF HON'BLE JURISDICTIONAL HIGH COURT AND THI S WOULD NOT BE SUFFICIENT TO RECOVER THE ADVANCE GIVEN BY THE ASSE SSEE. HOWEVER, AS PER THE CIT(APPEALS), M/S G.V. FILMS HAD IN TURN CLAIMED A REFUND I.T.A. NOS. 201 TO 205/MDS/10 41 FROM ASSESSEE BY LETTER DATED 22.7.2004 AND THIS LE TTER CLEARLY SHOWED THAT DEBT HAD BECOME BAD ONLY LATER TO THE R ELEVANT PREVIOUS YEAR. HENCE, IN HIS VIEW, THE DEBT HAD INDEED BECO ME IRRECOVERABLE, BUT, THIS HAPPENED ONLY IN PREVIOUS YEAR RELEVANT T O ASSESSMENT YEAR 2004-05. LD. CIT(APPEALS) NOTED THAT M/S G.V. FILM S HAD REFUSED TO MAKE PAYMENTS TO THE ASSESSEE. HE, THEREFORE, HELD THAT A SUM OF ` 95,50,000/- WAS IRRECOVERABLE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05 AND NOT IN THE PREVIOUS YEA R RELEVANT TO THE IMPUGNED ASSESSMENT YEAR AND DIRECTED THE A.O. TO A LLOW SUCH DEDUCTION FOR ASSESSMENT YEAR 2004-05. 41. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), PRIMARILY ATTACKED HIS DIRECTION TO T HE A.O. FOR CONSIDERING THE DEBT AS IRRECOVERABLE IN A SUBSEQUE NT ASSESSMENT YEAR. ACCORDING TO HIM, THE POWERS OF THE CIT(APPE ALS) IN AN APPEAL PROCEEDINGS WAS CONFINED TO THE YEAR UNDER APPEAL A ND HE HAD NO POWER TO GIVE DIRECTION IN RESPECT OF ANOTHER YEAR. THE MATTER IN APPEAL WAS REGARDING DISALLOWANCE OF BAD DEBT IN TH E IMPUGNED ASSESSMENT YEAR AND CIT(APPEALS) FELL IN GROSS ERRO R, AS PER THE LEARNED D.R., WHEN HE GAVE DIRECTION TO THE A.O. TO CONSIDER THE DEBT AS IRRECOVERABLE IN A LATER ASSESSMENT YEAR. FOR H IS PROPOSITION THAT THE CIT(APPEALS) HAD NO POWER TO DEAL WITH AN YEAR OTHER THAN THE I.T.A. NOS. 201 TO 205/MDS/10 42 YEAR UNDER APPEAL, LEARNED D.R. RELIED ON THE DECIS ION OF HON'BLE APEX COURT IN THE CASE OF ITO V. MURLIDHAR BHAGWAND AS (52 ITR 335) (SC) AND THE DECISION OF HON'BLE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT V. T.P.S.H. SELVA SAROJA (244 ITR 671) (MAD. ). IN SO FAR AS MERITS OF THE CLAIM WAS CONCERNED, LEARNED D.R. SUB MITTED THAT M/S G.V. FILMS BY THEMSELVES HAD STATED THAT ` 1,40,00,000/- WAS REFUNDED IN ITS LETTER DATED 22.7.2004, PRODUCED BY THE ASSESSEE BEFORE THE INVESTIGATION WING. ACCORDING TO LEARNE D D.R., EVIDENCE PRODUCED BY THE ASSESSEE, CANNOT BE DEBUNKED BY IT. FURTHER, AS PER THE LEARNED D.R., A SUM OF ` 59,99,985/- WAS MENTIONED BY THE ASSESSEE AS WITHDRAWALS MADE OUT OF COURT DEPOSIT A ND THIS FACTUM WAS ALSO MENTIONED IN THE LETTER DATED 22.7.2004 OF M/S G.V. FILMS. ALONG WITH THE AMOUNT OF ` 32,99,985/- RECOVERED BY THE ASSESSEE ON AUCTION OF ATTACHED PROPERTY, THE TOTAL REPAYMENTS MADE BY M/S G.V. FILMS CAME TO ` 2,32,99,970/-. THEREFORE, ACCORDING TO HIM, THERE WAS NO QUESTION OF ANY CLAIM OF BAD DEBTS EITHER FO R IMPUGNED ASSESSMENT YEAR OR FOR ANY SUBSEQUENT ASSESSMENT YE ARS. 42. IN REPLY, LEARNED A.R. SUBMITTED THAT THE LETTE R CITED BY LEARNED D.R. WAS ONE WRITTEN BY M/S G.V. FILMS AND THOUGH T HIS WAS PRODUCED BY THE ASSESSEE BEFORE INVESTIGATION WING, IT COULD NOT BE CONSIDERED AS AN ADMISSION BY THE ASSESSEE THAT HE HAD RECEIVED I.T.A. NOS. 201 TO 205/MDS/10 43 THE SUMS MENTIONED THEREIN FROM M/S G.V. FILMS. AC CORDING TO HIM, ASSESSEE HAD NOT RECEIVED ANY SUCH SUMS AT ALL. M/ S G.V. FILMS HAD DEFAULTED TO MAKE ANY PAYMENT DESPITE COURT DECREE, PURSUANT TO WHICH, AN AUCTION OF THE PROPERTY WAS DONE AND ASSE SSEE RECEIVED ` 32,99,985/-. THEREFORE, AS PER THE LEARNED A.R., A SSESSEE HAD LOST THE MONEY ALMOST FULLY AND THEREFORE, THE CLAIM OF BAD DEBT WAS CORRECTLY MADE BY THE ASSESSEE AND LD. CIT(APPEALS) DID NOT MAKE ANY MISTAKE IN DIRECTING ALLOWANCE OF SUCH BAD DEBT IN THE SUBSEQUENT ASSESSMENT YEAR, IF NOT IN IMPUGNED ASSE SSMENT YEAR. IN SO FAR AS AVERMENT OF LEARNED D.R. THAT POWERS O F THE CIT(APPEALS) TO GIVE A DIRECTION FOR A YEAR OTHER THAN FOR WHICH AN APPEAL WAS BEFORE HIM, SUBMISSION OF THE LEARNED A.R. WAS THAT THE APPEAL FOR ASSESSMENT YEAR 2004-05 WAS ALSO PENDING BEFORE THE CIT(APPEALS). ACCORDING TO HIM, LD. CIT(APPEALS) WAS CONSIDERING ALL THESE APPEALS TOGETHER, THOUGH ORDERS IN RESPECT OF VARIOUS ASSES SMENT YEARS WERE DIFFERENT AND PASSED ON DIFFERENT DATES. ACCORDING TO HIM, IT WAS DUE TO THIS REASON THAT CIT(APPEALS) DIRECTED SUCH ALLO WANCE FOR BAD DEBT IN A SUCCEEDING ASSESSMENT YEAR. THEREFORE, AS PER THE LEARNED A.R., THE GROUND TAKEN BY THE REVENUE THAT APPEAL F OR 2004-05 WAS NOT PENDING BEFORE THE CIT(APPEALS) WAS INCORRECT. HE, THEREFORE, SUBMITTED THAT CIT(APPEALS) HAD POWER TO GIVE SUCH DIRECTION IN VIEW I.T.A. NOS. 201 TO 205/MDS/10 44 OF THE PENDENCY OF THE APPEAL FOR ASSESSMENT YEAR 2 004-05 BEFORE HIM. 43. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. FIRST, WE WILL DEAL WITH THE QUESTION WHETHER CIT(A PPEALS) HAD IN THE INSTANT CASE, POWER TO GIVE A DIRECTION FOR ASSESSM ENT YEAR 2004-05. WITHOUT DISPUTE, LD. CIT(APPEALS) WAS DECIDING AN A PPEAL FOR ASSESSMENT YEAR 2003-04. IN THE CASE OF T.P.S.H. S ELVA SAROJA (SUPRA), HON'BLE JURISDICTIONAL HIGH COURT AFTER CO NSIDERING VARIOUS EARLIER DECISIONS, INCLUDING THAT OF HON'BLE APEX C OURT IN THE CASE OF MURLIDHAR BHAGWANDAS (SUPRA) AGAIN RELIED ON BY THE LEARNED D.R., NO DOUBT, HELD THAT THE TRIBUNAL WAS EXPECTED TO GI VE A FINDING ONLY IN REGARD TO ASSESSMENT YEAR IN APPEAL AND HAD NO JURI SDICTION TO GIVE A FINDING FOR AN OTHER ASSESSMENT YEAR WHICH WAS NOT SUBJECT MATTER OF APPEAL, UNLESS SUCH FINDING WAS NEEDED OR INCIDENTA L. IN THE CASE BEFORE HON'BLE JURISDICTIONAL HIGH COURT, TRIBUNAL WAS CONSIDERING APPEAL FOR THE ASSESSMENT YEARS 1972-73 AND 1973-74 AND WHILE DISPOSING OF SUCH APPEALS, IT GAVE A DIRECTION THAT A PARTICULAR AMOUNT COULD NOT BE CONSIDERED FOR THESE YEARS AS DIVIDEND INCOME BUT HAD TO BE CONSIDERED IN ASSESSMENT YEAR 1969-70. NO AP PEAL FOR ASSESSMENT YEAR 1969-70 WAS PENDING BEFORE THE TRIB UNAL. UNDER SUCH CIRCUMSTANCES, IT WAS HELD BY THE HON'BLE JURI SDICTIONAL HIGH I.T.A. NOS. 201 TO 205/MDS/10 45 COURT THAT TRIBUNAL HAD NO POWER TO GIVE A FINDING WITH REGARD TO ASSESSMENT YEAR 1969-70. CAN WE CONSIDER THIS CASE TO BE MATCHING WITH THE FACTS HERE? UNDISPUTEDLY, THE CIT(APPEALS ) WAS CONSIDERING THE ISSUE OF BAD DEBT IN THE APPEAL FOR IMPUGNED AS SESSMENT YEAR 2003-04. NEVERTHELESS, THE APPEAL FOR ASSESSMENT Y EAR 2004-05 WAS ALSO UNDER HIS CONSIDERATION, AND BEFORE HIM. THER EFORE, WE CANNOT SAY THAT CIT(APPEALS) HAD NO POWER WITH REGARD TO A PPEAL IN ASSESSMENT YEAR 2004-05. DATES OF HEARING OF APPEA L FOR IMPUGNED ASSESSMENT YEAR BY LD. CIT(APPEALS) WAS 3.11.2009 A ND 4.11.2009 AND THIS IS CLEAR FROM THE FACING SHEET OF THE ORDE R DATED 5.11.2009 OF LD. CIT(APPEALS). DATE OF HEARING OF ASSESSEES AP PEAL BEFORE LD. CIT(APPEALS) FOR ASSESSMENT YEAR 2004-05 WAS AGAIN 3.11.2009 AS PER THE FACING SHEET OF THE ORDER DATED 23.11.2009 OF LD. CIT(APPEALS) FOR ASSESSMENT YEAR 2004-05. THUS, IT IS NOT A CAS E WHERE APPEAL FOR ASSESSMENT YEAR 2004-05 WAS NOT AT ALL BEFORE THE C IT(APPEALS). THE CIRCUMSTANCES IN WHICH THE CIT(APPEALS) GAVE DI RECTION FOR ASSESSMENT YEAR 2004-05 WHEN AN APPEAL FOR SAID ASS ESSMENT YEAR WAS PENDING BEFORE HIM, AND WAS BEING HEARD ON THE SAME DAY WHEN APPEAL FOR IMPUGNED ASSESSMENT YEAR WAS ALSO BEING HEARD, CANNOT BE CONSIDERED TO BE BEYOND HIS POWERS. IT IS NOT A CASE WHERE CIT(APPEALS) HAD GIVEN A DIRECTION FOR AN YEAR WHIC H WAS NOT IN I.T.A. NOS. 201 TO 205/MDS/10 46 APPEAL BEFORE HIM. IN THE CASE OF MURLI BHAGWANDAS (SUPRA), HON'BLE APEX COURT HELD THAT WHEN A FINDING WAS GIVEN FOR A GIVEN PARTICULAR YEAR THAT INCOME DOES NOT BELONG TO THAT YEAR AND L ATER IN THE SAME ORDER, INCIDENTALLY THERE IS A FINDING THAT SUCH IN COME BELONGS TO ANOTHER YEAR, SUCH A FINDING MAY NOT BE A NECESSARY FINDING, FOR THE DISPOSAL OF THE APPEAL FOR THE EARLIER YEAR. IN OU R OPINION, THIS DECISION OF HON'BLE APEX COURT CANNOT BE SO CONSTRU ED TO MEAN THAT IN AN APPEAL FOR A GIVEN YEAR BEFORE AN APPELLATE A UTHORITY, IT WOULD BE PRECLUDED FROM GIVING DIRECTIONS WHICH HAVE RAMI FICATIONS FOR ANOTHER ASSESSMENT YEAR, EVEN WHEN SUCH OTHER ASSES SMENT YEARS WERE ALSO UNDER APPEAL BEFORE IT. 44. NOW COMING TO THE MERITS OF THE DIRECTIONS OF T HE LD. CIT(APPEALS) THAT THE AMOUNT, INDEED, HAD BECOME BA D FOR RECOVERY, LEARNED D.R. RELIED A LETTER DATED 22.7.2004 WRITTE N BY M/S G.V. FILMS AND WHICH WAS PLACED BY THE ASSESSEE BEFORE INVESTI GATION WING, TO ARGUE THAT ASSESSEE HAD RECEIVED ` 75,00,000/- ON 14.1.2003, ` 65,00,000/- AFTER 14.12.2003 AND ` 59,99,985/- IN JULY, 2003. BUT, IF WE TAKE THIS PART OF THE LETTER GIVEN BY M/S G.V. F ILMS TO BE SACROSANCT AND CORRECT, THEN WE CANNOT IGNORE THE F IRST PART OF THE SAID LETTER WHICH STATES THAT ONLY ` 1,38,00,000/- WAS EVER DUE TO THE ASSESSEE FROM M/S G.V. FILMS. EITHER WE HAVE TO CO NSIDER LETTER OF I.T.A. NOS. 201 TO 205/MDS/10 47 M/S G.V. FILMS AS A WHOLE OR REJECT IT AS A WHOLE. REVENUE DID NOT ACCEPT THIS LETTER OF M/S G.V. FILMS WHILE DECIDING THE AMOUNT OF ADVANCE GIVEN TO M/S G.V. FILMS. HAD IT BEEN ACCEP TED, THERE WOULD NOT BE ANY UNDISCLOSED INCOME, SINCE ASSESSEE WAS H AVING SOURCE FOR A SUM OF ` 1,87,20,000/-. HAVING REJECTED THIS LETTER IN SO FAR AS PRINCIPAL AMOUNT WAS CONCERNED, IN OUR OPINION, THE AMOUNT OF REFUND MENTIONED IN THE SAID LETTER COULD NOT BE CONSIDERE D AT ALL. WHAT ASSESSEE HAD RECEIVED WAS ONLY ` 32,99,985/- PURSUANT TO THE DECREE AND AUCTION OF THE ATTACHED PROPERTY. ASSESSEE HAD ALWAYS CLAIMED THAT IT HAD NOT RECEIVED ANY FURTHER AMOUNT FROM TH E SAID PARTY. JUST BECAUSE THERE WAS DECREE OF HON'BLE HIGH COURT, WE CANNOT SAY THAT ASSESSEE WOULD BE DEBARRED FROM WRITING OFF ITS BAD DEBTS, WHEN IT FOUND THAT THE AMOUNTS AS PER THE DECREE WERE HARDL Y REALIZABLE. ASSESSEE BEING A BUSINESS PERSON, IF HE FINDS THAT A DEBT WAS IRRECOVERABLE AND HAD TO BE CONSIDERED AS BAD, WE C ANNOT FIND FAULT WITH HIM IN CLAIMING SUCH AN AMOUNT AS BAD DEBT. F URTHER, THE ASSESSEE WAS, ADMITTEDLY IN THE BUSINESS OF MONEY L ENDING AND THEREFORE, SECTION 36(2) WOULD DEFINITELY COME TO H IS HELP. CLAUSE (I) THEREOF STATES THAT A DEBT CAN BE ALLOWED AS BAD DE BT, WHERE MONEY WAS LENT IN THE ORDINARY COURSE OF BUSINESS OF MONE Y LENDING. ASSESSEE HAD FOR THE IMPUGNED ASSESSMENT YEAR CONSI DERED ` I.T.A. NOS. 201 TO 205/MDS/10 48 95,50,000/- AS A PART OF HIS INCOME WHILE SUBMITTIN G HIS RETURN. THEREFORE, HE HAD EVERY RIGHT TO CLAIM A BAD DEBT A ND LD. CIT(APPEALS) WAS JUSTIFIED IN DIRECTING THE A.O. TO CONSIDER THE CLAIM OF THE ASSESSEE TOWARDS BAD DEBT, IN THE SUBSEQUENT YEAR. LETTER DATED 22.7.2004 OF M/S G.V. FILMS CLEARLY SHOWED TH AT THEY HAD NO INTENTION TO REPAY THE ASSESSEE ANY AMOUNT OUT OF T HE ADVANCE OF ` 2.5 CRORES AND THEREFORE, ASSESSEE HAD EVERY RIGHT TO TREAT THE DEBT AS BAD. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION GIVEN BY THE CIT(APPEALS). GROUND NO.2 THUS STANDS DISMI SSED. 44. VIDE ITS GROUND NO.3, GRIEVANCE OF THE REVENUE IS THAT A SUM OF ` 4,00,000/- WAS DEDUCTED AS INTEREST BY THE ASSESSE E WHILE GIVING AN ADVANCE OF ` 38,00,000/- TO M/S AKSHAYA FILMS, BUT SUCH AN AMOUNT WAS NOT OFFERED BY THE ASSESSEE AS HIS INCOM E. ACCORDING TO REVENUE, THOUGH THE ASSESSING OFFICER CONSIDERED IT FOR ADDITION, LD. CIT(APPEALS) DELETED IT WITHOUT ANY PROPER REASONS. 45. SHORT FACTS APROPOS ARE THAT THE ASSESSEE HAD A DVANCED ` 38,00,000/- TO ONE M/S AKSHAYA FILMS, BUT AS PER TH E A.O., HE ACCOUNTED FOR ` 34,00,000/- ONLY. A STATEMENT WAS RECORDED FROM ONE MRS. SARASWATHI SRIKANTH OF M/S AKSHAYA FILMS W HEREIN SHE MENTIONED THAT ` 38,00,000/- OUT OF THE COST OF PRODUCTION OF A FIL M I.T.A. NOS. 201 TO 205/MDS/10 49 CALLED DREAMS WAS MET OUT OF A LOAN TAKEN AS PER AN AGREEMENT WITH ASSESSEE. IT WAS ALSO MENTIONED BY THE SAID P ERSON THAT A SUM OF ` 4,00,000/- WAS DEDUCTED BY THE ASSESSEE UPFRONT AN D ONLY THE BALANCE WAS GIVEN TO HER. A.O. BASED ON SUCH STATE MENT OF SMT. SARASWATHI SRIKANTH, MADE AN ADDITION OF ` 4,00,000/-. 46. BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESS EE WAS THAT IN THE FIRST PLACE STATEMENT OF MRS. SARASWATHI SRIKAN TH OF M/S AKSHAYA FILMS WAS BELIEVED BY THE ASSESSING OFFICER WITHOUT ANY SUBSTANTIATION OR CROSS EXAMINATION BY THE ASSESSEE . AS PER THE ASSESSEE, IT WAS FOLLOWING CASH SYSTEM AND THERE WA S NO RECEIPT OF ANY INTEREST NOR ANY ACCRUAL THEREOF. ASSESSEE ALS O BROUGHT TO THE NOTICE OF LD. CIT(APPEALS) THAT THE ACTUAL AMOUNT O F LOAN WAS ` 34,00,000/- ONLY AND IT HAD ACCOUNTED SUCH AMOUNT I N ITS BOOKS. LD. CIT(APPEALS) APPRECIATED THIS CONTENTION OF THE ASS ESSEE AND DELETED THE ADDITION. 47. NOW BEFORE US, LEARNED D.R. RAISED SAME PLEAS A S HE HAD MADE WITH REGARD TO GROUND NO.3 RAISED BY THE REVEN UE IN ITS APPEAL FOR ASSESSMENT YEAR 1999-2000. LEARNED A.R. ALSO R EPLIED ON THE SAME LINES AS GIVEN BY HIM FOR THE SAID ASSESSMENT YEAR. I.T.A. NOS. 201 TO 205/MDS/10 50 48. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. WE ARE OF THE OPINION THAT IN THE SYSTEM OF ACCOUNT ING WHICH WAS CASH BASIS FOLLOWED BY THE ASSESSEE, THERE WOULD NO T HAVE BEEN ANY INCOME FOR THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR. ASSESSEE WAS NOT ALLOWED TO CROSS-EXAMINE MRS. SARA SWATHI SRIKANTH AND THERE WAS NO AGREEMENT WHATSOEVER BROU GHT ON RECORD BY THE REVENUE TO PROVE ITS CASE THAT ACTUAL AMOUNT ADVANCED WAS ` 38,00,000/-. UNLESS INTEREST WAS ACCRUED AND RECEIV ED, ASSESSEE WAS NOT BOUND TO SHOW IT IN THE CASH SYSTEM. FOR T HESE AS WELL AS THE REASON CITED BY US AT PARA 17 ABOVE, IN REVENUE S APPEAL FOR ASSESSMENT YEAR 1999-2000, WE DO NOT FIND ANY MERIT IN THIS GROUND RAISED BY THE REVENUE. GROUND NO.3 THEREFORE STAND S DISMISSED. 49. IN THE RESULT, THE APPEAL OF THE REVENUE IS TRE ATED AS PARTLY ALLOWED. I.T.A. NO. 204/MDS/2010 (FOR ASSESSMENT YEAR 2004-05) 50. REVENUE HAS RAISED FOUR EFFECTIVE GROUNDS IN TH IS APPEAL FOR ASSESSMENT YEAR 2004-05. 51. VIDE ITS GROUND NO.1, ITS GRIEVANCE IS THAT THE CIT(APPEALS) DELETED AN ADDITION OF ` 4,55,000/- MADE BY THE A.O. CONSIDERING AN ADVANCE GIVEN BY THE ASSESSEE TO ONE M/S KONTHAPALL Y FILMS, AS I.T.A. NOS. 201 TO 205/MDS/10 51 UNEXPLAINED. AS PER REVENUE, LD. CIT(APPEALS) ERRE D IN ALLOWING TELESCOPING OF THE ADVANCE WITH INCOME ADMITTED BY THE ASSESSEE IN THE EARLIER YEARS EVEN THOUGH HE HAD NOT ESTABLISHE D ANY DIRECT NEXUS AND DESPITE A HUGE AND NEGATIVE CASH BALANCE ADMITT ED BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR. 52. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD, DURI NG THE RELEVANT PREVIOUS YEAR, ACCOUNTED A SUM OF ` 50,000/- AS INTEREST RECEIVED FROM M/S KONTHAPALLY FILMS. AS PER THE A.O., ASSES SEE HAD ADVANCED A SUM OF ` 5,00,000/- IN JANUARY, 2004 BUT THIS WAS NOT SHOWN BY THE ASSESSEE IN HIS BOOKS. A STATEMENT WA S RECORDED BY THE A.O. FROM ONE SHRI JOLLY STEPHEN, PROPRIETOR OF KONTHAPALLY FILMS. SHRI JOLLY STEPHEN IN SUCH STATEMENT, GIVEN UNDER S ECTION 131 OF THE ACT, STATED THAT HE HAD TAKEN ` 5,00,000/- FROM THE ASSESSEE IN JANUARY, 2004 AGAINST WHICH HE RECEIVED ONLY ` 4,55,000/-, ASSESSEE HAVING DEDUCTED ` 45,000/- INTEREST UPFRONT. SHRI JOLLY STEPHEN ALS O STATED THAT HE HAD REFUNDED SUCH LOAN IN JULY, 2004 AND THE AMOUNT REFUNDED WAS ` 5,45,000/- INCLUDING TOTAL INTEREST OF ` 90,000/-. A.O. FROM THE ABOVE STATEMENT CONCLUDED THAT AGAINST A L OAN OF ` 5,00,000/-, ASSESSEE HAD RECEIVED INTEREST OF ` 90,000/- OUT OF WHICH ONLY EXCEPT FOR AN INTEREST AMOUNT OF ` 50,000/- NOTHING WAS I.T.A. NOS. 201 TO 205/MDS/10 52 ADMITTED. HE, THEREFORE, CONSIDERED A SUM OF ` 5,40,000/- AS UNDISCLOSED INCOME. 53. IN HIS APPEAL BEFORE THE CIT(APPEALS), FIRST AR GUMENT OF THE ASSESSEE WAS THAT HE WAS NOT GIVEN AN OPPORTUNITY T O CROSS-EXAMINE SHRI JOLLY STEPHEN. LD. CIT(APPEALS) DIRECTED THE A.O. TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO CROSS-EXAMINE SHRI J OLLY STEPHONE. IN THE REMAND REPORT, A.O. MENTIONED THAT CROSS-EXAMIN ATION COULD NOT HAPPEN, SINCE SUMMONS ON SHRI JOLLY STEPHEN HAD BEE N RETURNED UNSERVED. WHEN THIS REMAND REPORT WAS PUT TO THE A SSESSEE, HE SUBMITTED THAT A STATEMENT GIVEN BY A PARTY, WHO DI D NOT RESPOND TO SUMMONS ISSUED FOR CROSS-EXAMINATION, COULD NOT BE RELIED UPON. FURTHER, AS PER THE ASSESSEE, HE HAD SUFFICIENT SOU RCE OUT OF THE UNDISCLOSED INVESTMENT DECLARED EARLIER FOR ASSESSM ENT YEARS 1999- 2000 TO ASSESSMENT YEAR 2003-04 AGGREGATING TO ` 1,02,95,000/- AND THIS COULD TAKE CARE OF THE SOURCE OF ADVANCE. LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND REMA ND REPORT OF THE A.O., WAS OF THE OPINION THAT OUT OF ` 90,000/- STATED TO HAVE BEEN GIVEN AS INTEREST BY SHRI JOLLY STEPHEN, ASSESSEE H AD ACCOUNTED ` 50,000/- DURING THE RELEVANT PREVIOUS YEAR. IN SO FAR AS PRINCIPAL AMOUNT OF ` 4,55,000/- WAS CONCERNED, LD. CIT(APPEALS) WAS OF THE OPINION THAT UNACCOUNTED MONEY DISCLOSED IN THE RET URNS FOR THE I.T.A. NOS. 201 TO 205/MDS/10 53 EARLIER YEARS AND IN THE STATEMENT RECORDED UNDER S ECTION 132(4) OF THE ACT, WHEN CONSIDERED, IT STOOD EXPLAINED AND NO ADDITION WAS REQUIRED IN THIS RESPECT. HE, THEREFORE, DELETED T HE ADDITION IN FULL, EXCEPT FOR SUSTAINING AN ADDITION OF ` 40,000/- OUT OF TOTAL INTEREST OF ` 90,000/-, STATED TO HAVE BEEN GIVEN BY SHRI JOLLY S TEPHEN. 54. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT THE PRINCIPAL AMOUNT WAS NOT APPEARING IN THE BOOKS OF ACCOUNTS. THE CIT(APPEALS) WITHOUT MAKING A CORRECT WORK-OUT OF T HE AMOUNTS AVAILABLE FROM THE INCOME EARLIER DISCLOSED, WHICH WERE NOT USED FOR SPECIFIED PURPOSES, HAD ALLOWED THE CLAIM OF THE AS SESSEE. ACCORDING TO LEARNED D.R., FOR ASSESSMENT YEAR 1999 -2000, THE UNDISCLOSED INCOME DECLARED BY THE ASSESSEE WHICH W AS NOT RELATABLE TO ANY INVESTMENT DECLARED WAS ONLY ` 50,000/-, FOR ASSESSMENT YEAR 2002-03 ` 1,00,000/- AND NOTHING MORE. AS PER THE LEARNED D.R., SUM OF ` 95.50 LAKHS ADMITTED BY ASSESSEE FOR ASSESSMENT YEAR 2003-04 WAS CLAIMED AS BAD DEBT. F URTHER AS PER THE LEARNED D.R., PROXIMITY OF THE EARLIER INCOME A DMITTED WITH THE LOAN GIVEN TO M/S KONTHAPALLY FILMS COULD NOT BE ES TABLISHED BY THE ASSESSEE. I.T.A. NOS. 201 TO 205/MDS/10 54 55. IN REPLY, LEARNED A.R. SUBMITTED THAT ASSESSEE HAD FURNISHED CASH FLOW STATEMENT BEFORE THE A.O., A COPY OF WHIC H WAS PLACED AT PAPER-BOOK AT PAGE 56 ONWARDS. ACCORDING TO HIM, I T WAS TRUE THAT THERE WAS A NEGATIVE CASH BALANCE STARTING FROM YEA R ENDED 31.3.2003 TO 31.3.2004, BUT ACCORDING TO HIM, SUCH NEGATIVE CASH BALANCE AROSE SINCE ASSESSEE HAD SHOWN ALL ACCOUNTE D AS WELL AS UNACCOUNTED INVESTMENTS AND OUTFLOWS THEREON. HOWE VER, LEARNED A.R. SUBMITTED THAT NO CASH WAS FOUND DURING SEARCH AND ASSESSEE HAD DECLARED INCOME FOR VARIOUS YEARS IN HIS RETURN S, COMPLETELY OFF- SETTING THE NEGATIVE CASH BALANCE. LEARNED A.R. SU BMITTED THAT FOR THE INCOME DISCLOSED BY THE ASSESSEE, THERE WERE NO MATCHING INVESTMENT AND HENCE TELESCOPING HAD TO BE ALLOWED. 56. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THE ADDITION WAS MADE PRIMARILY BASED ON STATEMENT RECORDED FROM SHRI JOLLY STEPHEN. DURING REMAND PROCEEDINGS, A.O . ACCEPTED THAT SHRI JOLLY STEPHEN COULD NOT BE SUMMONED FOR A CROS S-EXAMINATION. THUS, IN EFFECT, THE STATEMENT OF SHRI JOLLY STEPHE N WAS ACCEPTED WITHOUT HIS CROSS-EXAMINATION. HENCE, SUCH A STATE MENT, IN OUR OPINION, COULD NOT BE TAKEN AT FACE VALUE. EVEN IF THE STATEMENT GIVEN BY SHRI JOLLY STEPHEN IS CONSIDERED AS CORRECT, THE ACTUAL AMOUNT ADVANCED WAS ONLY ` 4,55,000/-. SHRI JOLLY STEPHEN MENTIONED A I.T.A. NOS. 201 TO 205/MDS/10 55 SUM OF ` 5,00,000/- BUT AT THE SAME TIME, ACCEPTED THAT ONL Y ` 4,55,000/- RECEIVED BY HIM. ASSESSEE HAVING ACCOUN TED ` 50,000/- AS INTEREST AND HAVING NOT SHOWN PRINCIPAL AMOUNT I N HIS BOOKS OF ACCOUNTS, NO DOUBT, SUCH PRINCIPAL AMOUNT HAS TO BE CONSIDERED AS GOING OUT OF UNDISCLOSED INCOME. IF THE VERSION OF THE ASSESSEE, THAT THE AMOUNT WAS REPAID DURING THE PREVIOUS YEAR AND HENCE NOT APPEARING IN HIS BALANCE SHEET WAS CORRECT, IT COUL D HAVE VERY WELL BEEN PROVED BY SHOWING RELEVANT ENTRIES IN THE BOOK S, WHICH WAS NOT DONE. AGAINST ` 4,55,000/- THE CIT(A) GAVE RELIEF TO THE ASSESSEE BASED ON INCOME ADMITTED BY THE ASSESSEE IN THE EAR LIER YEARS, IN THE RETURNS FILED PURSUANT TO SEARCH. NO DOUBT, THE AD MITTED INCOME WHICH WAS NOT MATCHED BY INVESTMENTS OR SPECIFIC OU TGOES WOULD BE AVAILABLE WITH THE ASSESSEE AND TO THAT EXTENT, USE D FOR EXPLAINING THE SOURCE FOR THE LOAN OF ` 4,55,000/- GIVEN. NEVERTHELESS, WE ARE NOT CONVINCED WITH THE WORK-OUT OF THE CIT(APPEALS) THA T AMOUNT OF ` 1,02,95,000/- WAS AVAILABLE TO THE ASSESSEE, AS INC OME RETURNED WHICH WAS NOT SPECIFICALLY USED. IN OUR OPINION, I N THE APPEALS FILED BY THE REVENUE FOR THE EARLIER YEARS AND CONSIDERED BY US IN PRECEDING PARAS, SOME OF THE CLAIMS OF REVENUE HAVE BEEN ACCEPTED BY THIS TRIBUNAL. THIS CALLS FOR CONSEQUENTIAL REW ORKING OF CASH FLOW STATEMENT FOR THE EARLIER YEARS TO FIND OUT WHAT WA S THE ACTUAL FUNDS I.T.A. NOS. 201 TO 205/MDS/10 56 AVAILABLE WITH THE ASSESSEE BASED ON UNDISCLOSED IN COME RETURNED FOR EARLIER YEARS. IF SUCH FUNDS WERE AVAILABLE TO THE ASSESSEE, I.E. NOT SPENT FOR ANY PARTICULAR INVESTMENT IN EARLIER YEARS, THEN ASSESSEE CAN BE GIVEN RELIEF TO THAT EXTENT. WE ARE, THEREF ORE, OF THE OPINION THAT THE MATTER HAS TO BE REVISITED BY THE A.O. H ENCE, WE SET ASIDE THE ORDER OF THE CIT(APPEALS) AND A.O. IN THIS REGA RD AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. FOR FINDING OUT WHAT EXACTLY WAS THE UNSPENT FUNDS FREELY AVAILABLE TO THE ASSESSEE, OUT OF THE AMOUNTS DISCLOSED BY HIM IN HIS RETURNS FOR THE PRECEDING Y EARS AND GIVE TELESCOPING TO THE ASSESSEE TO THAT EXTENT. ASSESS EE SHOULD BE FREE TO FILE A FRESH CASH FLOW IN THIS REGARD AND A.O. H AS TO DULY CONSIDER IT. ORDERED ACCORDINGLY. GROUND NO.1 IS ALLOWED TO THE EXTENT CITED ABOVE. 57. VIDE GROUND NO.2, GRIEVANCE OF THE REVENUE IS T HAT CIT(APPEALS) GRANTED RELIEF TO THE EXTENT OF ` 7,80,000/- ON CERTAIN ALLEGED UNEXPLAINED INVESTMENT MADE BY THE ASSESSEE , AS ADVANCE TO ONE M/S OMNI LTD. 58. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD IN HI S RETURN OF INCOME DISCLOSED A SUM OF ` 32,00,000/- AS ADVANCE GIVEN TO ONE M/S OMNI LTD. FOR PRODUCTION OF FILM ULLAM KEKKUME . AS PER THE I.T.A. NOS. 201 TO 205/MDS/10 57 ASSESSEE, THE ADVANCE WAS GIVEN DURING THE RELEVANT PREVIOUS YEAR. THERE WAS A SUIT FILED BY THE SAID BORROWER ON 30.0 6.2004 WHEREIN HE CLAIMED THAT HE HAD RECEIVED ONLY ` 18,00,000/- AND NOT A SUM OF ` 32,00,000/-. ASSESSEE FILED A COPY OF THIS PLAINT IN SUPPORT OF ITS CONTENTION THAT NOTHING MORE THAN ` 32,00,000/- WAS, IN ANY CASE, ADVANCED TO M/S OMNI LTD. NEVERTHELESS, IT WAS ALS O ADMITTED BY THE ASSESSEE THAT A TOTAL AMOUNT OF ` 50,00,000/- WAS RECEIVED BY HIM FROM M/S OMNI LTD. BY 21.12.2005. A STATEMENT WAS RECORDED BY THE INVESTIGATION WING FROM SHRI MAHADEVAN GANESH, CHAI RMAN AND EXECUTIVE DIRECTOR OF M/S G.V. FILMS OF WHICH M/S O MNI LTD. WAS A DIVISION. IN SUCH STATEMENT, SHRI MAHADEVAN GANESH STATED THAT M/S OMNI LTD. HAD TAKEN A LOAN OF ` 44,20,000/- FOR THE FILM ULLAM KEKKUME FROM THE ASSESSEE. HE ALSO CONFIRMED THAT THERE WAS AN AGREEMENT BETWEEN ASSESSEE AND M/S OMNI LTD. AND LA TER A COMPROMISE ENTERED IN JULY, 2004, WHEREBY M/S OMNI LTD. AGREED TO PAY A SUM OF ` 55,00,000/- AT THE TIME OF RELEASE OF THE MOVIE. FROM THE ABOVE STATEMENT GIVEN BY SHRI MAHADEVAN GANESH, A.O. CONCLUDED THAT ACTUAL ADVANCE PAID BY THE ASSESSEE WAS ` 44,20,000/- AND NOT ` 32,00,000/- HE, THEREFORE, MADE AN ADDITION OF ` 12,20,000/- AS UNDISCLOSED INCOME. I.T.A. NOS. 201 TO 205/MDS/10 58 59. IN HIS APPEAL BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT HE WAS NOT GIVEN ANY OPPORTUNITY TO CROSS- EXAMINE SHRI MAHADEVAN GANESH. FURTHER, AS PER THE ASSESSEE, THE BORROWER HIMSELF HAD IN A SUIT FILED, STATED THE AM OUNT RECEIVED AS ` 18,00,000/- ONLY AND THEREFORE, THERE BEING CONTRAD ICTORY STATEMENTS FROM THE BORROWER, WHAT WAS RECORDED BY THE ASSESSE E IN HIS BOOKS OF ACCOUNTS WAS MORE PROBABLE AND NEEDED TO BE ACCE PTED. LD. CIT(APPEALS) REFERRED THE MATTER TO A.O. FOR REMAND REPORT. DURING THE REMAND PROCEEDINGS, THE A.O. ACCORDED AN OPPORT UNITY TO THE ASSESSEE TO CROSS-EXAMINE THE OFFICERS OF M/S OMNI LTD. IT SEEMS SHRI MAHADEVAN GANESH DID NOT APPEAR BEFORE THE A.O . FOR CROSS- EXAMINATION BY THE ASSESSEE. INSTEAD ONE SHRI N. S UBRAMONIAM APPEARED. SHRI N. SUBRAMONIAM CONFIRMED THAT THE A MOUNT ACTUALLY RECEIVED FROM ASSESSEE WAS ` 39.8 LAKHS ONLY AND THE AMOUNT ` 44.2 LAKHS EARLIER MENTIONED BY SHRI MAHADEVAN GANESH WA S INCLUSIVE OF INTEREST COMPOUND OF ` 4,40,000/-. LD. CIT(APPEALS), AFTER PERUSING THE SUBMISSION OF THE ASSESSEE AS ALSO VARIOUS RECO RDS FILED BEFORE HIM, WAS OF THE OPINION THAT M/S OMNI LTD. WAS NOT SURE REGARDING THE AMOUNT IT HAD RECEIVED FROM THE ASSESSEE. ACCORDIN G TO CIT(APPEALS), IT HAD CLAIMED DIFFERENT AMOUNTS AT D IFFERENT STAGES AND THEREFORE, IT WOULD BE MORE APPROPRIATE TO RELY ON THE BOOKS OF THE I.T.A. NOS. 201 TO 205/MDS/10 59 ASSESSEE. HE THUS CAME TO A CONCLUSION THAT ADDITI ON OF ` 12.2 LAKHS WAS UNCALLED FOR AND DELETED IT. 60. NOW BEFORE US, THE LEARNED D.R. SUBMITTED THAT UNDISPUTEDLY, ASSESSEE ADVANCED MONEY TO M/S OMNI LTD. AND ASSESS EE HAD DISCLOSED ` 50,00,000/- IN HIS TOTAL INCOME. ACCORDING TO HIM , WHEN THERE WAS UNDISCLOSED INCOME OF ` 50,00,000/-, THEN THE ORIGINAL ADVANCE AMOUNT COULD NOT BE AS SMALL AS ` 32,00,000/- AS MENTIONED BY THE ASSESSEE. THE LEARNED D.R. ARGUED THAT THER E WAS NO DISCREPANCY IN THE STATEMENT GIVEN BY SHRI MAHADEVA N GANESH INITIALLY, AND SHRI N. SUBRAMONIAM LATER. SINCE SH RI MAHADEVAN GANESH CLEARLY STATED THAT THE AMOUNT WAS INCLUSIVE OF INTEREST OF ` 4,40,000/-. THEREFORE, ACCORDING TO LEARNED D.R., THE ADDITION WAS RIGHTLY MADE BY THE A.O. IN ANY CASE, ACCORDING TO HIM, STATEMENT GIVEN BY SHRI N. SUBRAMONIAM CLEARLY SHOWED THAT TH ERE WAS AN ADVANCE OF ATLEAST ` 39.8 LAKHS, AND HENCE A SUM OF ` 7.8 LAKHS CLEARLY NOT ACCOUNTED. 61. PER CONTRA, THE LEARNED A.R. SUBMITTED THAT UND ISPUTEDLY, M/S OMNI LTD. HAD FILED A SUIT WHEREIN IT HAD MENTIONED A SUM OF ` 18 LAKHS AS LOAN TAKEN FROM THE ASSESSEE. IN ONE STAT EMENT GIVEN BY MANAGING DIRECTOR OF G.V. FILMS OF WHICH M/S OMNI L TD. WAS A UNIT, IT I.T.A. NOS. 201 TO 205/MDS/10 60 WAS STATED THAT THE AMOUNT RECEIVED AS LOAN WAS ` 44,00,000/-. IN THE SECOND STATEMENT GIVEN BY ANOTHER OFFICER OF TH E SAME COMPANY IT WAS STATED TO BE ` 39.8 LAKHS. THUS, ACCORDING TO LEARNED A.R., THERE WERE THREE DIFFERENT AMOUNTS MENTIONED BY THE PARTY . AS PER LEARNED A.R., ASSESSEE SHOWED IN HIS ACCOUNT, ADVANCE OF ` 32 LAKHS AND HAD ALSO DISCLOSED INCOME OF ` 32 LAKHS FOR ASSESSMENT YEAR 2004-05 AND ` 18 LAKHS FOR ASSESSMENT YEAR 2005-06 TOTALLING TO ` 50 LAKHS. IN SUCH A SITUATION, ACCORDING TO LEARNED A.R., LD. CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. 62. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN THE SUIT FILED BY THE BORROWER, IT WAS MENTIONED AN D IT HAD RECEIVED AS AN ADVANCE ` 18 LAKHS ONLY. IN A STATEMENT TAKEN FROM CHAIRMAN AND MANAGING DIRECTOR OF M/S G.V. FILMS OF WHICH M/S OM NI LTD. WAS A UNIT, THE AMOUNT MENTIONED WAS ` 44,20,000/-. IN THE CROSS- EXAMINATION MADE BY THE ASSESSEE, THE PERSON WHO WA S APPEARING ON BEHALF OF SAID OMNI LTD. WAS ONE SHRI N. SUBRAMO NIAM, AS PER WHOM THE ACTUAL AMOUNT ADVANCED BY THE ASSESSEE WAS ` 39.8 LAKHS. THUS OBVIOUSLY THERE WERE DIFFERENT VERSION S GIVEN BY M/S OMNI LTD. AGAINST THIS, UNDISPUTEDLY ASSESSEE HAD SHOWN ` 32 LAKHS FOR ASSESSMENT YEAR 2004-05 AND ` 18 LAKHS FOR ASSESSMENT YEAR 2005-06. THIS TOGETHER IT WORKS TO ` 50 LAKHS WHICH IS MORE OR LESS I.T.A. NOS. 201 TO 205/MDS/10 61 THE AMOUNT STATED BY M/S OMNI LTD. TO HAVE BEEN PAI D IN WHOLE. WE ARE OF THE OPINION, THE AMOUNT ` 32 LAKHS ACCOUNTED BY THE ASSESSEE AS ADVANCED TO M/S OMNI LTD. IN THE RELEVANT PREVIO US YEAR WAS MORE PROBABLE AND CORRECT ONE. LD. CIT(APPEALS) DID NOT COMMIT ANY ERROR AND WE DO NOT FIND ANY NECESSITY TO INTERFERE. THE ADDITION WAS CORRECTLY DELETED. GROUND NO.2 STANDS DISMISSED. 63. VIDE ITS GROUND NO.3, GRIEVANCE OF THE REVENUE IS THAT CIT(APPEALS) ALLOWED TELESCOPING OF AN ADVANCE OF ` 2,00,000/- GIVEN BY THE ASSESSEE TO ONE M/S GARGI CINEMA, THOUGH THE ASSESSEE WAS HAVING HUGE NEGATIVE CASH BALANCE. 64. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD SHOWN ` 30,000/- AS INTEREST ON AN ADVANCE GIVEN TO M/S GARGI CINEMA BU T NO PRINCIPAL AMOUNT WAS ADMITTED. BASED ON EXAMINATION OF ONE S HRI P.K. RAGHUNATH OF M/S GARGI CINEMA, THE A.O. CONCLUDED T HAT ASSESSEE HAD GIVEN ` 2,00,000/- WHICH WAS NOT ACCOUNTED. THIS SUM OF ` 2,00,000/- WAS CONSIDERED AS UNDISCLOSED INCOME AND ADDITION MADE. 65. IN HIS APPEAL BEFORE THE CIT(APPEALS), ASSESSEE ARGUED THAT NO CROSS-EXAMINATION OF SHRI P.K. RAGHUNATH WAS ALLOWE D AND IT HAD SUFFICIENT INCOME IN THE EARLIER YEARS DECLARED BY IT WHICH WOULD COVER I.T.A. NOS. 201 TO 205/MDS/10 62 SUCH LOANS NOT ACCOUNTED. LD. CIT(APPEALS) WAS OF THE OPINION THAT A SUM OF ` 2,00,000/- THOUGH NOT ACCOUNTED BY THE ASSESSEE, W AS WELL COVERED BY DISCLOSURE MADE BY THE ASSESSEE IN HIS R ETURNS FOR THE PRECEDING ASSESSMENT YEARS AND HE, THEREFORE, ALLOW ED TELESCOPING AND DELETED THE ADDITION. 66. NOW BEFORE US, LEARNED D.R. MADE SIMILAR SUBMIS SIONS AS HE HAD MADE FOR GROUND NO.1 AND REPLIES OF THE LEARNED A.R. WERE ALSO ON THE SAME LINES AS GIVEN BY HIM FOR GROUND NO.1. 67. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THIS GROUND WITH REGARD TO UNEXPLAINED INVESTMENT O F ` 2,00,000/- ADVANCED TO M/S GARGI CINEMA IS SIMILAR TO UNEXPLAI NED INVESTMENT ADJUDICATED BY US IN GROUND NO.1. FOR THE SAME REA SONS AS STATED BY US AT PARA 56 ABOVE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. T O CONSIDER THE RE- WORKED CASH FLOW STATEMENT OF THE ASSESSEE AND ALLO W TELESCOPING TO THE EXTENT ASSESSEE WAS HAVING FUNDS WHICH WERE NOT UTILIZED FOR ANY PARTICULAR INVESTMENT. IF THE ASSESSEE IS ABLE TO SATISFY THE A.O. THAT THERE WERE FUNDS OUT OF INCOME DISCLOSED IN THE EAR LIER YEARS WHICH WERE NOT UTILIZED, OF COURSE, HE HAS TO BE ALLOWED TELESCOPING. DIRECTED ACCORDINGLY. GROUND NO.3 IS ALLOWED FOR S TATISTICAL PURPOSES. I.T.A. NOS. 201 TO 205/MDS/10 63 68. VIDE ITS GROUND NO.4, GRIEVANCE OF THE REVENUE IS THAT CIT(APPEALS) DELETED AN ADDITION OF UNACCOUNTED INT EREST OF ` 50,000/- IN RESPECT OF ONE M/S RAJSHRI FILMS. 69. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD ADVAN CED A SUM OF ` 6,50,000/- AS LOAN TO ONE M/S RAJSHRI FILMS. THE INVESTIGATION WING, DURING THE COURSE OF SEARCH PROCEEDINGS, ADDR ESSED A LETTER TO SHRI K.G. RAMESH OF THE SAID CONCERN FOR CONFIRMATI ON. HE CONFIRMED THAT A SUM OF ` 7,00,000/- REPAID TO THE ASSESSEE AND THIS INCLUDE D ` 6,50,000/- PRINCIPAL AND ` 50,000/- INTEREST. A.O. FOUND THAT THE INTEREST OF ` 50,000/- WAS NOT ACCOUNTED BY THE ASSESSEE AND HEN CE ADDED THE SAME AS UNDISCLOSED INCOME. 70. IN HIS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT HE WAS NOT ALLOWED TO CROSS-EXAMINE THE SA ID SHRI K.G. RAMESH. FURTHER, AS PER THE ASSESSEE, ASSESSEE HIM SELF DISCLOSED THE INTEREST AS RECEIVED FROM THE SAID PARTY IN THE SUBSEQUENT ASSESSMENT YEAR 2005-06, BASED ON CASH SYSTEM OF AC COUNTING. ACCORDING TO THE ASSESSEE, THERE WAS NO RECEIPT OF THE AMOUNT FOR THE IMPUGNED ASSESSMENT YEAR. LD. CIT(APPEALS) WAS APP RECIATIVE OF THE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, SHRI K.G. RAMESH OF RAJSHRI FILMS HAD NOT MENTIONED THAT HE H AD REPAID THE I.T.A. NOS. 201 TO 205/MDS/10 64 SUM OF ` 7,00,000/- TO ASSESSEE IN THE RELEVANT PREVIOUS YE AR ITSELF. IN THE ABSENCE OF SUCH CONFIRMATION REGARDING FINAN CIAL YEAR, LD. CIT(APPEALS) WAS OF THE OPINION THAT DISCLOSURE OF ` 1,00,000/- AS INTEREST BY THE ASSESSEE IN HIS RETURN FOR THE SUCC EEDING ASSESSMENT YEAR WAS MORE THAN SUFFICIENT TO COVER THE ALLEGED RECEIPT OF INTEREST AMOUNT OF ` 50,000/-. HE, THEREFORE, DELETED THE ADDITION. 71. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT INTE REST AMOUNT WAS NOT ACCOUNTED BY THE ASSESSEE AND A.O. WAS JUST IFIED IN MAKING THE ADDITION. 72. IN REPLY, LEARNED A.R. SUPPORTED THE ORDER OF T HE LD. CIT(APPEALS). 73. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. AS PER THE A.O., SHRI K.G. RAMESH OF M/S RAJSHRI FI LMS HAD CONFIRMED VIDE HIS LETTER ADDRESSED TO ADIT THAT A REPAYMENT OF ` 7,00,000/- WAS MADE TOWARDS INTEREST AND PRINCIPAL. NEVERTHELESS, THIS LETTER HAS NOT BEEN PRODUCED BY THE REVENUE BE FORE US. AS PER THE ASSESSEE, SHRI K.G. RAMESH DID NOT GIVE ANY DET AILS OF THE DATES ON WHICH REPAYMENTS WERE MADE BY HIM. THEREFORE, T HE VERSION OF THE ASSESSEE THAT INTEREST PART WAS RECEIVED IN THE SUBSEQUENT ASSESSMENT YEAR IS VERY MUCH PROBABLE AND THE LD. C IT(APPEALS) I.T.A. NOS. 201 TO 205/MDS/10 65 ACCEPTED THAT. WE DO NOT FIND ANY REASON TO INTERF ERE. GROUND NO. 4 THUS STANDS DISMISSED. 74. IN THE RESULT, THE APPEAL OF THE REVENUE FOR TH E ASSESSMENT YEAR 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. I.T.A. NO. 205/MDS/2010 (FOR ASSESSMENT YEAR 2005-06) 75. IN THIS APPEAL RELATING TO SMT. SARITA BHANDARI , REVENUE HAS RAISED TWO EFFECTIVE GROUNDS BEFORE US. GROUND NO.1 OF THE REVENUE IS AGAINST THE RELIEF GIVEN BY THE CIT(APPEALS) ON AN ADDITION OF ` 6,42,000/- BY THE A.O. ON CONSTRUCTION OF A HOUSE. 76. SHORT FACTS APROPOS ARE THAT DURING THE COURSE OF SEARCH PROCEEDINGS IN THE RESIDENTIAL PREMISES OF SHRI JAS WANT CHAND BHANDARI, HUSBAND OF THE ASSESSEE, CERTAIN DOCUMENT S WERE SEIZED. IN ONE OF SUCH DOCUMENT SEIZED, IT WAS STATED THAT ` 57,000/- WAS GIVEN TO ONE M/S STUDIO LANSON LIFESTYLE PVT. LTD. AS ADVANCE TOWARDS PURCHASE OF SANITARY WARES FOR A BUILDING C ONSTRUCTED AT NO.6, RITHERDON ROAD, CHENNAI. IT SEEMS IN THE STA TEMENT TAKEN FROM SHRI JASWANT CHAND BHANDARI, HE ADMITTED THAT THIS AMOUNT OF ` 57,000/- WAS NOT REFLECTED IN THE BOOKS OF HIS WIFE AND IT REPRESENTED UNEXPLAINED EXPENDITURE. SIMILARLY, AS PER ANOTHER SEIZED DOCUMENT, VIZ. A BILL RECEIVED FROM LABOUR CONTRACTOR, A SUM OF ` 2,36,250/- WAS I.T.A. NOS. 201 TO 205/MDS/10 66 DUE ON A LABOUR CONTRACT. SHRI JASWANT CHAND BHAND ARI, IN HIS STATEMENT, STATED THAT ` 90,000/- WAS PAID OUT OF THIS AND THE SAID AMOUNT WOULD BE OFFERED AS UNACCOUNTED AND UNEXPLAI NED INCOME IN THE HANDS OF HIS WIFE. ANOTHER DOCUMENT SHOWING PA YMENT CERTIFICATE RECEIVED FROM ONE M/S CHETTINAD DESIGN, ARCHITECT, FOR ` 2,25,000/-. SHRI JASWANT CHAND BHANDARI AGAIN STATED THAT SUCH AMOUNT WOULD BE OFFERED AS UNEXPLAINED IN THE HANDS OF HIS WIFE. CERTAIN OTHER KACHA BILLS ALSO FOUND DURING SEARCH TOTALLING TO ` 3,67,099/-. SHRI JASWANT CHAND BHANDARI STATED THAT OUT OF THIS ` 2,70,000/- WAS PAID IN CASH AND IT WAS UNACCOUNTED AND UNEXPLAINED IN T HE HANDS OF HIS WIFE. HOWEVER, WHEN SMT. SARITA BHANDARI FILED HER RETURN FOR THE IMPUGNED ASSESSMENT YEAR, NONE OF THE ABOVE AMOUNTS WERE SHOWN AS UNDISCLOSED INCOME. AS PER THE ASSESSEE, THESE PAYMENTS WERE REFLECTED IN HIS CASH FLOW STATEMENT AND THERE WERE SUFFICIENT CASH BALANCE WITH HER. HOWEVER, THE A.O. DID NOT ACCEPT THIS VERSION SINCE ACCOUNTS IN TALLY PACKAGE WAS UPDATED ONLY TILL 5.8 .2004. FURTHER, AS PER THE A.O., THE CASH FLOW STATEMENT FILED, DURING THE COURSE OF ASSESSMENT, SHOWED HUGE DEFICIT CASH BALANCE AND CO NSTRUCTION EXPENSES WERE NOT REFLECTED IN CASH FLOW STATEMENT. SO, HE CONSIDERED THE ENTIRE AMOUNT OF ` 6,42,000/- AS UNEXPLAINED EXPENDITURE OF ASSESSEE. I.T.A. NOS. 201 TO 205/MDS/10 67 77. IN HIS APPEAL BEFORE THE CIT(APPEALS), CONTENTI ON OF THE ASSESSEE WAS THAT THERE WAS NO OPPORTUNITY GIVEN TO CROSS-EXAMINE SHRI JASWANT CHAND BHANDARI. AGAIN, AS PER THE ASS ESSEE, ALL THE AMOUNTS WHICH WERE CONSIDERED UNEXPLAINED WERE DULY ENTERED BY HER IN HER BOOKS. LD. CIT(APPEALS) CALLED FOR A RE MAND REPORT FROM THE A.O. THE A.O. GAVE AN OPPORTUNITY TO THE ASSES SEE TO CROSS- EXAMINE SHRI JASWANT CHAND BHANDARI DURING THE REMA ND PROCEEDING. IN THE STATEMENT GIVEN IN SUCH CROSS-E XAMINATION, SHRI JASWANT CHAND BHANDARI SUBMITTED THAT HIS ADMISSION MADE DURING THE COURSE OF SEARCH PROCEEDINGS WERE NOT BASED ON THE BOOKS OF ACCOUNTS AND THE ENTRIES MADE FOR THE ALLEGED UNEXP LAINED PAYMENT WERE ALL APPEARING IN THE BOOKS OF THE ASSESSEE. T HE A.O. NEVERTHELESS IN THE REMAND REPORT WAS OF THE OPINIO N THAT THE EXPENSES CONSIDERED BY HIM WERE INCURRED PRIOR TO 1 2.8.2004 THE DATE OF THE SEARCH, BUT ASSESSEES HAD ACCOUNTED ON 12.8.2004. AS PER THE A.O., IT WAS UNBELIEVABLE THAT THESE EXPENS ES WERE INCURRED ON 12.8.2004 ITSELF. THEREFORE, ACCORDING TO HIM, RETRACTION MADE BY SHRI JASWANT CHAND BHANDARI DURING THE COURSE OF CR OSS- EXAMINATION, COULD NOT BE BELIEVED. LD. CIT(APPEAL S) AFTER PERUSING THE SUBMISSION OF THE ASSESSEE AND REMAND REPORT OF THE A.O., NOTED THAT ASSESSEE HAD FOR ASSESSMENT YEAR 2001-02 AND 2 002-03 MADE I.T.A. NOS. 201 TO 205/MDS/10 68 DISCLOSURES AGGREGATING TO ` 59.50 LAKHS. ACCORDING TO HIM, SUCH DISCLOSURE CONVERTED THE NEGATIVE BALANCE IN THE CA SH FLOW STATEMENT TO POSITIVE BALANCE. IN OTHER WORDS, HE WAS OF THE OPINION THAT THE DISCLOSURE MADE FOR ASSESSMENT YEARS 2001-02 AND 20 02-03 TOOK CARE OF THE EXPENDITURE OF ` 6,42,000/- CONSIDERED BY THE A.O. AS UNEXPLAINED TOWARDS THE CONSTRUCTION COST. HENCE H E WAS OF THE OPINION THAT TELESCOPING HAD TO BE ALLOWED AND THUS HE DELETED THE ADDITION. 78. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT SUCH TELESCOPING WAS I NAPPROPRIATE TO BE ALLOWED. 79. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS). 80. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. ASSESSEE HAD MADE ENTRIES IN HER CASH BOOKS AND SUC H EXPENDITURE INCURRED THOUGH EARLIER WAS ACCOUNTED ON THE DATE O F SEARCH VIZ. 12.8.2004. ASSESSEE HAD ALSO ADMITTED UNDISCLOSED INCOME AGGREGATING TO ` 59.5 LAKHS FOR ASSESSMENT YEARS 2001-02 AND 2002- 03 AND THIS TOOK CARE OF THE DEFICITS IN THE CASH F LOW STATEMENT. THIS HAS NOT BEEN DISPUTED. WHEN SUCH DISCLOSURES WERE THERE, THEN THE I.T.A. NOS. 201 TO 205/MDS/10 69 AMOUNT SO DISCLOSED WOULD BE AVAILABLE TO THE ASSES SEE FOR MEETING HER EXPENDITURE IN THE SUCCEEDING YEAR. THE UNEXPL AINED AMOUNT CONSIDERED BY THE A.O. OF ` 6,42,000/- IS MORE THAN COVERED BY THE ABOVE DISCLOSURE OF THE ASSESSEE FOR EARLIER YEARS. THIS BEING THE CASE, WE ARE OF THE OPINION THAT THE CIT(APPEALS) W AS WELL JUSTIFIED IN TELESCOPING ALLEGED UNACCOUNTED EXPENDITURE WITH SU CH INCOME. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(APPEALS). GROUND NO.1 STANDS DISMISSED. 81. VIDE ITS GROUND NO.2, GRIEVANCE OF THE REVENUE IS REGARDING DELETION MADE BY THE CIT(APPEALS) IN RESPECT OF BAD DEBTS AMOUNTING TO ` 50,000/-. 82. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD ADVAN CED A SUM OF ` 10,00,000/- OUT OF WHICH, AS PER THE ASSESSEE, A S UM OF ` 9,50,000/- WAS RECOVERED AND ` 50,000/- WAS CLAIMED AS BAD DEBT. THE ADVANCE WAS GIVEN TO ONE M/S DREAMS THEATRES. INVESTIGATION WING CALLED SHRI P. CHERAN OF M/S DREAMS THEATRES A ND RECORDED A STATEMENT FROM HIM. AS PER THE STATEMENT, SHRI P. CHERAN STATED THAT HE HAD REPAID THE WHOLE AMOUNT OF PRINCIPAL AND INT EREST. A.O. RELYING ON THE STATEMENT OF SHRI P. CHERAN DISALLOW ED THE CLAIM OF THE ASSESSEE. I.T.A. NOS. 201 TO 205/MDS/10 70 83. BEFORE THE CIT(APPEALS), SUBMISSION OF THE ASSE SSEE WAS THAT NO OPPORTUNITY OF CROSS-EXAMINING SHRI P. CHERAN WA S GIVEN TO THE ASSESSEE. ASSESSEE ALSO BROUGHT TO THE ATTENTION O F CIT(APPEALS) A MEMO OF COMPROMISE FILED BEFORE HON'BLE JURISDICTIO NAL HIGH COURT WHEREIN IT WAS MENTIONED THAT AN ADVANCE OF ` 10,00,000/- WAS GIVEN BY THE ASSESSEE TO M/S DREAMS THEATRES. ACCORDING TO THE ASSESSEE, AS PER THE MEMO OF COMPROMISE, ONLY ` 9,50,000/- WAS CLAIMED TO HAVE BEEN PAID BY M/S DREAMS THEATRES TO ASSESSEE. LD. CIT(APPEALS) WAS APPRECIATIVE OF THIS AND DELETED T HE ADDITION OF ` 50,000/-. 84. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THERE WAS CLEAR VIOLAT ION OF RULE 46A OF INCOME-TAX RULES, 1962. ASSESSEE HAD NEVER PRODUCE D THE COPY OF MEMO OF COMPROMISE FILED BEFORE HON'BLE JURISDICTIO NAL HIGH COURT NOR HAD THE CIT(APPEALS) PUT IT TO THE A.O., SUCH M EMO OF COMPROMISE FOR HIS COMMENTS. 85. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF THE LD. CIT(APPEALS). I.T.A. NOS. 201 TO 205/MDS/10 71 86. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT MEMO OF COMPROMISE BASED O N WHICH LD. CIT(APPEALS) HAD ALLOWED THE CLAIM OF BAD DEBT OF ` 50,000/-, WAS NEVER BEFORE THE ASSESSING OFFICER. LD. CIT(APPEAL S) DID NOT PUT IT BEFORE HIM FOR HIS COMMENTS. THE MEMO OF COMPROMIS E, NO DOUBT, MAY BE AN ORDER OF HON'BLE JURISDICTIONAL HIGH COUR T HAVING A BINDING EFFECT ON ALL LOWER AUTHORITIES. BUT, WHETHER SUCH MEMO WAS INDEED ON THE ASPECT OF ADVANCE OF ` 10,00,000/- AND WHETHER IT ALSO CLEARLY MENTIONED THAT ONLY ` 9,50,000/- WAS REPAID BY M/S DREAMS THEATRES TO THE ASSESSEE, ALL REQUIRE TO BE VERIFIED. WE AR E OF THE OPINION THAT THERE WAS A VIOLATION OF RULE 46A IN THIS REGARD. WE SET ASIDE THE ORDER OF CIT(APPEALS) AS WELL AS THE A.O. AND REMIT THE MATTER BACK TO THE FILE OF A.O. FOR CONSIDERATION AFRESH. THE A.O. SHOULD CONSIDER THE MEMO OF COMPROMISE AND IF THE CLAIM IS FOUND CO RRECT, THEN THE BAD DEBT HAS TO BE ALLOWED. GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. 87. IN THE RESULT, APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2005- 06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 88. BEFORE PARTING WITH THESE APPEALS, IT WOULD BE INAPPROPRIATE IF WE DO NOT DEAL WITH THE ARGUMENT OF THE LEARNED D.R . THAT THE I.T.A. NOS. 201 TO 205/MDS/10 72 ASSESSEE COULD NOT QUESTION THE VERACITY OF THE ADD ITIONS MADE BY A.O., BASED ON STATEMENTS RECORDED FROM OTHER PARTI ES WHO WERE NOT ALLOWED TO CROSS-EXAMINE, FOR A REASON THAT THE CIT (APPEALS) HAD ALLOWED THE APPEALS OF THE ASSESSEE BASED ON THE SY STEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND NOT FOR A R EASON THAT CROSS- EXAMINATION WAS NOT ALLOWED TO THE ASSESSEE OF THE CONCERNED PERSONS. AS PER THE LEARNED D.R., THERE WAS NO CRO SS OBJECTIONS FILED BY THE ASSESSEE. ACCORDING TO HIM, REVENUE WAS ASS AILING THIS REASONING OF THE CIT(APPEALS), REGARDING CASH BASIS OF ACCOUNTING, AND ASSESSEE COULD NOT BE ALLOWED TO BRING IN OTHER ISSUES, LIKE FAILURE TO GRANT A CROSS EXAMINATION. ACCORDING TO HIM, IN SO FAR AS THE ISSUE BASIS OF ACCOUNTING WAS CONCERNED, REVENU ES CASE WAS SUPPORTED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF A.R. SANTHANAKRISHNAN (SUPRA). ON THIS LEA RNED A.R. CITED RULE NO.27 OF INCOME-TAX (APPELLATE TRIBUNAL) RULES , 1963 AND RELIANCE WAS PLACED ON THE DECISION OF HON'BLE MADH YA PRADESH HIGH COURT IN THE CASE OF DCIT V. TURQUOISE INVESTMENT A ND FINANCE LTD. (299 ITR 143). REPLY OF THE LEARNED D.R. WAS THAT EVEN IF AN OPPORTUNITY OF CROSS-EXAMINATION WAS NOT GIVEN, IT WAS ONLY A PROCEDURAL LAPSE AND WOULD NOT MAKE THE ASSESSMENT ITSELF VOID. I.T.A. NOS. 201 TO 205/MDS/10 73 89. NO DOUBT, WE FIND THAT THE ASSESSEE HAD NOT FIL ED ANY CROSS APPEALS. ALSO THERE IS NO DOUBT THAT LD. CIT(APPEA LS) PLACED RELIANCE ON THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSE E, TO HOLD THAT INCOME NOT ACCRUED AND RECEIVED COULD NOT BE CONSID ERED AS INCOME. BUT, IN OUR OPINION, DECISION OF HON'BLE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT (229 ITR 383 ) (SC) CLEARLY TILTS THE ISSUE IN FAVOUR OF THE ASSESSEE. THEIR L ORDSHIP CLEARLY HELD THAT POWER OF TRIBUNAL IN DEALING WITH APPEALS WAS EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE PURPOSE OF AN ASSESSMEN T PROCEEDING BEFORE A TAXING AUTHORITY IS TO ASSESS CORRECTLY TH E TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IN OUR VIEW, RULE 27 OF INCOME-TAX (APPELLATE TRIBUNAL) RULES, 1963 WOULD ENTITLE A PA RTY TO SUPPORT AN ORDER OF CIT(APPEALS) BASED ON MATERIAL ON RECORD. HERE, THE STATEMENTS OF THE PARTIES RELIED ON BY THE A.O. HAD BEEN REPRODUCED EITHER IN THE ASSESSMENT ORDER OR IN THE CIT(APPEAL S)S ORDER. THEREFORE, WE ARE NOT INCLINED TO ACCEPT THE ARGUME NT OF THE LEARNED D.R. THAT ASSESSEE COULD NOT SUPPORT ITS CASE BY PO INTING OUT ANY LACUNAE IN THE STATEMENTS GIVEN BY THE PARTIES WHIC H WERE RELIED ON BY THE LEARNED A.R. I.T.A. NOS. 201 TO 205/MDS/10 74 90. RESULTS OF THE REVENUES APPEALS ARE SUMMARIZED AS FOLLOWS:- I.T.A. NO. 201/MDS/2010 - PARTLY ALLOWED FOR STATI STICAL PURPOSES. I.T.A. NO. 202/MDS/2010 - DISMISSED. I.T.A. NO. 203/MDS/2010 - PARTLY ALLOWED. I.T.A. NO. 204/MDS/2010 - PARTLY ALLOWED FOR STATIS TICAL PURPOSES. I.T.A. NO. 205/MDS/2010 - PARTLY ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON 27 TH MAY, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 27 TH MAY, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, CHENNAI-34 (4) CIT, CENTRAL-II, CHENNAI (5) D.R. (6) GUARD FILE