The Commissioner Of Income Tax, Central-Ii v. M/S.prime Focus Ltd

ttm IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.4342 OF 2010 The Commissioner of Income Tax, Central-II.. AppellantVs.M/s.Prime Focus Ltd... Respondent. Mr.Abhay Ahuja with Ms.Padma Divakar for the appellant Mr.Prakash Shah with Mr.Jas Sanghavi i/b M/s.PDS Legal for the respondent CORAM: J.P. DEVADHAR & K.K. TATED, JJ.DATE: 12TH OCTOBER, 2011. P.C. 1. Whether the ITAT was justified in deleting the addition of Rs.18.80 lacs sustained by CIT(A) even after holding that technically the assessee was bound to account for the bill amount of Rs.18.80 lacs raised after rendering the services, is the question raised in this appeal. 2. The Assessment Year involved herein is Assessment Year 2002-2003. 3. The Assessee is a public limited company engaged in the business of rendering post production technical services like editing, graphics, special effects etc. to TV and film industry. In the assessment year in question, the Assessee had filed its return of income on 31.10.2002 declaring total income of Rs.79,25,354. Thereafter, a search and seizure operation u/s. 132(1) of the Act was carried out on 25/06/2003 at the premises of the Assessee company and its directors wherein certain incriminating documents including unaudited balance sheet were found. Consequent upon the search, the Assessing Officer issued notice u/s.153A of the Income Tax Act, 1961. In response the Assessee filed return of income on 1.7.04 declaring the same income as originally declared while filing return u/s.139 of the Act. 4. In the fresh Assessment Order passed pursuant to notice under Section 153A, the Assessing Officer inter alia made addition of Rs.64,87,000/- on account of difference between the audited and unaudited balance sheet which was found during the course of search. On appeal filed by the Assessee, the CIT(A) partly allowed the claim of the assessee and out of the addition of Rs.64,87,000/- sustained the addition of Rs.18.80 lacs in respect of the three bills raised by the Assessee and deleted the balance addition. 5. On further appeal filed by the Assessee, the ITAT by the impugned order dt.30.11.2009 deleted the addition of Rs.18.80 lacs sustained by the CIT(A). Being aggrieved by the aforesaid order, the revenue has filed the present appeal. 6. The argument of the Revenue is that the assessee following the mercantile system of accounting was bound to have accounted for the amount of the three bills raised on three parties to whom the services were admittedly rendered by the Assessee and the ITAT even after recording that technically the Assessee was bound to have accounted for the bill amount in the books of account could not have deleted the additions sustained by the CIT(A). 7.Perusal of the order passed by the ITAT particularly para 7 thereof shows that while enunciating the position in law that under the Mercantile System of accounting, the bills raised by the assessee on rendering services ought to have been accounted for on accrual basis, in the facts of the present case, where services were rendered in respect of a movie ‘chori chori’ and on the death of the financial advisor, Mr.Narula, the movie ran into financial difficulties, there was little scope for recovering the amount in question. In these circumstances, the assessee had neither accounted the bill amount nor the expenses incurred. It is not in dispute that the recovery has become bad since inception and the same has not been recovered at any time later. In these circumstances, the ITAT was justified in holding that though in law the assessee was bound to account for the bill amount, in the facts of the present case, the assessee was justified in not accounting for the bill amount of Rs.18.80 lacs. 8. Appeal is accordingly dismissed. (K.K. TATED, J.) (J.P. DEVADHAR, J.)