M/s Gemini Pricture Palace, Warangal V. ITO, Ward-1, Warangal

ITA 789/HYD/2013

• Counselvise Citation: 78922514 RSA 2013
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 20-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: G MANIKYA PRASAD
• Keywords: Business income; Depreciation; Assessment record
• Section: 143(3); 244A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.789/HYD/2013 ASSTT. YEAR 2008-09 M/S. GEMINI PICTURE PALACE, VS- ITO, WARD-1, WARANGAL. WARANGAL. PAN:AAHEG 5113B (APPELLANT) (RESPONDENT) APPELLANT BY: SRI G. MANIKYA PRASAD RESPONDENT BY: SRI P. SOMASEKHA R REDDY (DR) DATE OF HEARING: 20 -01-2014 DATE OF PRONOUNCEMENT: 12-03-2 014. ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 22/3/2013 PASSED BY THE CIT-VI, HYDERABAD U/S 263 OF T HE ACT. 2. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A PARTNERSHI P FIRM CARRYING ON BUSINESS IN EXHIBITION OF FILMS IN THE THEATRES OWN ED BY IT NAMELY M/S GEMINI PICTURE PALACE. FOR THE ASSESSMENT YEAR UNDER D ISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 25-9-2008 DECLARING TO TAL INCOME AT NIL AFTER ADJUSTMENT OF PROFIT OF RS.77,794/- AGAINST LOSS OF ASSESSMENT YEAR 2007/08. THE RETURN FILED BY THE ASSESSEE WAS SELECT ED FOR SCRUTINY AND THE ASSESSING OFFICER VIDE ORDER DATED 1-11-2010 PASS ED U/S 143(3 OF THE 2 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. ACT COMPLETED THE ASSESSMENT BY ACCEPTING THE INCOM E RETURNED AND ALLOWED REFUND OF RS.9,72,870/- ALONG WITH INTEREST U/S 244A OF THE ACT. 3. THE CIT IN EXERCISE OF POWERS U/S 263 OF THE ACT CALLED FOR THE ASSESSMENT RECORDS OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AND AFTER EXAMINING THE RECORDS NOTED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH ADLABS LTD. ON 24-1-2007 TO CONDUCT HE EXISTING THEATRE AGAINST MONTHLY CONDUCTING CHARGES OF RS.4 LAKH. AF TER GOING THROUGH THE TERMS AND CONDITIONS OF THE SAID AGREEMENT AND ALSO E XAMINING THE P & L A/C OF THE ASSESSEE FOR THE PERIOD ENDED 31-3-2008, TH E CIT NOTICED THAT THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS.42,93,334/ - TOWARDS CONDUCTING CHARGES FROM ADLABS LIMITED FROM 9-4-2007 TO 31-3-2008 AND HAS DEBITED EXPENDITURE TO THE TUNE OF RS.18,11,377/- UNDER THE HEAD ELECTRICAL CHARGES, GRATUITY, THEATRE INSURANCE, SALARIES, ESI ETC., THEAT RE MAINTENANCE, DEPRECIATION ON CAR, AIR COOLING MAINTENANCE, CAR PETROL , INTEREST ON CAR LOAN AND CAR REPAIRS ETC. ON GOING THROUGH THE DETAILS OF EXPENDITURE CLAIMED, THE CIT FELT THAT THE ASSESSING OFFICER SHOULD HAVE DISALLOWED THESE EXPENDITURES AS SOME OF THE EXPENSES WERE BY ADLABS LIMITED AND EXPENSES RELATING TO CAR WAS FOR PERSONAL USE. ON TH E BASIS OF THE AFORESAID FACTS, THE CIT WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE THEREFORE ISSUED A NOTICE U/S 263 OF THE ACT DIRECTING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER SHOULD NOT BE SET ASIDE. IN RESPONS E TO THE SAID NOTICE, THE AR OF THE ASSESSEE APPEARED BEFORE THE CIT AND C ONTENDED THAT THE ASSESSEE HAD HANDED OVER THE THEATRES TO ADLABS LIMIT ED ON 9-4-2007. IT WAS CONTENDED THAT THE FIRM HAS CARRIED ON BUSINESS O F EXHIBITION OF FILMS UP TO 8-4-2007. THEREFORE, MONTHLY CONDUCTING CHARGES TO THE TUNE OF RS.42,93,334/- RECEIVED FROM ADLABS LIMITED FROM 9-4-20 07 WAS DISCLOSED 3 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. AS BUSINESS INCOME ONLY AS THE ASSESSEE HAS NOT DIS CONTINUED THE BUSINESS OF EXHIBITION OF FILMS IN THEATRE. HE FURTHER CONTENDE D THAT THE EXPENDITURE CLAIMED WAS IN CONNECTION WITH CARRYING ON BUSINESS O F THE FILMS AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF B USINESS ONLY. IT WAS SUBMITTED THAT THE EXPENDITURE INCURRED IS FULLY SUP PORTED BY VOUCHERS AND ALSO REFLECTED IN THE BOOKS OF ACCOUNTS SINCE THE A SSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER AFTER EXAMINING ALL THESE FACTS, THERE IS NO OCCASION TO REVISE THE ASSESSMENT ORDER BY INVOKING SECTION 263 OF THE ACT. 4. IN COURSE OF REVISION PROCEEDINGS, THE CIT NOTED T HAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.2,80,458/- UNDER THE HEAD T HEATRE MAINTENANCE. ON EXAMINING THE DETAILS OF EXPENSES IT WAS NOTED B Y THE CIT (A) THAT THE SAID EXPENDITURE WAS INCURRED ON ACCOUNT OF FLOORING, T ILES AND WHITEWASHING ETC., AFTER THE THEATRES HAD BEEN HANDED OVER BY THE A SSESSEE. WHEREAS AS PER THE AGREEMENT THE COST OF SUCH ALTERATION SHALL BE BORNE BY THE ADLABS LIMITED. HENCE, THE EXPENDITURE CLAIMED BY THE ASSE SSEE ON ACCOUNT OF THEATRE MAINTENANCE BEING REIMBURSABLE BY THE LESSEE CANNOT BE ALLOWED WHILE COMPUTING THE INCOME OF THE ASSESSEE. SINCE THE ASSESSING OFFICER HAS NOT EXAMINED THE ALLOWABILITY OF SUCH EXPENDIT URE, THE ASSESSMENT ORDER PASSED HAS BECOME ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE. HE FURTHER NOTED THAT THE ASSESSING OFFICER H AS ALSO NOT EXAMINED THE EXPENDITURE CLAIMED ON ACCOUNT OF INSURANCE ACCOU NT WHICH AS PER THE AGREEMENT SHALL BE REIMBURSED BY ADLABS LIMITED. SIM ILARLY, SALARY AND WAGES ARE ALSO ON ACCOUNT OF ADLABS LIMITED. THE CIT ON SCRUTINY OF THE PROFIT AND LOSS A/C NOTICED THAT THE ASSESSEE HAS DE BITED AN AMOUNT OF RS.6,30,000/- UNDER THE HEAD CINEMA COLLECTION A/C. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS VIDE LETTER DATED 1-11-201 0 HAD SUBMITTED THAT THE FIRM PURCHASED THE MOVIE OKKADUNNADU FOR R S.6,30,000/- AND 4 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. THE SCREENING COMMENCED FROM 3-3-2007 AND CONTINUED T ILL 8-4-2007 FOR A DURATION OF 37 DAYS. IT WAS STATED BY THE ASSESSEE THAT THE COLLECTIONS FOR THE PERIOD 3-3-2007 TO 31-3-2007 ARE AT RS.4,67,859/ - AND THE COLLECTIONS RECEIVED FOR THE PERIOD 1-4-2007 TO 8-4-2007 ARE RS.73, 158/-. THE ASSESSEE WHILE CREDITING AN AMOUNT OF RS.78158/- TO THE PROFIT & LOSS A/C HAS DEBITED WITH AN AMOUNT OF RS.6,30,000/-. THE C IT NOTED THAT THE ASSESSEE WHILE CREDITING THE AFORESAID COLLECTIONS TO THE PROFIT & LOSS A/C HAS NOT APPORTIONED RS.6,30,000/- AND CLAIMED THE ENTIRE AMOUNT OF EXPENDITURE DURING THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR UNDER DISPUTE. THE CIT OBSERVED THAT THE ASSESSING OFFICE R WITHOUT PROPERLY CONSIDERING THIS ASPECT HAS ALLOWED THE ENTIRE EXPEND ITURE INSTEAD OF ALLOWING APPORTIONED EXPENDITURE. 5. FURTHER, THE CIT ON GOING THROUGH THE CONDUCTING AGREEMENT WITH ADLABS FILMS LIMITED NOTED THAT AS PER THE AGREEMENT THE LEASE IS VALID FOR A PERIOD OF 15 YEARS. THE AGREEMENT ALSO PROVIDES FOR A LOCK IN PERIOD OF 10 YEARS DURING WHICH PERIOD NEITHER THE ASSESSEE NOR TH E ADLABS WILL BE ENTITLED TO TERMINATE THE AGREEMENT. THE AGREEMENT PROVIDES FOR EXTENSION OF THE LEASE AND ADLABS LIMITED SHALL HAVE FIRST RIGH T OF REFUSAL. ON THE BASIS OF THE AFORESAID FACTS, THE CIT CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE INCOME RECEIVED ON LEASING OUT THE THEATRE TO ADLABS LIMITED UNDER THE HEAD CONDUCTING CHARGES SHOULD NOT BE ASSESSED AS LEASE INCOME INSTEAD OF BUSINESS INCOME AS DECLARED BY THE ASSESS EE. IN REPLY, THE ASSESSEE SUBMITTED THAT IT IS CARRYING ON BUSINESS OF EXHIBITION OF FILMS IN THE THEATRES OWNED BY IT SINCE SEVERAL YEARS AND WAS A PPROACHED BY THE ADLABS LIMITED FOR TAKING EXHIBITION OF FILMS. AS T HE MARKET CONDITION WAS NOT FAVOURABLE SINCE THE ASSESSEE WAS ASSURED OF FI XED INCOME, IT AGREED TO LEASE THE COMMERCIAL ASSETS FOR EXHIBITION OF FILMS. IT WAS CONTENDED THAT IT 5 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. HAD NOT DISCONTINUED THE BUSINESS AND THE COMMERCI AL ASSET IS SUSCEPTIBLE OF BEING PUT TO VARIETY OF USES IN WHICH THE GAIN MA Y BE ACQUIRED AND WHICHEVER OF THESE USES IT IS TO BE IN ORDER TO PROCURE INCOME. THUS, THE PROFIT EARNED IS FROM BUSINESS AND IN THIS CONTEXT T HE ASSESSEE RELIED ON VARIOUS CASE LAWS. THE CIT OBSERVED THAT THERE ARE VARI OUS FACTORS WHICH COMPELLED THE ASSESSEE TO DISCONTINUE THE EXHIBITIO N OF FILMS IN ITS OWN THEATRES AND INSTEAD LEASE OUT THE THEATRES FOR FIXED TERMS OF INCOME WITH NO LIABILITIES ATTACHED TO IT. 6. THEREFORE, THE CONDUCT OF THE ASSESSEE CLEARLY DE MONSTRATE THAT IT HAS NO INTENTION TO CARRY ON THE BUSINESS BUT TO EXPLO IT THE ASSETS ON LONG TERM LEASE BASIS. THE CIT OPINED THAT IN CASE THE ASSESSEE WAS TEMPORARILY LETTING OUT THE EXISTING BUSINESS ALONG WITH COMMERC IAL ASSET WITH AN INTENTION TO RENT THE BUSINESS FOR A PERIOD OF LULL TH EN INTERMITTENT PERIOD IS TO BE CONSIDERED AS CONTINUATION OF THE BUSINESS BU T NOT DISCONTINUATION OF THE BUSINESS. HOWEVER, THE CONDUCT OF THE ASSESSEE CLEARLY DEMONSTRATE THAT IT HAS NO INTENTION TO CARRY ON BUSINESS BUT TO EXPLOIT THE ASSETS ON LONG TERM LEASE BASIS. THE CIT WAS THEREFORE OF THE VIEW THAT SUCH INCOME HAS TO BE ASSESSED AS INCOME FORM OTHER SOURCES. IN SUP PORT OF SUCH VIEW, THE CIT (A) RELIED UPON A DECISION OF HONBLE PUNJAB & HARY ANA HIGH COURT REPORTED IN 293 ITR 618 AND OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS. K. NARENDRA (246 ITR 579). SINCE THE ASSESSING OFFIC ER HAS ACCEPTED THE INCOME FROM LEASING OUT OF THEATRE UNDER THE HEAD BUS INESS, WITHOUT EXAMINING THE LEASE AGREEMENT, THE CIT CONSIDERED T HE ASSESSMENT ORDER PASSED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE. THE CIT FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS PASSED THE ORDER IN A CASUAL AND MECHANICAL MANNER WITHOUT PROPER ENQUIRY AND HENCE THE ASSESSMENT ORDER SO PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE WHICH 6 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. IS AMENABLE TO PROCEEDINGS U/S 263 OF THE ACT. IN SUPPORT OF SUCH VIEW, THE CIT RELIED UPON A NUMBER OF DECISIONS AS MENTIO NED BY HIM IN PARA-13 OF HIS ORDER. ON THE AFORESAID CONCLUSION, THE CIT SET ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT AND DIRECTED THE A SSESSING OFFICER TO REDO THE ASSESSMENT DE NOVO BY EXAMINING IN DETAIL O N THE ISSUES AS WERE DISCUSSED BY HIM. BEING AGGRIEVED OF THE ORDER PASSE D U/S 263, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US RAISING AS M ANY AS 12 GROUNDS. SOME OF THE GROUNDS RAISED BY THE ASSESSEE ARE ARGUMENT ATIVE IN NATURE. 7. PRIMARY CONTENTION OF THE LEARNED AR BEFORE US IS, EXERCISE OF JURISDICTION U/S 263 OF THE ACT BY THE CIT IS WITHOU T ANY BASIS AS THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER U /S 143(3) OF THE ACT AFTER PROPER APPLICATION OF MIND AND AFTER CONSIDERING ALL FACTS AND MATERIALS. THEREFORE, THERE IS NO SCOPE FOR CONSIDERING SUCH ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE WHICH CAN BE REVISED U/S 263 OF THE ACT. THE LEARNED AR SUBM ITTED THAT THE CIT WAS NOT CORRECT IN INFERRING THAT THE ASSESSEE HAS DISCONT INUED ITS BUSINESS WHEREAS IN REALITY THE ASSESSEE IS STILL CARRYING ON I TS BUSINESS OF FILM EXHIBITION WHICH WOULD BE EVIDENT FROM THE RETURN FI LED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10 WHEREIN EXPENDITURE ON E XHIBITION OF FILMS HAS BEEN DEBITED TO THE PROFIT & LOSS A/C. IN THIS CONTE XT, THE LEARNED AR REFERRED TO PAGE-1 OF THE PAPER BOOK CONTAINING THE P ROFIT & LOSS A/C FOR THE ASSESSMENT YEAR 2009-10. THE LEARNED AR SUBMITTED TH AT THE CIT IN THE FIRST SHOW CAUSE NOTICE HAS NOT AT ALL RAISED THE ISS UE RELATING TO CHARGEABILITY OF INCOME FROM LEASE OF THEATRE AS INCO ME FROM OTHER SOURCES AND NOT FROM BUSINESS. FURTHERMORE, THE CIT WHILE CO MING TO THE CONCLUSION THAT THE ASSESSMENT ORDER IS ERRONEOUS AND P REJUDICIAL TO THE INTERESTS OF REVENUE FOR NON CONSIDERATION OF CERTAIN ISSUES LIKE PURCHASE OF 7 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. MOVIE OKKADUNNADU, THE SAME WAS NEVER BROUGHT TO TH E NOTICE OF THE ASSESSEE DURING THE REVISIONS PROCEEDINGS FOR ENABLIN G IT TO EXPLAIN THE SAME. THE LEARNED AR SUBMITTED THAT WHILE OBSERVING THAT THE CONDUCTING CHARGES CANNOT BE INCOME UNDER THE HEAD BUSINESS, THE CIT HAS NOT EXPRESSED ANY OPINION WHETHER IT IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES OR INCOME FROM HOUSE PROPERTY. THEREFORE, WHEN M ORE THAN ONE VIEW CAN BE TAKEN WITH REGARD TO THE PROPER HEAD OF I NCOME, THE ASSESSMENT ORDER CANNOT BE HELD TO BE ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF REVENUE. THE LEARNED AR RELYING UPON A NUMBER OF DECISIONS , COPIES OF WHICH WERE SUBMITTED IN THE PAPER BOOK, SUBMITTED T HAT CONDUCTING CHARGES RECEIVED FROM ADLABS LTD., WAS RIGHTLY SHOWN AS BUSINESS INCOME. THE LEARNED AR FURTHER SUBMITTED THAT THE CIT WAS TOTALLY INCORRECT IN OBSERVING THAT T HE CONDUCTING CHARGES CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES AS THE ASSETS HIRED WERE NOT PLANTS AND MACHINERIES ONLY. HE FURTHER SUBMITTED THAT SO FAR AS OBSERVATION MADE BY THE CIT THAT SOME OF THE EXPENDITURES WERE INCURRED BY ADLABS LIMITED ARE CONCERNED, THE CIT HAS NOT SPECIFICALLY POINTED OUT WHAT ARE THOSE EXPENSES WHILE ISSUING THE SHOW CAUSE NOTICE. THE LEARNED AR SUBMITTED T HAT NO REIMBURSEMENT OF EXPENDITURE WAS RECEIVED FROM THE ADLABS LIMITED. THE LEARNED AR FINALLY CONTENDED THAT THE ASSESSMENT ORDER IN THE GIVEN FACTS A ND CIRCUMSTANCES CANNOT BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE SO AS TO INVOKE THE PROVISIONS CONTAINED U/S 263 OF THE ACT. 8. THE LEARNED DR HOWEVER STRONGLY SUPPORTING THE ORD ER OF THE CIT SUBMITTED THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT APPLICATION OF MIND AND WITHOUT CONDUCTING ANY ENQUIRY. THOUGH THE AGREEMENT WITH AD LABS LIMITED WAS AVAILABLE BEFORE THE ASSESSING OFFICER BUT HE HAS NOT AT ALL APPLIE D HIS MIND TO THE AGREEMENT AND SIMPLY ACCEPTED THE LEASE RENTALS AS INCOME UNDER THE HEAD BUSINESS. THE ASSESSING OFFICER HAS ALSO NOT VERIFIED THE VARIOUS EXPENDITURES CLAIMED AND OTHER ISSUES AS POINTED OUT BY THE CIT. THE REFORE, THE ASSESSMENT 8 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. ORDER IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IT WAS FURTHER CONTENDED BY THE LEARNED DR THAT THE CIT H AS MERELY DIRECTED THE ASSESSING OFFICER TO REDO THE ASSESSMENT DE NOVO AFTER EXAMI NING ALL ASPECTS AS POINTED OUT BY THE CIT IN HIS ORDER. HENCE, THERE SH OULD NOT BE ANY GRIEVANCE ON THE PART OF THE ASSESSEE. 9. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PER USED THE MATERIALS AVAILABLE ON RECORD AND DECISIONS RELIED UPON BY THE P ARTIES. AS CAN BE SEEN FROM THE ORDER OF THE CIT, HE HAS CONSIDERED THE ASSESSMENT OR DER PASSED U/S 143(3) OF THE ACT TO BE ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF REVENUE ON THE FOLLOWING ISSUES:- (I) BY VIRTUE OF AGREEMENT WITH ADLABS LIMITED, THE ASSESSEE HAS DISCONTINUED ITS BUSINESS FOR A LONG TERM PERIOD AND HENCE THE LEASE RENTALS TERMED AS CONDUCTING CHARGES CANNOT BE ASSESSED AS IN COME FROM BUSINESS. II) THE ASSESSEE HAS CLAIMED VARIOUS EXPENDITURES WHICH IN F ACT AS PER THE TERMS OF THE AGREEMENT IS TO BE INCURRED BY ADLABS LIMITED AND TO BE REIMBURSED TO THE ASSESSEE WHICH HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER . III) THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT H AS ALLOWED THE ENTIRE EXPENDITURE TOWARDS THE PURCHASE OF FILM OKKADUNNADU INSTEAD OF ALLOWING PROPORTIONATE EXPENDITURE . ON PERUSAL OF THE ASSESSMENT ORDER, IT IS TO BE SEEN THAT THE ASSESSMENT HAS BEEN COMPLETED BY THE ASSESSING OFFICER BY OBSER VING AS UNDER:- THE ASSESSEE IS A FIRM AND ENGAGED IN SCREENING MO VIES WHO HAS FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 25-9- 2008, ADMITTING TOTAL INCOME OF RS.0/-. THE RETURN OF THE INCOME 9 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. WAS PROCESSED U/S 143(1) ON 7-3-201`0. SUBSEQUENTL Y THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY A NOTICE U/S 143(2) DATED 24-8-2009, WAS ISSUED. IN RESPONSE TO THE NOTICE I SSUED U/S 143(2) OF THE I T ACT, THE AUTHORISED REPRESENTATIVE OF TH E ASSESSEE, SRI G. MANIKYA PRASAD, CA APPEARED FROM TIME TO TIME AND F URNISHED THE INFORMATION CALLED FOR. AFTER VERIFICATION OF THE INFORMATION PRODUCED BY T HE ASSESSEES AR THE ASSESSMENT IS COMPLETED BY ACCEPTING THE INCOME /LOSS RETURNED. 11. FROM THE AFORESAID OBSERVATION, IT IS NOT AT ALL DISCERNABLE WHETHER THE ASSESSING OFFICER HAS AT ALL EXAMINED THE ISSUE WI TH REGARD TO THE TREATMENT TO BE GIVEN TO THE CONDUCTING CHARGES RECE IVED FROM ADLABS LIMITED. SIMILARLY, THE ASSESSMENT ORDER DOES NOT REVEA L WHETHER THE ASSESSING OFFICER HAS MADE ANY ENQUIRY EITHER WITH RE GARD TO THE EXPENDITURE CLAIMED UNDER VARIOUS HEADS OR IN RESPECT OF PURCHASE OF FILM. OKKADUNNADU AS POINTED OUT BY THE CIT IN H IS ORD ER. THE DOCUMENTS SUBMITTED BEFORE US ALSO DO NOT ESTABLISH ANY ENQUI RY TO HAVE BEEN CONDUCTED BY THE ASSESSING OFFICER ON THE ISSUE POIN TED OUT BY THE CIT. IT IS VERY MUCH EVIDENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT IN A MECHANICAL AND CA SUAL MANNER WITHOUT PROPER APPLICATION OF MIND OR EVEN A SEMBLANCE ENQUIRY. THE ASSESSEE COULD NOT DEMONSTRATE BEFORE US OR SUBMIT ANY MATERIAL , EXCEPT A LETTER DATED 1/11/2010, AT PAGE 107 OF THE PAPER BOOK WHICH COULD SHOW THAT ENQUIRY IN ANY MANNER WAS CONDUCTED BY THE ASSESSING OFFICER TO FIND OUT THE TRUE INTENT OF AGREEMENT WITH ADLABS LIMITED OR VE RIFYING THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE ASSES SEE SINCE THE PROPERTY WAS HANDED OVER TO ADLABS LIMITED ON LEASE DURING THE FINANCIAL YEAR UNDER 10 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. DISPUTE. WHEN ON A RECEIPT OF RS.42 LAKHS, THE ASS ESSEE IS DISCLOSING A PROFIT OF RS.77,000/-, WHICH WORKS OUT TO ROUGHLY 2%, THE ASSESSING OFFICER SHOULD HAVE BEEN LITTLE MORE CIRCUMSPECT IN FINDING O UT NOT ONLY THE TRUE NATURE OF TRANSACTION BUT ALSO THE GENUINENESS OF T HE EXPENDITURE CLAIMED. NEITHER THE ASSESSMENT ORDER, NOR ANY OTHER MATERIAL ON RECORD SHOW EVEN A HINT OF ENQUIRY BY THE ASSESSING OFFICER BY ISSUING A NY QUESTIONNAIRE ETC., TO THE ASSESSEE ON THE ISSUES POINTED OUT BY THE CIT. CONSIDERED IN THIS CONTEXT THE ASSESSMENT ORDER PASSED IS CERTAINLY ERRON EOUS SINCE IT CAUSES PREJUDICE TO THE INTEREST OF REVENUE. THEREFORE, THE EXERCISE OF JURISDICTION U/S 263 OF THE ACT BY THE CIT (A) TO REVISE SUCH AN O RDER IS PERMISSIBLE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THEREFORE, TO THAT EXTENT, WE UPHOLD THE ORDER OF THE CIT IN SETTING ASIDE THE ASS ESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 12. HOWEVER, WHEN THE CIT HAS SET ASIDE THE ASSESS MENT ORDER DIRECTING THE ASSESSING OFFICER TO REDO IT DE NOVO AFTER EXA MINING ALL ASPECTS IT WAS NOT PROPER ON HIS PART TO COMMENT THAT THE INCOME FROM LEASE OF THEATRE AND MACHINERY WOULD FALL UNDER THE HEAD INCOME FROM O THER SOURCES. WE THEREFORE MODIFY THE ORDER OF THE CIT TO THAT EXTENT BY DIRECTING THE ASSESSING OFFICER TO REDO THE ASSESSMENT AFTER EXAMINI NG ALL ASPECTS OF THE MATTER AND AFTER CONDUCTING NECESSARY ENQUIRY AS MAY BE DEEMED FIT WITHOUT BEING INFLUENCED BY THE OBSERVATIONS OF THE CIT THAT THE RENT FROM MACHINERY AND PLANT SHOULD BE TREATED AS INCOME FRO M OTHER SOURCES. THE ASSESSING OFFICER SHALL TAKE AN INDEPENDENT DECISIO N ON THE ISSUE OF TAXABILITY OF CONDUCTING CHARGES UNDER AN APPROPRIATE HEAD AFTER EXAMINING THE AGREEMENT OF THE ASSESSEE WITH ADLABS LIMITED AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY APPLYING THE RATI O OF THE DECISIONS WHICH MAY BE CITED BEFORE HIM. 11 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 12-03-2014. S D / - (B.RAMAKOTAIAH) ACCOUNTANT MEMBER S D / - (SAKTIJIT DEY ) JUDICIAL MEMBER HYDERABAD, DATED THE 12 TH MARCH, 2014. JMR* COPY TO:- 1) C/O SRI G.S. MADHAVA RAO & CO., CAS, H.NO.11-26-53, MG ROAD, WARANGAL. 2) INCOME-TAX OFFICER, WARD-1, WARANGAL. 3) CIT-VI ,HYDERABAD. 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. 12 ITA NO.789 OF 2013 GEMINI PICTURE PALACE, WARANGAL.