RED CHILLIES ENTERTAINMENT PVT LTD., MUMBAI V. DCIT CC-4(2), MUMBAI

ITA 4307/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 1263 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 21-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAJIT V. NAIR
• Assessee Lawyers: ADITYA AJGANKAR
• Keywords: Business income; Principle of natural justice; Valuation report
• Section: 143(3); 115JB; 250; 251; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NOS. 4307/MUM/2019 (A.Y: 2016-17 ) RED CHILLIES ENTERTAINMENT PVT LTD., 612, BACKSTAGE, RAM KRISHNA MISSION ROAD, SANTACRUZ, MUMBAI 400054. / VS. DCIT CC -4(2) 19 TH FLOOR, AIR INDIA BLDG. NARIMAN POINT, MUMBAI 400021. ./ ./ PAN/GIR NO. : AACCR2518P ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI ADITYA AJGANKAR, AR / RESPONDENT BY : SHRI SAJIT V. NAIR, SR. DR / DATE OF HEARING 21/01/2021 / DATE OF PRONOUNCEMENT 02/02/2021 / O R D E R PER PAVAN KUMAR GADALE: THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 52, MUMBAI, PASSED U/S. 143(3) AND 250 OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED IN LAW BY PASSING A NON- SPEAKING ORDER IN A MECHANICAL MANNER WITHOUT DEALING ITA NOS. 4307 /MUM/2019 RED CHILLIES ENTERTAINMENT PVT LTD., MUMBAI. - 2 - WITH THE VARIOUS FACTS, SUBMISSIONS AND CASE LAWS RELIED UPON BY THE APPELLANTS. 2. THE LD. CIT(A) ERRED IN LAW BY ERRONEOUSLY OBSERVING THAT NEITHER IN THE ASSESSMENT PROCEEDINGS NOR IN THE APPELLANT PROCEEDINGS HAD THE APPELLANT SUBMITTED ANY WORKING EVIDENCES TO DEMONSTRATE THAT THE SAID AMOUNT OF RS. 43,30,736/- HAS BEEN DETERMINED ON THE BASIS OF ACTUARIAL VALUATION, WHILE BOTH THE HARD COPY AND THE SOFT COPY OF THE SAID WORKING WAS SUBMITTED TO HIM BY THE APPELLANT DURING THE APPELLANT PROCEEDINGS. 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF AMOUNT OF RS. 43,30,736/- TO BOOK PROFIT OF THE APPELLANT COMPANY, BEING PROVISIONS FOR GRATUITY BY NOT APPRECIATING THE FACTS THAT THE PROVISION FOR GRATUITY MADE AS PER THE ACTUARIAL VALUATION IS ASCERTAINED LIABILITY AND HAS TO BE PROVIDED AS PER THE ACCOUNTING STANDARDS; THEREFORE NOT COVERED BY SEC 115JB (2) EXPLANATION 1 CLAUSE C. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, OR TO AMEND THE ABOVE GROUND OF APPEALS. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION OF FILMS AND FILED THE RETURN OF INCOME ON 26.11.2016 WITH A TOTAL INCOME OF RS. NIL AND BOOKS PROFITS U/S 115JB OF THE ACT OF RS.23,58,04,996/-. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER THE CASS AND NOTICE U/SEC143 (2) AND U/SEC142 (1) OF THE ACT ALONG WITH QUESTIONNAIRE WERE ISSUED. IN COMPLIANCE ITA NOS. 4307 /MUM/2019 RED CHILLIES ENTERTAINMENT PVT LTD., MUMBAI. - 3 - THE LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND SUBMITTED THE DETAILS. THE A.O. ON PERUSAL OF THE FINANCIAL STATEMENTS FOUND THAT, THE ASSESSEE HAS MADE PROVISION FOR GRATUITY U/S 40A(7) OF THE ACT AND HENCE THE A.O. IS OF THE OPINION THAT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT, THE PROVISIONS MADE IN THE BOOKS OF ACCOUNTS SHALL BE ADDED FOR CALCULATION OF MAT. WHEREAS, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 43,30,736/- IN THE PROFIT AND LOSS ACCOUNT AS PROVISION FOR GRATUITY IN RESPECT OF ASCERTAINED LIABILITY BUT, THE A.O PRESUMED IT AS UNASCERTAINED LIABILITY. THE ASSESSEE HAS SUO-MOTO MADE DISALLOWANCE WHILE COMPUTING THE BUSINESS INCOME, BUT HAS NOT ADDED WHILE COMPUTING THE BOOK PROFITS OF THE ASSESSEE COMPANY AS PER THE PROVISIONS OF SEC. 115JB OF THE ACT. THEREFORE, THE A.O. IS OF THE OPINION THAT, THE ASSESSEE HAS FAILED TO MAKE THE PAYMENT BEFORE THE DUE DATE U/S 139(1) OF THE ACT AND HENCE MADE AN ADDITION OF RS. 43,30,736/- AND CALCULATED THE MINIMUM ALTERNATE TAX (MAT) AND PASSED THE ORDER U/S 143(3) OF THE ACT ON 30.03.2018. ITA NOS. 4307 /MUM/2019 RED CHILLIES ENTERTAINMENT PVT LTD., MUMBAI. - 4 - 3. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THECIT(A), WHEREAS THE CIT(A) CONSIDERED THE GROUNDS OF APPEAL, FINDINGS OF THE A.O AND THE ASSESSES SUBMISSION REFERRED AT PARA 5.1 OF THE ORDER. FINALLY, THE LD.CIT(A) CONCLUDED THAT THE ASSESSEE HAS SUO-MOTO MADE AN ADDITION WHILE CALCULATING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. FURTHER, IT SHOWS THAT THE LIABILITY WAS NOT PAID DURING THE YEAR OR IN THE SUBSEQUENT YEAR. FURTHER, THE ASSESSEE HAS NOT GIVEN THE FULL DETAILS OF THE CLAIM AND CONFIRMED THE ACTION OF THE A.O AND DISMISSED THE APPEAL. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE HONBLE TRIBUNAL. 4. AT THE TIME OF HEARING, THE LD.AR SUBMITTED THAT THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN MAKING ADDITION OF ACTUARIAL VALUATION OF THE PROVISION FOR GRATUITY WHILE CALCULATING THE BOOK PROFITS. WHEREAS, THE ASSESSEE HAS FILED THE DETAILS WITH THE CIT(A) AND THE LD.AR SUPPORTED HIS ARGUMENTS WITH THE PAPER BOOK AND JUDICIAL DECISIONS. ITA NOS. 4307 /MUM/2019 RED CHILLIES ENTERTAINMENT PVT LTD., MUMBAI. - 5 - 5.CONTRA, THE LD.DR ARGUED THAT THE ASSESSEE HAS NOT SUBMITTED THE DETAILS OF ACTUARIAL VALUE OF GRATUITY LIABILITY IN THE ASSESSMENT PROCEEDINGS AND THEREFORE THE A.O HAS CONSIDERED IT AS UNASCERTAINED LIABILITY. 6. WE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE SOLE MATRIX OF THE DISPUTED ISSUE AS ENVISAGED BY THE LD.AR WITH REGARD TO THE ADDITION OF PROVISION FOR GRATUITY TREATED AS UNASCERTAINED LIABILITY FOR CALCULATION OF BOOK PROFITS U/S 115JB OF THE ACT. THE LD. AR REFERRED TO ACTUARIAL VALUATION OF THE GRATUITY LIABILITY AT PAGE 2 TO 9 OF THE PAPER BOOK. THE CONTENTIONS OF THE LD. AR THAT THE ASSESSEE HAS COMPLIED WITH THE REQUIREMENTS OF THE ACCOUNTING STANDARDS OF ICAI AND THE METHOD OF ACTUARIAL VALUATION SUPPORTED BY THE VALUATION REPORT AND RELIED ON THE JUDICIAL DECISIONS: 1. CIT VS. JET AIRWAYS (INDIA) LTD., [2016] 237 TAXMAN 572 (BOMBAY). 2. CIT VS. ECHJAY FORGINGS PVT LTD., [2001] 251 ITR 15 (BOMBAY). ITA NOS. 4307 /MUM/2019 RED CHILLIES ENTERTAINMENT PVT LTD., MUMBAI. - 6 - 3. MALAYALA MANORAMA CO. LTD., VS. CIT [2008] 300 ITR 251 (SC). 7. WE FIND THE ASSESSEE COMPANY HAS FOR THE FIRST TIME HAS FILED ACTUARIAL VALUATION REPORT OF GRATUITY LIABILITY AS ON 31.03.2016. THEREFORE, THE LD.DR OF THE REVENUE SUBMITTED THAT AN OPPORTUNITY BE PROVIDED TO VERIFY THE FACTS ON LIABILITY OF GRATUITY . WE FIND THAT THE CIT(A) HAS MADE AN OBSERVATION AT PAGE 6 PARA 5.2 OF THE ORDER THAT THE ASSESSEE NEITHER IN THE ASSESSMENT PROCEEDINGS NOR IN THE APPELLATE PROCEEDINGS HAS SUBMITTED WORKING OR DEMONSTRATED THE AMOUNT OF 43,30,736/- HAS BEEN DETERMINED ON THE BASIS OF ACTUARIAL VALUATION. CONSIDERING THE PRINCIPLES OF NATURAL JUSTICE AND THE FACT THAT THE A.O SHOULD NOT BE DEPRIVED TO VERIFY AND EXAMINE THE CLAIMS. WE SET-ASIDE THE ORDER OF THE LD.CIT(A) AND RESTORE THE DISPUTED ISSUE TO THE FILE OF THE A.O FOR LIMITED PURPOSE TO VERIFY AND EXAMINE THE EVIDENCES AND ALLOW THE CLAIM OF THE ASSESSEE. THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 4307 /MUM/2019 RED CHILLIES ENTERTAINMENT PVT LTD., MUMBAI. - 7 - 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 02.02.2021 SD/- SD/- (RAJESH KUMAR) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 02.02.2021 KRK, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 4. ( ) / CONCERNED CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// 1. / ( ASST. REGISTRAR) , / ITAT, MUMBAI