M/S. MAD ENTERTAINMENT LTD., MUMBAI V. ACIT CIR 11(1), MUMBAI

ITA 2042/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92574 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 02-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: DHIRENDRA M SHAH
• Keywords: Depreciation; Opportunity of being heard
• Section: 143(3); 68

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./I.T.A. NO.2042/M/2011 ( AY: 2007 - 2008 ) M/S. MAD ENTERTAINMENT LTD., C/O. MANGALDAS D. SHAH & CO., 506, LOTUS HOUSE, 5 TH FLOOR, 33 - A, NEW MARINE LINES, MUMBAI - 20. / VS. THE ASST. COMMISSION OF INCOME TAX, CIRCLE 11(1), AAYAKAR BHAVAN, 6 TH FLOOR, R.NO.667, M.K. ROAD, MUMBAI - 20. ./ PAN : AABCM2869H ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DHIRENDRA M. SHAH / RESPONDENT BY : SHRI JEETENDRA KUMAR, DR / DATE OF HEARING : 26.5 .2015 / DATE OF PRONOUNCEMENT : 26.5.2015 / O R D E R PER G.S. PANNU, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) - 3, MUMBAI DATED 8.11.2010 FOR THE ASSESSMENT YEAR 2007 - 2008 IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S 144 OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT), DATED 3.12.2009. 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) FAILED TO APPRE CIATE THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S 144 OF THE ACT IS BAD IN LAW AND HENCE IT SHOULD BE CANCELLED. (B) THE LD CIT (A) FAILED TO APPRECIATE THAT, THE APPELLANT COMPANY HAD FILED ALL THE DETAILS. (C) THE APPELLANT PRAYS THAT, THE ORDER PASSED BE CANCELLED. 2. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 50 LAKHS ON AD - HOC BASIS FROM THE OVERALL EXPENSES, WHICH ADDITION BE DELETED. (B) THE LD CIT (A) ERRED I N NOT APPRECIATING THAT THE ADITION WAS MADE BY THE ASSESSING OFFICER WITHOUT ANY DETAILS BEING BROUGHT ON RECORD AND CONTRARY TO THE DETAILS AND FACTS ON RECORD. 2 (C) THE LD ASSESSING OFFICER HAD NO STAGE GIVEN ANY SHOW CAUSE NOTICE ON THE PROPOSED ADDITIO N / DISALLOWANCE AND HENCE THE ADDITION MADE BE DELETED. (D) THE LD CIT (A) ERRED IN STATING THAT THE VERIFICATION OF EXPENSES WAS NOT POSSIBLE. THE ASSESSING OFFICER HAD PASSED THE ORDER WITHOUT CONSIDERING THE DETAILS ON RECORD AND MADE THE ADDITION. (E ) THE APPELLANT PRAYS THAT ADDITION OF RS. 50 LAKHS SUSTAINED BEING CONTRARY TO THE FACTS AND BAD IN LAW IT BE DELETED. (F) WITHOUT PREJUDICE, THE ADDITION SUSTAINED BEING ARBITRARY AND AD - HOC BASIS IT BE REDUCED. 3.(A) ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE THE LD CIT (A) ERRED IN SUSTAINING THE ADDITION OF RS. 1,08,35,576/ - OUT OF UNSECURED LOAN WHICH IS BAD IN LAW AND CONTRARY TO THE FACTS AND EVIDENCE AND HENCE IT BE DELETED. (B) THE LD CIT (A) ERRED IN STATING THAT COMPLETE DETAILS NOT FILED OR NO CONFIRMATION FILED. THE APPELLANT PRAYS THAT, ALL COMPLETED DETAILS WITH CONFIRMATION WERE FILED EVEN AT APPELLATE BEARING WERE FILED WITH DETAILS OF OPENING BALANCE. (C) THE CIT (A) FAILED TO APPRECIATE THAT THE LOANS BORROWED DURING THE YEAR IS NOT RS. 1,08,35,567/ - IT INCLUDES THE OPENING BALANCES FOR WHICH ADDITION MADE IS BAD IN LAW. (D) THE APPELLANT PRAYS THAT THE ADDITION OF RS. 1,08,35,567/ - MADE BE DELETED. 3. IN SO FAR AS THE GROUNDS OF APPEAL NO.1 (A TO C) ARE CONCERNED, THE SAME HAVE NOT BEEN PRESSED AT THE TIME OF HEARING IN TERMS OF WRITTEN COMMUNICATION DATED 26.5.2015 PLACED ON RECORD. CONSEQUENTLY, THE SAID GROUNDS ARE DISMISSED AS WITHDRAWN. 4. IN SO FAR AS GROUND NO.2 IS CONCERNED, THE SAME RELATES TO THE ACTION OF THE CIT (A) IN SUSTAINING A DISALLOWANCE OF RS. 50 LAKHS FROM THE OVERALL EXPENSES CLAIMED BY THE ASSESSEE. IN THIS CONTEXT, RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRODUCTION OF TV COMMERCIALS AND FILMS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT FILED RETURN OF INCOME DECLARING AN INCOME O RS. 74,18,758/ - WHICH WAS SUBJECTED TO A SCRUTINY ASSESSMENT. THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER TO THE BEST OF HIS JUDGEMENT BY INVOKING THE PROVISIONS OF SECTION 144 OF T HE ACT WHEREIN THE TOTAL INCOME WAS DETERMINED AT RS. 11,36,77,910/ - , WHICH INTER - ALIA , INCLUDE D A DISALLOWANCE OF RS. 8,43,07,346/ - BEING 50% OF THE EXPENSES ON ACCOUNT OF PRODUCTION, FINANCIAL CHARGES, EXCHANGE RATE LESS AND DEPRECIATION. THE AFORESAID DISALLOWANCE WAS MADE FOR WANT OF VERIFICATION OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE, INCLUDING THE DEPRECIATION CLAIM . IN APPEAL, THE ASSESSEE ASSAILED THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING 50% OF THE AFORESAID AMOUNT OF CLAIMS ON AN AD - HOC BASIS. THE CIT (A) NOTED THAT AD - HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER @ 50% OF THE OVERALL 3 EXPENSES WAS UNSUSTAINABLE. IN PARA 2.4.1 OF HER ORDER, THE CIT (A) NOTED THE EARLIER ASSESSMENTS WHERE NO DISALLOWANCE WAS MADE OUT OF THE PRODU CTION EXPENSES, FINANCIAL CHARGES ETC. THE CIT (A) HAS ALSO NOTED THAT THE NATURE OF WORK OF THE ASSESSEE WAS SUCH WHERE INSTANCES OF EXPENSES BEING INCURRED IN CASH OR ON SELF MADE VOUCHERS COULD NOT BE RULED OUT. WITH REGARD TO THE DISALLOWANCE MADE OU T OF THE DEPRECIATION CLAIMED, THE CIT (A) HAS NOTED THAT SUCH CLAIM RELATED TO THE MOTOR VEHICLES, AIR - CONDITIONERS ETC., WHICH COULD NOT BE SUBJECT TO DISALLOWANCE. CONSIDERING THE ENTIRETY OF CIRCUMSTANCES, THE CIT (A) DEEMED IT FIT TO SUSTAIN A DISALL OWANCE OF RS. 50 LAKHS FROM THE OVERALL EXPENSES CLAIMED AND DELETED THE BALANCE. NOT BEEN SATISFIED WITH THE PART RELIEF ALLOWED BY THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IN THE ABOVE BACKGROUND, THE LD REPRESENTATIVE FOR THE ASSESSEE CO NTENDED THAT IN THE NEXT ASSESSMENT YEAR OF 2008 - 2009, UNDER SIMILAR CIRCUMSTANCES, THE TRIBUNAL HAD ESTIMATED THE DISALLOWANCE AT 10% OF THE TOTAL EXPENDITURE. THE ORDER OF THE TRIBUNAL IN ITA NO.5993/MUM/2011 (AY 2008 - 2009), DATED 28.10.2014 WAS PLACED ON RECORD. 6. ON THE OTHER HAND, LD DR APPEARING FOR THE REVENUE HAS SUPPORTED THE ORDER OF THE CIT (A) RETAINING THE DISALLOWANCE AT RS. 50 LAKHS. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND FIND THAT THE DISALLOWANCE OF RS. 50 LAKHS RETAI NED BY THE CIT (A) OUT OF THE TOTAL EXPENSES ON ACCOUNT OF LACK OF VERIFIABILITY IS QUITE FAIR IN THE CONTEXT OF THE PRECEDENT IN ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIBUNAL DATED 28.10.2014 (SUPRA). THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE AGAINST ITS TAXABLE INCOME (EXCEPT THE DEPRECIATION) AMOUNTS TO RS. 16,65,78,501/ - AND IF 10% OF THE EXPENSES ARE TO BE DISALLOWED FOLLOWING THE PRECEDENT IN THE ASSESSEES OWN CASE, THE DISALLOWANCE WILL WORK OUT TO RS. 1,66,57,850/ - WHEREAS THE DISALLOWA NCE RETAINED BY THE CIT (A) IS RS. 50 LAKHS. CONSIDERED IN THE SAID LIGHT AND IN THE AB SENCE OF ANY CROSS APPEAL BY THE REVENUE ON THIS ASPECT, WE HEREBY AFFIRM THE ORDER OF THE CIT (A) IN SUSTAINING THE DISALLOWANCE OF RS. 50 LAKHS OUT OF OVERALL EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF UNVERIFIABILITY OF EXPENSES. THUS, ON THIS ASPECT, ASSESSEE FAILS. 4 8. THE LAST GROUND IN THIS APPEAL OF THE ASSESSEE IS WITH REGARD TO THE ADDITION OF RS. 1,08,35,567/ - MADE BY THE LOWER AUTHORITIES OUT OF TH E UNSECURED LOANS. THE ASSESSING OFFICER NOTED THAT IN COMPARISON TO THE EARLIER YEAR, THERE WAS AN INCREASE OF RS. 1,08,35,567/ - IN THE UNSECURED LOANS RECEIVED FROM THE DIRECTORS AND RELATIVES DURING THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF ANY VERIFICATION OF LOANS, THE SAME WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 OF THE ACT. BEFORE THE CIT (A), ASSESSEE FILED CONFIRMATIONS FROM THE PERSONS FROM WHOM SUCH LOANS WERE RAISED. THE LD REPRESENTATIVE EXPLAINED AT THE TIME OF HEARI NG THAT THE CONFIRMATIONS FILED BEFORE THE CIT (A) INCLUDED COMPLETE DETAILS OF THE LENDERS NAMES, ADDRESSES, THE PANS, COPY OF ACCOUNTS ETC. THE LD REPRESENTATIVE POINTED OUT THAT THE MATERIAL AND SUBMISSIONS PUT FORTH BY THE ASSESSEE BEFORE THE CIT (A) WAS REMANDED TO THE ASSESSING OFFICER AND A REMAND REPORT WAS ALSO OBTAINED BY THE CIT (A). BY REFERRING TO A COPY OF SUCH REMAND REPORT DATED 26.7.2010, PLACED I N THE PAPER BOOK AT PAGES 175 TO 177, THE LD REPRESENTATIVE EXPLAINED THAT THE ASSESSING OFFI CER ACCEPT S THAT THE CO NFIRMATIONS OF LOANS ESTABLISH THE IDENTITY OF THE CREDITORS BUT IT DID NOT ESTABLISH THE GENUINENESS AND CREDITWORTHINESS OF THE LENDERS. IN PARTICULAR, OUR ATTENTION WAS INVITED TO THE FOLLOWING LINES OF THE REMAND REPORT SUBMITTE D BY THE ASSESSING OFFICER. 2. PAGES 190 - 200 GIVES A BREAK UP OF UNSECURED LOANS TAKEN BY THE ASSESSEE ALONG WITH THE LOAN CONFIRMATIONS. THE AO HAD ADDED THE AMOUNT U/S 68 WHILE PASSING THE ORDER U/S 143(3) R.W.S 144 AS NO VERIFICATIONS WAS POSSIBLE. T HE ABOVE SUBMISSION ONLY CONTAINS CONFIRMATIONS OF LOANS WHICH ESTABLISHES IDENTITY, HOWEVER NOTHING IS PRESENT WHICH ESTABLISHES GENUINENESS AND CREDITWORTHINESS OF THE LOAN GI VERS. 9. ON THE BASIS OF THE AFORESAID, IT IS SOUGHT TO BE MADE OUT THAT THE CIT (A) HAS ERRONEOUSLY NOT CONSIDERED THE CONFIRMATIONS FILED BY THE ASSESSEE IN ITS PROPER PERSPECTIVE. ON PAGES 103 TO 113 OF THE PAPER BOOK IS PLACE D A COPY OF THE DETAILS OF UNSECURED LOANS RECEIVED AND ALSO THE CONFIRMATIONS BY THE RESPECTIVE LENDER S. 10. ON THE OTHER HAND, LD DR CONTENDED THAT THE ASSESSEE DID NOT FURNISH THE CONFIRMATIONS AT THE TIME OF ASSESSMENT PROCEEDINGS AND MOREOVER, THE CONFIRMATIONS DO NOT ESTA BLISH THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS. THEREFORE, THE C IT (A) MADE NO MISTAKE IN SUSTAINING THE ADDITION U/S 68 OF THE ACT. 5 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IN PARA 2.4.1 OF THE IMPUGNED ORDER, THE CIT (A) HAS OBSERVED INTER ALIA THAT N O C ONFIRMATIONS HAD BEEN FILED BY A PPELLANT AND , THAT MOREOVER, NONE OF THE UNSECURED LOANS FROM DIRECTORS AND RELATIVE HAVE BEEN CONFIRMED BY THE SAID PARTIES NOR ANY CONFIRMATION FILED BY A PPELLANT. 12. IN OUR CONSIDERED OPINION, THE AFORESAID OBSERVATIONS OF THE CIT (A) ARE QUITE EXTR ANEOUS TO THE MATERIAL ON RECORD. NOTABLY, THE CIT (A) HAD CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER ON THE SUBMISSIONS AND MATERIAL PUT FORTH BY THE ASSESSEE BEFORE HIM. THE CONTENTS OF THE REMAND REPORT, WHICH WE HAVE EXTRACTED ABOVE, CLEAR LY ESTABLISH THAT THAT THE CONFIRMATION FROM THE LENDE RS WAS ON RECORD BEFORE THE CIT (A) ON WHICH THE ASSESSING OFFICER HAS OFFERED HIS COMMENTS. THEREFORE, THE FACTUM OF THE ASSESSEE NOT HAVE BEEN FILED THE CONFIRMATION LETTERS DURING THE APPEL LATE PROC EEDINGS BEFORE THE CIT (A), IS NOT SUSTAINABLE. NEVERTHELESS, WE HAVE PERUSED THE DETAILS OF THE UNSECURED LOANS , WHICH IS PLACED AT 103 OF THE PAPER BOOK. IN MOST OF THE CASES, IT IS SEEN THAT THE AMOUNTS HAVE BEEN RECEIVED FROM LENDERS IN THE PAST YEARS , EXCEPT IN THE CASE OF TWO PERSONS NAMELY ASHISH JAIN AND PAMELA VAHI WHEREIN LOANS OF RS. 1.25 CRS AND RS. 82,81,300/ - HAVE BEEN RECEIVED DURING THE YEAR UNDER CONSIDERATION. EXCEPT THE AFORESAID TWO, THE OTHER FIVE LENDERS ARE REFLECTING UNSECURED LOAN S WHICH ARE BROUGHT FORWARD FROM THE LAST YEAR. IN OUR CONSIDERED OPINION, IT WOULD BE APPROPRIATE THAT THE MATERIAL AND EVIDENCE PUT FORTH BY THE ASSESSEE IS APPROPRIATELY EXAMINED BY THE ASSESSING OFFICER IN THE CONTEXT OF THE INGREDIENTS REQUIRED FOR T HE SATISFACTION OF SECTION 68 OF THE ACT. AT THE TIME OF HEARING, THE LD REPRESENTATIVE FOR THE ASSESSEE HAD SUBMITTED THAT AT THE PRESENT, THE ASSESSEE WOULD BE SATISFIED IF THE MATERIAL FURNISHED BY THE ASSESSEE ON ACCOUNT OF VERIFIABILITY OF THE SUNDRY LOAN CREDITORS IS REVISITED BY THE ASSESSING OFFICER. THE ABOVE PRAYER OF THE ASSESSEE HAS NOT BEEN OPPOSED BY THE LD DR. 13. IN THE ABOVE CONTEXT, WE DEEM IT FIT AND APPROPRIATE TO SET ASIDE THE ORDER OF THE CIT (A) AND RESTORE THE MATTER BACK TO THE FI LE OF THE ASSESSING OFFICER WHO SHALL CONSIDER THE SUBMISSIONS AND MATERIAL PUT FORTH BY THE ASSESSEE IN SUPPORT OF THE INCREASE IN UNSECURED LOANS DURING THE YEAR UNDER CONSIDERATION AT RS. 1,08, 35,567/ - . 6 NEEDLES S TO MENTION , THE ASSESSING OFFICER SHALL A LLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PASSING AN ORDER ON THIS ASPECT AS PER THE LAW. THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED , AS PRONOUNCED IN THE OPEN COURT AT THE CONCLUSION OF HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 26 TH MAY, 2015. SD/ - SD/ - ( SANJAY GARG ) ( G.S. PANNU ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 26 .5 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI