SHIVA KUMAR MALAKAPURAM,HYDERABAD vs. DCIT, CENTRAL CIRCLE -1(3), HYDERABAD

Search and seizure proceedings under Section 132 of the Act were conducted in the case of M/s. Usha Bala Group on 28.01.2021, during which certain documents, including a Letter of Understanding dated 08.02.2017 relating to assignment of distribution rights of the film "Singam-3 (Yamudu-3)" in West Godavari District, were found and seized, which, thereafter, were marked as “Annexure Nos ‘Annx/UPF/RP/EL-47 & 50”.

The AO, based on the contents of the aforesaid seized document, observed that the same revealed a total consideration for the distribution rights of the Telugu film "Singam-3 (Yamudu-3)" in West Godavari District at Rs.1,40,00,000/-, comprising certain adjustments, RTGS payments and cash payment. On being confronted, the assessee submitted that the release of the film "Singam-3 (Yamudu-3)" was planned for 31/07/2016 but, after several postponements, was finally released on 09/02/2017. It was stated by the assessee that he had, from July, 2016 to 09/02/2017, received advances from several exhibitors in West Godavari, and the entire amount was offered as turnover in the profit & loss account. The assessee, to support his said claim, had also filed with the AO a copy of the ledger account of the cash collections. Also, the assessee furnished to the AO the bifurcated details of amounts aggregating to Rs. 1,40,00,000/- (including cash receipt of Rs. 35,29,000/- on various dates) that were stated to have been received by him in tranches over the period, towards assignment of the distribution rights.

As is discernible from the record, the AO accepted the assessee’s claim that the amounts mentioned in the seized document, viz. Annexure Nos “Annx/UPF/RP/EL-47 & 50”, aggregating to Rs. 40 lac, i.e., (i). Paid through Indian Bank RTGS on 14/09/2016: Rs. 25 lacs; and (ii). Paid through UCO Bank. Eluru RTGS on 30/09/2016: Rs. 15 lacs were accounted for by the assessee in his turnover disclosed in the profit & loss account. However, the AO observed that, as the assessee had not provided verifiable evidence to establish that the balance 3 amounts received from M/s. Usha Pictures was accounted for and included in the sales of movie “SINGAM-3 (YAMUDU-3)”, therefore, made an addition of the said amount received through cash/adjustments of Rs. 1 crore (as mentioned in the seized document), viz. i) adjusted amount from ‘Ghatana’ and ‘Nagabharanam’ pictures recoverable advance due by the producers: Rs.10,00,000/-; ii) adjusted from ‘Dharmayogi’ picture recoverable advance due by the producers: Rs.3,70,000/-; iii) paid by way of cheque to Usha Picture & Financiers on behalf of producers: Rs.4,85,000/-; and iv) Cash received by the assessee: Rs.81,45,000/-, and accordingly, brought the aforesaid amounts to tax.

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

The assessee, aggrieved with the CIT(A) order, has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

Shri MV Prasad, CA, Ld. Authorized Representative (for short, “AR”) for the assessee, after arguing for some time on the validity of the jurisdiction assumed by the AO for framing the assessment under Section 153C of the Act, did not carry the said contention any further; therefore, we do not consider it necessary to adjudicate the said issue and confine our adjudication to the merits of the addition.

The Ld. AR, on merits, submitted that the assessee had duly accounted for and disclosed the receipts aggregating to Rs. 1.40 crores received from M/s Usha Pictures towards distribution rights of the movie “Singam-3 (Yamudu-3)” in his Profit & Loss account for the year under consideration. In support of his contention, the Ld. AR referred to the letter dated 27.03.2023 that was filed by the assessee before the AO, wherein bifurcated details of the receipts were furnished. The Ld. AR submitted that as the distribution income from the movie “Singam-3 (Yamudu-3)” formed part of the distribution income disclosed in the Profit and Loss Account, therefore, no separate addition was warranted based on the contents of the seized document.

Per contra, the Ld. Senior Departmental Representative (for short, “DR”) relied upon the orders of the authorities below. It was submitted by her that, despite repeated opportunities, the assessee had failed to substantiate with supporting documentary evidence that the amounts mentioned in the seized Letter of Understanding (LOU) had been accounted for as distribution income; therefore, the AO had rightly made an addition of the same as his unaccounted receipts.

Coming to the merits of the case, we find that the undisputed position is that the seized “Letter of Understanding” (LOU), marked as Annexure Nos ‘Annx/UPF/RP/EL-47 & 50', records total consideration of Rs.1,40,00,000/- in respect of assignment of distribution rights of the Telugu movie, viz. “SINGAM- 3 (YAMUDU-3)”. As is discernible from the seized document (LOU), viz.

Before dealing with the merits of the case, we deem it apposite to observe that the assessee, on being confronted with the contents of the seized document, viz (LOU), viz. Annexure Nos ‘Annx/UPF/RP/EL-47 & 50’, had neither claimed till date that the same is a dumb document nor that he had not received the consideration towards assigning of the distribution rights in the mode therein mentioned, i.e., RTGS, adjustments and cash. In fact, the unsubstantiated claim of the assessee has throughout been that the distribution rights for the aforesaid movie have been disclosed by him as part of his turnover in the profit & loss account. We find substance in the Ld. Sr. DR’s contention that the assessee except for harping on his hollow claim that the consideration of Rs. 1.40 crore (supra) received on assignment of distribution rights of his Telugu movie “SINGAM-3 (YAMUDU-3)” formed part of his total revenue booked under the head “distribution income” in his profit & loss account, however, despite specific directions and multiple opportunities afforded by the AO to substantiate his said claim, failed to place on record any material which would irrefutably fortify the same.

We shall, in the backdrop of our aforesaid observations, deal with the issue in hand. Insofar as the amounts of Rs. 10,00,000/- and Rs. 3,70,000/- adjusted from M/s Katana and Naga Bharanam Pictures and M/s Dharma Yogi Pictures, respectively, against recoverable advances due from the producers are concerned, we find that the assessee had neither denied the same nor established that the said respective amounts were accounted for by him as his distribution income. We, therefore, concur with the authorities below that the aggregate amount of Rs. 13,70,000/- represents unaccounted distribution income and the addition to that extent is sustained.

Apropos the amount of Rs. 4,85,000/-, the seized document specifically states that the amount was paid by way of cheque to M/s Usha Pictures and Finances, Eluru, on behalf of the producers. In our view, as the assessee had neither denied the said transaction nor shown that the same formed part of his accounted receipts, we find no infirmity in the view taken by the authorities below, who have rightly made an addition of the same by treating it as an unaccounted receipt of the assessee.

Coming to the cash receipt of Rs. 81,45,000/-, the assessee, in his letter filed during the assessment proceedings, stated that cash amounting to Rs. 35,29,000/- was received by him from various exhibitors on different dates between 11.07.2016 and 01.02.2017 and that the same was accounted for by him as his distribution income. However, we find that the AO, relying upon the seized LOU- Annexure Nos ‘Annx/UPF/RP/EL-47 & 50’, treated the entire amount of Rs. 81,45,000/- as unaccounted distribution income, on the ground that the document specifically recorded receipt of the said amount in cash on signing of the Letter of Understanding.

In our considered view, the addition of the entire amount of Rs. 81,45,000/- could not have been made in the hands of the assessee. We, say so, for the reason that as it is an admitted position that the assessee had already disclosed Rs. 35,29,000/- as part of his distribution income of Rs. 1.40 crores, therefore, if the AO was to consider the cash receipts as per the seized document to be Rs. 81,45,000/-, the addition could only be made to the extent of the differential amount of unaccounted cash receipts of Rs. 46,16,000/- [Rs. 81,45,000/- (minus) Rs. 35,29,000/-].

Accordingly, the addition of Rs. 1 crore made by the AO is restricted to Rs. 64,71,000/-, comprising of, viz. (i) adjusted amount from ‘Ghatana’ and ‘Nagabharanam’ pictures recoverable advance due by the producers: Rs.10,00,000/-; (ii) adjusted from ‘Dharmayogi’ picture recoverable advance due by the producers: Rs.3,70,000/-; (iii) paid by way of cheque to M/s Usha Pictures and Finances, Eluru, on behalf of the producers: Rs. 4,85,000/-; and (iv). on account of differential cash receipts: Rs. 46,16,000/-. Thus, the AO is directed to restrict the addition of Rs. 1 crore made by him to Rs. 64,71,000/-

In the result, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations.