AASHANA INVESTMENTS PVT. LTD.,CHENNAI vs. DCIT, CHENNAI

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ITSSA 4/CHNY/2019Status: DisposedITAT Chennai20 November 20245 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided the issues as follows: 1. Regarding the addition of Rs. 7.50 Lacs (Rs. 5 Lacs to Venus and Rs. 2.50 Lacs to DMS) on account of advances on pronotes, the Tribunal held that the assessee had substantially explained the investments made through these pronotes, which were recorded in the regular books of accounts. The Tribunal noted that the pronotes were undated and lacked confirmation from the other parties. Therefore, the Tribunal deleted the impugned addition of Rs. 7.50 Lacs and allowed the corresponding grounds raised by the assessee. The ratio decidendi is that if investments are recorded in regular books and substantial explanations are provided, undated pronotes without third-party confirmation may not be sufficient to sustain an addition, especially in the context of film financing practices. 2. Regarding the addition of Rs. 1,20,000/- on account of Sundry Creditors, the Tribunal held that the assessee failed to file confirmation for these creditors, and no supporting documents were placed before the Tribunal. Therefore, no interference was required on this issue, and the CIT(A)'s confirmation was upheld. The Tribunal expressly left undecided any other grounds not urged in the appeal. The operative direction is the deletion of Rs. 7.50 Lacs and upholding the addition of Rs. 1,20,000/-.

What were the facts?

The assessee, Aashna Investments Pvt. Ltd., is in appeal before the Income Tax Appellate Tribunal (ITAT), Chennai, against an order dated 18-06-2019 passed by the Commissioner of Income Tax (Appeals)-19, Chennai. The assessment year(s) under challenge are Block Assessment Years 1997-98 to 2002-03 and part of 2003-04. The assessment was originally framed by the Assessing Officer (AO) under Section 158BD read with Section 254 of the Income Tax Act, 1961, on 28-03-2014. The assessee is seeking stay of recovery of outstanding demand. The appeal arises from a search action under Section 132 in the case of Shri Rakesh Sarin, a film financier, on 27-03-2003, which also covered the assessee as Shri Rakesh Sarin was its Managing Director. The assessee's books of accounts were found in a computer tally accounting package. A notice under Section 158BD was issued, and an assessment was framed on 23-12-2005, quantifying undisclosed income at Rs.260.29 Lacs. The first appellate authority had allowed the appeal, but the Tribunal remitted it back to the AO for re-adjudication based on additional evidence. The current appeal concerns additions made by the AO on account of pronotes and sundry creditors.

What were the issues?

1. Whether the CIT(A) erred in confirming the addition of Rs. 5 Lacs and Rs. 2.50 Lacs on account of advances to Venus and DMS, respectively, based on undated pronotes, when the assessee contended that no such advances were actually made and the pronotes were mere drafts or security. Assessee's contention: The assessee argued that for Venus, only one pronote was executed, and the others were drafts or taken as security during renewal. In film financing, paperwork is often done in advance during negotiations, and if a deal doesn't materialize, these signed pronotes are not executed. Similar explanations were provided for DMS. The pronotes were undated and not enforceable in law. Revenue's contention: The revenue supported the findings of the lower authorities, implying confirmation of the additions. 2. Whether the CIT(A) erred in confirming the addition of Rs. 1,20,000/- on account of Sundry Creditors, when the assessee failed to provide confirmation for these creditors. Assessee's contention: Not explicitly recorded, but the appeal grounds suggest disagreement with the confirmation. Revenue's contention: The revenue supported the findings of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 158BD,Section 254,Section 132

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, CHENNAI

Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM

आयकर अपीलीय अिधकरण “डी” �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, CHENNAI माननीय �ी मनोज कुमार अ�वाल ,लेखा सद# एवं माननीय �ी मनु कुमार िग'र, �ाियक सद# के सम(। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM (आयकरअपील सं./IT(SS)A No.4/Chny/2019 (िनधा)रण वष) / Block Assessment Year: 1997-98 to 2002-03 & part of 2003-04) & Stay Application No.39/Chny/2024 (In IT(SS)A No.4/Chny/2019) (िनधा)रण वष) / Block Assessment Year: 1997-98 to 2002-03 & part of 2003-04) Aashna Investments Pvt. Ltd. DCIT बनाम 5E, Moogambikai Complex, Central Circle-II(1), 4, Lady Desika Road, Chennai. / Vs. Chennai-600 004. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACA-6251-G (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Assessee by : Shri K. Ravi, (Advocate)- Ld.AR � थ�कीओरसे/Revenue by : Shri A. Sasikumar (CIT)-Ld. DR सुनवाईकीतारीख/Date of Hearing : 14-11-2024 घोषणाकीतारीख /Date of Pronouncement : 20-11-2024 आदेश / O R D E R

Manoj Kumar Aggarwal (Accountant Member)

1.

Aforesaid appeal by assessee for captioned block Assessment Year (AY) arises out of an order passed by learned Commissioner of Income Tax (Appeals)-19, Chennai [CIT(A)] on 18-06-2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.158BD r.w.s 254 of the Act on 28-03-2014. The appeal is accompanied by stay application wherein the assessee is seeking stay of recovery of

outstanding demand by the revenue. The grounds taken by the assessee are as under: 1. The order dated 18-06-2019 passed by CIT(A) is quite arbitrary, illegal and contrary to the facts of the case of your appellant. 2. The Ld. CIT(A) has erred in confirming the addition on the strength of undated pronotes from Venus, he ought to have appreciated the submission of appellant company that no such advances was ever made to them. 3. The Ld. CIT(A) has further erred in confirming the addition on account of DMS Films which is also based on undated pronote not enforceable in the law. 4. The Ld. CIT(A) further erred in confirming the addition on account of Sundry Creditors amounting to Rs.1,20,000/-. 2. The Ld. AR advanced arguments supporting the case of the assessee whereas Ld. CIT-DR has supported the findings given by lower authorities. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. 3. Pursuant to search action u/s 132 in the case of Shri Rakesh Sarin (a film financier) on 27-03-2003, the assessee was also covered therein. The assessee is an entity in which Shri Rakesh Sarin acted as Managing Director. During the course of search on Shri Rakesh Sarin, books of accounts relating to the assessee were also found in tally accounting package of computer. Notice u/s 158BD was issued to assessee on 27- 11-2003 for the captioned block and an assessment was framed on 23- 12-2005 wherein the undisclosed income was quantified at Rs.260.29 Lacs. The appeal was allowed by first appellate authority. However in department’s further appeal, Tribunal remitted assessment back to the file of Ld. AO for re-adjudication considering the additional evidences filed by the assessee. Consequently, another assessment has been framed on 28-03-2014 making certain additions which are in further appeal before us. The subject matter of present appeal is addition of pronotes and addition of sundry creditors. The same is adjudicated as under.

4.

Advances on Pronotes 4.1 During the course of search, number of pronotes containing the name of the assessee as lender was found. The assessee filed detailed tables listing out the pronotes and furnished necessary clarification in respect of each entry with supporting documents. However, Ld. AO rejected explanation for certain items and made addition of Rs.32.70 Lacs. The details thereof have been extracted in the assessment order. Upon further appeal, Ld. CIT(A) examined each of the item and deleted all the additions except for addition of Rs.5 Lacs with respect to advances given to Venus and another advance of Rs.2.50 Lacs as given to DMS. 4.2 During appellate proceedings, the assessee contended that no such advances were given to these parties. M/s Venus executed 3 pronotes for Rs.5 Lacs each but loan was given on one pronote only which was reflected in the financial statements. The others were mere draft pronotes which were never executed. There were many pronotes which had not been executed and they do not represent any actual investment. The same are taken as security at the time of renewal of advance made earlier. In film financing, paper work is done after negotiating with the producers and drafts agreements, pronotes lab slips etc. are prepared in financier’s officer. More often than not, the negotiation does not result in striking a deal. Sometime producers give signed pronotes and lab slips in advance during negotiations and wait for the release of funds from film financier depending upon the progress of production of movie. If the deal is not struck, these signed pronotes are not executed. Similar explanation was furnished for DMS. However, Ld.

CIT(A) upheld the addition of Rs.7.50 Lacs against which the assessee is in further appeal before us. 4.3 We find that during search on assessee, large number of pronotes was found. The assessee filed detailed tables listing out the pronotes and furnished necessary clarification in respect of each entry with supporting documents. The assessee was substantially successful in explaining the investment made through these pronotes which is evident from the orders of lower authorities. All the investments were found recorded in the regular books of accounts. Therefore, the assessee’s explanation with respect to these two items is to be accepted. Admittedly, the pronotes are undated and there is no confirmation from the other parties with respect to contents of these pronotes. Therefore, we delete the impugned addition of Rs.7.50 Lacs and allow the corresponding grounds raised by the assessee. 5. Sundry Creditors The assessee failed to file confirmation of Sundry Creditors for Rs.1.20 Lacs which were added to assessee’s income. The Ld. CIT(A) confirmed the same. Before us also, no supporting documents has been placed n support of the same. Therefore, no interference is required on this issue. No other ground has been urged in the appeal. 6. The appeal stands partly allowed. The connected stay application is dismissed as infructuous. Order pronounced on 20th November, 2024

Sd/- Sd/- (MANU KUMAR GIRI) (MANOJ KUMAR AGGARWAL) �ाियक सद# / JUDICIAL MEMBER लेखा सद# / ACCOUNTANT MEMBER

चे2ई Chennai; िदनांक Dated : 20-11-2024 DS आदेशकीJितिलिपअ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. � थ�/Respondent 3. आयकरआयु;/CIT Chennai 4. िवभागीय�ितिनिध/DR 5. गाड@फाईल/GF

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