ACIT 24(2), MUMBAI V. SUNIL T. DOSHI, MUMBAI

ITA 7115/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9072 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 15-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJIV PANT J
• Assessee Lawyers: N JAYENDRAN
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO. 7115/M/2010 ASSESSMENT YEAR: 2005-2006 THE DCIT-24(2), ROOM NO.601, 6 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. VS. SHRI SUNIL T. DOSHI, B/7, KHETANESTATE, 52 RAMCHANDRA LANE, MALAD (W), MUMBAI 400 064. PAN: ABXPD4329F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV PANT, JCIT-DR RESPONDENT BY : SHRI N. JAYENDRAN, AR DATE OF HEARING: 20.11.2012 DATE OF ORDE R:21.12.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 15.10.2010 IS A GAINST THE ORDER OF CIT (A)-34, MUMBAI DATED 23.8.2010 FOR THE ASSESSMENT Y EAR 2005-2006. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS AND THE SAME ARE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION MADE AMOUNTING TO RS. 6,81,548/- WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE HAS RECEIVED THE PAYMENT OF RS. 1,60,705/- FROM THE PARTY WHO HAS CONFIRMED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT IT DOES NOT P AY ANYTHING IN ADVANCE TO THE ASSESSEE AND PAID THE AMOUNT ONLY WHEN THE R EMUNERATION BECOMES DUE. THE ASSESSEE HAS RECEIVED THE AMOUNT OF RS. 5,20,833/- FOR THE AGREEMENT EXECUTED ON 2.3.2004 HENCE THE SAME IS TA XABLE IN THE YEAR UNDER CONSIDERATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF 5% OF PRODUCTION EXPENSES IGNORING THE FACT THAT MAJOR EXPENSES UNDER THE HE AD PRODUCTION EXPENSES ARE SUPPORTED BY SELF MADE VOUCHERS WHEREI N INDEPENDENT VERIFICATION IS NOT POSSIBLE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A ) ON THE GROUND BE SET ASIDE AND MATTER MAY BE DECIDED ACCORDINGLY TO LAW. 3. BRIEFLY STATED THE RELEVANT FACTS OF THE CASE AR E THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CELEBRITY ENDORSEMENT, EVENT PROMOT ION & MANAGEMENT, PRODUCTION 2 OF TELEVISION SERIALS AND AD FILMS. ASSESSEE FILED RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 3,45,32,892/- AND THE ASSESSMEN T U/S 143(3) OF THE ACT WAS COMPLETED DETERMINING THE TOTAL INCOME OF RS. 3,61, 45,052/-. IN THE ASSESSMENT, AO MADE CERTAIN ADDITIONS AND THEY ARE: (A) ADDITIO N OF RS. 1,60,715/- INVOLVING A CONTRACT BETWEEN ASSESSEE AND M/S FRITO LAYS PVT. L TD (FLPL); (B) ADDITION OF RS. 5,20,833/- INVOLVING ANOTHER CONTRACT BETWEEN THE A SSESSEE AND M/S EMAMI PRODUCTS LTD (IN SHORT EMAMI); AND FINALLY, ADDIT ION OF RS. 4,18,637/- IE 5% OF TOTAL PRODUCTION EXPENSES FOR THE REASONS RELATED TO GP R ATES OF VARIOUS TELEVISION SERIALS. RELEVANT FACTS, ARGUMENTS AND THE ADJUDICATION RELA TING TO EACH OF THE ADDITION ARE GIVEN IN THE FOLLOWING PARAGRAPHS. 4. ISSUE OF ADDITION OF RS. 1,60,715/-: GROUND NO.1 IS RELEVANT HERE AND THIS AMOUNT OF RS. 1,60,715/- IS PART OF RS. 6,81,548/- REFERRED TO IN THE GROUND . RELEVANT FACTS OF THIS ADDITION ARE THAT THE ASSESS EE HAS AN AGREEMENT DATED 26.11.2002 WITH FLPL AND RECEIVED A SUM OF RS. 11.2 5 LAKHS AS PART OF THE BUSINESS OF CELEBRITY ENDORSEMENT. THIS AMOUNT IS EQUAL TO 1 2.5% OF THE REMUNERATION PAYABLE BY FLPL TO THE CELEBRITY IE SAIF ALI KHAN. AS PER THE AGREEMENT CLAUSE 5.3, ASSESSEE IS ENTITLED TO GET FEE AT THE SAME TIME, T HE CELEBRITY BECOMES ENTITLED TO THE REMUNERATION. AS PER THE AGREEMENT, THE ASSESS EE IS ENTITLED TO 15% OF THE REMUNERATION PAYABLE TO THE CELEBRITY AND THE SAME IS REDUCED TO 12.5 %. THERE IS NO ISSUE ON THIS REDUCTION POINT. UNDER THE AGREEM ENT, THE CELEBRITY IS REQUIRED TO BE AVAILABLE TO FLPL FOR TOTAL NUMBER OF 25 DAYS FO R SHOOTING AND / OR RECORDING FILMS/ PROMOTIONAL APPEARANCES AND THE CONTRACT PER IOD IS 18 MONTHS. IN THE RETURN, ASSESSEE RECOGNIZED THE INCOME OF RS. 11.25 LAKHS F OR THREE ASSESSMENT YEARS IE 2004-05 (RS.4,79,166/-), 2005-06 (RS. 4,85,119/-) A ND 2006-07 (RS. 1,60,715/ -). ASSESSEE FOLLOWED THE METHOD OF RECOGNIZING INCOME BASED ON THE PRINCIPLE OF PROPORTION OF NUMBER OF DAYS PERFORMED BY THE CELEB RITY IN A YEAR IE PERFORMANCE BASED PRO-RATA. HOWEVER, ASSESSING OFFICER REJECTED THE PERFORMANCE BASED PRO-RATA AND ADOPTED HIS OWN METHOD. AS PER THE AO, RS. 1,6 0,715/-, WHICH WAS DECLARED IN THE NEXT ASSESSMENT YEAR SHOULD BE BROUGHT TO TAX T O THE CURRENT ASSESSMENT YEAR IE 2005-06. IT IS NOT KNOWN WHAT THE STATUS WITH REGAR D TO THE SUM OF RS.4,79,166/- 3 OFFERED BY THE ASSESSEE FOR THE AY 2004-05. THUS, THE BONE OF CONTENTION BEFORE THE AO IS WHETHER THE ASSESSEE IS CORRECT IN FOLLOW ING THE METHOD OF RECOGNIZING INCOME BASED ON THE NUMBER OF DAYS PERFORMED BY THE CELEBRITY. THIS METHOD IS REJECTED BY THE AO AND A SUM OF RS. 1,60,715/- BROU GHT TO TAX FOR THE AY 2005-06. IN THIS REGARD, AO HAS NOT GIVEN ANY RELIEF TO THE A SSESSEE WITH REGARD TO THE RS. 1,60,715/- OFFERED BY THE ASSESSEE AS THE INCOME FO R THE AY 2006-07. THUS THE INCOME OF RS. 1,60,715/- IS TAXED TWICE IN AYS 2005 -06 AND THE AY 2006-07. THE MATTER TRAVELLED TO CIT (A) AND AS PER 2.4 OF THE I MPUGNED ORDER, THE FINDINGS OF CIT (A) ARE AS UNDER: 2.4 AS FAR AS ADDITION OF RS. 1,60,715/- IS CONCERN ED, I FIND THAT THIS ADDITION IS ALSO UNNECESSARY AND UNWARRANTED AS ASS ESSING OFFICER HAS MADE JUGGLERY OF THE FIGURES AND NOT BROUGHT OUT ANY ADV ERSE MATERIAL ON RECORD TO SUGGEST THAT RS. 1,60,715/- SHOWN AS ADVANCE AND OF FERED FOR TAXATION IN THE AY 2006-07 IS ACTUALLY DUE IN AY 2005-06. HENCE TH E SAME IS ALSO DELETED. 5. AGGRIEVED WITH THE ABOVE RELIEF GRANTED BY THE C IT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. BEFORE US, LD DR RELIED ON THE ORDER OF THE AO. HE WAS CRITICAL OF THE MANNER IN WHICH THE ISSUE WAS ADJUDICATED THAT THE CIT (A) WITHOUT GIVING PROPER REASONS AND WITHOUT ANALYZING THE FACTS RELATED TO THE METH OD OF RECOGNITION OF INCOME RECEIVED BY THE ASSESSEE IN TERMS OF CONTRACT WITH FLPL. 7. PER CONTRA, LD AR FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE PAPER BOOK AND READ OUT RELEVANT PARAGRAPHS FROM THE WRITTEN S UBMISSIONS FILED BY THE ASSESSEE BEFORE THE CIT (A). IN THE PROCESS, LD COUNSEL MENT IONED THAT ASSESSEE GETS A CONSULTANCY FEE @ 12.5% OF THE REMUNERATION PAYABLE TO THE CELEBRITY AND ASSESSEE RECEIVES THE SAME AT THE SAME TIME CELEBRITY BECOME S ENTITLED TO HIS REMUNERATION UNDER THE CONTRACT WITH FLPL. IN THIS CASE, MR. SA IF ALI KHAN BEING CELEBRITY HAVING WORKED 25 DAYS FOR SHOOTING AND / OR RECORDING FILM S/ PROMOTIONAL APPEARANCES AND THE REMUNERATION IN RESPECT THEREOF IS LINKED TO TH E NUMBER OF DAYS PERFORMED BY THE CELEBRITY ON PRO-RATA BASIS. IT IS CERTAINLY NOT LINKED TO THE CONTRACT PERIOD OF 18 MONTHS, WHICH IS THE CASE HERE. THEREFORE, THE SUM OF RS 11.25 LAKHS MUST NOT BE SPREAD OVER EQUALLY AMONG THE 18 MONTHS OF THE CONT RACT PERIOD. THE FEE RECEIVED 4 BY THE ASSESSEE IN ADVANCE IS NOT AN INCOME AND THE INCOME IS ACCRUED ONLY WHEN THE CELEBRITY PERFORMED DAYS / MONTHS / YEAR. THER EFORE, AOS CALCULATION BASING ON THE CONTRACT PERIOD, ON PRO-RATA BASIS QUA NUMBER O F MONTHS OF THE CONTRACT PERIOD, IS INCORRECT AS THE FEE ACCRUED TO THE ASSESSEE IS ONLY ON PERFORMANCE BY THE CELEBRITY / MODEL AND THE CELEBRITY RECEIVES THE RE MUNERATION BASED ON THE DAYS OF PERFORMANCE BY HIM. IN THIS REGARD, ASSESSEE BROUGH T OUR ATTENTION TO PAGE 11 OF THE PAPER BOOK TO DEMONSTRATE THE NUMBER OF DAYS OF CELEBRITY PERFORMED FOR THE FLPL AND THE ASSESSEE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY HIM, COMPUTED THE INCOME ACCRUED TO HIM OUT OF HIS CONTRACT AND OFFERED THE INCOME OVER THREE AYS AND ACCORDINGLY, RS. 4,85,119/- IS THE TAXABLE INCOME FOR THE ASSESSMENT YEAR 2005-2006 AND RS. 1, 60,715/- RELATES TO THE NEXT ASSESSMENT YEAR 2006-2007. THEREFORE, AS PER LD COU NSEL, THE SUM OF RS. 1,60,715/- SHOULD BE TAXED IN THE ASSESSMENT YEAR 2 005-2006. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDE RS OF THE REVENUE ALONG WITH THE PAPER BOOK FILED BEFORE US. AFTER ASSIMILA TING THE RELATED FACTS, IN OUR OPINION, THE CASE OF THE REVENUE IS THAT THE INCOME SINCE RECEIVED IN ADVANCE SHOULD BE BROUGHT TO TAX BASING ON THE CONTRACT PERIOD OF 18 MONTHS BASED ON PRO-RATA. AO REJECTED THE PERFORMANCE DAYS BASED PRO-RATA FOR TH E REASONS RELATED TO THE ASSESSEE FAILURE TO PROVE THAT HE FOLLOWED THE MERC ANTILE SYSTEM OF ACCOUNTANCY CONSISTENTLY. 9. ON THE CONTRARY, THE CASE OF THE ASSESSEE IS THA T HE ENTERS INTO A CONTRACT WITH VARIOUS PARTIES, WHO WANT THE SERVICES BY WAY OF PERFORMANCE OF THE CELEBRITIES LIKE SAIF ALI KHAN, AMITABH BACHCHAN ETC FOR WHICH THE ASSESSEE RECEIVES CONSULTANCY FEE AND THE CELEBRITY RECEIVES REMUNERATION. AS PER THE AGREEMENT, THE PAYMENT MADE TO ASSESSEE IS DIRECTLY LINKED TO THE PAYMENT MADE TO THE CELEBRITY BASED ON THE NUMBER OF DAYS PERFORMED BY THE CELEBRITY. UND ER THESE CIRCUMSTANCES, WHETHER ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOU NTANCY IN GENERAL AND PERFORMANCE LINKED ACCRUAL IN PARTICULAR, THE INCOM E OF RS 11.25 LAKHS IS OFFERED BY THE ASSESSEE OVER THREE AYS AND RS. 1,60,715/- RIGH TLY PERTAINS TO AY 2006-2007 AND IT SHOULD NOT BE DISTURBED. 5 10. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AN D PERUSED THE RELEVANT RECORDS. WE HAVE CONSIDERED THE ASSESSEES DEMONSTR ATION OF FACTS BASED ON PAGE 11 OF THE PAPER BOOK THAT RS. 1,60,715/- RELATES TO THE PERFORMANCE OF THE CELEBRITY IN THE ASSESSMENT YEAR 2006-2007 AND NOT RELATABLE TO THE PERIOD UNDER CONSIDERATION. THE FACT THAT THE CELEBRITY PERFORME D IN THE YEAR RELEVANT TO THE AY 2006-07 IS NOT DENIED BY THE AO. IF WE APPROVE THE C ONCLUSION OF THE AO, IT AMOUNTS TO APPROVING THAT THERE IS NO TAXABLE INCOME FOR TH E AY 2006-07, ALTHOUGH THE CELEBRITY FACTUALLY PERFORMED IN THAT YEAR AND THER E IS TRULY ACCRUAL OF INCOME TO ASSESSEE IN THAT AY. AO HAS NOT MADE OUT ANY CASE TO DEMONSTRATE THAT ASSESSEE HAS NOT FOLLOWED SIMILAR METHOD OF ACCOUNTING IN EA RLIER ASSESSMENT YEARS. WE HAVE NOTICED THAT THE ASSESSEE OFFERED THE FEE OF RS 11. 25 LAKHS IN THREE AYS CONSISTENTLY FOLLOWING A METHOD OF ACCOUNTING. AOS DECISION TO SIMPLY PRE-PONE THE TAX TO ASSESSMENT YEAR 2005-2006 IS WITHOUT ANY BASIS. TH EREFORE, DECISION OF CIT (A), FOR THE ABOVE MENTIONED REASONS, IS CONFIRMED. ACCORDIN GLY, THIS PART OF THE GROUND 1 IS DISMISSED . 11. ISSUE OF ADDITION OF RS. 5,20,833/-: GROUND NO.1 IS RELEVANT HERE ALSO AND THIS AMOUNT OF RS. 5,20,833/- IS PART OF RS. 6,81,548/- REFERRED TO IN THE GROUND . RELEVANT FACTS, ARGUMENTS AND THE ADJUDICATION ARE GIVEN IN THE FOLLOWING PARAGRAPHS. 12. ASSESSEE HAS AN AGREEMENT WITH M/S EMAMI LIMITE D (IN SHORT EMAMI) AND RECEIVED A SUM OF RS. 1.25 CR AS PART OF THE BUSINE SS OF CELEBRITY ENDORSEMENT. THERE IS A CONTRACT AGREEMENT DATED 2.3.2004 AND TH E CONTRACT PERIOD IS 24 MONTHS. THE CELEBRITY INVOLVED IN THIS CONTRACT IS MR. AMIT ABH BACHCHAN. ASSESSEE DIVIDED THE SAID SUM OF RS. 1.25 CR INTO TWO EQUAL HALVES AND O FFERED A SUM OF RS. 62,50,000/- FOR THE YEAR UNDER CONSIDERATION IE AY 2005-2006 AN D THE BALANCE IN THE AY 2006- 2007. DURING THE ASSESSMENT PROCEEDINGS, ON FINDIN G THAT THE CONTRACT IS EFFECT FROM MARCH 2004, ASSESSING OFFICER DID NOT ACCEPT T HE ABOVE WORKING OF THE ASSESSEE AND PROCEEDED TO TAX THE INCOME RELATED MO NTH OF MARCH 2004 ON PRO-RATA BASIS AND HELD THAT THE INCOME ON THIS ACCOUNT FOR THE ASSESSEE SHOULD BE RS. 6 67,70,833/- INSTEAD OF 62,50,000/-. THE DIFFERENCE OF RS. 5,20,833/- (RS. 67,70,833 RS.62,50,000) BROUGHT TO TAX IN THE ASSESSMENT YE AR UNDER CONSIDERATION. IN THE PROCESS, THE AO TAXED INCOME RELATABLE TO 13 MONTHS IN THE AY UNDER CONSIDERATION. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE SUBMITTED THAT THOUGH THE AGREEMENT WAS DATED 2.3.2004, THE EFFECTIVE DATE OF AGREEMENT WAS FROM FIRST SHOT OF EACH PRODUCT OR SIX MONTHS FROM THE DATE OF EXEC UTION OF THE AGREEMENT. AS THE FIRST SHOT WAS ONLY IN THE MONTH OF APRIL, 2004, THE CONSULTA NCY FEE ACCRUED TO THE ASSESSEE ONLY IN 2004 AND THEREFORE, ASSESSEE JUSTI FIED IN BIFURCATING THE SUM OF RS. 1.25 CR EQUALLY, OFFERING THE INCOME AT RS.62,50,00 0/- FOR THE YEAR UNDER CONSIDERATION. IN ANY CASE, ASSESSING OFFICER IS P REVENTED FROM TAXING INCOME OF 13 MONTHS WHICH IS NOT PERMITTED IN LAW. CIT (A) CONS IDERED THE SUBMISSIONS OF THE ASSESSEE AND ALLOWED THE CLAIM OF ASSESSEE VIDE HIS FINDING AT PARA 2.3 WHICH READS AS UNDER: 2.3 I HAVE GONE THROUGH THE AGREEMENTS AND SUBMISSI ONS OF THE LD AUTHORIZED REPRESENTATIVE, CONTENTS OF THE IMPUGNED ASSESSMENT ORDER AND COPIES OF AGREEMENTS. I FIND THAT IN THE CASE OF T HE CONTRACT PERTAINING TO EMAMI LTD. IT IS INVOKED FROM 1.3.2004 TO 28.2.2006 AND THIS COVERS ALL THE 12 MONTHS OF THE PREVIOUS YEAR RELEVANT TO AY 2005- 2006. THEREFORE, THE ASSESSING OFFICER COULD HAVE NOT MADE ANY ADDITION TO THE AMOUNT OF ADVANCE ATTRIBUTABLE TO THE 12 MONTHS OF THE FY 200 4-2005 THAT HAD BEEN ALREADY OFFERED AND HE COULD HAVE NOT TAKEN THE INCOME PERTAINING TO 13 MONTHS IN A YEAR. THEREFORE, THE ADDITION OF RS. 5,20,833/- BEING BASELESS AND UNWARRANTED IS DELETED. 13. DURING THE PROCEEDINGS BEFORE US, LD DR FOR THE REVENUE TOOK OBJECTION TO THE ASSESSEES DECISION IN CHANGING THE CRITERIA FO R RECOGNIZING THE INCOME BASED ON THE CONTRACT AND THE CELEBRITY INVOLVED. LD DR MENT IONED THAT THE ASSESSEE ADOPTED PERFORMANCE DAYS BASED PRO-RATA IN THE CASE OF C ONTRACT WITH FLPL AND WITH EMAMI, HE ADOPTED 24 MONTHS BASED PRO-RATA. HOWEV ER, ON THE LIMITED ISSUE OF VALIDITY OF TAXING 13 MONTHS INCOME IN THE AY 2005 -06, LD DR FAIRLY RELIED ON THE ORDER OF THE AO. 14. PER CONTRA , LD COUNSEL ADMITTED TO JUSTIFY THIS TIME ON THE P RO-RATA BASIS VIS- -VIS NUMBER OF MONTHS AND NOT NUMBER OF DAYS PERFO RMED BY THE CELEBRITY. LD COUNSEL BROUGHT OUR ATTENTION TO THE CONTENTS OF PA GE 11 SHOWING THE DATES OF PERFORMANCES BY SHRI AMITABH BHACHCHAN. WITHOUT GOI NG INTO THE METHOD OF 7 RECOGNITION OF TAXABLE INCOME ADOPTED BY THE ASSESS EE, LD COUNSEL FOCUSED ON THE LIMITED ISSUE OF VALIDITY OF TAXING OF INCOME RELAT ABLE TO 13 MONTHS IN THE AY 2005-06 AND STATED THAT THE AO IS NOT JUSTIFIED. REFERRING TO THE CRITERIA OF EFFECTIVE DATE OR MONTH OF THE CONTRACT IE FIRST SHOT OF EACH PRODUCT OR SIX MONTHS FROM THE DATE OF EXECUTION OF THE AGREEMENT, WHICHEVER IS EARLY, LD COUNSEL MENTIONED THAT THE FIRST SHOT ON THE CELEBRITY WAS MADE IN THE MONTH OF APRI L, 2004 AND THEREFORE THE ASSESSEE IS JUSTIFIED IN EQUALLY DIVIDING THE SUM O F RS 1.25 CRORES AND OFFERING SUM OF RS 62.5 LAKHS IN THE AY UNDER CONSIDERATION. 15. WE HAVE HEARD BOTH PARTIES, PERUSED THE ORDERS OF THE REVENUE AND RELEVANT PAPERS FILED BEFORE US. METHOD OF ACCOUNTING MAY BE THE GENERIC ISSUE AND THE LIMITED ISSUE ON WHICH THE CIT(A) GRANTED RELIEF RE LATES TO RECOGNIZING 13 MONTHS INCOME IN THIS AY UNDER CONSIDERATION. IN THE GROUN D IT WAS MENTIONED THAT THE AO HAS RIGHTLY CONSIDERED THE 2.3.2004, THE DATE OF TH E CONTRACT, AS THE EFFECTIVE DATE OF INCOME GENERATION. IN THE PROCESS, AO DEVIATED THE LEGAL PRINCIPLE THAT THE INCOME OF 13 MONTHS SHALL NOT BE TAXED IN THE AY UNDER CON SIDERATION. THUS, IN PRINCIPLE, AO IS NOT JUSTIFIED IN TAXING THE INCOME OF 13 MONT HS. ON THIS GROUND ALONE, ASSESSEE IS ENTITLED TO RELIEF AND THEREFORE, WE CO NFIRM THE ORDER OF THE CIT (A). IT IS RELEVANT TO MENTION HERE THAT THE ASSESSEE HAS NOT FOLLOWED THE PRINCIPLE OF RECOGNIZING THE TAXABLE INCOME BASING ON THE NUMBER OF DAYS PERFORMED BY THE CELEBRITY AND THIS ISSUE IS NOT RAISED BY THE REVEN UE IN THE APPEAL. THEREFORE, WE REFRAIN FROM ENTERING INTO DEBATE ON THIS ISSUE. TH EREFORE, THE ASSESSEES GRIEVANCE IS UPHELD AND THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED . 16. GROUND NO.2 RELATES TO DELETION OF DISALLOWANCE OF RS. 4,18,637/- BEING 5% OF THE PRODUCTION EXPENSES FOR THE REASONS RELATING TO LOWER GP. 17. RELEVANT FACTS RELATING TO THIS GROUND ARE THAT ASSESSEE PRODUCED DIFFERENT TV SERIALS NAMELY HAPPY GO LUCKY, KARISHMA KA KARISHMA AND HEARTBEAT . DURING THE ASSESSMENT PROCEEDINGS, AO TABULATED SERIAL WISE GP RATES, PRODUCTION RECEIPTS AND EXPENDITURE DETAILS AND THEY ARE EXTRACTED AS UNDER : 8 NAME OF THE SERIAL HAPPY GO LUCKY KARISHMA KA KARISHMA HEARTBEAT PRODUCTION RECEIPTS RS.60,50,000/ - RS.35,00,000/ - RS.12,7 0,417/ - LESS: PRODUCTION EXPENSES RS.46,77,500/ - RS.23,49,644/ - RS. 13,45,588/ - GROSS PROFIT RS.13,72,500/ - RS.11,50,356/ - RS. - 75,171/ - GROSS PROFIT % 23 33 ( - 6) 18. FROM THE ABOVE, IT IS EVIDENT THAT THE GP RATE OF HEART BEAT IS NEGATIVE. GP RATES FOR HAPPY GO LUCKY AND KARISHMA KA KARISHMA ARE 23% AND 33% RESPECTIVELY. AO CALLED FOR THE RELEVANT BILLS AND VOUCHERS IN SU PPORT OF THE CLAIM OF PRODUCTION EXPENSES. ASSESSEE SUBMITTED THE SAME. ON EXAMINAT ION, THE AO FOUND THAT THE EXPENDITURE CLAIM INCLUDES THE CASH PAYMENTS AND EV IDENCES ARE IN THE FORM OF SELF- MADE VOUCHERS IN MANY CASES. THEREFORE, HE ESTIMATE D THE DISALLOWANCE ADOPTING THE FLAT RATE OF 5% OF THE TOTAL PRODUCTION EXPENSE S AND THE DISALLOWANCE WORKS OUT TO RS. 4,18,637/-. 19. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSE E SUBMITTED THAT GP RATE DIFFERS FROM SERIAL TO SERIAL AS THE SITUATIONS VARY FROM O NE SERIAL TO OTHER. THE QUANTUM OF EXPENDITURE IS DEPENDENT ON THE SETS USED IN THE SE RIALS, CASTING, REQUIREMENT OF RE- SHOOTING, SUGGESTIONS FROM THE CHANNELS FOR CHANGIN G OF THE SHOTS ETC. FURTHER, HE MENTIONED THAT THE EXPENDITURE IS RELATIVELY MORE I N THE INITIAL DAYS OF THE SHOOTING OF THE SERIAL AND THE EXPENDITURE GRADUALLY DESCEND AS THE SERIAL PROGRESS. GP ADDITIONS IN THESE MATTERS SHOULD NOT MADE AND AO N EEDS TO EXAMINE THE ENTRIES IN THE BOOKS OF ACCOUNT AND TAKE DECISIONS IN THE MATT ER. IN THE PRESENT CASE, BOOKS OF ACCOUNT ARE AUDITED BY THE SPECIALISTS THEREFORE, T HE FINANCIAL STATEMENTS ARE FILED AFTER THEIR APPROVAL AND AUDIT. CIT (A) HAS CONSID ERED THE SAME AND DELETED THE ADDITION FOR THE REASONS GIVEN IN PARA 3.1 OF IMPUG NED ORDER WHICH READS AS UNDER: 3.1 I HAVE GONE THROUGH THE CONTENTS OF THE IMPUGNE D ASSESSMENT ORDER IN PARA-5, ARGUMENTS AND SUBMISSIONS OF THE LD AUTH ORIZED REPRESENTATIVE AND THE MATERIAL AVAILABLE ON RECORD. I FIND FORCE IN THE ARGUMENT OF THE LD AUTHORIZED REPRESENTATIVE THAT GP IS BASED ON TRP I N THE CASE OF TV SERIALS AND NO COMPARISON CAN BE MADE EITHER WITH ONE SERIA L TO OTHER OR SAME SERIAL IN DIFFERENT YEARS. THUS, I FIND THAT THE IMPUGNED ADDITION OF RS. 4,18,637/- IS NOT MADE ON SOUND FOOTING AND IS SIMPLY BASED ON SU RMISES AND CONJUNCTURES. ACCORDINGLY, THIS ADDITION OF RS. 4,18,637/- IS DEL ETED. 9 20. BEFORE US, LD DR HIGHLIGHTED THE FACT THAT TV S ERIAL PRODUCTION EXPENSES ARE NOT PROPERLY VOUCHED AND THE SELF-MADE VOUCHERS ARE NO SUBSTITUTE FOR THIRD PARTY EVIDENCES. THE PRODUCTION EXPENDITURE INVOLVES CASH PAYMENTS AND THEREFORE, THE CLAIMS ARE UNSUSTAINABLE. THE GP RATES DISPLAYED BY THE ASSESSEE ARE NOT COMPARABLE. THEREFORE, AS PER THE DR, BOOKS OF ACCO UNT SHOULD NOT BE DEPENDABLE. 21. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A) AND ALSO THE WRITTEN SUBMISSIONS MADE BEFORE TH E CIT (A). 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AND THE MATERIAL FILED BEFORE US. WE HAVE PERUSED THE T ABULATION OF COMPARATIVE DETAILS OF THE PRODUCTION RECEIPTS AND EXPENDITURE OF ALL T HREE SERIALS AND FIND THAT THE COMPARISON IS MADE USING THE IN-HOUSE DATA. IN PRIN CIPLE, ARE THE PRODUCTION DETAILS OF THE THREE SERIALS COMPARABLE? COMPARISON IS NOT MADE USING THE EXTERNAL COMPARABLE SERIALS. FURTHER, FOR DETERMINING THE QU ANTUM OF DISALLOWANCE, AO CLUBBED THE PRODUCTION EXPENDITURE OF THE THREE SER IALS IN AN AD-HOC MANNER AND APPLIED THE FLAT RATE OF 5% OF THE GROSS EXPENDITUR E. THE DISALLOWANCE WORKS OUT TO RS. 4,18,637/-. THERE IS NO BASIS FOR CLUBBING OF THESE EXPENDITURE AND FOR ADOPTING THE SAID FLAT RATE OF 5%. SHOULD THE COURTS APPROVE SUCH AN APPROACH OF AD-HOCISM? IS THIS THE WAY OF QUANTIFYING THE DISALLOWANCE? IT IS A FACT THAT THE AO HAS NOT IDENTIFIED ANY BOGUS EXPENSES OR AO IS ALSO NOT IN POSSESSION OF SOME EVIDENCES IN SUPPORT OF THE ALLEGATION THAT PRODUCTION EXPENSES ARE INFLATED. AO HAS NOT BROUGHT ANY MATERIAL ON RECORDS TO EVIDENCE THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE INCOMPLETE OR IN CORRECT, WHICH ARE THE CONDITIONS FOR REJECTION OF ACCOUNTS VIDE THE PROVISIONS OF SECTION 145 OF THE ACT. ASSESSING O FFICER HAS ALSO NOT DEMOLISHED THE SUBMISSION OF THE ASSESSEE THAT THE PRODUCTION COST AT THE INITIAL STAGE OF THE SERIALS IS CERTAINLY HIGHER CONSIDERING THE FACT OF POSSIBI LITY OF RE-SHOOTING ASSOCIATED WITH THE NEW ARTISTS, CONSUMPTION OF FILM, SPENDING OF L ONGER HOURS OF WORK ETC. IN OUR OPINION, THE SUBMISSION OF THE ASSESSEE IS NOT WITH OUT WEIGHT. THEREFORE, FROM THE COMMONSENSE POINT OF VIEW, THE DISALLOWANCE BASED O N THE INTERNAL COMPARISON GP RATES OF THE THREE SERIALS, WHICH ARE OF COURSE INC OMPARABLE, IS NOT FAIR. THEREFORE, 10 WE DISAPPROVE THE AOS DECISION IN RESORTING TO APP LY THE FLAT RATE OF 5% OF THE GROSS PRODUCTION EXPENDITURE OF ALL THE THREE SERIALS. 23. NOTWITHSTANDING THE ABOVE, IT IS A FACT THAT SO ME OF THE PAYMENTS ARE FACTUALLY MADE IN CASH AND THERE ARE NO THIRD PARTY EVIDENCES AND THEY ARE SUPPORTED BY THE SELF VOUCHERS. HOWEVER, THE REVENU E HAS NOT QUANTIFIED THE EXTENT OF SUCH CASH PAYMENTS OUT OF THE TOTAL PRODUCTION E XPENDITURE. THE ASSESSEE HAS NOT DENIED THE FACT OF INCURRING OF SOME EXPENDITUR E IN CASH AND HE ONLY JUSTIFIED THE REQUIREMENT OF INCURRING PART OF THE EXPENDITURE IN CASH. IT IS A SETTLED PROPOSITION THAT WHEN THE ASSESSEE MAKES A CLAIM OF DEDUCTION I N THE BOOKS, THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE GENUINENESS OF THE CLAI M OF DEDUCTION. CONSIDERING THE ABOVE, FOR MATCHING THE INADEQUACIES IN THE MANNER OF MAINTAINING THE VOUCHERS/BILL IF ANY, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF A ROUND SUM AMOUNT OF RS. 1 LAKH INSTEAD OF FLAT RATE OF 5% SHOULD MEET THE BOT H ENDS OF THE JUSTICE. ACCORDINGLY, GROUND NO.2 IS PARTLY ALLOWED . 24. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF DECEMBER, 2012. SD/- SD/- (D. MANMOHAN) (D. KARUNAKARA RAO) VICE PRESIDENT AC COUNTANT MEMBER DATE : 21.12.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR E, BENCH, ITAT, MUMBAI. 6. GUARD FILE. 11 // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI