SH. MANOJ KUMAR,NEW DELHI vs. ITO, NEW DELHI

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ITA 4910/DEL/2016Status: DisposedITAT Delhi24 November 2016AY 2012-135 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the CIT(A) had not considered a relevant CBDT circular regarding abandoned feature films. Therefore, the issue was set aside to the CIT(A) for fresh adjudication after considering the circular and providing an opportunity to the assessee.

What were the facts?

The assessee declared income and the case was selected for scrutiny. The AO noted a discrepancy in opening stock and assumed sales out of books, making an addition under Section 44AD. The CIT(A) sustained the addition, stating a relevant CBDT circular was issued after the assessment.

What were the issues?

Whether the CIT(A) erred by not considering a subsequent CBDT circular relevant to the assessee's case, and whether the addition made by the AO based on assumed sales was justified.

Which sections of the Income-tax Act were involved?

Section 44AD,Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-III’, NEW DELHI

Before: Sh. N. K. Saini

Hearing: 15.11.2016Pronounced: 24.11.2016

ORDER This is an appeal by the assessee against the order dated 14.07.2016 of ld. CIT(A)-X, New Delhi.

2.

Following grounds have been raised in this appeal:

1.

“1. That on facts and circumstances of the case, the order passed by the Ld. CIT (Appeal) is bad both in the eyes of law and on facts.

2. That the Ld. CIT (Appeal) has erred in law and on facts in confirming the impugned assessment order which is illegal and void abinitio as no valid notice u/s 143(2) was issued by the Ld Assessing Officer having jurisdiction over the assessee.

3.

That the Ld. CIT (Appeal) has erred in law and on facts in confirming the assumption of AO regarding sale of opening stock of Rs. 90.00 lacs, without bringing any evidence on record or having any reliable material for 2 Manoj Kumar this assumption and without confronting such material, if any, to the assessee.

4.

That the Ld. CIT (Appeal) has erred in law and on facts in confirming the addition of Rs. 4,47,397/-, as profit u/s 44AD by assuming sales of opening stock of Rs. 90.00 lacs, despite the fact that no sales was made during the year under consideration.

5.

That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.

6. That the Appellant craves leave to add/alter any/all grounds of appeal

before or at the time of hearing of the Appeal.”

3. Ground Nos. 1, 5 and 6 are general in nature, so do not require any comments on our part. Ground No. 2 was not pressed as such the same is dismissed as not pressed.

4. Vide Ground Nos. 3 & 4, the grievance of the assessee relates to the confirmation of addition of Rs.4,47,397/-.

5. Facts of the case in brief are that the assessee filed the return of income on 29.03.2013 declaring an income of Rs.4,30,520/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Later on, the case was selected for scrutiny. The AO during the course of assessment proceedings asked the assessee to reconcile the figures of opening stock for the year under consideration with the figures of preceding years. In response the assessee submitted as under:

3 Manoj Kumar “During the previous financial year i.e. FY 1010-11, the assessee has earned out certain business of Production and Distribution of various Movies/Films. The details of movies/films completed/distributed during FY 2010-11: Name of the Film Sale/Receipt from Distribution (Rs.) A Distant Mirage 16,00,000/- Laad gaye Pecha 21,57,237/- Panjaban 19,98,745/- Total 57,55,982/- The expenditure incurred on the above business of production and distribution of various movies/films was Rs. 1,42,36,996/-. Excluding the amount of Rs. 90,00,000/- incurred on incomplete movies the remaining cost comes out to Rs. 52,36,996/- resulting into net profit of Rs. 5,78,986/-. The amount incurred on incomplete movies was treated as closing stock as at 31.3.2011. However, no further job was carried out on the incomplete Movies during the year under consideration. Thus there is no impact on taxable income and/or on tax liability of the assessee due to difference in closing stock of previous financial year i.e. FY 2010- 11 and opening stock of the year under consideration."

6.

The AO did not find merit in the submissions of the assessee by observing that the assessee himself had shown closing stock of Rs.90,00,000/- in the preceding year but had not shown opening stock in the year under consideration which proved beyond doubt that the assessee sold the stock out of books. The AO invoked the provisions of Section 44AD of the Act and worked out income @ 8% on Rs.90,00,000/- i.e. Rs.7,20,000/- and since the assessee had declared 4 Manoj Kumar business income of Rs.2,72,703/-. The addition of Rs.4,47,297/- was made.

7.

Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submissions which had been incorporated by the ld. CIT(A) in para 4.3 of the impugned order, for the cost of repetition, the same are not reproduced herein. The assessee also placed reliance on Circular No. 16/2015 dated 06.10.2015 issued by the CBDT in respect of abandoned feature films and submitted that the addition made by the AO was uncalled for. The ld. CIT(A) however sustained the addition made by the AO and observed that the assessment was completed by the AO on 23.03.2015 while the Circular had been issued by the CBDT on 06.10.2015, hence the benefit of the Circular could not have been claimed by the assessee during the appellate stage.

8.

Now the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that the Circular issued by the CBDT was very much relevant and goes to the root of the matter which had not been considered by the ld. CIT(A) and if the said Circular had been considered and applied to the facts of the assessee’s case no addition was called for. It was further stated that the powers of the ld. CIT(A) are co-terminus with the powers of the AO, therefore, the ld. CIT(A) ought to have considered the aforesaid circular.

9.

In his rival submissions the ld. DR supported the orders of the authorities below.

5 Manoj Kumar 10. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee relied on the Circular No. 16/2015 dated 06.10.2015 issued by the CBDT in respect of abandoned feature films which were in the stock of the assessee. Therefore, the Circular is very much relevant to resolve the present controversy, however, the ld. CIT(A) had not considered the same while deciding the case of the assessee. I, therefore, deem it appropriate to set aside this issue back to the fail of the ld. CIT(A) to be decided afresh in accordance with law after considering the aforesaid referred to Circular No. 16/2015 issued by the CBDT by providing the due and reasonable opportunity of being heard to the assessee.

11.

In the result, the appeal filed by the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 24/11/2016)

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