Unreported Decisions – January 2019
By Ajay R. Singh, Advocate
1. 1. S. 37(1) : Business expenditure – Feature film – Cost of production – Rule 9A(4) stipulate that even after getting the Censor Certificate, if the film has not been released or sold – the cost of production shall be carried forward as deduction in the next year and allowed
The assessee being the producer of feature films, TV serials. During the year Censor Certificate obtained by the assessee on 08-09-2004 i.e., during the F.Y. 2004-05 relevant to A.Y. 2005-06. Accordingly, as per Rule 9A(4) the assessee is eligible to claim the cost of production in the A.Y. 2006-07. While passing the order in the A.Y. 2006-07, the AO has not allowed the cost of production on the basis as per provisions of section 9A(5) and 9A(7) of the Income-tax Rules 1962
Meanwhile while filing the return of income for A.Y. 2007- 08 under abandoned caution the appellant company has claimed the cost of production as deduction while computing the income wherein also the AO has not allowed the cost of production as a deductible one.
Tribunal found that the CIT(A) rightly held that Rule 9A(4) stipulates that even after getting the Censor Certificate, if the film has not been released or sold, the cost of production shall be carried forward as deduction in the next year. In the assessee case, the Censor Certificate was obtained in the A.Y. 2005-06 accordingly, the assessee is eligible to claim cost of production in the A.Y. 2006-07. From the above facts one thing is very clear that the cost of production was not allowed to the assessee in the year production i.e., in the F.Y. 2004-05 relevant to A.Y. 2005-06. Further, as per Rule 9A(4), the appellant has claimed cost of production in the F.Y. 2005-06 relevant to A.Y. 2006-07, which was not entertained by the AO. As per Rule 9A(4), the appellant has rightly claimed the cost of production in the A.Y. 2006-07, which is supposed to be allowed by the AO.
The AO nowhere mentioned in clear terms as to how the provisions of rule 9A(7)(ii) and 9A(5) of the Act are applicable to the facts of the present case. Hence, the findings so recorded by the Ld. CIT (A) were upheld. The revenue appeal was dismissed.
DCIT vs. Smt. Smita Jayedev Thackeray, ITA No. 3115/ Mum/2016, DOH: 26/11/2018 (Mum)(Trib)
2. S. 68 : Cash credits – Unsecured loans received – Confirmation, balance sheet and bank accounts of creditor was produced – Repaid the loan along with interest to the creditor – deletion of addition was held to be justified
The assessee, an individual, during the assessment proceedings, the A. O noticing that the assessee has shown unsecured loan availed from Animation Marketing Pvt. Ltd. called upon the assessee to prove the genuineness of the loan transaction by furnishing supporting documentary evidences. As observed by the A.O, vide submissions dated 25th February 2015, the assessee submitted loan confirmation from animation marketing along with its bank statement and balance sheet. On perusing the bank statement of Animation Marketing Pvt. Ltd., the A.O was of the view that it did not have the creditworthiness to advance the loan to the assessee. He observed, the company has made losses in financial year 2011–12 and the year before that. He also observed that the share capital of the company as on 31st March 2012, stands at ₹ 17,42,800. Thus, he concluded that Animation Marketing Pvt. Ltd. lacks creditworthiness to advance loan to the assessee. Accordingly, he treated an amount of ₹ 70 lakh out of the unsecured loan claimed to have been availed from Animation Marketing Pvt. Ltd. as unexplained cash credit and added it to the income of the assessee.
Tribunal held that as observed by the ld CIT (A) and which is also revealed from the financial statements of the assessee, the reserve and surplus of the creditor company for the relevant financial year stood at ₹ 6.16 crore. It is also a fact that before the A.O. not only the assessee had furnished a confirmation from the concerned creditor confirming the advancement of loan but he has also produced the ledger account copies, balance sheet and income tax assessment particulars of the creditor company before the A.O. It is also relevant to observe that the assessee has also furnished assessment order passed under section 143(3) of the Act for A.Y 2012–13 in case of Animation Marketing Pvt. Ltd., wherein the A.O has not recorded any adverse opinion either with regard to the activities of the creditor company or the genuineness of the loan transaction between the assessee and the creditor company. In contrast, the A.O has not conducted any independent enquiry to ascertain the creditworthiness of the creditor. Thus, from the aforesaid facts, it becomes clear that the assessee has discharged the primary onus cast under section 68 of the Act by proving the identity of the creditor, genuineness of the transaction as well as the creditworthiness of the creditor. It is also a fact that the assessee has re–paid the loan along with interest to the creditor subsequently which is not only reflected in the respective books of account but also bank statements. The assessee has also deducted tax on the interest paid to the creditors and filed TDS return. Though, the A.O has alleged about suspicious entries in the bank account of Animation Marketing Pvt. Ltd., however, he has not elaborated why the entries in the bank account are suspicious. Further, on a perusal of the extracted portion of the Bank account it appears that subsequent to advancement of loan to the assessee there are further deposits and withdrawals of substantial amounts in the said bank account. Thus, it cannot be said that the loan transaction with the assessee is only a one off instance of transaction appearing in the bank account. The Revenue appeal is dismissed.
ACIT vs. Shri Rajiv Saini, ITA No.2168/Mum/2017, DOH: 14/12/2018 (Mum)(Trib)
3. S. 154 : Assessment – Rectification of mistake – does not involve a wholesale review of the earlier order – what is permissible only to rectify an obvious and patent mistake – there was no mistake apparent from records and rectification order was liable to be quashed. [115B]
The assessment under Section 143(3) of the Act dated 28-02-2013 was completed by the A.O. determining the total income at NIL, which corresponded to the returned income. Subsequently, the A.O issued a notice under Section 154 of the Act dated 06-12-2013 proposing to rectify an error in the assessment as, according to him, a mistake apparent from record had crept into the assessment order dated 28-02-2013. The A.O. noted that while the assessee had returned NIL income under the normal provisions of the Act after setting-off past losses, it had not offered any income in terms of book profit determinable under Section 115JB of the Act. As per the A.O, the book profit for the purposes of Sec. 115JB of the Act was liable to be determined at ₹ 6,95,57,438/-.
In response, assessee furnished an explanation pointing out that the computation of book profit for the purposes of Sec. 115JB of the Act was duly reflected in the returned income as per Form 29B and, in terms of such computation, the book profit determinable in terms of Sec. 115JB of the Act was a negative figure and thus, there was NIL tax liability even in terms of Sec. 115JB of the Act.
The A.O., however, was not satisfied with the explanation furnished by the assessee and passed order u/s. 154 of the Act, the book profit under Section 115JB of the Act was determined at ₹ 6,95,57,438/- as against NIL determined by the assessee.
Tribunal found that Pertinently, Sec. 154 of the Act permits the A.O. to amend an order only with a view to rectify a mistake apparent from the record. It is judicially well-settled that the power to rectify a mistake apparent from record in Sec. 154 of the Act does not involve a wholesale review of the earlier order and rather, what is permissible is only to rectify an obvious and patent mistake. It is also well understood that even debatable points of law would not fall in the meaning of the expression “mistake apparent” for the purposes of Sec. 154 of the Act.
As per the relevant observation of the A.O. in the notice issued u/s. 154 of the Act as well as in the order passed under Section 154 of the Act, invoking of Sec. 154 of the Act has been justified to determine the liability under Section 115JB of the Act primarily on the ground that the “assessee had not offered tax under Section 115JB of the Act” and therefore, there was an under-assessment of income. In this context, it has been consistently asserted before the lower authorities that assessee had duly furnished the computation of book profit for the purposes of Sec. 115JB of the Act in the prescribed Form 29B, which had resulted in NIL liability. Therefore, so far as the assessee was concerned, it had cleared its stand which was very much before the A.O. when he passed the original assessment order. Thus, the error of assessee not having declared its manner of computation of book profit under Section 115JB of the Act is not something which is reflected by the record. Even otherwise, the adjustment which has been made by the A.O., disagreeing with the determination of book profit made by the assessee under Section 115JB of the Act, involves a debatable issue which is outside the purview of Sec. 154 of the Act. If these aspects are kept in mind, the determination of book profit made by the A.O under Section 115JB of the Act is clearly untenable. Thus, in sum and substance, it was held that invoking of Sec. 154 of the Act by the A.O. in the present case is unjust in law as well as on facts also.
M/s. Maccaferri Environmental vs. I.T.O-3(2)(2), ITA No.7105/ Mum/2014, DOH: 12/12/2018 (Mum)(Trib)
Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.