Commissioner Of Income Tax Central Circle, Chennai v. Shri K.e.gnanavelraja

In the High Court of Judicature at Madras Dated: 27.01.2014 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMANandThe Honourable Mr.JUSTICE T.S.SIVAGNANAM Commissioner of Income TaxCentral Circle, Chennai..... Appellant/AppellantVs. Shri K.E.GnanavelrajaNo.1, Ganapathy Apartments,17/8, Krishna Street,T.Nagar, Chennai – 600 017..... Respondent/Respondent APPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 19.08.2013 made in ITA No.941/Mds/2013 on the file ofthe Income Tax Appellate Tribunal Madras 'C' Bench for the assessmentyear 2006-07 and against the order of the Commissioner of Income Tax(Appeals)I, Chennai, dated 08.02.2013 made in ITA No.84-13 andagainst the order of the Assistant Commissioner of Income Tax,Central Circle II (5), Chennai dated 30.12.2011 made inP.A.No.AGAPG5673M for the Assessment year 2006-2007. For Appellant : Mr.M.Swaminathan Standing Counsel for Income Tax J U D G M E N T (Judgment of the Court was delivered by T.S.SIVAGNANAM,J.) This Tax Case (Appeal), filed by the Revenue, is directedagainst the order of the Income Tax Appellate Tribunal dated19.08.2013 in ITANo.941/Mds/2013 for the assessment year 2006-07.The Revenue seeks admission of this Tax Case (Appeal) raising thefollowing substantial question of law:"Whether on the facts and in the circumstances of thecase, the Tribunal was right in deleting the addition ofRs.50,00,000/- when the assessee has not proved theidentity, credit worthiness and genuineness of thetransaction?" https://hcservices.ecourts.gov.in/hcservices/ 2. The respondent/assessee filed return of income admitting atotal income of Rs.1,78,132/- for the assessment year 2006-07.During the course of the assessment proceedings, the AssessingOfficer found certain cash and credit entries in the cash book. Theassessee filed a confirmation letter from M/s.Sri VenkateswaraPictures owned by one Sri.O.G.Krishnam Raju. The Assessing Officeropined that the assessee had not established the identity of thecreditor source for the cash credit amounting to Rs.50,00,000/- andtherefore, he added the said sum under Section 68 of the Income TaxAct as unexplained credit and completed the assessment raising ademand of Rs.29,72,765/-. Aggrieved by such order, the assesseepreferred an appeal before the Commissioner of Income Tax (Appeals),who, by order dated 08.12.2013, allowed the appeal. Challenging thesame, the Revenue filed an appeal before the Income Tax AppellateTribunal. The Tribunal, by the impugned order, rejected the appealand as against which, the present appeal has been preferred by theRevenue. 3. Learned Standing Counsel appearing for the Revenue reiteratedthe contentions raised before the Tribunal and submitted that theTribunal failed to see that the confirmation letter filed by theassessee did not contain even the pan number and therefore, it cannotbe considered as a sufficient proof of the credit. 3. Learned Standing Counsel appearing for the Revenue reiteratedthe contentions raised before the Tribunal and submitted that theTribunal failed to see that the confirmation letter filed by theassessee did not contain even the pan number and therefore, it cannotbe considered as a sufficient proof of the credit. 4. The first Appellate Authority pointed out that the assesseewas an individual in the business of production and distribution offilms. The assessee contended before the first Appellate Authoritythat during the financial year 2005-06, they received a sum ofRs.50,00,000/- from Shri.O.G.Krishnam Raju, proprietor ofM/s.Venkateswara Pictures on the dates mentioned and the assesseetreated such receipt as advances and accounted under the liabilityhead in its balance sheet, as the distribution process of the filmhad not started during the year under consideration. Further, theassessee contended that the said receipt was offered as income in thesubsequent year, when the distribution of film was executed. Whenthe Assessing Officer directed the assessee to confirm the source ofsuch receipt, the assessee produced a confirmation letter fromShri.O.G.Krishnam Raju. The assessee reported that the said sum ofRs.50.00 lakhs received by the assessee and recorded in its cash bookhad been offered as income in the subsequent year and the assesseehad also provided confirmation letter in this regard. The firstAppellate Authority after taking note of these facts pointed out thatthe assessee was consistently following the mercantile system ofaccounting, wherein advances received for distribution are treated asliabilities in the balance sheet in the year of receipt and in theyear of distribution the receipt is offered as income. In thesubsequent year, this amount of Rs.50.00 lakhs had been offered asincome and therefore, held that the addition, as made by theAssessing Officer, cannot be sustained. 5. The Tribunal, while confirming the view of the firstAppellate Authority, pointed out that the amount was kept as advancefor the reason that the film was not released in the previous year,therefore, the assessee could not give rights to Shri.O.G.KrishnamRaju during the previous year and no income arose to the assesseeduring the previous year. This film was released in the succeedingprevious year and the exhibition rights were given in favour ofShri.O.G.Krishnam Raju. 6. Therefore, as rightly pointed out by the Tribunal, there wasno reason to disbelieve the confirmation letter given by the saidO.G.Krishnam Raju and as pointed out by the first AppellateAuthority, the assessee was consistently following mercantile systemof accounting, wherein advances received for distribution are treatedas liabilities in the balance sheet in the year of receipt and thoseadvances are offered as income in the year of distribution of filmrights. 7. In the light of the above facts, the Revenue has not made outany case to interfere with the order of the Tribunal and no questionof law arises for consideration in this Tax Case (Appeal).Accordingly, this Tax Case (Appeal) stands dismissed. No costs. Sd/- Assistant Registrar (CS-v)Dated: 05.02.2014 //True Copy// To Sub Assistant Registrar 1. The Assistant Registrar, Income Tax Appellate Tribunal Madras 'C' Bench, 3rd Floor, Besant Nagar, Adyar, Chennai - 600 090. 2. The Commissioner of Income Tax (Appeals) I, Chennai. 3. The Assistant Commissioner of Income Tax, Central Circle II(5), Chennai. TRM(CO)JJM (05.02.2014) T.C.(A) No.798 of 2013