Income Tax Appellate Tribunal - Chennai
Footcandles Film P. Ltd., Chennai vs Department Of Income Tax on 1 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH : CHENNAI
[BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER
AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER]
I.T.A.Nos. 1931 & 1932/Mds/2012
Assessment year : 2008-09 & 2009-10
The Dy. CIT vs M/s Footcandles Film P. Ltd
Media Circle-I B-3, Anmol Crest
Chennai No.3, Lock St. Kottur Gardens
Kotturpuram
Chennai 600 085
[PAN AAACF 4458 Q]
(Appellant) (Respondent)
Appellant by : Shri N. Madhavan, Jt. CIT
Respondent by : Shri D. Anand, Advocate
Date of Hearing : 01-08-2013
Date of Pronouncement : 08-08-2013
ORDER
PER N.S. SAINI, ACCOUNTANT MEMBER
These are the appeals filed by the Revenue against separate orders of the ld. CIT(A)-VI, Chennai, both dated 31.3.2012, passed in assessment years 2008-09 and 2009-10.
2. Ground Nos. 1 & 4 in assessment year 2008-09 and Ground Nos. 1 & 5 in assessment year 2009-10 are general in nature and therefore, requires no specific adjudication by us.
:- 2 -: I.T.A.No. 1931 & 1932/12
3. In Ground No.2 of the appeal in both the years under consideration the grievance of the Revenue is that the ld. CIT(A) erred in holding the advances received for production of advertisement films cannot be treated as income in the years under consideration.
4. The brief facts of the case are that the Assessing Officer observed that in assessment year 2008-09 the assessee received ` 76 lakhs from the following parties for production of advertisement films:
M/s Ogilivy & Mathew Pvt. Ltd ` 25,50,000/-
M/s ITC, Ltd. ` 20,50,000/-
M/s R.K.Swamy BBDO Pvt. Ltd ` 30,00,000/-
` 76,00,000/-
5. The Assessing Officer further observed that the assessee
explained that the amounts were the advances received for the advertisement films and that the said projects were completed during the next financial year relevant to assessment year 2009-10 and the full receipts were shown as income in that year. The assessee also stated that expenses incurred of ` 52,63,602/- during the year on these projects were carried forward to subsequent year as closing stock. The Assessing Officer did not accept the explanation of the assessee on the ground that once the bill is raised, the amount received gains the character of an income and cannot be treated as an advance. He also observed that the payee has deducted TDS on the payment made and the assessee has claimed the TDS on the advance :- 3 -: I.T.A.No. 1931 & 1932/12 at ` 6,10,366/- being ` 2,70,466/- received from M/s ITC Ltd and ` 3,39,900/- received from M/s R.K.Swamy, therefore, the assessee should have offered the said advance as income. He also observed that the assessee has not produced any proof that the payer of the advance has not claimed the said payment as expenditure in its return. According to the Assessing Officer, the assessee has merely tried to postpone its income by claiming the said receipt as advance whereas the assessee has already incurred substantial expenditure on these projects. Accordingly, he added the receipts of ` 76 lakhs to the income of the assessee.
6. Similarly, in assessment year 2009-10, the Assessing Officer observed that the assessee has received advance for production of advertisement films from the following parties:
M/s Platinum New World ` 58,45,000/-
M/s Kinley ` 38,00,000/-
M/s Bacardi - Martini India Ltd. ` 92,00,000/-
M/s Amway ` 40,17,500/-
` 2,28,62,500/-
7. For the similar reasons as given in assessment year 2008-09 the Assessing Officer added ` 2,28,62,500/- to the income of the assessee. The Assessing Officer also reduced ` 76 lakhs from the income of the assessee as he has treated the same as income in the assessment year 2008-09.
:- 4 -: I.T.A.No. 1931 & 1932/12 8. Being aggrieved the assessee filed appeal before the ld.
CIT(A) and submitted that the Assessing Officer grossly erred in considering the advance received/billed to parties as income of the assessee as the same merely represented advance received/billed from customers for carrying out the projects and the projects in respect of which the amounts were billed/received were in progress at the year end which were treated as income by the assessee in the subsequent year on completion of the projects. The treatment adopted by the assessee was in line with the method of accounting regularly employed by the assessee. The ld. CIT(A) deleted the addition by observing as under:
A.Y 2008-09 "4.3 On careful consideration I find that the appellant is engaged in the production of advertisement films and perusal of the balance sheet of the appellant reveal that he carries on his business activities with very low capital. Therefore to carry out the production of the films the appellant obtains advance and the same is documented in agreement signed with the clients.
On completion of the production of advertisement films, the appellant accounts advance as income. Correspondingly the appellant has also shown working progress in the asset side relating to projects under completion. The main point on which the AO brought the said advance to tax is on the ground that the bill is raised and hence it acquires the character of income. However the nature of the activity of the appellant is such that appellant is required to give an estimate which on approval by the client. results in appellant receiving advance to carry on production of advertisement films. Therefore I do not find any infirmity in the accounting of income by the appellant as expenditure relating to incomplete projects are carried forward and claimed in the year in which the income of the project is offered for tax. Therefore I do not see any justification in bringing to tax Rs.76,00,000/- which has been offered to tax in the immediate succeeding year and I delete the addition. This ground of appeal is allowed."
:- 5 -: I.T.A.No. 1931 & 1932/12
A.Y 2009-10
"4.2 On careful consideration I find that the appellant is engaged in the production of advertisement films and perusal of the balance sheet of the appellant reveal that he carries on his business activities with very low capital. Therefore to carry out the production of the films the appellant obtains advance and the same is documented in agreement signed with the clients. On completion of the production of advertisement films, the appellant accounts advance as income. Correspondingly the appellant has also shown working progress in the asset side relating to projects under completion. The main point on which the AO brought the said advance to tax is on the ground that the bill is raised and hence it acquires the character of income. However the nature of the activity of the appellant is such that appellant is required to give an estimate which on approval by the client results in appellant receiving advance to carry on production of advertisement films. Therefore I do not find any infirmity in the accounting of income by the appellant as expenditure relating to incomplete projects are carried forward and claimed in the year in which the income of the project is offered for tax. Therefore I do not see any justification in bringing to tax ` 2,28,62,500/- which has been offered to tax in the immediate succeeding year and I delete the addition. This ground of appeal is allowed."
9. The ld. DR supported the orders of the Assessing Officer whereas the ld. A.R of the assessee supported the orders of the ld. CIT(A) and relied on the decision of the Delhi Bench of the Tribunal in the case of ITO vs Sikka International Fright Services (P) Ltd. [2011] 12 ITR 476 (Del)(Trib) and the decision of the Mumbai Bench of the Tribunal in the case of Smt. Varsha G. Salunke vs DCIT, 98 ITD 147(Mum)(TM) and submitted that the Tribunal has held that when income is assessed as business income the same is to be on the basis of method of accounting regularly employed by the assessee. The tax is required to be deducted at source at the time of credit or at the time :- 6 -: I.T.A.No. 1931 & 1932/12 of actual payment thereof. Thus, the deduction of tax at source does not determine the year of taxability of the receipt stated in the TDS certificate. At best if corresponding income is not taxable in a particular year, the corresponding credit for tax deducted may not be granted in view of section 199 but reverse is not true. Merely because credit was claimed for tax deducted at source, it does not mean that the corresponding income is chargeable to tax. Since the income is chargeable to tax on the basis of method of accounting regularly followed by the assessee and in respect of which no discrepancy has been noticed by the Assessing Officer, the addition was rightly deleted by the ld. CIT(A).
10. We have considered the rival submissions, perused the orders of the lower authorities and materials available on record. The assessee is engaged in the business of production of advertisement films. The assessee has shown the profit on project completion method. The assessee has shown ` 76 lakhs received in assessment year 2008-09 as advance in its Balance Sheet and shown corresponding expenditure of `52,63,602/- as work-in-progress on the ground that the related film was not completed during the assessment year 2008-09. According to the assessee, the related film was completed in assessment year 2009-10 and at that time the entire receipt of the film including advance of ` 76 lakhs was credited to the :- 7 -: I.T.A.No. 1931 & 1932/12 Profit & Loss Account and also expenditure of the film including work- in-progress of `52,63,602/- was debited in the Profit & Loss Account. In the similar manner, in assessment year 2009-10, the assessee has shown payment of ` 2,28,62,500/- received as advance in the Balance Sheet on the ground that related film was not completed during the said year. However, the Assessing Officer has not accepted the above stand of the assessee and brought to tax the entire ` 76 lakhs in assessment year 2008-09 and ` 2,28,62,500/- in assessment year 2009-10 on the ground that the said payments were received on the basis of invoices raised by the assessee. The Assessing Officer also supported his action on the ground that ITDS was deducted in respect of ` 610366/- by the payee in assessment year 2008-09.
11. On appeal, the ld. CIT(A) deleted the above additions made by the Assessing Officer by observing that the assessee, as per its regularly followed system of accounting, offered to tax the income in the year in which advertisement film was completed. The ld. CIT(A) also observed from the agreement entered into by the assessee for production of film that bills were raised on estimate basis to receive advance as the assessee was working with a nominal capital.
12. We find that the ld. DR could not point out any specific error in the order of the ld. CIT(A). The ld. DR could not bring any material before us to show that it was not the regularly followed system of :- 8 -: I.T.A.No. 1931 & 1932/12 accounting of the assessee to offer income on the basis of project completion method. In our considered opinion, the project completion method is also a recognized method and if such method is regularly followed by the assessee for computing its income then the same cannot be discarded. Further we find that even when it was held by the Assessing Officer that entire advance is to be treated as income of the year in which advance was received, then the Assessing Officer ought to have allowed deduction for the expenses incurred for receiving the advance. Be that as it may. We find that no material could be brought before us to show that any film was completed during the year of receipt of advance. Further, simply because invoice was raised for receiving advance, it cannot be concluded that the advance so received was the income of that year of the assessee irrespective of the system of accounting regularly followed by the assessee. Further we find that the decision of the Delhi Bench of the Tribunal in the case of ITO vs Sikka International Freight Services (P) Ltd. [2011] 12 ITR 476(Del)(Trib) and the decision of the Mumbai Bench of the Tribunal in the case of Smt Varsha G. Salunke vs DCIT, 98 ITD 147(Mumbai)(TM) support the argument of the assessee that merely because the payee deducted ITDS on advance payment as per the provisions of the Income-tax Act, 1961, it cannot be concluded that advance so received by the assessee was the income of the assessee of that year. In view of the above, we do not find any good :- 9 -: I.T.A.No. 1931 & 1932/12 reason to interfere with the order of the ld. CIT(A) which is confirmed and the ground of appeal of the Revenue is dismissed.
13. Ground No.3 in both the appeals of the Revenue are directed against the order of the ld. CIT(A) holding that interest on the advances made to the Directors cannot be charged as it was the prerogative of the assessee to charge interest.
14. The brief facts of the case are that the Assessing Officer observed that the assessee has given advance to Directors and the amount outstanding as on 31.3.2008 was ` 65,17,542/- and the amount outstanding as on 31.3.2009 was ` 1,11,48,948/-. According to the Assessing Officer, the assessee has paid interest on loan taken for vehicles and has charged the same to the Profit & Loss Account. According to the Assessing Officer, since the assessee has paid interest on vehicle loan which was obtained for purposes of business, therefore, on the advances given to the Directors the assessee should have charged interest from the Directors. Accordingly he estimated interest by applying the rate of 18% per annum and determined `11,73,157/- as interest receivable from Directors in assessment year 2008-09 and `20,06,810/- as interest receivable from directors in assessment year 2009-10. The Assessing Officer further observed that since the assessee has debited interest expenditure of ` 75,282/- and ` 1,01,441/- in assessment years 2008-09 and 2009-10 respectively, :- 10 -: I.T.A.No. 1931 & 1932/12 he restricted the disallowance to the said amount in the respective assessment years.
15. On appeal before the ld. CIT(A), the assessee submitted that the amount was given to the Directors in the ordinary course of business as production advance and that no interest bearing fund was advanced to the Directors. The assessee had taken only loan for purchase of vehicles which were used for the business purposes and therefore, no interest was charged from the Directors. The ld. CIT(A) deleted the disallowance in both the years under appeal observing that it was the businessman's prerogative to charge interest on advances as the advance given to Directors was not out of borrowed funds and the Assessing Officer was not justified in disallowing the interest expenditure and vacated the disallowance.
16. The ld. DR supported the order of the Assessing Officer and the ld. A.R of the assessee supported the order of the ld. CIT(A).
17. We have considered the rival submissions, perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that during the years under consideration the Assessing Officer observed that the assessee has debited interest expenditure of ` 75,282/- in assessment year 2008-09 and ` 1,01,441/- in assessment year 2009-10 on vehicle loans in the :- 11 -: I.T.A.No. 1931 & 1932/12 Profit & Loss Account. The Assessing Officer observed from the Balance Sheet of the assessee that the assessee had advanced ` 65,17,542/- in assessment year 2008-09 and ` 1,11,48,948/- in assessment year 2009-10 to the Directors. According to the Assessing Officer, the assessee should have charged interest on the advances made to the Directors and therefore, he made disallowance of ` 75,282/- in assessment year 2008-09 and ` 1,01,441/- in assessment year 2009-10.
18. The ld. CIT(A) deleted the disallowance on the ground that no interest bearing funds were utilized for giving the advances to the Directors. He also observed that charging of interest was business decisions which should be taken by the businessman.
19. The ld. DR could not controvert the findings of the ld. CIT(A). We find that interest expenditure in question were incurred on the borrowed funds which were utilized for the business of the assessee is not in dispute and therefore, no exception to the decision of the ld. CIT(A) can be made. We, therefore, confirm the order of the ld. CIT(A) and dismiss the ground of appeal of the Revenue in botht he assessment years.
20. Ground No.4 of the appeal in assessment year 2009-10 is directed against the order of the ld. CIT(A) in holding that the :- 12 -: I.T.A.No. 1931 & 1932/12 provisions of section 40(a)(ia) cannot be invoked in the case of the assessee since the said amount of ` 1.42 crores was remitted before the due date of filing the return of income.
21. The brief facts of the case are that the Assessing Officer observed from the details of TDS made and remitted, furnished by the assessee that in the case of some items of expenditure where TDS was made during the financial year 2009-10 from the months of April, 2008 to February, 2009, TDS was remitted beyond 31.3.2009. The total of such expenditure was ` 1,42,24,749/-. The Assessing Officer disallowed this expenditure for the reason that the TDS was not remitted during the financial year 2008-09 but during the financial year 2009-10 and therefore, the expenditure was allowable deduction to the assessee in assessment year 2010-11.
22. On appeal before the ld. CIT(A) the assessee submitted that the TDS on the amount of ` 1,42,24,794/- was deducted and remitted to the credit of Central Government after 31.3.2009 but before the due date of filing of return of income for the assessment year 2009-10. It was submitted that the Hon'ble Calcutta High Court in the case of CIT vs Virgin Creations G.A.No.3200/2011, dated 23.11.2011, has held that the amendment brought out in section 40(a)(ia) of the Act by the Finance Act, 2010, w.e.f 1.4.2010 providing for no disallowance u/s 40(a)(ia) of the Act if the tax deducted are remitted to the Central :- 13 -: I.T.A.No. 1931 & 1932/12 Government account on or before the due date for filing return of income u/s 139(1) was retrospective in nature and that if the TDS was deducted by the assessee and deposited to the credit of the Central Government before the due date of filing of return of income then no disallowance u/s 40(a)(ia) of the Act could be made. It was further submitted that the Hon'ble Supreme Court in the case of Jodhamal Kudhiala (RB) vs CIT, [1971] 82 ITR 570(SC) has held that it is true that equitable considerations are irrelevant in interpreting tax laws. But these laws, like all other laws, are to be interpreted reasonably and in consonance with justice. It was therefore, submitted that since the full amount of TDS was remitted before the due date of filing of return of income for assessment year 2009-10 no disallowance of the expenditure could be made. The ld. CIT(A) vacated the disallowance by observing as under:
"6.2 I have carefully considered the submission of the AR. As brought out by the Assessing Officer in Annexure A to the assessment order, TDS made on aggregate of Rs.l,42,24,794/- have been remitted during the month of July 2009 whereas the appellant being company the due date for filing for return is 30.09.2009. In the case of CIT Vs Virgin Creations the Hon'ble Calcutta High Court held that:
"We have heard Mr. Nizamuddin and gone through the impugned judgment and order. We have also examined the point formulated for which the present appeal is sought to be admitted. It is argued by Mr. Nizamuddin that this court needs to take decision as to whether section 40(A)(ia) is having retrospective operation or not.
The learned Tribunal on fact found that the assessee had deducted tax at source from the paid charges between the period April 1, 2005 and April 28, 2006 and the same :- 14 -: I.T.A.No. 1931 & 1932/12 were paid by the assessee in July and August 2006, i.e. well before the due date of filing of the return of income for the year under consideration. This factual position was undisputed.
Moreover, the Supreme Court, as has been recorded by the learned Tribunal, in the case of Allied Motors Pvt. Ltd. and also in the case of Alom Extrusions Ltd., has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well.
In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs."
As the appellant has remitted tax deducted at source before the due date for filing of the return for AY 2009-10, respectfully following the judgement of the Hon'ble Calcutta High Court I delete the addition on this ground. This ground of appeal is allowed."
23. The ld. DR supported the order of the Assessing Officer whereas the ld. A.R of the assessee relied on the decision of the Chennai 'A' Bench of the Tribunal in the case of ACIT vs M/s Middle East Leathers, in I.T.A.No. 1874/Mds/2012, assessment year 2005-06, order dated 18.4.2013 and submitted that the Tribunal has held that the Assessing Officer disallowed ` 19,07,798/- being commission payments made by the assessee without deducting TDS. The ld. CIT(A) deleted the addition by following the decision of the special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports vs ACIT, 16 ITR (Trib)(1)(SB) wherein it was held that no disallowance of expenditure can be made where no amount was outstanding as :- 15 -: I.T.A.No. 1931 & 1932/12 payable at the year end by the assessee. The said decision was overruled by the Hon'ble Calcutta High Court in the case of CIT vs Md. Jakir Hossain Mondal in G.A.No.320 of 2013, order dated 4.4.2013 and the Tribunal following the said decision, has allowed the appeal of the assessee.
24. On the other hand, the ld. A.R of the assessee relied on the decision of the Chennai 'C' Bench of the Tribunal in the case of ACIT vs Shri Nandan Nahar, in I.T.A.No. 555/Mds/2013,assessment year 2008- 09, order dated 20.6.2013 wherein the Tribunal held that where the assessee had deducted TDS and deposited the same to the credit of the Central Government before the due date of filing of return of income for assessment year 2008-09, then no disallowance of expenditure could be made u/s 40(a)(ia) of the Act.
25. We have considered the rival submissions, perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that the assessee made expenditure of ` 1,42,24,794/- on which TDS deducted was deposited by the assessee during the period 13.7.2009 to 21.7.2009. The Assessing Officer disallowed the expenditure of `1,42,24,794/- by invoking the provisions of section 40(a)(ia) of the Act on the ground that TDS deducted was not deposited during the financial year ending on 31.3.2009.
:- 16 -: I.T.A.No. 1931 & 1932/12
26. On appeal, the ld. CIT(A) allowed the claim of deduction to the assessee by following the decision of the Hon'ble Calcutta High Court in the case of CIT vs Virgin Creations (supra) wherein it was held that where the TDS deducted was deposited by the assessee within the due date of filing of return of income u/s 139(1) of the Act then no disallowance can be made u/s 40(a)(ia) of the Act.
27. The ld. DR has relied on the decision of the Chennai Bench of the Tribunal in the case of ACIT vs M/s Middle East Leathers(supra) wherein the issue was whether the expenditure paid during the financial year itself and no amount was outstanding to be payable as at the year end any disallowance could be made for non-deduction of TDS from the said expenditure under the provisions of section 40(a)(ia) of the Act. In that case, the ld. CIT(A), following the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports vs ACIT(supra) had held that if no amount was outstanding payable at the year end for the expenditure incurred by the assessee then no disallowance u/s 40(a)(ia) of the Act can be made which was overruled by the Hon'ble Calcutta High Court in the case of CIT vs Md. Jakir Hossain Mondal(supra).
28. We find that this case is not applicable in the present case of the assessee as because the issue under consideration is that where :- 17 -: I.T.A.No. 1931 & 1932/12 the TDS deducted on the expenditure incurred during the year if deposited before the due date of filing of return of income u/s 139(1) any disallowance of the same can be made or not. We find that the ld. CIT(A) has followed the decision of the Hon'ble Calcutta High Court in the case of CIT vs Virgin Creations(supra) wherein the Hon'ble High Court has decided the issue against the Revenue and after relying on the decisions of the Hon'ble Supreme Court in the case of Allied Motors P. Ltd vs CIT [1997] 224 ITR 677 (SC) and CIT vs Alom Extrusions Ltd [2009] 319 ITR 306(SC) has held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well and accordingly has held that the said amendment is retrospective. It is not in dispute that the TDS on `1,42,24,794/- was deposited within the due date of filing of return of income by the assessee. Therefore, the ld. CIT(A) was justified in deleting the disallowance of ` 1,42,24,794/-. Thus, we do not find any good and justifiable reason to interfere with the finding of the ld. CIT(A) which is confirmed and the ground of appeal of the Revenue is dismissed.
:- 18 -: I.T.A.No. 1931 & 1932/12
29. In the result, both the appeals of the Revenue are dismissed.
Order pronounced on Thursday, the 08th of August, 2013 at Chennai.
Sd/- Sd/-
(VIKAS AWASTHY) (N.S.SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 08th August, 2013
RD
Copy to: Appellant/Respondent/CIT(A)/CIT/DR