SANJAY M. GADHVI,MUMBAI vs. ACIT 11(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 21.01.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

The assessee in the present appeal has agitated the confirmation of addition made by the Assessing Officer (hereinafter referred to as the AO) on account of advance received of Rs.1,00,00,000/- treating the same as income of the assessee for the year under consideration.

The brief facts of the case are that the assessee is an individual and is in the profession of directing the films. The assessee has been following the cash method of accounting. During the year, the assessee entered into an agreement with Indian Film Company (Cyprus) Ltd. As per the said agreement the 2 Mr. Sanjay M. Gadhvi assessee received Rs.4,80,00,000/- for two films, out of which the amount of Rs.3,80,00,000/- was offered for tax and Rs.1,00,00,000/- was shown as advance receipt. On being asked to explain by the AO, the assessee explained that the signing amount of Rs.2,00,00,000/- was received for Film-1 and further an amount of Rs. Rs.80,00,000/- was received on acceptance of concept. Hence, the entire receipt of Rs.2.80 crores was offered to tax in respect of Film-1. However, in respect of Film-2, the signing amount of Rs.2,00,00,000/- was received. However, as per clause 4.12 of the agreement, if the concept of the film is not approved, the assessee has to return the 50% of the signing amount. Therefore, Rs.1,00,00,000/- i.e. 50% of the signing amount in respect of Film-2 was shown as advance. Thereafter, the concept of the Film-2 was not approved and the matter went into the litigation and the producer filed civil and criminal cases against the assessee. Since the amount received was not crystallized as income, hence the assessee did not offer the said amount of Rs.1,00,00,000/- for taxation. However, the AO did not accept the contention of the assessee and held that since the assessee was following cash method of accounting, hence the entire signing amount of Rs.2,00,00,000/- in respect of Film-2 was income of the assessee. He accordingly taxed the remaining amount of Rs.1,00,00,000/- also as income of the assessee for the year under consideration. Being aggrieved, the assessee preferred appeal before the Ld. CIT(A).

It was contended before the Ld. CIT(A) that even though the assessee was following the cash method of accounting but every receipt cannot be treated as income of the year. The assessee in this respect relied upon various case laws. However, the Ld. CIT(A) did not agree with the contention of the assessee and upheld the additions so made by the AO.

Before us, the Ld. A.R. of the assessee has brought our attention to an application moved on behalf of the assessee under rule 29 of the Income Tax Appellate Tribunal Rules for filing additional evidence. It has been pleaded in 3 Mr. Sanjay M. Gadhvi the said application that it was very much pointed out during the assessment proceedings as well as appellate proceedings before the Ld. CIT(A) that there was a litigation going on between the assessee and the producer film company and even criminal complaints were also filed by the said film company against the assessee. It has been further pointed out that subsequent to the order of the Commissioner (Appeals) on 21.01.13, a consent decree has been passed by the Hon’ble Bombay High Court on 25.03.13. As per the said consent decree, the assessee has to pay a sum of Rs.1,75,00,000/- to Viacom 18 Media Pvt. Ltd. which is a successor company to Indian Film Company (Cyprus Ltd.) and out of which Rs.1,00,00,000/- was the advance received by the assessee and further Rs.75 lakhs as compensation. The assessee has submitted that from the said consent decree, it is proved beyond doubt that the said amount has never crystallized as income of the assessee as the concept of the film was never approved and the assignment was not completed and further that the said amount has always been treated by the assessee in its books of account as an advance and not income. The assessee in this respect has relied upon the decision of the Mumbai Tribunal in the case of “Robin Nana Bhai Bhatt vs. ACIT” (2014) 29 ITR (Trib.) 531 (Mumbai) wherein it has been held that the token advance received during the earlier year is to be considered as income in the year of performance of work. The assessee has also relied in this respect on the decision of the Chennai Tribunal in the case of “R.S. Suriya vs. ACIT” (2015) 41 ITR (Trib.) 282 (Chennai). The Ld. A.R. of the assessee has further stated that even in the accounts for assessment year 2011-12, the assessee in its balance sheet has shown Rs.1,00,00,000/- as advance in the column of liabilities which has been accepted by the AO in the assessment order passed under section 143(3) of the Act for the assessment year 2011-12. The Ld. A.R. has further submitted that the decree passed by the Hon’ble Bombay High Court as per the consent terms arrived at between the assessee and the producer company has come into existence after the passing of the impugned order of

Considering the above submissions of the assessee and also considering the relevant case laws, we are of the view that the fact of litigation as well as consent decree vide which the assessee has agreed to refund the amount of Rs.1,00,00,000/- and further Rs.75,00,000/- to the producer require verification at the hands of the AO. We therefore restore the matter to the file of the AO to verify the above contention of the assessee and if found correct, then not to tax the advance received by the assessee as income of the assessee for the year under consideration.

In view of our above observations, the appeal of the assessee is treated as allowed for statistical purposes.