High Court Of Madras
CIT, Central Circle, Chennai vs. K.E. Gnanavelraja
Assessment Year : 2006-07
Section : 5, 68
Mrs. Chitra Venkataraman And T.S. Sivagnanam, JJ.
Tax Case (Appeal) No. 798 Of 2013
January 27, 2014
JUDGMENT
T.S. Sivagnanam, J. – This Tax Case (Appeal), filed by the Revenue, is directed against the order of the Income Tax Appellate Tribunal dated 19.08.2013 in ITANo.941/Mds/2013 for the assessment year 2006-07. The Revenue seeks admission of this Tax Case (Appeal) raising the following substantial question of law:
“Whether on the facts and in the circumstances of the case, the Tribunal was right in deleting the addition of Rs.50,00,000/- when the assessee has not proved the identity, credit worthiness and genuineness of the transaction?”
2. The respondent/assessee filed return of income admitting a total income of Rs.1,78,132/- for the assessment year 2006-07. During the course of the assessment proceedings, the Assessing Officer found certain cash and credit entries in the cash book. The assessee filed a confirmation letter from M/s.Sri Venkateswara Pictures owned by one Sri.O.G.Krishnam Raju. The Assessing Officer opined that the assessee had not established the identity of the creditor source for the cash credit amounting to Rs.50,00,000/- and therefore, he added the said sum under Section 68 of the Income Tax Act as unexplained credit and completed the assessment raising a demand of Rs.29,72,765/-. Aggrieved by such order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who, by order dated 08.12.2013, allowed the appeal. Challenging the same, the Revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal, by the impugned order, rejected the appeal and as against which, the present appeal has been preferred by the Revenue.
3. Learned Standing Counsel appearing for the Revenue reiterated the contentions raised before the Tribunal and submitted that the Tribunal failed to see that the confirmation letter filed by the assessee did not contain even the pan number and therefore, it cannot be considered as a sufficient proof of the credit.
4. The first Appellate Authority pointed out that the assessee was an individual in the business of production and distribution of films. The assessee contended before the first Appellate Authority that during the financial year 2005-06, they received a sum of Rs.50,00,000/- from Shri. O.G. Krishnam Raju, proprietor of M/s.Venkateswara Pictures on the dates mentioned and the assessee treated such receipt as advances and accounted under the liability head in its balance sheet, as the distribution process of the film had not started during the year under consideration. Further, the assessee contended that the said receipt was offered as income in the subsequent year, when the distribution of film was executed. When the Assessing Officer directed the assessee to confirm the source of such receipt, the assessee produced a confirmation letter from Shri. O.G. Krishnam Raju. The assessee reported that the said sum of Rs.50.00 lakhs received by the assessee and recorded in its cash book had been offered as income in the subsequent year and the assessee had also provided confirmation letter in this regard. The first Appellate Authority after taking note of these facts pointed out that the assessee was consistently following the mercantile system of accounting, wherein advances received for distribution are treated as liabilities in the balance sheet in the year of receipt and in the year of distribution the receipt is offered as income. In the subsequent year, this amount of Rs.50.00 lakhs had been offered as income and therefore, held that the addition, as made by the Assessing Officer, cannot be sustained.
5. The Tribunal, while confirming the view of the first Appellate Authority, pointed out that the amount was kept as advance for the reason that the film was not released in the previous year, therefore, the assessee could not give rights to Shri. O.G. Krishnam Raju during the previous year and no income arose to the assessee during the previous year. This film was released in the succeeding previous year and the exhibition rights were given in favour of Shri. O.G. Krishnam Raju.
6. Therefore, as rightly pointed out by the Tribunal, there was no reason to disbelieve the confirmation letter given by the said O.G. Krishnam Raju and as pointed out by the first Appellate Authority, the assessee was consistently following mercantile system of accounting, wherein advances received for distribution are treated as liabilities in the balance sheet in the year of receipt and those advances are offered as income in the year of distribution of film rights.
7. In the light of the above facts, the Revenue has not made out any case to interfere with the order of the Tribunal and no question of law arises for consideration in this Tax Case (Appeal). Accordingly, this Tax Case (Appeal) stands dismissed. No costs.
[Citation : 361 ITR 446]
