ACIT CENTRAL CIRCLE 1(3), CHENNAI vs. VENDHAR MOVIES, CHENNAI

The Revenue has raised following grounds of appeal:-

The brief facts of the case are that a search and seizure operation u/s.132 of the Act was conducted in the SRM group of cases on 18th June 2013. As part of the search operation, the office premises of the assesse M/s. Vendor Movies was also searched. During the course of search, one notebook containing certain jotting seized. A statement was recorded from Sri B. Balagurunathan, one of the partners of the firm and in response to specific question, he had deposed that jotting is contained in the notebook pertains to unexplained expenditure incurred for the movie ‘Thalaivaa’ and further, he had agreed to offer a sum of Rs.7,00,00,000/- as additional income of the firm for the assessment year 2014-15. Consequent to search, the case has been taken up for scrutiny and during the course of assessment proceedings, it was noticed by the Assessing

Being aggrieved by the assessment order, the assessee filed an appeal before the learned CIT(A). Before the learned CIT(A) the assessee has filed various details, including financial statements to prove that the assessee has accounted and showed income in the books of accounts and considered for taxation. The learned CIT(A), after considering relevant submissions of the assessee and also taken note of various

The learned DR submitted that the learned CIT(A) erred in deleting the addition of undisclosed income on the wrong assumption of fact that the assessee had included a sum of Rs.7,00,00,000/- in the profit loss account even though the assessee had adopted a method to nullify income declared during the course of search. The learned DR further submitted that additional income offered towards cost of purchase of movie becomes unexplained expenditure as per the provisions of section 69C of the Act and consequently, the said expenditure will be deemed to be the income of the assessee

The learned counsel for the assessee supporting order of the learned CIT(A) submitted that the assessee had offered undisclosed income for taxation and further explain the loss declared for the year with necessary evidences. The CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and his order should be upheld.

We have heard both the parties and considered relevant materials on record. There is no dispute with regard to fact that the assessee had credited sum of Rs.7,00,00,000/- into the profit and loss account. In fact, the Assessing Officer himself had admitted fact that the assessee had included undisclosed income in the profit and loss account. However rejected arguments of the assessee only for the reason that said offer of undisclosed income is in addition to regular income or loss declared for the relevant assessment year. The Assessing Officer further was of the opinion that the assessee could not substantiate the expenditure incurred for the subsequent period.

We have given our thoughtful consideration to the reasons given by the Assessing Officer in light of arguments of the counsel for the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that once there is no dispute about additional income credited into the profit and loss account, then the Assessing Officer cannot make further addition on said undisclosed income merely for the reason that the assessee has incurred loss for the year even after undisclosed income of Rs.7,00,00,000/-. We further noted that the assessee has incurred huge expenditure for the movie Thalaivaa subsequent to the period of search. Further, additional income offered during the course of such is also on account of cost of purchase of movie Thalaivaa. Therefore, once income is credited to the profit loss account, corresponding expenditure relatable to said income also needs to be debited into the profit loss account. In this case, the assessee has done exactly the same which resulted in loss for the year under consideration.