DCIT, CIRCLE-14(1), HYD, HYDERABAD vs. M.R.V. PRASAD, HYD, HYDERABAD

PER S.S.GODARA, J.M. :

This Revenue’s appeal ITA No.870/Hyd/2015 and the assessee’s Objection C.O.No.37/Hyd/2016 for AY.2006-07 arise from the CIT(A)-VII, Hyderabad’s order dated 16-04-2015 passed in case No.01516/ACIT-13(1)/CIT(A)-VI/2014-15, in

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proceedings u/s.143(3) r.w.s.147 of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file(s) perused.

“4 In Ground No.2, the appellant questioned the validity of reopening of the assessment u/s 147 since the first reassessment was made on the basis of same reasons and such reassessment was annulled by the Hon'ble ITAT, Hyderabad. 4.1 Brief facts of the case are that the appellant filed a return of income on 31/10/2006 returning a loss of Rs.33,14,971/-. The appellant is a producer of film called 'Allari Pidugu'. A survey operation was conducted by ITO, Ward-2(4), Vijayawada in the case of Sri M Srinadha Rao, Proprietor, Bharathi Pictures, Vijayawada resulting in impounding of certain incriminating material pertaining to the appellant. On going through the impounded material, it was noticed by the Assessing Officer that the appellant had acknowledged the receipt of Rs.1,85,00,000/- from M Srinadha Rao towards sale of distribution rights of film 'Allari Pidugu' in respect of Guntur and Krishna areas as against amount of Rs.1,01,29,747/- admitted in the return of income, Accordingly, the case was reopened u/s 147 and the assessment was completed on the information available on record and the amount of Rs.83,70,253/- was added to the income of the appellant.

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4.2 Aggrieved, the appellant filed appeal before the CIT(A). Before the CIT(A), the appellant submitted that no notices u/s 143(2) and 142(1) were issued to the appellant and the Assessing Officer had completed the assessment without giving an opportunity of being heard to him. Agreeing with the submissions of the appellant that no notice u/s 143(2) / 142(1) was served on the assessee and thereby no opportunity of being heard given to the assessee, the CIT(A) annulled the reassessment order passed by the Assessing Officer. On further appeal by the Department, the Hon'ble ITAT confirmed the action of the CIT (A) in annulling the reassessment order. 4.3 It is after annulment of the reassessment order u/s 143(3) r.w.s. 147 dated 30.12.2010, the Assessing Officer again reopened the assessment for the same reasons recorded earlier and proceeded with the reassessment. On the objections raised by the appellant on the reopened reassessment proceedings, the Assessing Officer brought out that since the merits of the case were not decided by the appellate authorities and the initial reassessment was annulled on technical grounds. There is no bar on proceeding further on the material available before him and accordingly completed the reassessment on 28.03.2014 determining the total income at Rs.1,88,70,197/-. It is against this reassessment order the appellant is in appeal. 5 During appeal proceedings, the appellant mainly objecting to the reopening proceedings contended that the reopening of the assessment was not done on the reasonable belief that the income has escaped assessment but on the reasons formed by his predecessor Officer. It is the claim of the appellant that the present Assessing Officer who had initiated reopening of the assessment has not formed any belief on his. own but has reiterated the belief expressed by his predecessor while reopening the case as per reasons recorded on 26.03.2010. The appellant also submitted that his request for providing approval of the CIT given u/s 151 for reopening of the case was not provided merely because such approval was given basing the same reasons, which were approved by his predecessor, were considered. Contending the reopening of assessment on the same reasons as recorded at the time of first reassessment proceedings is circumventing the order of the Hon'ble ITAT which is not legally valid, the appellant relied on the case of CIT Vs Kelvinator India Ltd (2010) 187 Taxman 312 (SC). 5.1The appellant also contended that once an order of assessment is quashed by two levels of appellate forums, it cannot be said it is only on technical ground and not have impact, on addition made; that further, if the successive Assessing Officers have power to keep on reopening the assessments on the issues which are subject matters of appeal, then the assessee would be put to the hardships of the

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rigors of scrutiny perennially for each year, six years after the assessment year and this is especially when reopening an assessment which already reopened, on the same issue is atrocious. Thus, the Assessing Officer's assertions that the appeal is decided on technical reasons and not on merits is not reasonable and beyond the mandate of the law. 5.2 It is referring to the appeal proceedings before the CIT (A) and the grounds taken by the Revenue before the Hon'ble Tribunal, the appellant submitted that the merits involved in the case are well within the knowledge of the appellate authorities and for that matter the first appellate authority in para 4 of Order dated 08.02.2012 had made a specific observation, which was brought out hereunder:

"On merits, the appellant denied that he had received the amount of Rs.83,70,253/- stated in the assessment order to have been received by way of cash and therefore the inclusion of this amount is not justified in the absence of any evidence or opportunity to rebut the evidence, if any. "

5.3 The appellant also referred to the grounds raised by the Revenue against the order of the first appellate authority which deal with technical issues involved in assessment and praying that the matter be remanded to the Assessing Officer for framing a fresh assessment order. It is the claim of the appellant that these two grounds are not considered by the Hon'ble Tribunal and the annulment of the order was upheld since the Hon'ble Tribunal has not also seen any merits involved in the assessment. 5.4 Apart from challenging the validity of reopening of the assessment, the appellant also raised grounds against the additions made by the Assessing Officer and have brought out the facts and submissions against the each of the additions made by the Assessing Officer. 6 I have gone through the facts of the case, assessment order and written submissions of the appellant. It is based on certain impounded material the case of the appellant was first reopened for the Assessment Year 2006-07 by recording reasons as under: "The information filed by the assessee has been verified. It is noticed that the assessee admitted Rs.1,01,29,747/- as the amount received from sale of distribution rights in respect of Guntur and Krishna areas. However, as per the agreements entered into, that distribution rights in respect of Guntur and Krishna Districts were sold for a consideration of Rs.1,85,00,000/-. On the basis of the material impounded during the course of survey operation in the case of Sri M

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Srinadha Rao, the assessee Sri M R V Prasad had also acknowledged the receipt of the amount of Rs.1,85,00,000/- . In view of the facts mentioned above, I have reasons to believe that the assessee admitted the receipts from the sale of distribution rights in respect of Guntur and Krishna Districts at Rs.1,01,29,747/- only as against the actual receipt of Rs.1,85,00,000/-. On account of the failure on the part of the assessee to admit the total receipts, income chargeable to tax to the extent of Rs.83,70,253/- (Rs.1,85,00,000 - Rs.1,01,29,747) has escaped assessment within the meaning of provisions of section 147 of the I. T. Act." 6.1 Recording the above reasons, the Assessing Officer completed the assessment on 30.12.2010 bringing to tax the amount of Rs.83,70,253/- being the difference between the admitted value of sale of rights over the movie in the books and the consideration found in the impounded material. On appeal, the CIT(A) finding that no valid notices u/s 143(2) and 142(1) were issued and served on the assessee, annulled the said assessment. On appeal by the Revenue, the order of the CIT(A) was confirmed by the Hon'ble ITAT on the same grounds. 6.2 After the annulment of the assessment, the Assessing Officer again reopened the proceedings by recording the following reasons, as communicated to the appellant: "The assessee had admitted the receipts from the sale of distribution rights in respect of Guntur and Krishna Districts at Rs.1,01,29,747/- only as against the actual receipt of Rs.1,85,00,000/-. On account of the failure on the part of the assessee to admit the total receipt, income chargeable to tax to the extent of Rs.83,70,253/- (Rs.1,85,00,000 - Rs.1,01,29,747) has escaped assessment within the meaning of the provisions of section 147 of the I. T. Act, 1961." 6.3 From the above reasons, it can be seen that the Assessing Officer is in possession of some material which indicate, prima-facie, that the assessee has not disclosed fully the sale consideration in respect of sale of rights over film 'Allari Pidugu'. I have gone through the contents of three letters impounded, which were material for reopening of this case. In the first letter, there is a mention of receipt of Rs.25,00,0001- from Mis Bharathi Pictures towards advance the movie 'Allari Pidugu' and the total' agreed value on NRA basis was mentioned as Rs.1,85,00,0001-. The second letter dated 12.02.2008 addressed to the same Mis Bharathi Pictures read "We have sold the rights for the picture 'Allari Pidugu' to you for its exhibition in the 2 districts of i.e. Krishna & Guntur. You have remitted Rs.1,01,29,747/- (Rupees one crore one lakh twenty nine thousand

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seven hundred forty seven only) by 4.10.2005 towards sale of the above mentioned picture on NRA· basis for exhibition in the two districts of Krishna & Guntur. As already informed by us we have settled and confirmed the sale of the above picture's exhibition right for Rs.1,01,29,747/- (Rupees one crore one lakh twenty nine thousand seven hundred forty seven only)". The third letter addressed to Bharathi Pictures, evidence receipt of certain amount as under: "Received 83,70,000/- (Rupees eighty lakhs and seventy thousand only) by cash and, Rs.76,30,000/- by DDs. 4/10/05" 6.4 A close perusal of the first, second and third letters indicate different figures and receipt of money. The first letter appears to be an agreement for purchase of rights mentioning the quantum at Rs.1,85,00,000/- out of which Rs.25,00,000/- was already paid as advance. The second letter restricts the sale value to Rs.1,01,29,747/- and this is the value for which the transaction was settled and confirmed. The third letter indicates aggregate receipt of RS.1,60,00,000/-. When the three letters which were in possession of the Assessing Officer refers to three different figures, the first Assessing Officer quantified the income escaped at Rs.83,70,253/- going by the admitted figure in the Profit & Loss Account and the amount mentioned in the first letter / agreement. The material evidencing the confirmed and settled figure of Rs.1,01,29,747/- was not considered, which is part of the same impounded material. The contents of the third letter, though do not indicate to any value or reference to the movie rights transaction, but only indicates receipt of Rs.160.00 lakhs in the form of DDs and cash. It is based on the above material, the first Assessing Officer came to a conclusion that an amount of Rs.83,70,253/- has escaped assessment, being the difference mentioned between the first letter and the second letter. 6.5 This being the case, the reassessment based on the above findings and quantum of escapement arrived at. by the Assessing Officer was annulled on technical grounds by appellate authorities. Thereafter, the Assessing Officer went on recording the same reasons as were recorded earlier and reopened the assessment. The Assessing Officer here also arrived at the quantum of escapement at Rs.83,70,253/- obviously referring to the first letter and the receipts admitted by the appellant. No separate application of mind appears to have been made by the second Assessing Officer since the quantum of receipt mentioned in the third letter was not all considered. To make it clear, the first letter found is an agreement for Rs.1.85 Crores. The second letter evidences the remittance of RS.1,01,29,747/-. The third letter evidences receipt of Rs.1.60 Crores. When all the three letters being individually different and the figures therein are also being totally different from each other, it is not

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understood how the second Assessing Officer also arrived at the escaped income at Rs.83,70,253/-. 6.6 Going by the three letters, one can reasonably come to a conclusion that though the agreed value is Rs.1.85 Crores, an amount of Rs.1,01,29,747/- was remitted. The third letter does not refer to any purpose of payment or the name of the film, etc. It only indicates receipt of Rs.83,70,000/- in cash and Rs.76,30,000/- by DDs. When the apparent conclusions that can be drawn from the above contents of the three letters are as above, the first Assessing Officer had taken the agreed value and the remitted value and not considered contents of the third letter. When the contents of the third letter did not refer to any purpose of payment, and the amount mentioned in the third letter is short by Rs.25 lakhs, both the Assessing Officers have gone by the difference of Rs. 83,70,253/- 6.7 Going by the above observations, the second Assessing Officer while recording the reasons for the reopening of the case has not applied his mind to the material available on record and has simply gone by the reasons already recorded reasons and only refers to the same quantum of escapement. No independent finding or reason was brought out by the second Assessing Officer taking into account the overall material and the inferences that can be drawn fron1 the three impounded letters. In the first place, the material evidence that the second letter carried not considered by the Assessing Officer. Therefore, it is clear that the reasons for reassessment were drawn from the annulled assessment only and such rerecording of reasons cannot be a basis for fresh reassessment. The hon'ble Rajasthan High Court in the case of CIT v. Shree Rajasthan Syntex Ltd. [2009] 313, ITR 231/178 Taxman 33 (Raj.) held that “initiation based on opinion of the Assessing Officer of other party i.e., lessee is 'borrowed satisfaction', not sufficient reason to believe escapement of income." In the case on hand, the satisfaction recorded by the second Assessing Officer is also borrowed satisfaction and not of his own. 6.8 I may also add here that reopening of the assessment under section 147 of the Income-tax Act as per its plain language provided In the Act provides prerogative to the Assessing Officer to reopen the assessment if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The annulment of the earlier proceedings should not have any bearing on the mind of the Assessing Officer but it is the prerogative of the Assessing Officer to reopen the assessment by satisfying the requirements of the law as mentioned in the Act and shall have to record in writing, the reasons to believe that any income chargeable to tax has escaped assessment for any assessment year. However, the reasons recorded by the Assessing Officer in this case do not find mention of his satisfaction for escapement of income. In

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the absence of the fulfilment of the requirements of section 147 of the Income-tax Act for initiation of the reassessment proceedings in the above case, I am of the view that the Assessing Officer instead of complying with the requirements of law merely was swayed by the annulment of the earlier assessment proceedings and went on to reopen the proceedings again by recording the same reasons. Considering the above discussions, I am of the view that this is not a fit case for initiation of the reassessment proceedings because the Assessing Officer failed to make out a case within the four corners of the provisions of section 147 of the Income-tax Act. 6.9 It is also imperative for the Assessing Officer to record his reasons before initiating proceedings as required by section 148. Recording of reasons by the Assessing 0fficer is not a mere formality. He is required to apply his mind to the grounds on which the case is being reopened de novo. In the instant case, it would be seen that in the reasons recorded by the Assessing officer, the issue of under- admission of sale value of rights found a prominent place in the earlier reasons also. This clearly shows the non-application of mind of the present Assessing Officer. Therefore, the reasons recorded without proper application of mind on the part of the Assessing officer and without recording his satisfaction on the material in his possession, but being swayed by the already recorded reasons, cannot be considered valid. Since the assessment made on such invalid recording of reasons cannot be held as a valid assessment and accordingly is quashed. 7 In view of the above findings and the fact that reassessment proceedings have been quashed, it resulted into deletion of the entire additions. Therefore, there is no need to consider and decide the remaining grounds on the merits in the appeal because the same would be of academic interest only”.

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5.1. We further deem it appropriate to observe here that this tribunal’s co-ordinate bench in Revenue’s appeal ITA No.217/Vizag/2013, dt.31-03-2017 has already upheld the corresponding CIT(A)’s order deleting the very escaped income

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amount of Rs.83,70,253/- in case of Shri M.Srinadha Rao (supra) as under:

“10. We have heard both the parties and perused the material available on record. The factual matrix which leads to the addition are that during the course of survey under section 133A, certain incriminating documents were found, which reveals that assessee has agreed to purchase distribution rights of future film for Krishna & Guntur districts for a consideration of Rs.1,85,00,000/-, whereas the assessee recorded purchase price of Rs.1,01,29,747/- in his books of account. The Assessing Officer made additions of Rs.83,70,253/- under section 69C of the Act, as unexplained expenditure "based on the documents found during the course of survey, which was further supported by two agreements stated to be entered with the, assessee for a consideration of Rs.65 lakhs and Rs.1,20,00,000/-. It is the contention of the assessee that distribution rights of the future film for Krishna & Guntur districts "have" been purchased for a consideration of Rs.1,01,29,747/-, but not for Rs.1,85,00,000/-, as stated by the Assessing Officer. The assessee further contended that the Assessing Officer made additions solely based on a loose slip in the form of letter addressed by the producer of the film M/s. P.B. Arts to one Sri V.Rama Krishna, which states that film has been purchased for a consideration of Rs.1,85,00,000/- and the payment has been made in cash for Rs.83,70,00/-, Rs.76,30,000/- by DDs and Rs.25,00,000/-by way of cheques. But, the fact remains that the documents considered by the Assessing Officer to make additions are neither addressed to the assessee nor related to the transactions with the producer for distribution rights of the future film. Therefore, Assessing Officer was erred in relying upon the document, which is not at all belonging to the assessee, while making additions under section 69C of the Act. 11. Having heard both the sides and considered the material available on record, we find that the Assessing Officer has made additions solely based on the documents found during the course of survey without there being any evidence to suggest that the assessee has paid on money over and above the consideration recorded in the books of account for purchase of future film. The Assessing Officer, referrinq to the impounded document at page 16 of bundle No.20 and page 16 of bundle No.20, stated that assessee has paid cash as well as demand drafts, which amounts to Rs.1,85,00,000/-, whereas the assessee has recorded purchase price at Rs.1,09,,29,747/-. We find that though, the Assessing Officer stated assessee has paid on money over and above the consideration recorded in the books of account, fails to establish any financial connections/transactions between Shri V.Ramakrishna and the assessee and the producer and

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also failed to prove the payment of Rs.1,85,00,000/- for purchase of 'distribution rights with any evidence, other than loose slips during the course of survey. The agreements relied upon by the Assessing Officer stated to be entered' with he assessee for Krishna & Guntur districts are not signed by the assessee. The assessee, in his statement, categorically stated that the agreements, which were found during the course of survey are only draft agreements sent by the producer while talks are in progress for distribution rights. We further observed that merely based on the statement, which was recorded during the course of survey, such additions cannot be made unless such addition is supported by some corroborative evidence. Where the assessee, has been able to explain the discrepancy found during the course of survey with regard to purchase price paid for distribution rights, additions cannot be made solely on the basis of statement made by the assessee during the course of survey. 12. In this case, the assessee during the course of survey, in the statement recorded, categorically stated that he has paid Rs.1,01,29,747/- , but not Rs.1,85,00,000/-. The Assessing Officer without any evidence to suggest that the assessee has paid on money in cash over and above the' consideration recorded in the books of account, which was further supported by the deposition of producer in the form of letter, wherein he had confirmed receipt of Rs.1,01,29,747/- additions cannot be made under section 69C of the Act, as unexplained expenditure, towards difference between purchase price found in loose slips and amount recorded in books of account. The Commissioner of Income Tax (Appeals), after considering the relevant facts, has rightly deleted the additions made by the Assessing Officer. We do not find any error in the order of the Commissioner of Income Tax (Appeals), hence, we incline to uphold the order of the Commissioner of Income Tax (Appeals) and dismiss the appeal filed by the Revenue”.

5.2. Faced with this situation, we reject the Revenue’s foregoing substantive grounds seeking to revive the impugned re-opening and accept the assessee’s cross objections to this effect. Ordered accordingly. No other ground has been pressed before us. 6. This Revenue’s appeal ITA No.870/Hyd/2015 is dismissed and assessee’s cross objection

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C.O.No.37/HYd/2016 is allowed in above terms. A copy of this common order be placed in the respective case files.

Order pronounced in the open court on 16th November, 2021

Sd/- Sd/- (LAXMI PRASAD SAHU) (S.S.GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 16-11-2021 TNMM

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Copy to : 1.Dy.Commissioner of Income Tax, Circle-14(1), Hyderabad. 2.Asst.Commissioner of Income Tax, Circle-13(1), Hyderabad. 3.Shri M.R.V.Prasad, Prop: M/s.P.B.Art Productions, Plot No.345/A, MLA Colony, Road No.12, Banjara Hills, Hyderabad. 4.CIT(Appeals)-VII, Hyderabad. 5.CIT-VI, Hyderabad. 6.D.R. ITAT, Hyderabad. 7.Guard File.