M/S. AKSHAY MERCANTILE (P) LTD..,CHENNAI vs. DCIT, CHENNAI

PDF · subscribers
ITSSA 5/CHNY/2019Status: DisposedITAT Chennai20 November 20248 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided the issues as follows: 1. **Advances of Pronotes:** The Tribunal deleted the additions of Rs. 25 Lacs to M/s Ripples and Rs. 12 Lacs to M/s Friends India. The reasoning was that a large number of pronotes were found, and the assessee had substantially explained the investments through detailed tables and supporting documents, with all investments recorded in regular books of accounts. The Tribunal accepted the assessee's explanation that pronotes were undated and there was no confirmation from other parties, but the balance of M/s Ripples was long outstanding and the advance to M/s Friends India was recorded in books. The ratio is that if investments are recorded in books and supported by explanations, even with some procedural deficiencies like undated pronotes, they should be accepted. 2. **Additions of advances as per Laptop:** The Tribunal partly allowed this ground. The addition of Rs. 2 Lacs to M/s Friends India was deleted on the same logic as the pronote addition. The addition of Rs. 3 Lacs for M/s AND Kamalam Cine was confirmed due to no acceptable explanation. The addition for M/s Vishes Films Mukesh Bhatt was deleted, accepting the assessee's explanation of a single advance and a renewal. The addition for London Film International was deleted, accepting the assessee's submission of renewal of existing advances. The ratio is that where an addition is linked to an item deleted under another head, it should also be deleted, but where no explanation is offered, it stands confirmed. 3. **Addition of investment in properties:** The Tribunal deleted the addition of Rs. 93.15 Lacs. The reasoning was that the investment in property was made through banking channels and supported by relevant agreements, and therefore, could not be considered undisclosed income in a block assessment where all income backed by seized material was brought to tax. For rental receipts, the Tribunal directed the AO to re-compute the quantum of rental income, considering potential computational errors and verifying if the income was already offered to tax. The ratio is that payments made through banking channels for disclosed investments cannot be treated as unexplained investment, and income already offered to tax cannot be taxed again. Operative Directions: Deletion of additions related to pronotes and property investment (partially). Re-computation of rental income and verification of tax paid on rental income. The connected stay application was dismissed as infructuous.

What were the facts?

This appeal by M/s. Akshay Mercantile Pvt. Ltd. (the assessee) for Block Assessment Years 1997-98 to 2002-03 and part of 2003-04 arises from an order of the CIT(A)-18, Chennai, dated 27-06-2019, which upheld an assessment framed by the AO u/s. 158BD r.w.s 254 of the Income Tax Act on 28-03-2014. The assessee was covered in a search action on Shri Rakesh Sarin, a film financier, where the assessee's books of accounts were also found. A block assessment was initially framed on 23-12-2005, quantifying undisclosed income at Rs.696.75 Lacs. After the Tribunal remitted the matter back for re-adjudication, a fresh assessment was framed on 28-03-2014, leading to the current appeal concerning additions related to pronotes, laptop advances, and property investment.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the CIT(A) erred in confirming the addition of Rs. 25 Lacs with respect to advances given to M/s Ripples and Rs. 12 Lacs to M/s Friends India, as confirmed by the lower authorities, despite the assessee's contention that these were renewals of earlier loans or advances where production was stalled. 2. Whether the CIT(A) erred in confirming an addition of Rs. 21 Lacs on account of advances as per laptop entries, despite the assessee's explanations for some items and the deletion of the addition concerning M/s Friends India on the same logic as in issue 1. 3. Whether the CIT(A) erred in confirming the addition of Rs. 138.73 Lacs on account of investment in property, despite the assessee's submission that payments were made through banking channels and the property investment was disclosed. Assessee's Arguments: - For pronotes, the assessee argued that fresh pronotes were collected due to legal requirements for loans already advanced and shown in balance sheets, with no fresh advances made. For M/s Friends India, only part of the committed funds was advanced due to movie production stalling. - For laptop advances, the assessee argued that the addition of Rs. 2 Lacs to M/s Friends India should be deleted on the same logic as the pronote addition. For M/s Vishes Films Mukesh Bhatt, it was argued that one entry was a renewal. For London Film International, it was submitted that entries were renewals of existing advances. - For property investment, the assessee contended that payments were made by cheque from regular bank accounts and the investment was duly disclosed. Revenue's Arguments: - The Ld. CIT-DR supported the findings of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 158BD,Section 254

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.5/Chny/2019 (िनधा)रण वष) / Block Assessment Year: 1997-98 to 2002-03 & part of 2003-04) & Stay Application No.37/Chny/2024 (In IT(SS)A No.5/Chny/2019) (िनधा)रण वष) / Block Assessment Year: 1997-98 to 2002-03 & part of 2003-04) M/s. Akshay Mercantile 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-6248-H (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Assessee by : Shri K. Ravi, (Advocate)- Ld.AR � थ�कीओरसे/Revenue by : Shri A. Sasikumar (CIT)-Ld. Sr. 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 order of learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] dated 27-06-2019 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 27-06-2019 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 of Ripples Pictures, he ought to have appreciated that appellant has not advanced any money on that but only collected the fresh pronotes on the loan given earlier due to legal requirement. 3. The Ld. CIT(A) has further erred in confirming the loan to Ripple Pictures, he ought to have appreciated that the appellant company has not made any advance on that as there was no progress in the movie for which it was to be given. 4. The Ld. CIT(A) further erred in confirming two more addition on account of Ripple Pictures, he ought to have appreciated that no such advance was made as movie was not progressing, not only that one pronote even do not bear that date and incomplete. 5. The Ld. CIT(A) has further erred in confirming the addition of Friends India and ignored the submissions of your appellant company that no such advance was ever made to them, due to no progress in production of movie. 6. The Ld. CIT(A) has further erred in confirming the addition on account of LAP TOP advances in SI no. 1 to 7 on Page 25 & 26 of the Appellate Order, he has not at all considered the explanation furnished by the appellant company. 7. The Ld. CIT(A) has further erred in confirming the addition on account of investment is property, he failed to appreciate that the investment stands duly disclosed in the records maintained by the appellant company. 8. He further ought to have appreciated that payment made for purchase of property is by cheques only and that too from the recognized and regular bank account of the appellant company.

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.696.75 Lacs. The appeal was allowed by first appellate authority. However in department’s further appeal, Tribunal remitted the 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 - (i) addition of pronotes; (ii) addition of advances as per laptop; (iii) Addition of investment in property. The same is adjudicated as under. 4. Advances of 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.44.80 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.25 Lacs with respect to advances given to M/s Ripples and another advance of Rs.12 Lacs as given to M/s Friends Ind. 4.2 During appellate proceedings, the assessee contended that it advanced sum of Rs.15 Lacs through cheques which were shown as debtors in Balance Sheet for the year ended 31-03-2002. The same balance was shown in Balance Sheet for AY 2003-04 which would confirm that the amount was not realized yet. Since two years had elapsed, the assessee collected fresh pronotes on 05-02-2003 due to the fact that the original pronotes would lapse by limitation of time after 3

years. No fresh advance was made against these pronotes. Similarly, no amount was stated to be advanced to this party on other pronotes. However, Ld. CIT(A) rejected the same and confirmed the addition. With respect to M/s Friend Ind., the assessee submitted that as against committed funds of Rs.25 Lac, only Rs.13 Lacs was advanced to this party and the balance amount was not advanced due to non- performance by the producer since the production of the movie was stalled. In that situation, the assessee stopped further financing to protect their interest. However, Ld. CIT(A) confirmed this addition. Aggrieved, 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 entities 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. The balance of M/s Ripples is long outstanding whereas the advance to M/s Friends Ind. Is duly found recorded in the books of accounts. In such a situation, the explanation of the assessee is to be accepted. Therefore, we delete both these additions and allow the corresponding grounds raised by the assessee.

5.

Additions of advances as per Laptop 5.1 This addition is based on entries found in laptop computer as seized from the premises of Shri Rakish Sarin. The assessee was maintaining details of loans advanced by various group concerns. Considering the same, addition of Rs.267.70 Lacs was made in the original assessment order. However, in set-aside proceedings, Ld. AO made addition of Rs.47.95 Lacs which was assailed by the assessee before Ld. CIT(A). The assessee explained each of the items and Ld. CIT(A) deleted substantial addition except for addition of Rs.21 Lacs against 7 parties as listed in para-8 of the impugned order. The addition was confirmed since the assessee failed to offer any acceptable explanation. The details of addition are as follows: -

No. Name Amount (Rs.) 1. M/s Friends India Rs.2 Lacs 2. M/s AND Kamalam Cine Rs.2.50 Lacs 3. M/s AND Kamalam Cine Rs.0.50 Lacs 4. M/s Vishes Films Mukesh Bhatt Rs.2.50 Lacs 5. Shogum Films Rs.2.50 Lacs 6. London Film International Rs.10 Lacs 7. London Film International Rs.1 Lacs Total Rs. 21 Lacs

Aggrieved, the assessee is in further appeal before us. 5.2 Since the pronote addition with respect to M/s Friends Ind. has been deleted by us, on the same logic, the addition of Rs.2 Lacs stand deleted. No explanation was furnished for M/s AND Kamalam Cine and therefore, the addition of Rs.3 Lacs stand confirmed. With respect to M/s Vishes Films Mukesh Bhatt, the assessee submitted that there was single advance of Rs.2.50 Lacs and another entry of Rs.2.50 Lacs on 07-11-1997 was renewal of loan granted on 11-05-1997. Accepting the

same, we delete this addition. No substantial evidence has been produced for Shogun films and therefore, this addition stand confirmed. With respect to London Film International, the assessee submitted that this entry was mere renewal of existing advance which was evident from the seized laptop print out. Accepting the same, this addition stand deleted. The corresponding grounds stand partly allowed. 6. Addition of investment in properties 6.1 This addition is based on certain property deeds found during the course of search. The assessee purchased a commercial property at Spencer Plaza during FY 2000-01 and entered into builder agreement with M/s Mangal Tirth Estates Pvt. Ltd. (MTEL). The assessee allegedly paid amount of Rs.93.15 Lacs to MTEL during FY 2001-02. MTEL acknowledged receipt of Rs.88.35 Lacs in cheque from the assessee. The assessee made adjustment of Rs.7.18 Lacs on account of lease deposit lying with MTEL as paid by the lessee AMEX. The lease agreement between MTEL and AMEX was transferred in assessee’s favor. As per lease agreement, the assessee had been receiving about Rs.1.20 Lacs from Amex since November, 2020 onwards. However Ld. AO held that though the sale consideration was paid through cheques, the assessee did not file return of income for AY 2001-02 and therefore, the entire consideration was to be treated as unaccounted income. The lease rent as accruing to the assessee was worked out at Rs.45.60 Lacs. The assessee assailed the impugned addition on the ground that rental receipts were subjected to TDS and advance tax was also paid on the receipts. However, Ld. AO added the amount of Rs.138.73 Lacs to the income of the assessee. The Ld. CIT(A), considering the decision of Hon’ble Apex Court in the case of M/s AR Enterprises (350 ITR 489)

held that mere payment of advance tax would not amount to disclosure of total income. Aggrieved, the assessee is in further appeal before us. 6.2 From the facts, it clearly emerges that the investment in the properties have been made by the assessee through banking channels and the same are duly supported by the relevant agreements etc. In such a case, such payment could not be considered as undisclosed income. It could be seen that block assessment has been framed against the assessee and whatever income has been earned as backed up by seized material has already been brought to tax. Therefore, no allegation of unexplained investment could be made against the assessee. Therefore, the addition to the extent of Rs.93.15 Lacs stand deleted. 6.3 The rental receipts are clearly in the nature of income which would be taxable in the hands of the assessee. The Ld. AR has placed on record ledger of MTEL for the period from 01-04-2020 to 31-03-2005 and stated that this income has already been offered to tax by the assessee in return of income filed for AYs 2001-02, 2002-03, 2003-04. The copies of the return of income have been placed on record. The Ld. AR also stated that the there are computational error since rental has been computed for 38 months instead of 28 months. Considering the same, we direct Ld. AO to re-compute the quantum of rental income. Secondly, if the very same income has already been offered to tax and due taxes have been paid therein, the same could not be taxed again as undisclosed income. The Ld. AO is directed to verify the same and make proper adjustments, if required. The assessee is directed to provide the necessary workings / computations / documents etc. The corresponding grounds stand partly allowed. 7. No other ground has been urged in the appeal.

8.

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 आदेशकीIितिलिपअ�ेि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

More judgments on Section 158BD

All 209 judgments and leading authorities on Section 158BD →

Recent GST High Court judgments

Search GST case law →