Bombay H.C : Whether, on the facts and circumstances of the case and in law, the Tribunal was justified in discussing the Department’s appeal against the order of the CIT(A), deleting the addition made under s. 143(1)(a) of the IT Act as it then stood, relying on the ratio of the judgment in the case of Khatau Junkar Ltd. vs. K.S. Pathania (1992) 102 CTR (Bom) 194 : (1992) 196 ITR 55 (Bom), without appreciating the Board Circular No. 689, dt. 24th Aug., 1994, which permits prima facie disallowance on the basis of the information available in the return, accounts and documents annexed to it ?

High Court Of Bombay

CIT vs. Amitabh Bachchan Corporation Ltd.

Section 143(1)(a)

Asst. year 1995-96

S.H. Kapadia & J.P. Devadhar, JJ.

IT Appeal No. 140 of 2001

22nd January, 2003

Counsel appeared

R.V. Desai with P.S. Jetley i/b K.B. Rao, for the Appellant : None, for the Respondent

JUDGMENT

S. H. kapadia, J. :

The Department has come by way of appeal under s. 260A of the IT Act, 1961, in respect of the asst. yr. 1995 96. The following question of law arises for our determination in this case.

“Whether, on the facts and circumstances of the case and in law, the Tribunal was justified in discussing the Department’s appeal against the order of the CIT(A), deleting the addition made under s. 143(1)(a) of the IT Act as it then stood, relying on the ratio of the judgment in the case of Khatau Junkar Ltd. vs. K.S. Pathania (1992) 102 CTR (Bom) 194 : (1992) 196 ITR 55 (Bom), without appreciating the Board Circular No. 689, dt. 24th Aug., 1994, which permits prima facie disallowance on the basis of the information available in the return, accounts and documents annexed to it ?”

Facts

2. In the computation of the income for the asst. yr. 1995-96, the assessee-company claimed a loss of Rs. 17,74,85,826, after claiming expenditure of Rs. 18 crores. The assessee-company entered into entertainment business on and from 1st Sept., 1994. Prior thereto, the main income of the assessee was by way of dividend only. As stated above, we are concerned with the year ending 31st March, 1995, corresponding to the asst. yr. 1995-96. Therefore, during the accounting year in question, the assessee entered into entertainment business. The Department disallowed the expenditure of Rs. 18 crores on the ground that it was on capital account. In this connection, it is important to note the following facts. A sum of Rs. 15 crores was paid by the assessee to Shri Amitabh Bachchan and Rs. 3 crores was paid by the assessee-company to Smt. Jaya Bachchan, in all aggregating to Rs. 18 crores for using their brand value for a period of ten years as per the agreements entered into by the assessee. Accordingly, the assessee claimed deduction under s. 37 (1) of the Act. As stated above, the assessee’s claim for deduction came to be rejected by the AO. The matter was carried in appeal to the CIT(A). The first appellate authority took the view that in this case, the central issue was whether Rs. 18 crores constituted expenditure on revenue or capital account. That such an issue cannot be decided by way of adjustment under s. 143(1)(a) of the IT Act, as it stood at the relevant time. Therefore, without going into the merits, the CIT(A) allowed the appeal. This decision was confirmed by the Tribunal. Hence, the Department has come by way of appeal to this Court under s. 260A of the IT Act. Findings Under s. 143(1) of the IT Act, as it stood at the relevant time, the ITO was required to make a summary assessment. Therefore, if the ITO wanted to make such an assessment on the basis of the return, he had to take the return on its face value. However, under s. 143(1) the ITO had no power to make adjustments. Therefore, after 1st April, 1971, s. 143(1)(a) was brought on the statute book

and as a result, if the ITO wanted to make an assessment on the basis of the return, as filed, he was entitled to make certain adjustments to the income or loss declared in the return. Under s. 143(1)(a), the ITO could rectify arithmetical errors in the returns or accounts. Under s. 143(1)(a), he could allow any deduction, allowance or relief on the basis of the information available in the return or accounts and documents, which were prima facie admissible, but not claimed. Similarly, he could disallow deduction, allowance or relief claimed in the return which, on the basis of the information available, in such return, accounts or documents, was, prima facie, inadmissible [see Khatau Junkar Ltd. vs. K.S. Pathania (1992) 102 CTR (Bom) 194 : (1992) 196 ITR 55 (Bom)]. The question which arises in this case is—whether the Department was justified in disallowing expenditure of Rs. 18 crores under s. 143(1)(a) on the ground that the expenditure stood incurred on capital account and, therefore, was inadmissible. In this connection, the AO has drawn an adjustment sheet under s. 143(1)(a) of the IT Act. On a perusal of the adjustment sheet, one finds that on the basis of the balance sheet and the notes to accounts, the AO disallowed the expenditure of Rs. 18 crores under s. 143(1)(a) on the ground that it was on capital account. The AO came to the conclusion, on the facts, that the expenditure was incurred, not for expansion of business, but to enter into a new line of business, namely, entertainment business. It is important to bear in mind and it is well settled by various decisions of the Supreme Court that in order to ascertain whether expenditure was on revenue account or capital account, the AO must consider the totality of facts and circumstances of each case. In the present case, the assessee is in entertainment business. In the present case, the brand is acquired for ten years and the outlay has been shown as miscellaneous expenditure. In the note to accounts, the auditors have certified that the brands are charged to revenue over the period of agreement. This is disbelieved by the ITO, who has come to the conclusion that the note of the auditor was not correct because it was an outlay incurred for acquiring a benefit of enduring nature.

The narrow question which we are required to decide in this case is whether, on the facts and circumstances of the case, the AO was justified in disallowing expenditure of Rs. 18 crores as per adjustment sheet prepared by him under s. 143(1)(a) as it stood at the relevant time. In this case, as stated above, during the assessment year in question the assessee was in entertainment business and in the course of business, the assessee had acquired from the two actors, their brand value for ten years. This point required in depth examination, including the nature of business of the assessee, the terms and conditions of the agreement, the accounts of the assessee, etc. Whether an expenditure was on revenue account or capital account is required to be examined in the light of the totality of all facts for this purpose. Evidence would be required in the form of documents and accounts and also, it would require proper appreciation of the terms and conditions of the agreement between the assessee and the two actors. That, by merely looking at the balance sheet and P&L a/c, one cannot infer the nature of the expenditure. That, such an exercise, generally cannot be done by way of adjustments to the returns under s. 143(1)(a) of the Act. That, such a point cannot be deciphered by merely looking at the return, supported by balance sheet and P&L a/c. In the circumstances, the Tribunal was justified in coming to the conclusion that the ITO was not right in disallowing the expenditure by way of adjustment under s. 143(1)(a). The judgment of the Bombay High Court in the case of Khatau Junkar Ltd. (supra) is, therefore, squarely applicable. Before concluding, we make it clear that in this case, we have not gone into the merits of the matter. Our judgment is confined only to the applicability of s. 143(1)(a) of the Act. Consequently, the above question is answered in the affirmative, i.e., in favour of the assessee and against the Department. The appeal, accordingly, stands disposed of. No order as to costs.

[Citation : 261 ITR 45]

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