B.R. FILMS, MUMBAI V. ASST CIT 11(1), MUMBAI

ITA 3632/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88035 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Recovery proceedings; Depreciation
• Section: 133(6); 68; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BE NCH, MUMBAI , !' $ $ $ $ % & ' , !' ( BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I .T.A. NO. 3632/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 B.R. FILMS, ANAND VILLA, PLOT NO. G-38, 15 TH ROAD, SANTACRUZ W), MUMBAI-400 054 / VS. THE ACIT,-11(1), MUMBAI ./I .T.A. NO. 3839/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 THE ACIT,-11(1), MUMBAI / VS. B.R. FILMS, ANAND VILLA, PLOT NO. G- 38, 15 TH ROAD, SANTACRUZ W), MUMBAI-400 054 '* ./ +, ./ PAN/GIR NO. : AAAFB 1923B ( *- / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / ASSESSEE BY: SHRI HARI S. RAHEJA ./*- 1 0 / REVENUE BY: SHRI S.J. SINGH 1 %2 / DATE OF HEARING :11.12.2014 34) 1 %2 / DATE OF PRONOUNCEMENT :14.01.2015 !& / O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVE NUE ARE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-3, MUMBAI DT. 2 6.3.2012 PERTAINING TO ITA NOS. 3632 & 3836/M/12. 2 ASSESSMENT YEAR 2008-09. BOTH THESE APPEALS WERE H EARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. ITA NO. 3632/MUM/2012-2008-09 2. THE FIRST GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE 1/5 TH OF THE CONSIDERATION AMOUNTING TO RS. 2.30 CRORES IN RESPECT OF THE AGREEMENT OF HOME VID EO RIGHTS AND SATELLITE RIGHTS WITH MOSER BAER GRANTING RIGHTS FOR VARIOUS FILMS FOR A PERIOD OF 5 YEARS WAS ASSESSABLE IN THE YEAR UNDER APPEAL. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE RIGHTS OF EACH FILM COMMEN CED ON DIFFERENT DATES AND THE ASSESSEE HAD RIGHTLY ACCOUNTED FOR 1/5 TH OF THE SAME SPREAD OVER A PERIOD OF 5 YEARS FROM THE DATE OF COMMENCEMENT OF EACH FILM AS PER THE TERMS OF EXPLOITATION. 3. INTER RELATED WITH THIS GRIEVANCE THE SECOND GRI EVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) WAS NOT JUSTIFIED I N RETAINING AN ADDITION OF RS. 1.30 CRORES FOR THE YEAR UNDER APPEAL AND AL SO ENHANCING THE INCOME OF THE SUBSEQUENT ASSESSMENT YEARS. 4. THE ASSESSEE IS IN THE BUSINESS OF FILM PRODUCTI ON. THE RETURN WAS ELECTRONICALLY FILED ON 30.9.2009 DECLARING A LOSS OF RS. 1,11,64,360/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND S TATUTORY NOTICES WERE ISSUED AND SERVED ACCORDINGLY. 4.1. DURING THE YEAR, THE ASSESSEE HAS SHOWN REALIZ ATIONS FROM THE MOVIES NAYA DAUR, FIRE AND EARTH AND OVERFLOWS FROM BAGHBAN AND BAABUL APART FROM ROYALTY RECEIPTS AND HIRES INCOM E. ON PERUSING THE BALANCE SHEET OF THE ASSESSEE, THE ASSESSING OFFICE R FOUND THAT THE ITA NOS. 3632 & 3836/M/12. 3 ASSESSEE HAS SHOWN ON THE LIABILITY SIDE OF THE BA LANCE SHEET AN ADVANCE RECEIVED OF RS. 36.87 CRORES. THIS ADVANCE INTER A LIA INCLUDED AN ADVANCE OF RS. 5.5. CRORES RECEIVED FROM MOSER BAER (MBIL). THE ASSESSEE WAS ASKED TO EXPLAIN THIS TRANSACTION WITH MBIL. THE A SSESSEE WAS FURTHER ASKED TO SHOW CAUSE WHY THE ADVANCES SO RECEIVED BE NOT TREATED AS INCOME. THE ASSESSEE FILED A COPY OF AGREEMENT DT. 1.8.2007 ENTERED INTO BETWEEN THE ASSESSEE AND MBIL FOR A CONSIDERATION O F RS. 11.50 CRORES WHICH PERTAINS TO THE TRANSFER OF RIGHTS (HOME VIDE O RIGHTS AND SATELLITE RIGHTS) OF VARIOUS FILMS FROM THE ASSESSEE TO MBIL FOR A PERIOD OF 5 YEARS. AFTER CONSIDERING THE REPLY OF THE ASSESSEE VIS--V IS, THE AGREEMENT BETWEEN THE ASSESSEE AND MBIL, THE AO WAS OF THE FI RM BELIEF THAT THE ASSESSEE HAS TRANSFERRED TO THE ASSIGNEE I.E. MBIL ALL RIGHTS IRREVOCABLY AND ASSESSEE HAS GOT IRREVOCABLE RIGHTS TO USE THE ADVANCES RECEIVED AGAINST THE RIGHTS SOLD. THEREFORE, THE WHOLE CONS IDERATION AS PER THE AGREEMENT SHOULD HAVE BEEN OFFERED FOR TAXATION DUR ING THE YEAR ITSELF. THE AO FURTHER OBSERVED THAT THE ASSESSEE IS DEFERR ING REVENUE RECOGNITION BY DIVIDING THE WHOLE CONSIDERATION OVE R THE PERIOD OF THE AGREEMENT. DRAWING SUPPORT FROM AS-9 ISSUED BY ICA I, THE AO CONCLUDED BY HOLDING AS UNDER: A KEY CRITERION FOR DETERMINING WHEN TO RECOGNIZE R EVENUE FROM TRANSACTION INVOLVING THE SALE OF GOODS IS THAT THE SELLER HAS TRANSFERRED THE PROPERTY IN THE GOODS TO THE BUYER FOR A CONSIDERATION. THE TRANSFER OF PROPERTY IN GOODS. I N MOST CASES, RESULTS IN OR COINCIDES WITH THE TRANSFER OF SIGNIF ICANT RISKS AND REWARDS OF OWNERSHIP TO THE BUYER. WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARI SES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE , IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVENUE ORIGINA LLY RECORDED. ITA NOS. 3632 & 3836/M/12. 4 IN THE CASE OF RETAIL SALES OFFERING A GUARANTEE OF MONEY BACK IF NOT COMPLETELY SATISFIED IT MAY BE APPROPR IATE TO RECOGNIZE THE SALE BUT TO MAKE A SUITABLE PROVISION FOR RETUR NS BASED ON PREVIOUS EXPERIENCE. THUS, AS 9 ALSO STIPULATES RECOGNIZING REVENUE AND RECORDING A SALE AND IF NEED BE MAKE A SUITABLE PROVISION BASED ON PREVIOUS EXPERIENCE. THUS, WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDER ING OF THE SERVICE, IT S MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REV ENUE ORIGINALLY RECORDED. IN THE PRESENT CASE THE RISKS AND REWARDS HAVE BEEN DULY TRANSFERRED WHICH TANTAMOUIT TO A SALE. HENCE, THE WHOLE CONSIDERATION OF RS. 11.50 CRORES SHOULD HAVE BEEN RECOGNIZED AS INCOME FOR AY,2008-09 BASED ON THE DISCUSSION MADE ABOVE THE WHOLE OF TH E CONSIDERATION A REFLECTED IN THE AGREEMENT WITH MOS ER BAER I.E. RS.11.50 CRORES IS BROUGHT TO TAX FOR AY 08-09. SIN CE OUT OF THE ABOVE RS.1 CRORE HAS BEEN OFFERED TO TAX THE BALANC E AMOUNT OF RS.10.50 CRORES IS ADDED BACK TO THE INCOME OF THE ASSESSEE. AS THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF ITS TO TAL INCOME, WITH A VIEW TO WILLFULLY EVADING INCOME TAX, PENALTY PROCE EDINGS U/S 271(I)(C) ARE HEREBY INITIATED. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A) AND EXPLAINED THE TRANSACTION WITH THE RELEV ANT CLAUSES OF THE AGREEMENT MADE WITH MBIL. IT WAS BROUGHT TO THE NO TICE OF THE LD. CIT(A) THAT THE PERIOD FOR THE HOME VIDEO RIGHTS AN D THE SATELLITE BROADCASTING RIGHTS ARE BOTH FOR A PERIOD OF FIVE Y EARS BUT AT THE SAME TIME THEIR RESPECTIVE DATE OF COMMENCEMENT IS DIFFERENT, THEREFORE THE INCOME IN RESPECT OF THESE RIGHTS CAN ACCRUE TO THE ASSESS EE ONLY WHEN THE PERIOD COMMENCES AND NOT BEFORE THE COMMENCEMENT OF THE RI GHTS. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT(A) THA T THE ASSESSEE HAS SHOWN INCOME IN NEXT YEAR WHICH HAS BEEN TAXED ACCO RDINGLY. THE ASSESSEE STRONGLY CONTENDED THAT IF THE DEPARTMENT HAD ANY REASON TO HOLD THAT THE ENTIRE INCOME IS ASSESSABLE IN THE VERY FI RST YEAR ITSELF THEN THE ITA NOS. 3632 & 3836/M/12. 5 AO OUGHT NOT TO HAVE ACCEPTED THE INCOME RETURNED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEARS. 5.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S AND CAREFULLY PERUSING THE VARIOUS CLAUSES OF THE AGREEMENT, THE LD. CIT(A) WAS CONVINCED THAT THE TOTAL CONSIDERATION OF RS. 11.50 CRORES IN RESPECT OF VIDEO RIGHTS AND SATELLITE RIGHTS FOR A PERIOD CANN OT BE ASSESSED IN THE BEGINNING OF THE FIRST YEAR WHEN THE AGREEMENT WAS FOR THE PERIOD OF FIVE YEAR. HOWEVER, THE LD. CIT(A) HELD AS UNDER: 1.3.1. HOWEVER THE CLAIM OF THE APPELLANT THAT IT H AS OFFERED RS.1 CRORE IN RESPECT OF RIGHTS OF NAYA DAUR DURING THE YEAR UNDER APPEAL IS ALSO NOT CONSIDERED TO BE CORRECT APPROPR IATION OF RECEIPTS AS THE APPELLANT HAS RECEIVED ADV OF RS. 5 .5 CRORE DURING THE YEAR. I FIND THAT THE APPELLANT HAS TRANSFERRED HOME VIDEO RIGHTS AND SATELLITE RIGHTS FOR A TOTAL CONSIDERATION OF R S. 11.50 CORES FOR THE PERIOD OF FIVE YEARS, THEREFORE, IT WOULD BE AP PROPRIATE TO APPORTIONED THE WHOLE CONSIDERATION OF RS. 11 .50 C RORE IN 5 YEARS FOR THE TERM OF THE CONTRACT OF EXPLOITATION OF RIG HTS IN RESPECT OF VARIOUS FILMS AND VIDEO RIGHTS. ACCORDINGLY, THE A PPORTIONMENT FOR THE AY UNDER CONSIDERATION WOULD BE AT RS. 2.30 CRO RE I.E. [11.50/5=2.30]. THEREFORE THE AO IS DIRECTED TO TAX THE RECEIPT OF RS. 2.30 CRORE DURING THE YEAR AS AGAINST THE RECEI PTS OF RS. 1 CRORE SHOWN BY THE APPELLANT AND RS. 10.50 CRORE AS SESSED BY HIM. THIS VIEW ALSO SUPPORTED BY THE DECISION OF HO NBLE JURISDICTION HIGH COURT IN THE CASE OF PRAKASH PICT URE 260 ITR 456(BOM) WHEREIN THE HONORABLE HIGH COURT HAS HELD THAT THE ASSESSEE HAD EXPLOITED THE RIGHTS OF HE FILM FOR TH E PERIOD OF 10 YEARS THEREFORE, WRITING OF THE ENTIRE COST IN ONE YEAR WOULD RESULT IN DISTORTION OF PROFIT, HENCE THE AO WAS JUSTIFIED IN APPORTIONING THE EXPENSES OVER THE PERIOD OF THE CONTRACT. ON SA ME ANALOGY, THE INCOME O THE APPELLANT WOULD BE APPORTIONED OVER TH E PERIOD OF FIVE YEARS BEING THE TERMS OF THE AGREEMENT DATED 1 /8/07 BY WHICH RIGHTS HAVE BEEN TRANSFERRED TO MBIL. THIS VIEW IS FURTHER STRENGTHEN BY THE DECISION OF DEL HIGH COURT IN THE CASE OF DINESH KUMAR GOEL 331 ITR 19 (DEL) WHEREIN IT WAS HELD THA T COACHING FEES RECEIVED FROM THE STUDENTS FOR PREPARING THEM TO APPEAR IN ENTRANCE EXAMINATIONS WAS TO BE SPREAD OVER FOR THE PERIOD OF ITA NOS. 3632 & 3836/M/12. 6 COACHING IMPARTED TO THEM. SINCE IN THE CASE OF APP ELLANT, THE RIGHTS WERE TO BE EXPLOITED FOR THE PERIOD OF FIVE YEARS AS PER THE TERMS OF THE CONTRACT, THEREFORE, IT WOULD BE APPRO PRIATE TO APPORTION THE CONSIDERATION RECEIVED FOR TRANSFERRI NG RIGHTS TO MBIL FOR THE PERIOD OF TIVE YEARS. THE AR HAS ALSO BROUGHT TO MY NOTICE THAT AS PER SCHEDULE 18 OF NOTES ON ACCOUNT IN THE CASE OF THE ZEE ENTERTAINMENT ENTERPRISE LTD THE COST OF MO VIE RIGHTS ARE CHARGED ON A STRAIGHT-LINE BASIS FOR THE LICENSES PERIOD FOR 60 MONTHS FROM THE DATE OF ACQUISITION, WHICHEVER IS S HORTER. 1.3.2. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCE S AND DECISION OF HONBLE JURISDICTION HIGH COURT IN THE CASE OF P RAKASH PICTURES (SUPRA), MAHINDRA HOLIDAYS RESORTS INDIA LIMITED (S UPRA), ROTORK CONTROL INDIA PVT. LTD. 314 TR 62(SC) AND SHRI K. K . KHULLAR 116 LTD 301 (DEL) AND OTHER DECISION AS DISCUSSED ABOVE , THE AO IS DIRECTED TO TAX THE INCOME OF RS. 2.30 CORES FOR TH E YEAR UNDER CONSIDERATION AS AGAINST RS. 10.50 CRORE ASSESSED B Y HIM. ACCORDINGLY THE ADDITION OF RS. 2.30 CRORE IS SUSTA INED (INCLUDING RS. 1 CRORE SHOWN BY THE APPELLANT) IS SUSTAINED AN D BALANCE IS DELETED. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTAN CES, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. AGGRIEVED BY THIS, THE ASSESSEE AND THE REVENUE ARE IN CROSS APPEALS BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE FACTS AS THEY WERE BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT ONCE THE LD. CIT(A) WAS CONVINCED THAT THE ENTIRE INCOME CAN NOT BE TAXED IN THE BEGINNING OF THE FIRST YEAR WHEN THE AGREEMENT WAS FOR THE PERIOD OF 5 TEARS, THERE REMAINS NO REASON FOR HIM TO DIRECT T O TAX THE INCOME OF RS. 2.30 CRORES FOR THE YEAR UNDER CONSIDERATION. THE LD. COUNSEL RELIED UPON THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN T HE CASE OF M/S. YASH RAJ FILMS PVT. LTD., IN ITA NO. 6350/M/2010. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO EXHIBIT 22, 23 & 24 O F THE PAPER BOOK AND CLAIMED THAT THIS IS HOW THE INCOME HAS BEEN OFFERE D FOR TAX, AS AND WHEN ITA NOS. 3632 & 3836/M/12. 7 THE ASSESSEE RECEIVED THE RIGHT ON THE SAME, THEREF ORE, IF THE SAME INCOME IS TAXED IN THE FIRST YEAR, IT WILL AMOUNT TO DOUBL E TAXATION OF THE SAME INCOME. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ASSESSMENT ORDER. THE LD. DR FURTHER RELIED UP ON THE DECISION OF THE TRIBUNAL IN THE CASE OF STAR INDIA (P) LTD. 103 IT D 73. THE LD. DR FURTHER RELIED UPON THE DECISION OF THE TRIBUNAL MU MBAI BENCH IN THE CASE OF DDIT (INTERNATIONAL TAXATION) VS TORONTO D OMINION BANK LTD., 26 TAXMANN. COM 125(MUM). 9. WE HAVE GIVEN A VERY THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSION. WE HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE BEFORE US IS WHETHER ACCRUAL OF INCOME HA S TAKEN PLACE OR NOT. WHETHER ACCRUAL OF INCOME HAS TAKEN PLACE OR NOT HA S TO BE JUDGED ON THE PRINCIPLES OF THE REAL INCOME. 9.1. IN CIT VS BIRLA GWALIOR PVT. LTD. 89 ITR 266, THE HONBLE SUPREME COURT HAD AN OCCASION TO CONSIDER THE QUEST ION OF ACCRUAL AND THE EFFECT OF SUBSEQUENT EVENTS THEREON. IN THIS C ASE HONBLE SUPREME COURT MADE A DISTINCTION BETWEEN REAL INCOME AND HYPOTHETICAL INCOME AND STATED THAT IT IS THE REAL ACCRUAL OF I NCOME THAT HAS TO BE TAKEN INTO CONSIDERATION AND NOT A HYPOTHETICAL ACC RUAL OF INCOME. 9.2. IN THE CASE OF CIT VS SHOORJI VALLABHDAS & CO 46 ITR 144, THE HONBLE SUPREME COURT AT PAGE-148 HELD AS UNDER: INCOME TAX IS A LEVY ON INCOME. NO DOUBT, THE IN COME- TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WH ICH THE ITA NOS. 3632 & 3836/M/12. 8 LIABILITY TO TAX IS ATTRACTED , VIZ., THE ACCRUAL O F THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS TH E INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TA X, EVEN THOUGH IN BOOK KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND SUBSEQUENTL Y GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAY ABLE. (EMPHASIS SUPPLIED) 10. LET US NOW CONSIDER THE LIST OF FILMS WHOSE RIG HTS HAVE BEEN GIVEN BY THE ASSESSEE TO MBIL AND LET US ALSO SEE THE DAT E OF COMMENCEMENT OF SUCH RIGHT. SR. NO. LIST OF FILM DATE OF COMMENCEMENT 1. AFSANA (1951) 17.5.2009 2. EK HI RAASTA (1956) 1.5.2008 3. NAYA DAUR (1957) 1.5.2008 4. SADHNA (1958) 1.5.2008 5. DHOOL KA PHOOL (1960) 1.5.2008 6. KANOON (1961) 1.5.2008 7. DHARMPUTRA(1961) 1.5.2008 8. GUMRAH(1962) 1.5.2008 9. WAQT(1965) 1.5.2008 10. HAMRAAZ(1967) 1.5.2008 11. AADMI AUR INSAAN (1969) 1.5.2008 12. ITTEFAQ (1969) 1.5.2008 13. DASTAAN 1.5.2008 14. DHUND (1973) 1.5.2008 15. ZAMEER (1975) 1.5.2008 ITA NOS. 3632 & 3836/M/12. 9 16. CHOTI SI BAAT(1975) 1.5.2008 17. KARM (1977) 1.5.2008 18. PATI PATNI AUR WHO (1978) 1.5.2008 19. THE BURNING TRAIN (1980) 1.5.2008 20. INSAF KA TARAZU (1980) 1.5.2008 21. AGNI PAREEKSHA (1981) 1.5.2008 22. NIKAAH (1982) 1.5.2008 23. MAZDOOR (1983) 1.5.2008 24. AAJ KI AWAZ (1984) 1.5.2008 25. KIRAYADDAR (1986) 1.5.2008 26. DAHLEEZ (1986) 1.5.2008 27. AWAM (1987) 1.5.2008 28. PRATIGYABADH (1991) 1.4.2011 29. KAL KI AWAZ (1992) 1.5.2008 30. BAGHBAN (1992) 1.10.2010 31. NAYA DAUR (1957) 11. THUS IT CAN BE SEEN THAT THE RIGHTS WOULD COMME NCE IN RESPECT OF EACH OF THE FILMS ON DIFFERENT DATES AND ACCORDINGL Y THE ASSESSEE HAS OFFERED THE INCOME IN SUBSEQUENT YEARS AS EXHIBITED ON PAGE 22 TO 24 OF THE PAPER BOOK. THESE FACTS ARE SO CLEAR AND IT IS DIFFICULT TO HOLD OR EVEN TO CONTEND THAT THERE WAS ACCRUAL IN THE VERY FIRST YEAR. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 10.50 CRORES ON ACCOUNT OF REVENUE RECOGNITION. GROUND NO. 1 & 2 OF ASSESSEES APPEAL ARE ALLOWED A ND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NOS. 3632 & 3836/M/12. 10 12. THE NEXT GRIEVANCE RELATES TO THE ADDITION U/S. 68 OF THE ACT AMOUNTING TO RS. 3.70 CRORES. 13. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO OBSERVED THAT IN THE BALANCE SHEET, THE ASSESSEE HAS UNSECURED LOANS . THE ASSESSEE WAS ASKED TO FILE LOAN CONFIRMATION AND FULFILL THE CRI TERION TO JUSTIFY THE LOANS U/S. 68 OF THE ACT. THE ASSESSEE FILED A DETAILED REPLY. ON PERUSING THE SAME, THE AO OBSERVED THAT THE ASSESSEE HAS FILED O NLY THE STATEMENTS WHICH ARE LEDGER ACCOUNTS AND DO NOT BEAR ANY SIGN, NAME, PAN OF THE LENDER. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FILED ANY LOAN CONFIRMATIONS. THE AO PROCEEDED BY MAKING AN ADDIT ION OF RS. 10.73 CRORERS U/S. 68 OF THE ACT. 14. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE FILED LOAN CONFIRMATION. THE LOAN CONFIRMATIONS FILED BY THE ASSESSEE WERE SENT TO THE AO FOR COMME NTS AND EXAMINATION. THE AO VIDE REMAND REPORT DT. 10.2.2012 STATED THAT CONFIRMATION RECEIVED FROM 14 PERSONS TO WHOM NOTICE U/S. 133(6) WERE ISSUED AND ONLY DIFFERENCE OF RS. 50,00,000 IS FOUND IN RESPEC T OF BHATIA COMBINE OF WHICH LEDGER ACCOUNT FILED BY THEM SHOWS CLOSING BA LANCE AT RS. 4,20,00,000 WHEREAS THE BOOKS OF ACCOUNTS OF THE AS SESSEE SHOWS CLOSING BALANCE AT RS. 3,50,00,000. THE AO FURTHER STATED THAT REPLY HAS BEEN RECEIVED FROM 3 PARTIES I.E. ASHOK THAWANI, DEVIDAS THAWANI, JAY THAWANI. IN REJOINDER TO REMAND REPORT, THE AR STA TED THAT BHATIA COMBINE SHOWS CLOSING BALANCE AT RS. 4,20,00,000 AS AGAINST CLOSING BALANCE IN THE APPELLANT BOOKS AT RS. 3,70,00,000 A ND THUS THERE IS DIFFERENCE OF RS. 50,00,000. THE REASON FOR DIFFER ENCE IS THAT THE APPELLANT HAS TAKEN RS. 1,75,00,000/- AS OPENING BA LANCE WHEREAS BHATIA ITA NOS. 3632 & 3836/M/12. 11 COMBINE HAS TAKEN RS. 2,25,00,000, HENCE, THE AMOUN T OF LOAN IN FACT IS LESS BY THE AMOUNT OF DIFFERENCE. THEREFORE, THE L OAN HAS BEEN CONFIRMED. 14.1. IN RESPECT OF NON-COMPLIANCE BY THREE PARTIES I.E. ASHOK THAWANI, DEVIDAS THAWANI AND JAYA THAWANI, IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THESE PERSONS HAVE FILED SUIT BEFOR E THE HIGH COURT FOR RECOVERY. THE SUIT ITSELF PROVES THAT THE ASSESSEE HAS BORROWED MONEY FROM THESE THREE PARTIES. AFTER CONSIDERING THE FA CTS AND THE SUBMISSIONS AND THE REMAND REPORT, THE LD. CIT(A) CONFIRMED THE ADDITION IN RESPECT OF THREE PARTIES I.E. ASHOK THAWANI RS. 2.25 CRO RES, DEVIDAS THAWANI RS. 1.25 CRORES AND JAYA THAWANI RS. 20 LAKHS HOLDI NG THAT THE ASSESSEE FAILED TO FURNISH CONFIRMATION FROM THESE PARTIES. 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DRE W OUR ATTENTION TO THE RECOVERY SUIT FILED BY VARIOUS PARTIES. THE LD. COUNSEL FURTHER BROUGHT TO OUR NOTICE THE COPY OF CHEQUE ISSUED BY THE ASS ESSEE AND THE SUBSEQUENT RECOVERY SUIT FILED BY VARIOUS PARTIES. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO THE STATEMENT BETWEEN THE ASSESSEE AND JAYA THAWANI BY WHICH IT HAS BEEN CONFIRMED BY THE LADY OF HAVING RECEIVED 21 LAKHS. 16. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE ASSESSMENT ORDER. 17. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECOR D BEFORE US. INITIALLY, THE ADDITION WAS MADE IN RESPECT OF 7 PA RTIES TOTALING TO RS. 10.73 CRORES. THE LD. CIT(A) HAS RESTRICTED THE AD DITION TO RS. 3.70 CRORES IN RESPECT OF 3 PARTIES FOR WANT OF CONFIRMA TION OF LOAN. THE SUIT ITA NOS. 3632 & 3836/M/12. 12 FOR RECOVERY FILED BY THESE PARTIES BEFORE THE HON BLE HIGH COURT OF BOMBAY SPEAKS FOR ITSELF. THE LOAN WAS GIVEN BY TH ESE PERSONS TO THE ASSESSEE FOR WHICH RECOVERY PROCEEDINGS ARE TAKEN B Y THE PARTIES AGAINST THE ASSESSEE, WHICH PROVES BEYOND ALL DOUBTS THAT T HE MONEY WAS BORROWED BY THE ASSESSEE. SUBSEQUENT PAYMENTS BY C HEQUES ON SETTLEMENT ALSO SHOW THAT THERE REMAINS NO REASON F OR MAKING THE IMPUGNED ADDITION. WE, ACCORDINGLY, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 3.70 CRORES. GROUND NO. 3 & 4 ARE ACCORDINGLY ALLOWED. 18. THE LAST GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS. 4,6 3,110/-. 19. THE AO WHILE COMPLETING THE ASSESSMENT MADE AN ADHOC DISALLOWANCE OF 20% OF MOTOR CAR EXPENSES, INTERES T ON CAR LOAN AND DEPRECIATION. 20. THE LD. CIT(A) FOUND THAT IN A.Y. 2004-05 HIS PREDECESSOR IN OFFICE HAS CONFIRMED ADHOC DISALLOWANCE OF RS. 50,0 00/- WHICH WAS ACCEPTED BY BOTH PARTIES. THE LD. CIT(A) RESTRICTE D THE DISALLOWANCE AT 5% OF THE TOTAL CLAIM OF THE EXPENSES OF CAR RELATE D AND DEPRECIATION AND ACCORDINGLY DISALLOWANCE OF RS. 4,63,110/- IS SUSTA INED. 21. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE COU LD NOT BRING ON RECORD TO SHOW THAT THE FINDINGS OF THE LD. CIT(A) ARE ERRONEOUS. CONSIDERING THAT IN A.Y. 2004-05 ADHOC DISALLOWANCE WAS ACCEPTED BY BOTH PARTIES. WE DO NOT FIND ANY REASON TO INTERFE RE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 5 IS DISMISSED. ITA NOS. 3632 & 3836/M/12. 13 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JANUARY, 2015 SD/- SD/- (AMIT SHUKLA ) (N.K. BILLAIYA) !' JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 5! DATED : 14 TH JANUARY, 2015 . . ./ RJ , SR. PS !& !& !& !& 1 11 1 .% .% .% .% 6)% 6)% 6)% 6)% / COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 89 .% , , / DR, ITAT, MUMBAI 6. 9: ; / GUARD FILE. !& !& !& !& / BY ORDER, /% .% //TRUE COPY// < << < / = = = = + + + + (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI