KALYANI MAAN SINGH, MUMBAI V. ITO 11(1)(2), MUMBAI

ITA 6500/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71649 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 26-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: SANJUKTA CHOW DHURY
• Keywords: Unexplained cash credit; Business income; Business expenditure; Period of limitation; Onus to prove; Time period of passing order
• Section: 37(1); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI .. , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 6500/MUM/2011 ( / ASSESSMENT YEAR: 2008-09) KALYANI MAAN SINGH 11, NEW SHEETAL APARTMENT, A.B. NAIR ROAD SEA SIDE HOTEL, JUHU, MUMBAI-400 049 / VS. ITO 11(1)(2), MUMBAI ./ ./PAN/GIR NO. AAMPK 2102 K ( /APPELLANT ) : ( !' / RESPONDENT ) # / APPELLANT BY : SHRI PRAMOD KUMAR PARIDA & SHRI SANJUKTA CHOWDHURY !' $ # / RESPONDENT BY : SHRI S. S. RANA % &'( $ )* / DATE OF HEARING : 04.09.2013 +,- $ )* / DATE OF PRONOUNCEMENT : 14.11.2013 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (CIT(A) FOR SHO RT) DATED 20.07.2011, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2008-09 VIDE ORDER DATED 22.12.2010. 2 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO 2. THE APPEAL RAISES FOUR ISSUES, PER GROUND NOS. 1 TO 4 RESPECTIVELY, WHICH WE SHALL TAKE UP IN SERIATIM. GROUND NO. 1 IS IN RESPECT OF AN ADDITION U/S. 41(1) OF THE ACT IN THE SUM OF RS.35,02,308/- , I.E., ON ACCOUNT OF CESSATION OF LIABILITIES. THE ASSESSEE IS IN THE BUSINESS OF CINE LAISONING/CO-ORDINATION, AND HAD I N THE COURSE OF ITS REGULAR BUSINESS INCURRED LIABILITIES TO THE EXTENT OF THE IMPUGNED SUM IN AN EARLIER YEAR. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R (A.O.) OBSERVED THAT THE SAME WERE OUTSTANDING SINCE FINANCIAL YEAR (F.Y.) 2003-04. TH E SAME IN FACT REPRESENTED EXPENSES INCURRED IN RELATION TO THE FILM RAJA BHAIYA RELE ASED DURING THE SAID YEAR. THE SAME HAD, THUS, BEEN OUTSTANDING FOR ABOUT SEVEN YEARS, I.E., AT THE TIME OF THE ASSESSMENT PROCEEDINGS IN LATE 2010 OVER WHICH NO PAYMENT HAS BEEN MADE. LEGALLY, A LIABILITY CANNOT BE ENFORCED AFTER IT IS DUE FOR MORE THAN TH REE YEARS. EVEN NO CONFIRMATIONS FROM THE CREDITORS WERE FURNISHED. UNDER THE CIRCUMSTANC ES, IT WAS INFERRED THAT THE LIABILITY IN ITS RESPECT HAD CEASED. THE ASSESSEE HAVING BEEN AL LOWED DEDUCTION IN RESPECT OF THE SAID EXPENSES, THE SAME WERE ADDED U/S. 41(1). THE SAME WAS CONFIRMED ON PRINCIPALLY THE SAME GROUNDS; THE ASSESSEE HAVING NOT MADE ANY PAYM ENT DURING THE INTERVENING YEARS, NOR EVEN ADDUCED ANY EVIDENCE TO SHOW THAT THE LIAB ILITY WAS AN EXISTING LIABILITY. THE ASSESSEES CLAIM THAT SHE WAS TRYING HER BEST TO LA UNCH HER NEXT PROJECT, AND WHICH SHE COULD NOT UNTIL SHE SETTLES ALL HER OUTSTANDING DUE S, WHICH WERE TO ARTISTS, TECHNICIANS AND VARIOUS OTHER PARTIES DEALING WITH HER AS A PRODUCE R OF A FEATURE FILM, DID NOT HOLD MUCH WATER INASMUCH AS THAT BY ITSELF IS NO POSITIVE IND ICATION OF THE AMOUNTS BEING DUE FOR PAYMENT. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEA L BEFORE US. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 THE CASE OF BOTH THE PARTIES BEFORE US WAS MUCH THE SAME. THE AMOUNT UNDER REFERENCE IS PAYABLE TO 18 PARTIES, BEING ARTISTS, TECHNICIANS, ETC. IN THE MAIN, ENGAGED IN THE PRODUCTION OF FEATURE FILMS. THE PARTY-WISE DET AILS OF THE AMOUNTS DUE ARE LISTED AT PAGES 1 & 2 OF BOTH THE ASSESSMENT AND THE APPELLAT E ORDER. THE EXPENDITURE HAVING BEEN CLAIMED AS A DEDUCTION FOR A.Y. 2004-05, CESSATION OF LIABILITY IN ITS RESPECT IS LIABLE FOR BEING ADDED U/S.41(1). THE ASSESSEES CLAIM IS THAT THERE HAS BEEN NO CESSATION OF 3 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO LIABILITY, WHICH THE ASSESSEE OWNS, THOUGH HAD NOT FOR VARIOUS REASONS BEEN ABLE TO PAY, SO THAT IT OUTSTANDS. FURTHER, EVEN AS EXPLAINED BEFOR E THE AUTHORITIES BELOW, SOME OF THE PARTIES HAVE APPROACHED THE FEDERATION OF WESTERN I NDIA CINE EMPLOYEES (FWICE), WHICH ACTS AS AN ARBITRATOR BETWEEN THE MEMBERS OF DIFFERENT ASSOCIATIONS. UNLESS THE ASSESSEE SETTLES ALL HER DUES, SHE WOULD NOT BE ABL E TO COMMENCE HER NEXT PROJECT. 3.2 THE DISPUTE BETWEEN THE PARTIES, AS IS APPARENT , REVOLVES AROUND WHETHER THE ASSESSEE HAS IN FACT OBTAINED ANY BENEFIT BY WAY OF REMISSION OR CESSATION OF LIABILITY/S IN RESPECT OF THE IMPUGNED EXPENDITURE, INCURRED DURIN G, AND CLAIMED IN COMPUTING THE INCOME FOR, THE PREVIOUS YEAR RELEVANT TO A.Y. 2004 -05, WHICH REPRESENTS AN ESSENTIAL CONDITION FOR THE APPLICATION OF SECTION 41(1). THE SAME, I.E., REMISSION OR CESSATION OF A LIABILITY, IS ESSENTIALLY A MATTER OF FACT, SO THAT THE SAME WOULD NEED TO BE POSITIVELY ESTABLISHED. NO DOUBT, THE ASSESSEE HAS NOT WRITTEN BACK THE LIABILITY IN HER ACCOUNTS, SO THAT EXPLANATION 1 TO THE PROVISION WOULD NOT APPLY. ALL THAT THE SAI D EXPLANATION DOES IS TO PRECLUDE THE ASSESSEE, EVEN AS ACCOUNTS ARE NOT SACROSANCT, TO TAKE A STAND CONTRARY THERETO; THE ACCOUNTS BEING ONLY HIS AND, FURTHER, PURPORTING TO REPRESENT THE TRUE AND FAIR STATE OF AFFAIRS. IN ANY CASE, IT IS ONLY THE ASSES SEE WHO IS KNOWN OF HIS AFFAIRS. THIS, THUS, IN OUR VIEW, SUMS UP THE PURPORT OF EXPLANATION 1 TO SECTION 41(1). AT THE SAME TIME, HOWEVER, THE ASSESSEE CAN POSTPON E THE WRITE BACK OF A LIABILITY, SINCE EITHER DISCHARGED OR WAIVED OR FORFEITED, ETC . IN ITS ACCOUNTS INDEFINITELY, AND ON THAT BASIS CLAIM THAT THE LIABILITY SUBSISTS, SO THAT TH ERE HAS BEEN NO CESSATION OF LIABILITY. THOUGH, THEREFORE, THE PRESUMPTION IN LAW WOULD BE THAT THE ACCOUNTS CORRECTLY REPRESENT THE FACTS AS OBTAINING, THE ONUS TO EXHIBIT THAT IT IS INDEED SO, WHERE CALLED UPON TO, WOULD BE ON THE ASSESSEE. EXPLANATION 1 TO THE PROVISION CANNOT BE INTERPRETED NEGATIVELY TO CONCLUDE THAT THERE COULD BE NO REMISSION OR CESSAT ION OF THE LIABILITY UNLESS THE SAME IS WRITTEN OFF IN ACCOUNTS . THE MATTER, THUS, BOILS DOWN TO THE BURDEN OF THE P ROOF, WHICH WE HAVE ON A PURPOSIVE READING OF THE PROVISION, FOUND TO BE ON THE ASSESSEE. HOW COULD, ONE MAY ASK, THE SAID LIABILITY/S BE TREATED ANY DIFFERENTLY, I. E., QUA THE OBLIGATION ON THE ASSESSEE TO 4 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO PROVE THE SAME, CLAIMING THE SAME AS LIABILITY, FRO M ANY OTHER LIABILITY REFLECTED PER HIS ACCOUNTS ? WE MAY THOUGH HASTEN TO ADD THAT THE SCOPE OF THE BURDEN OF PROOF ON THE ASSESSEE QUA SECTION 41(1) WOULD ONLY BE WITH REGARD TO SUBSIST ENCE OF THE LIABILITY AS AT THE RELEVANT YEAR-END, SO THAT THE LIABILITY IS ALI VE, AND IN FACT A LIABILITY AS ON THAT DATE. TOWARD THIS, WE ALSO DERIVE SUPPORT FROM THE DECISI ON IN THE CASE OF KESORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT [1992] 196 ITR 845 (CAL), WHEREIN IT WAS HELD THAT WHETHER THE LIABILITY HAS BEEN FULLY DISCHARGED IS WITHIN T HE SPECIAL KNOWLEDGE OF THE ASSESSEE, SO THAT HE HAS TO PROVE THAT THE LIABILITY SUBSISTS, I .E., AS AT THE RELEVANT YEAR-END. THIS, IT WOULD BE SEEN, ALSO CORRESPONDS WITH THE SETTLED PO SITION IN LAW THAT THE ONUS TO PROVE ITS RETURN, AND THE CLAIMS PREFERRED THEREBY, IS ONLY O N THE ASSESSEE (REFER: CIT VS. CALCUTTA AGENCY LIMITED [1951] 19 ITR 191 (SC)). THE ASSESSEE, PER ITS ACCO UNTS, WHICH FORM PART OF ITS RETURN, CLAIMING THE LIABILITY OUTSTANDING F ROM AN EARLIER PERIOD TO SUBSIST FOR THE CURRENT YEAR, IT IS WELL WITHIN THE POWER OF THE AS SESSING AUTHORITY TO QUESTION THE ASSESSEE WITH REGARD THERETO, AND WHERE SO DONE, THE ASSESSE E IS OBLIGED TO ESTABLISH ITS EXISTENCE. THE MATTER WOULD THUS NEED TO BE FACTUALLY DETERMIN ED ON THE CONSPECTUS OF THE FACTS AND CIRCUMSTANCES OF THE CASE, INCLUDING THE CONDUCT (O F THE PARTIES) AND THE SURROUNDING CIRCUMSTANCES. OF-COURSE, THE ONUS CANNOT EXTEND TO PROVING A NEGATIVE, AS WHERE BOTH THE ASSESSEE AND THE CREDITOR REFLECT THE DEBT IN T HEIR RESPECTIVE ACCOUNTS, SO THAT IT IS NOT OPEN FOR THE REVENUE TO CONTEND THAT, EVEN SO, THE LIABILITY, BEING OUTSTANDING FOR A NUMBER OF YEARS, HAS SINCE CEASED, UNTIL OF-COURSE IT HAS JUSTIFIABLE REASONS TO BELIEVE THAT THE SAME IS ON ACCOUNT OF AN ARRANGEMENT BETWEEN TH E TWO, I.E., DOES NOT REFLECT THE ACTUAL STATE OF AFFAIRS, THE ONUS TO PROVE WHICH WOULD BE ON THE REVENUE. THE BAR OF LIMITATION IS ONLY TOWARD ENFORCING THE RIGHT (OF RECOVERY) AND W OULD NOT BY ITSELF EXTINGUISH THE DEBT. AGAIN, WHERE THE ASSESSEE FURNISHES THE REQUISITE D ETAILS, INCLUDING (SAY) THE ADDRESSES OF THE CREDITORS, IN OUR VIEW, THE REVENUE CANNOT REFU SE TO ACT THEREON, AS BY ISSUING NOTICES TO THEM; THE ENTIRE EXERCISE BEING ONLY TOWARD ARRI VING AT THE TRUTH OF THE MATTER. THE ONUS, AS IN ANY OTHER CASE, CANNOT BE REGARDED AS S TATIC, AND IT WOULD ALL DEPEND AND, THUS, TURN ON THE FACTS OF THE CASE, RATHER THAN ON LAW, WHICH IS FAIRLY WELL-SETTLED. IT MAY HERE ALSO BE RELEVANT TO ADD THAT THE ONUS TO PROVE THAT THE RELEVANT LIABILITY HAD IN FACT BEEN 5 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO ALLOWED AS A DEDUCTION FOR ANY EARLIER YEAR THOUGH IS ON THE REVENUE, WHICH, HOWEVER, IS NOT IN DISPUTE IN THE INSTANT CASE. 3.3 COMING TO THE FACTS AND CIRCUMSTANCES OF THE CA SE, WE FIND THAT APART FROM THE STATEMENT OF THE LIABILITY IN HER ACCOUNTS, THE ASS ESSEE HAS FURNISHED NO POSITIVE MATERIAL TO ESTABLISH THE SUBSISTENCE OF THE LIABILITY AS AT THE YEAR-END (31.03.2008). THE CORRESPONDENCE OF FWICE ADDUCED IS IN RESPECT OF ON LY FOUR (4) OUT OF EIGHTEEN (18) PARTIES, FOR AN AGGREGATE OF RS.4.02 LACS, AND HAS BEEN DISCOUNTED BY THE REVENUE ON THE GROUND OF BEING VERY OLD. WOULD THAT MEAN THAT THE BALANCE PARTIES (14) HAVE NOT CONTACTED FWICE, WHICH CAN ONLY BE WHERE THEY ARE M EMBERS OF THEIR RESPECTIVE ASSOCIATIONS. WHY, WE WONDER, COULD THE ASSESSEE NO T PRODUCE A MORE RECENT OR PRESENT POSITION FROM FWICE, STATING OF ALL THE PERSONS WHO HAVE MOVED THROUGH IT, ALONG WITH THE AMOUNTS DUE/BEING PRESSED BY THEM. FOR ALL WE K NOW, THE ASSESSEE MAY WELL BE CONTESTING THE LIABILITY BEFORE FWICE. WHY, AGAIN, THE ASSESSEE COULD NOT FURNISH THE CURRENT ADDRESSES, AS NO PAYMENT COULD POSSIBLY BE MADE IF THE ASSESSEE DOES NOT KNOW THE WHEREABOUTS OF THE PERSONS, SOME OF WHOM MAY HA VE ALSO LEFT THEIR PROFESSION OR EVEN THE CITY INASMUCH AS THERE CAN BE NO PRESUMPTI ON IN THIS REGARD, AND THE FACTS AND CIRCUMSTANCES CHANGE WITH TIME. THE ASSESSEES EXPL ANATION FOR BEING UNABLE TO FURNISH THE CONFIRMATIONS FROM THE CREDITORS, NONE OF WHOM HAVE SURPRISINGLY PREFERRED ANY SUIT OR LEGAL PROCEDURE FOR RECOVERY IN THE ABSENCE OF A NY PAYMENT TO THEM, IS CONTRARY TO REASON. THE CREDITORS DO NOT STAND TO LOSE ANYTHING ; RATHER, AN AFFIRMATION OF THE DEBT, DULY CONFIRMED BY THE ASSESSEE, WOULD OPERATE TO RE VIVE THE LIMITATION PERIOD FOR LEGAL ENFORCEMENT, SO THAT THEY ONLY STAND TO GAIN BY IT, AND WOULD READILY FURNISH THE SAME. THE CONFIRMATION OF THE DEBT PER THE STATEMENT OF A CCOUNT IN THE CASE OF M/S. ADLABS FILMS LTD. IS ALSO OF A MUCH EARLIER DATE. THE ASSE SSEES CLAIM OF HER INABILITY TO START ANOTHER PROJECT UNTIL SHE REPAYS HER CREDITORS IS I N THE FACTS AND CIRCUMSTANCES OF THE CASE OF LITTLE MOMENT. THIS IS AS, FIRSTLY, THE CLAIM IS UNSUBSTANTIATED. TWO, EVEN SO, IT APPLIES, IF AT ALL, TO FOUR PARTIES (FOR A TOTAL OF RS.4.02 LACS) OUT OF A TOTAL OF RS.35.02 LACS. THIRDLY, THE ASSESSEES CAPITAL AS PER ITS BALANCE-SHEET IN THE RELEVANT PROPRIETARY CONCERN, M/S. 6 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO RIGH IMAGE INTERNATIONAL (THE FIRM SET UP FOR PRODU CTION BUSINESS) IS NEGATIVE, SO THAT SHE HAS NO RESOURCES, AND IS IN NO POSITION TO START A PROJECT. IN OUR CLEAR VIEW, THE ASSESSEE HAS NOT BEEN ABLE TO DISCHARGE THE ONUS CAST ON IT. 3.4 THE ASSESSEE BEFORE US HAS HOWEVER MADE SOME CL AIMS WITH REGARD TO THE PAYMENT TO SOME CREDITORS (11), I.E., FOR AN AGGREGATE OF R S.13.34 LACS, INCLUDING FOR RS.4.02 LACS QUA FOUR PARTIES AND RS.5,94,843/- QUA M/S. ADLABS FILMS LTD., FOUND UNACCEPTABLE BY THE REVENUE. THE SAME, WHERE AND TO THE EXTENT THE ASSESSEE IS ABLE TO ESTABLISH THE VERACITY OF ITS CLAIMS, WOULD HAVE A DIRECT BEARING ON THE DETERMINATION OF THE ISSUE AS TO THE SUBSISTENCE OR, CORRESPONDINGLY, THE CESSATION/ REMISSION OF THE RELEVANT LIABILITIES AS ON 31.03.2008. IT WOULD ALSO NEED TO BE EXAMINED IF THE PART PAYMENTS EFFECTED BY THE ASSESSEE SINCE (I.E., BEGINNING SEPTEMBER, 2012 TO DATE), AS CLAIMED, ARE IN FULL DISCHARGE OF THE DEBT, AS COMPROMISES ARE NORMALLY STRUCK WHE RE THE AMOUNTS ARE NOT FORTHCOMING, AS IN THE INSTANT CASE, FOR LONG. 3.5 WE MAY NEXT ALSO DISCUSS THE CASE CITED BY THE ASSESSEE, WHICH THOUGH NOT ADVERTED TO DURING HEARING, HAVE BEEN PERUSED BY US . IN CIT VS. SMT. SITA DEVI JUNEJA [2010] 325 ITR 593 (P & H), THE ASSESSEE HAD PRODUC ED THE EXTRACT FROM THE SUPPLIERS ACCOUNTS EXHIBITING ITS DEBT TO THEM. THE DECISION BY THE HONBLE COURT WAS, THUS, BASED ON THE FINDING OF THE FACT BY THE TRIBUNAL OF THE A SSESSEE HAVING CONSEQUENTLY DISCHARGED THE ONUS ON IT IN EXHIBITING THE SUSTENANCE OF THE LIABILITY/S. IN CIT VS. JAIPUR JEWELLERS (EXPORTS) [2010] 187 TAXMAN 169 (DEL), THE BASIS OF THE REVEN UES CLAIM WAS THE TAKEOVER OF THE LIABILITY OF AN ERSTWHILE FIRM BY T HE ASSESSEE, WHO WAS SINCE PAYING OFF THE LIABILITY. IT WAS UNDER THESE CIRCUMSTANCES THA T IT WAS HELD THAT THERE IS NO QUESTION OF APPLICATION OF SECTION 41(1) IN THE FACTS OF THE CA SE. IN DY. CIT VS. HOTEL EXCELSSIER LTD. [2010] 60 DTR 450 (DEL-TRIB), THERE IS NO DISCUSSIO N OF FACTS. THE BASIS OF THE TRIBUNALS ORDER, AS WOULD BE APPARENT FROM ITS READING, IS NO T A FINDING OF FACT AS TO THE CESSATION OF LIABILITY, BUT ON THE BASIS THAT THERE COULD BE NO CESSATION OF LIABILITY SOLELY ON THE GROUND THAT IT IS OVER THREE YEARS OLD, AND ON WHICH THERE IS NO DISPUTE, HAVING BEEN SINCE SETTLED BY THE APEX COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P.) LTD. [1999] 236 ITR 7 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO 518 (SC), SINCE AFFIRMED BY IT IN CHIEF CIT VS. KESARIA TEA CO. LTD. [2002] 254 ITR 434 (SC). THE RELIANCE ON THE SAID CASE LAW WOULD, THER EFORE, BE OF NOT ASSISTANCE TO THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE . RATHER, THESE DECISIONS ITSELF SUPPORT THE VIEW THAT THE INITIAL ONUS TO ESTABLISH THE EXI STENCE OF A LIABILITY OR THE CONTINUITY OF THE DEBT IS ON THE ASSESSEE. UNDER THE CIRCUMSTANCES, WE THEREFORE ONLY CONSIDER IT FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSIN G AUTHORITY TO DECIDE THE MATTER BY ISSUING DEFINITE FINDINGS OF FACT, AND AFTER ALLOWI NG DUE OPPORTUNITY TO ESTABLISH ITS CASE IN THE MATTER TO THE ASSESSEE. WE DECIDE ACCORDINGLY. 4. THE SECOND GROUND OF APPEAL IS IN RESPECT OF A S IMILAR ADDITION U/S.41(1) IN RESPECT OF AN ADVANCE FROM A COMPANY BY THE NAME M/S. FAIRD EAL INTERNATIONAL P. LTD. (FIPL). THE BALANCE-SHEET OF THE ASSESSEES PROPRIETARY CON CERN, M/S. RIGHT IMAGE INTERNATIONAL, REFLECTING A LIABILITY, OUTSTANDING SINCE FINANCIAL YEAR (F.Y.) 2003-04 IN THE NAME OF THE SAID COMPANY, WAS QUESTIONED IN ITS RESPECT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE EXPLAINED THAT AS PER THE AGREEMENT AR RIVED AT BETWEEN THE PARTIES (PER AN MOU DATED 18.10.2003), OF THE RS.75 LACS RECEIVED F ROM THE SAID COMPANY AGAINST DISTRIBUTION AND OTHER THEATRICAL RIGHTS FOR THE FI LM RAJA BHAIYA, RS.70 LACS WAS TO BE ADJUSTED AGAINST ITS SALE PRICE, AND THE BALANCE RS .5 LACS WAS TO BE TREATED AS AN ADVANCE TO BE ADJUSTED AGAINST DISTRIBUTION AND OTHER RIGHT S FOR ANY OTHER FUTURE PRODUCTION BY THE ASSESSEE OR ANY OF ITS SISTER CONCERNS OR FAMILY ME MBERS. THIS, IT WAS STATED, IS A COMMON PRACTICE IN THE FILM INDUSTRY, SO THAT WHENEVER A F ILM FLOPS, ITS PRICE IS REDUCED, AND THE BALANCE CARRIED OVER FOR FUTURE ADJUSTMENT. THERE B EING NO COMMITMENT THAT ANY FILM WILL BE SOLD IN FUTURE TO THE SAME PARTY, WITH IT BEING NOT PAID DESPITE A LAPSE OF A NUMBER OF YEARS, THE SAME WAS IN THE FACTS AND CIRCUMSTANCES TREATED AS THE ASSESSEES INCOME. THE SAME FOUND CONFIRMATION AT THE END OF THE LD. CIT(A ). NO DOUBT, THE ARRANGEMENT CORRESPONDS WITH THE PRACTICE IN THE INDUSTRY. THOU GH, THEREFORE, THE AMOUNT PAID IN EXCESS OF THE AGREED SALE PRICE WAS UNDERSTANDABLE, THE SAME HAD REMAINED UNPAID EVEN AFTER LAPSE OF SEVERAL YEARS, WITH THERE BEING NO C OMMITMENT FOR ANY SALE IN FUTURE, SO THAT 8 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO THERE HAD BEEN A CESSATION OF LIABILITY IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE CASE. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 5.1 THE BASIC FACTS IN RELATION TO THE SECOND GROUN D ARE ALSO UNDISPUTED. THERE IS NO BINDING CONDITION ON THE ASSESSEE TO SELL THE RIGHT S OF HER NEXT PRODUCTION, I.E., IF AND WHEN IT MATERIALIZES, TO THE CREDITOR, FIPL. COMPLI ANCE OF THE MOU MAY EVEN OTHERWISE BECOME UNFEASIBLE, AS WHERE THE PARTIES ARE UNABLE TO AGREE ON THE PRICE. FUTURE IS UNCERTAIN, AND FOR ALL WE KNOW THE DISTRIBUTOR MAY NO LONGER BE INTERESTED IN THE SAID PRODUCTION, I.E., WHEN IT ACTUALLY COMES UP FOR SAL E. THE ARRANGEMENT IS THUS CONTINGENT. AS IT WOULD APPEAR TO US, THE PARTIES AGREED TO A R EDUCTION IN THE SALE PRICE BY RS.5 LACS AND, FURTHER, NON-REFUND OF THE SAME, HAVING BEEN S INCE RECEIVED, AND WHICH WAS TO BE ADJUSTED AGAINST THE SALE PRICE OF A FUTURE PRODUCT ION. AS SUCH, THE NATURE/CHARACTER OF THE RECEIPT AS A TRADE RECEIPT IS NOT LOST, AND THE ARR ANGEMENT IN EFFECT AMOUNTS TO A REDUCTION IN THE SALE PRICE OF ANY FUTURE FILM, TO THAT EXTEN T. IN FACT, IT IS ALSO NOT CLEAR AS TO WHY, AS STATED BY FIPL VIDE ITS LETTER DATED 21.12.2005 (PB PG.22), DID IT PAY RS.5 LACS TO M/S. ADLABS FILMS LTD. ON INSTRUCTION BY THE ASSESSEE. H OWEVER, BOTH THE ASSESSEE AND THE REVENUE PROCEEDED ON THE FOOTING THAT IT DID NOT CO NSTITUTE SALE PRICE OR A BUSINESS RECEIPT FOR THAT YEAR. IN ANY CASE THE NON-ADJUSTMENT OF T HE DEBT DESPITE LAPSE OF SEVERAL YEARS, WITH NO DEVELOPMENT HAVING OCCURRED EVEN SUBSEQUENT TO THE ASSESSMENT, NEARLY THREE YEARS AGO, THE INFERENCE OF THE REVENUE AS TO A CHA NGE IN THE CHARACTER OF THE RECEIPT, SO THAT IT CONSTITUTES A TRADE SURPLUS, CANNOT UNDER T HE CIRCUMSTANCES BE FAULTED. THOUGH THE ASSESSEE HAS NOT WRITTEN BACK THE AMOUNT IN ACCOUN TS, AS WAS THE CASE IN CIT VS. T.V. SUNDAIAM IYENGAR & SONS LTD. [1996] 222 ITR 344 (SC) AND CIT VS. KARAM CHAND THAPAR [1996] 222 ITR 112 (SC), THAT FACT BY ITSELF CANNOT BE CONCLUSIVE OF THE MATTER; IT BEING TRITE THAT THE TREATMENT ACCORDED BY THE ASSE SSEE IN ITS BOOKS IS NOT DETERMINATIVE OF THE MATTER INASMUCH AS THE SAME MAY NOT IN ALL CASE S TRULY REPRESENT THE TRUE STATE OF AFFAIRS. AT THE SAME TIME, IT MAY WELL BE THAT THE CREDITOR ALSO CONTINUES TO REFLECT THE DEBT IN ITS ACCOUNTS, TREATING IT AS A RECEIVABLE, IN WH ICH CASE IT CANNOT BE SAID THAT THERE IS NO OUTSTANDING LIABILITY IN ITS RESPECT, AND THAT THE AMOUNT HAS BECOME A TRADE SURPLUS FOR THE 9 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO ASSESSEE. THE ONUS TO EXHIBIT THAT THE LIABILITY SU BSISTS AS AT THE YEAR-END (31.03.2008) IS ON THE ASSESSEE. AT THIS STAGE WE MAY ALSO REFER TO THE CASE OF UTTAM AIR PRODUCTS (P) LTD. VS. DEPUTY CIT [2006] 99 TTJ 718 (DELHI) REFERRED TO BY THE ASSES SEE. IN THAT CASE THE ASSESSEE HAD DISCHARGED THE ONUS TO PROVE THE LIABI LITY AS AN EXISTING LIABILITY BY FURNISHING THE LETTER DATED 10.04.1999; THE RELEVAN T ASSESSMENT YEAR BEING A.Y. 1997-98. 5.2 UNDER THE CIRCUMSTANCES, WE ONLY CONSIDER IT FI T AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE LD. CIT(A) TO ALLO W THE ASSESSEE AN OPPORTUNITY TO ESTABLISH ITS CASE OF THE LIABILITY BEING AN OUTSTANDING LIAB ILITY AS AT THE RELEVANT YEAR-END WITH SOME MATERIAL/S EVIDENCES. THE LD. CIT(A) SHALL DECIDE P ER A SPEAKING ORDER AFTER HEARING BOTH THE SIDES, INCLUDING ALLOWING AN OPPORTUNITY TO THE A.O. TO EXAMINE AND MEET THE MATERIALS, IF ANY, ADDUCED BY THE ASSESSEE IN SUPPO RT OF ITS CASE. WE DECIDE ACCORDINGLY. 6. THE THIRD GROUND IS IN RESPECT OF UNEXPLAINED CA SH CREDITS. CASH ON VARIOUS DATES WAS FOUND TO BE DEPOSITED IN THE ASSESSEES BANK AC COUNT. IN EXPLANATION, THE ASSESSEE FURNISHED A SUMMARY OF CASH RECEIPTS AND DEPOSITS. A PART OF THE RECEIPTS (RS.17,85,202/-) WAS CLAIMED AS ONLY A RECEIPT BACK OF ADVANCES MADE IN THE PAST. HOWEVER, THE NAMES OF THE PARTIES FROM WHOM THE AMOUNTS WERE CLAIMED TO B E RECEIVED, AS GIVEN, WERE ON VERIFICATION NOT FOUND TO BE REFLECTED IN THE BALAN CE-SHEET EITHER AS ON 31.03.2007 OR 31.03.2006 OR FOR ANY EARLIER YEAR. EVEN NO DETAILS , VIZ. ADDRESSES, CONFIRMATION, ETC. STOOD SUBMITTED TO ENABLE FURTHER INVESTIGATION. UN DER THE CIRCUMSTANCES, THE SAME STOOD ADDED AS THE ASSESSEES UNEXPLAINED INCOME U/S.68. IN APPEAL, THE ASSESSEE CLAIMED THAT THE SAID AMOUN T COULD NOT BE ADDED U/S.68 INASMUCH AS THE SAME FORMED PART OF THE BUSINESS RE CEIPTS FOR THE RELEVANT YEAR. HOWEVER, THE SAME WERE NOT DISCLOSED AS BUSINESS RECEIPTS, W HICH WERE THUS SHOWN AT THE NET AMOUNT OF RS.21.95 LACS, BECAUSE THEY WERE ONLY REC EIPT BACK OF EARLIER ADVANCES, AND WHICH GET, THUS, SQUARED-UP/ADJUSTED. AS SUCH, ADDI TION U/S.68 WAS NOT MAINTAINABLE. THE SAME DID NOT FIND FAVOUR WITH THE LD. CIT(A) AS THE AMOUNTS HAVING BEEN CREDITED IN THE ASSESSEES REGULAR BOOKS OF ACCOUNTS, THERE WAS NO BAR ON THE SAME BEING CASH CREDIT 10 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO LIABLE TO BE EXPLAINED U/S.68 OF THE ACT. THE SAME HAVING NOT BEEN PROPERLY EXPLAINED, WERE, THUS, RIGHTLY DEEMED AS INCOME BY THE A.O. 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. AS WE UNDERSTAND, THE ADDITION IS NOT TOWARD UNEXPLAINED CASH CREDITS , BUT ONLY TOWARD UNEXPLAINED SOURCE OF THE CASH DEPOSITS IN BANK (RS.44.30 LACS), STATE D TO BE SOURCED IN PART BY WAY OF RECEIPT BACK OF ADVANCES FROM VARIOUS PARTIES, I.E., AT RS. 17.85 LACS. THE ASSESSEE BEING UNABLE TO SUBSTANTIATE ITS SAID EXPLANATION, THE ADDITION STO OD EFFECTED AND SUSTAINED. BEFORE US, THE LD. AR WOULD SUBMIT THAT THE ASSESSEE IS NOW IN A P OSITION TO ADDUCE EVIDENCE IN SUPPORT OF ITS CLAIM/S, WHILE THE LD. DR WOULD SUPPORT THE ORDERS OF THE REVENUE AUTHORITIES. THOUGH WE WOULD NORMALLY BE DISINCLINED TO RESTORE THE MATTER; THE ASSESSEE HAVING NOT MADE ANY PRIMA FACIE CASE BEFORE US, WE CONSIDER THAT IN VIEW OF OUR HA VING DECIDED TO DO SO QUA THE ASSESSEES GROUND NO. 2, IT WOULD ONLY BE FAIR AND IN THE INTEREST OF JUSTICE TO ALLOW IT AN OPPORTUNITY TO PLEAD ITS CASE BEFORE THE LD. CIT(A) QUA THIS GROUND AS WELL. FURTHER, IT ALSO NEEDS TO BE CLARIFIED AS TO HOW TH E AMOUNT, ADMITTEDLY NOT CREDITED TO THE P & L A/C, HAS BEEN ADJUSTED IN ACCOUNTS; THE ASSES SEES CLAIM BEING ESSENTIALLY OF THE SOURCE BEING ACCOUNTED. NEEDLESS TO ADD, ANY FRESH EVIDENCE FURNISHED BY THE ASSESSEE SHALL BE SUBJECT TO BEING VERIFIED AND CONTROVERTED /MET BY THE A.O. WE DECIDE ACCORDINGLY. 8. THE LAST AND THE FOURTH GROUND IS IN RESPECT OF DISALLOWANCE OF EXPENDITURE IN THE SUM OF RS.1,94,136/-. THE SAME IS IN RESPECT OF EXP ENSES PERTAINING TO ELECTRICITY, PROFESSIONAL FEE, STAFF SALARY, ETC. HOWEVER, AS NO BUSINESS HAD BEEN CARRIED OUT DURING THE PREVIOUS YEAR, THE SAME WERE NOT DEDUCTIBLE. TH E SAME REASONS INFORM THE APPELLATE ORDER AS WELL. 9. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND THE ASSESSEES CASE TO BE SANS ANY MERIT. THIS IS NOT A CASE OF A TEMPORARY LULL IN THE BUSINESS. THE SAME STANDS DISCONTINUED SINCE F.Y. 2003-04, WI TH THE ASSESSEE HAVING NOT COMMENCED ANY NEW PROJECT SINCE. IN FACT, BY OWN AD MISSION, SHE COULD NOT DO SO AS SHE 11 ITA NO. 6500/MUM/2011 (A.Y. 2008-09) KALYANI MAAN SINGH VS. ITO HAD ADMITTEDLY NOT SETTLED HER DUES TO SEVERAL PERS ONS IN RELATION TO HER LAST PROJECT. IN FACT, WE HAVE ALSO FOUND HER TO BE HAVING EVEN NO R ESOURCES FOR BEING ABLE TO UNDERTAKE ANY SUCH PROJECT. THE ASSESSEE, AS IT WOULD APPEAR, HAS BEEN ENGAGING HERSELF IN LAISONING/COORDINATION BUSINESS. THE FILM PRODUCTIO N BUSINESS HAVING BEEN DISCONTINUED FOR THE PAST SEVERAL YEARS, WITH NO SIGNS OF REVIVA L, IN OUR VIEW, THE ASSESSEES CLAIM FOR BUSINESS EXPENDITURE DOES NOT SATISFY THE TEST OF S . 37(1) R.W.S. 28 OF THE ACT, AND STANDS RIGHTLY DISALLOWED BY THE REVENUE. WE DECIDE ACCORD INGLY. 10. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. /-)0 &12/) $ 3$ 456 7 8 7. ' 9 ) $ ) :; ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 14, 2013 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; <& DATED : 14.11.2013 '.&../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % =) ( ) / THE CIT(A) 4. % =) / CIT - CONCERNED 5. @'AB !)&C1 , * C1- , % ( / DR, ITAT, MUMBAI 6. BD2 E( / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI