ACIT CIRCLE-16 (1), MUMBAI vs. SHRI. PRAKASH JHA, MUMBAI

The appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) -4 Mumbai, passed u/s.271(1)(c) and 250 of the Income Tax Act, 1961. The revenue has raised the sole ground of appeal:

Aggrieved by the penalty order, the assessee has filed an appeal before the CIT(A). Whereas, CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the A.O has dealt on the disputed issue and find that in respect of additions made by the A.O.the Honble Tribunal has granted relief to the assessee. The CIT(A) observed that when the additions have been deleted by the Hon’ble Tribunal, hence no penalty can be sustained and deleted the penalty and allowed the assessee appeal. Aggrieved by the order, the revenue has filed an appeal with the Honble Tribunal.

At the time of hearing none appeared on behalf of the assessee. The Ld.DR relied on the A.O. order.

We heard the Ld.DR and perused the material on record. The Ld.DR accepts that the Hon’ble Tribunal in quantum appeal has deleted the additions. We find that the CIT(A) relied on the order of the Honble Tribunal at page -3 par 7.1 which is read as under; Shri Prakash Jha., Mumbai “7.1 According to the appellant, all the additions on which penalty was imposed by the AO has been deleted by the ITAT. The relevant part of the order is reproduced as below;

From the above facts, we have also noted that Memorandum of Understanding has created doubt in the minds of Revenue authorities i.e. AO and the CIT(A) and they could not understand the commercial transactions entered into between these two parties. We also noted that the assessee vide clause 4 above of the MOU agreed that purchase price to be paid and transferred of shares shall take place in the manner prescribed therein and how payments is to be used. We have gone through 4 th column of the table as provided in the clause 4 of the MOU, whereby the repayments of unsecured loan of ₹ 2,37,87,155/- is to be repaid. Further another sum of ₹ 12,62,12,845/- is to be utilized for acquisition of shares in term of these agreement entered into between and accordingly, Shri Hanuman Sugar and Industries Ltd directed the Nopany Investment Pvt. Ltd and Nopany and Sons Pvt. Ltd to pay a sum of ₹ 1.5 crores to assessee i.e. Prakash Jha as advanced against purchase of shares. Hence, we find that the entire truncation of advance of ₹ 1.50 Crores is explained and cannot be added under section 68 of the Act. Accordingly, we delete the addition and allow this issue of assessee appeal.

We have heard rival contentions and gone through the facts and in cur stances of the case. We find that the AO noted from the accounts of the assessee that there is liability outstanding in the books of the assessee for an amount of ₹ 10,47,914/- in the name of Filmkraft Pvt. Ltd. and another amount of ₹ 2,85,444/- in the name of Entertainment One. The AO require the assessee to confirm these liabilities from these parties but the assessee only enclosed the ledger account of the old balances carried forward from previous year. Accordingly, the AO issued notice to both the parties and in response to Filmkraft Pvt. Ltd. denied any such liability outstanding in their books and the other party Entertainment One, notice returned unserved. The assessee explained that during the FY 2011-12 relevant to AY 2012-13, the balances of these parties has been written off by the assessee and included in the income of the assessee. But the AO added the same in AY 2011-12 by holding that these liabilities have ceased to exist. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action Shri Prakash Jha., Mumbai of the Assessing Officer. Aggrieved, assessee is in appeal before Tribunal.

After hearing both the sides and going through the facts of the case it is admitted fact that these liabilities are outstanding in the balance sheet of the assessee but write off is made in AY 2012-13 and disclosed this as income accordingly. When these facts were confronted to the learned Sr. Departmental Representative, he could not controvert the same. As the assessee has disclosed the income in AY 2012-13 and it is not clear that in which year these liabilities have ceased to exist because the assessee has continuously acknowledging this liability, the liability can be treated as ceased in AY 2012-13 only. Hence, we are of the view that this addition cannot be made in AY 2011-12 and we direct the AO to delete the same. 27. We have heard rival contentions and gone through the facts and circumstances of the case. Now, during the course of hearing before us, the learned Counsel for the assessee drew our attention to the assessee’s paper book at pages 22 to 24, wherein the details of sundry balances written off is enclosed. The learned Counsel for the assessee explained that the assessee is a major film producer and director. He explained that in the course of his business, various debit and credit balances remain in the accounts. The same are periodically written off. In the accounts for the AY 2011-12 under appeal, debit balances of ₹ 22,02,150/- and credit balances of ₹ 18,05,204/- were written off resulting in the write off of net debit balances of ₹ 3,96,946/-. The details thereof were filled before the AO and are contained at pages 22 to 24 of assessee’s Paper Book. All these given the item-wise details of the debit and credit balances written off resulting in the write off of the net debit balances of ₹ 3,96,946/-. We find from the facts of the case that the AO has taxed the credit balances written off but unfortunately, he has disallowed the debit balances written off. This, to say the least, is grossly unfair and unreasonable. The assessee had explained that these balances were due in the normal course of the business. The AO never asked the assessee to prove that these were for business purposes and it is therefore clearly unfair on his part to disallow the same on the ground that business purposes was not proved. The same logic would apply to the credit balances written off which he has no hesitation in taxing. Hence, according to us, the disallowance of only the debit balances written off is unjustified and deserves to be deleted. Shri Prakash Jha., Mumbai Since the very additions on which penalty u/s 271(1)(c) has been initiated and have been imposed, has been deleted by the Hon’ble ITAT, hence penalty cannot be sustained. In view of the above, the penalty imposed is deleted and appeal of the assessee is allowed. 8. In the result the appeal is allowed. 6. We find that Ld.CIT(A) has relied on the findings and observations of the Hon’ble Tribunal and deleted the penalty. Considering the facts, circumstances and decisions, we do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue.

In the result, the appeal filed by the revenue is dismissed.