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Income Tax Appellate Tribunal, BENCH “B”, MUMBAI
Before: SH.B.R. BASKARAN & SH. PAWAN SINGH
Representation of parties Assessee by : Sh.Vijay Mehta Revenue by : Sh.Naveen Gupta –DR Date of hearing : 18.01.2016 Date of Order : 03.05.2016 ORDER
PER PAWAN SINGH JM
The present appeal is filed by the assessee against the order of Commissioner of Appeals-18 dated 28th of October 2013, in respect of AY- 2009-10, raising the following grounds of appeal: (1) The Ld. CIT(A) erred in treating an amount of Rs.11,90,000/- as sale consideration on accrual basis from sale of movie rights without appreciating that the sale is not completed and concluded and the amount is not received by the appellant. (2) The Ld. CIT(A) erred in treating advance received towards sale of movie right as sale consideration and made addition is to the business income of the appellant without appreciating the fact that the sale agreement could not be completed and concluded, and was subsequently cancelled on non fulfillment of conditions mentioned therein. (3) The Ld. CIT(A) erred in stating that they received from sale of movie rights has been offered to tax as business income and earlier years without appreciating that the royalty receives on use of movie right for the limited period was offered to tax as business income in earlier years and not received from sale of movie rights. (4) The Ld. CIT(A) erred in disallowing short term capital loss of Rs. 18,910/- under section 94 (7) of the income tax act.
The brief facts of the case are that assessee filed her return of income for relevant AY declaring total income of Rs. 2,97,460/-. The case was selected for scrutiny. During the assessment proceeding AO observed that assessee had shown sale of movie rights/royalties amounting to Rs. 3,55,935/-. The assessee claimed expenditure of Rs. 1, 04,361/-and net income of Rs. 2,51,574/- has been offered for tax. The AO further observed that assessee entered into an agreement dated 6 June 2008 for sale of negative rights of Hindi film “Meera Saya” with M/s Eros Multimedia Private Limited. She inherited intangible right from her father. Her father late Shri Premnath, jointly produced the said film with M/s DH Udani &Co. As per agreement the assessee had to receive 34% of her share, out of total sale consideration of Rs. 35 lakhs. The assessee’s share was worked out to Rs. 11,90,000/-. The assessee vide letter dated 10 August 2011 claimed that this income has been erroneously offered and is not taxable income. As the said agreement was subsequently cancelled and she refunded the money and therefore requested to treat the amount as advance and not a revenue receipt. And in alternative contended that if at all it is taxable, it is a Capital receipt and since transfer has not taken within meaning of section 2(47) of the Act, no capital gains accrue to the assessee during the year under consideration. The contention of assessee was not accepted by the AO and added the entire amount of Rs.11,90,000/- under the head ‘Business Income’ as a taxable income.
Aggrieved by the order of AO assessee filed appeal before Commissioner of Income Tax appeals but without any success. Hence, this present appeal is filed before us.
We have heard ld AR of the parties and gone through the material available on record. First we shall take up Ground No. 1 to 3 raised in the present appeal, which are interlinked. AR of assessee argued that assessee wrongly declared the advance received from the sale of movie’s right as business income. The said mistake was realized during the course of assessment proceeding and thereafter assessee vide her letter dated 10 August 2011, requested the AO to rectify (correct) the said mistake and reduce the income accordingly. AR for assessee further argued that the said agreement /assignment of right of film was subject to fulfillment of certain conditions mentioned therein. On execution of the said agreement the purchaser paid in advance of Rs. 13 lakhs to M/s DH Udani & Co, the assessee received only 23.08% share in the advance. The purchaser did not pay the balance amount until 23rd March 2011, and finally the agreement was cancelled. The assessee is liable to refund the amount of advance money received at the time of execution of the agreement. Accordingly, the assessee has returned the entire advance money of her share received by her to M/s Eros International Media Ltd on 23 March 2011. At the time of filing of return in the year under consideration and with assessee received advance the amount of advance money received was wrongly offered to tax as business income. Considering it to be in the nature of royalty. The correct taxability of the said transaction would be chargeable under the head capital gains, as the Rights that were to be transferred were capital assets of the assessee. AR further argued that CBDT has issued a Circular No. 14 dated 11th April 1955, which cast a duty upon the Department ( AO) not to take advantage of the ignorance of an assessee about their rights. (placed on record the extract of the circular in his written submission). AR of assessee further relied upon the judgment of honorable jurisdictional High Court in case of CIT versus Pruthvi Brokers and Shareholders (2012) 23 taxmann.com 23(Bom) on the point of allowing the claim in assessment, which was not claimed originally while filing of the claim, and judgment of Apex Court in Godhra Electricity Co. Ltd Vs CIT (225 ITR 747 SC) on the point of accrual of income or its receipt. On the contrary, ld DR for revenue supported the order of authorities below and vehemently argued that the assessee cannot be allowed to withdraw the income offered for tax. DR further argued that assessee has not placed on record as to when the said amount was returned to the purchaser of film. The assessee has not placed on record the cogent document which may show that actually the amount was returned. No document in the form of cancellation deed was placed, the alleged document which was purportedly a cancellation deed cannot be taken into consideration.
We have considered the rival contention of the parties and carefully gone through the record of the case including the documents filed in the form of paper books, which includes the agreement dated 6 June 2008, executed between the assessee, D H Udani & Co and M/s Eros Multimedia Private limited, copy of cancelled agreement, debtor confirmation letter (from M/s Eros International Media Ltd) dated
31/01/2011, ledger account of assessee from the books of Eros international Media. Ltd and the written submissions filed before Commissioner of appeal. We have noticed that assessee vide letter dated 10 August 2011, claimed that income has been erroneously offered is not taxable income. As the said agreement was subsequently cancelled and she refunded the money and therefore requested to treat the amount as advance and not a revenue receipt. However the contention of assessee was not accepted by AO on the pretext that the assessee is following mercantile system of accounting and the amount of her share received/ receivable has to be accounted as revenue receipt, in the past similar receipt was shown as business income, she is hiding something and if the agreement is subsequently cancelled it can be claimed as bed debt as per the provisions of the Act, and added the entire amount of Rs.11,90,000/- under the head ‘Business Income’. Ld. CIT(A) while considering the appeal of assessee on these Grounds concluded that the agreement was cancelled three year later, on 23.11.2011, the income was accrued to the assessee in the year under consideration therefore the AO rightly taxed the income after allowing the expenditure. Here we may note that Ld CIT(A) has not taken the note of the fact that before the completion of the assessment of income the agreement was cancelled and the assessee made request vide her letter dated 10 August 2011, that income has been erroneously offered to tax. Neither the AO nor CIT (A) considered the fact that in fact the sale of the film was not materialized and no finding was given on the contention of the assessee. The documents filed before the authority below clearly proved that the agreement for sale of rights of the film was cancelled. Even this fact is not expressly disputed by the AO and CIT (A).
Hon’ble Apex Court in Godhra electricity Co. Ltd versus CIT (225 ITR 746) while dealing with the issue of accrual of income, and the principle of real income held as under: “No doubt, the income tax act takes into account two points of time at which the liability to tax is attracted, viz, the accrual of the income or its receipt, but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, and entries made about hypothetical income which does not materialize.”
Further, the Hon’ble Bombay High Court in case of Pruthvi Brokers and Shareholders Private Limited Vs CIT held as under:
“Even if a claim is not made before the AO, it can be made before appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon’ble High Court has further observed that the decision of the Hon’ble Supreme Court in case of Goetez (India) versus CIT(2006) 157 taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the assessing authority and the said judgment does not impose on the power to negate the powers of the appellate authority to entertain such claim by way of additional ground. Even otherwise, the learned CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is otherwise entitled to a claim of deduction but due to his of ignorance or for some other reasons could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the taxpayers. They are not there to punish the taxpayer for their bonafide mistakes.”
Further, CBDT instruction No. 448 in Circular No. 14(XL-35) dated 11 April 1955 prescribed the following guidelines: (1)------ (2)----- (3) Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assisted taxpayer in every reasonable way, particularly in the matters of claiming and securing relief and in this regard, the officers should take the initiative in riding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a squire deal from the departments. Although, therefore, the responsibility for claiming refunds and relief rests with the assessee on whom it is imposed by law, officers should- (a) draw their attention to any refunds or relief to which they appear to be clearly and title but which they have omitted to claim for some region or other, (b) freely advise them.when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and rebates.( emphasis supplied) 7. Now coming to the facts of the present appeal, as we have already concluded that the sale was not materialized. This fact was not considered by the Commissioner of appeal in its correct perspective. The assessee placed on record the documents which clearly established that sale agreement was cancelled. The consideration was returned to the purchaser. In the circumstances, the revenue authorities were not correct to fix tax liability in respect of the transaction in the hands of assessee. It is a case of bonafide mistake on the part of assessee, for which assessee filed application for correction of her mistake. Hence in view of the above legal discussion, and considering the fact of the present case, the assessee was entitled to correct the taxability of income which does not arise due to recession of contract of sale of hindi feature film ‘Meera Saya’. The action of AO for not allowing to correct the claim of income which do not arise due to recession of contract of sale of film is uncalled for, thus the addition made by AO and confirmed by Commissioner of appeal in respect of sale of rights in respect of Hindi film ‘Meera Saya’ is deleted. Thus, the ground number 1 to 3 raised in the present appeal are allowed.
Next Ground for our consideration is disallowance of short term capital loss. At the starting of making submission ld AR of assessee would submit that assessee does not press Ground No. 4, raised in the present appeal, hence, Ground No. 4 raised in the present appeal is dismissed as not pressed.
In the result, appeal of the assessee is partly allowed. Announced in the open court on 3rd day of May 2 016.