Income Tax Appellate Tribunal - Delhi
Satish Gujral, vs Assessee on 22 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI 'G' BENCH, NEW DELHI
BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER, AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
I.T.A. No. 3397/Del/2007
Assessment Year : 2003-04
Shri Satish Gujral Vs. The Addl. C.I.T,
16, Feroze Gandhi Road Range - 32
Lajpat Nagar III, New Delhi New Delhi.
(PAN: AAJPG 8028 R)
I.T.A. No. 2932/Del/2007
Assessment Year : 2003-04
The Addl. C.I.T Vs. Shri Satish Gujral
Range - 32 16, Feroze Gandhi Road
New Delhi Lajpat Nagar - 111, New Delhi.
(PAN: AAJPG 8028 R)
(Appellant) (Respondent)
Assessee by : Shri M.P. Rastogi, Adv
Department by : Ms. Anima Bernwal, Sr-DR
Date of Final Hearing : 02.06.2016
Date of pronouncement : 22.07.2016
ORDER
PER CHANDRA MOHAN GARG, J.M.
The above captioned cross appeals by the assessee as well as the Revenue have been directed against the order of CIT(A)-XXVI, New Delhi dated 30.03.2007 in Appeal No. 129/06-07 for assessment year 2003-04.
2
ITA Nos. 2932 & 3397/Del/2007 REVENUE'S APPEAL IN ITA NO. 2932/DEL/2007
2. Consolidated revised Grounds raised in revenue's appeal i.e. I.T.A. No. 2932/Del/2007 read as under:-
"1. The Ld. CIT(A) has erred in deleting the addition of Rs. 20,70,000/- being work in progress as during assessment proceeding, the assessee furnished photo f the semi finished sculpture which was finished in the next year and installed at the site of power Grid Corpn.
2. The Ld. CIT(A) has erred in deleting addition of Rs. 49,03,200/- being the estimated cost of 13 paintings which could not be sold at New York exhibition and the assessee did not reflect them either in the sales or in the closing stock.
3. The C1T(A) has erred in accepting fresh evidence from the assessee in violation of rule 46A of the income tax rules.
4. The Ld. CIT(A) has erred in deleting bogus payment of Rs. 1,56,010/- without appreciating the fact that the said Shri Ramesh Jena has clearly denied in his recorded statement that he had never rendered any service to the assessee to receive the payment.
5. The Ld. CIT(A) has erred in deleting addition of Rs. 1,50,000/- shown as paid to his wife ignoring the fact that the assessee did not prove rendering of any services by her.3
ITA Nos. 2932 & 3397/Del/2007
6. The Ld. CIT(A) has erred in allowing full claim of assessee amounting to Rs. 1,09,92,953/- u/s 80RR ignoring the fact that the assessee had filed necessary certificates in form 10 H only in respect of Rs. 19,98,700/-.
7. The CIT(A) has erred by allowing deduction u/s 80U not appreciating that each assessment year is separate and medical certificate as required to be filed every year.
8. The Ld. CIT(A) has erred in reducing the addition of Rs. 10,53,450/- on account of estimated value of stocks of drawing and studio material to Rs. 5 Lacs.
9. The appellant craves leave to add, alter or amend any/all the grounds of appeal before or during the course of hearing of the appeal."
3. Briefly stated the facts giving rise to this appeal are that the assessee is an artist who derives income from making and selling paintings and sculpture etc. The assessee filed his return of income declaring an income of Rs. 1,06,18,392/- which was processed u/s 143(1) of the Income tax Act, 1961 [for short, 'the Act']. According to the audit report filed with the return of income, the assessee followed the method of accounting in the previous year relevant to the A.Y under consideration which was professional/artistic income on receipt. The assessee accounts for his professional receipts as an 4 ITA Nos. 2932 & 3397/Del/2007 artist on receipt basis. No value was being assigned for their stocks as on the date of the balance sheet for the drawing and studio materials and the paintings etc under preparation or completed but held by him. This method of accounting followed by the assessee, has been accepted by the department for the past many decades. The learned AO has in this year equated the professional with a normal business man and added to income for raw materials, work in progress and unsold paintings on presumptions and surmises. The assessee who has permanent physical disability of hearing and speech and was being allowed deduction u/s 80U for many decades. The learned AO has allowed this deduction also. The assessee who has participated in an exhibition cum sale organized in USA by Living Media Ltd. The receipts /proceeds from the exhibition were brought into India, in convertible foreign exchange on behalf of the assessee by Living Media Ltd., on behalf of the assessee and were duly supported by FIRCS. The AO has denied the deduction u/s 80RR on such receipts brought in India and has also disallowed payments to one Mr. Ramesh Jena by producing a statement recorded by the Department wherein he denied even knowing the assessee. The assessee produced photographs of that person working along with the assessee, bank statement of the assessee showing payments to him 5 ITA Nos. 2932 & 3397/Del/2007 by cheques as well as his bank account number. Further the AO was requested to produce him for cross examination for answering as to how his signatures and bills bearing his signatures were with the assessee as well as his having collected cheques from him. The department has not produced him for cross-examination, but disallowed payments to him on the basis of his statement. Aggrieved, the assessee went in appeal before the ld. CIT(A) who granted part relief to the assessee. Now the assessee is in appeal agitating the part relief granted by the ld. CIT(A) whereas the revenue is in appeal against the deletion of additions.
4. We have heard the rival submissions and have perused the relevant material on record.
5. The first issue is with regard to the deletion of addition of Rs. 20,70,000/- being work in progress. The AO observed that the assessee had sold a 15 feet sculpture to Power Grid Corporation at Rs. 46,00,000/-. The assessee had stated that the payments were received on dates which fell under the A.Y 2004-05 and not in A.Y 2003-04 which is the year under consideration. Bill of Shri Ramesh Jena was dated 30.3.2004. The assessee's assertion was that the payments of Rs. 7,16,720/- to Shri Ramesh Jena were relevant to A.Y 2004-05 and 6 ITA Nos. 2932 & 3397/Del/2007 not 2003-04. Not satisfied with the explanation tendered by the assessee, the AO made addition of Rs. 20,70,000/-. Aggrieved, the assessee went in appeal before the ld. CIT(A) who granted relief to the assessee. Now the Revenue is in further appeal before the Tribunal against the relief granted to the assessee.
6. The ld. DR strenuously contended that the ld. CIT(A) granted relief to the assessee without any reasonable and justified reasoning. Therefore, the impugned order may be set aside by restoring that of the AO on this issue.
7. Replying to the above, the ld. AR reiterated its submissions made before the authorities below and submitted that payments received were relating to A.Y 2004-05 and not 2003-04 which is the A.Y under consideration. The ld. AR submitted that the AO was not right in coming to the conclusion that since the sculpture was installed in May 2003, the work in progress related to March 2003.
8. On careful consideration of the above rival submissions, we note that the ld. CIT(A) has granted relief to the assessee with the following conclusion and findings:
"From the facts of the case, it is seen that the work was discussed in May 2003 and subsequently commissioned vide 7 ITA Nos. 2932 & 3397/Del/2007 letter of July 2003. Therefore, to value the incomplete sculpture on the basis of the estimated market value is not correct. On the one hand, the AO has estimated the cost at 10% of the market value which comes to Rs. 2,30,000/- even if the market rate is applied. Therefore, the work in progress could at the most be estimated, if at all, at Rs. 2,30,000/- and not Rs. 20,70,000/- representing the profit/income which was yet to be earned by the assessee as on that date."
9. We have heard the rival submissions and have perused the relevant material on record. We are in agreement with the findings of the ld. CIT(A) that the A.O was not correct in holding that the 50% of the estimated value of Rs. 23 lakhs is taken as work in progress not shown by the assessee. We may point out that during the earlier A.Y, the department accepted a factual position that the assessee did not show any work in progress on the date of the balance sheet for the drawing and studio material and the painting etc under preparation or completed. Hence the issue of work in progress cannot be raised without any sustainable basis. The ld. CIT(A), after properly analyzing the facts of the case, rightly held that even if market rate is applied, then also as per basis of estimated cost @ 10% of the market value of the work in progress, at the best, can be estimated to Rs. 2,30,000/- and not Rs. 20,70,000/-. In view of the above factual position and stand of the A.O in previous A.Ys the conclusion of the ld. CIT(A) 8 ITA Nos. 2932 & 3397/Del/2007 correct and we have no reason to interfere with the same. Accordingly, Ground No. 1 of the Revenue is dismissed.
10. Second ground is with regard to the 13 paintings which could not be sold at New York exhibition and the assessee did not reflect them either in the sales or in the closing stock.
11. Brief facts relating to this issue are that during the year under consideration, Art Today - a division of Living Media India Pvt. Ltd., arranged an exhibition at New York of the paintings etc of the assessee. As per the contract dated 14th June the total number of paintings which were handed over to Art Today was 26.
As per the contract, the Art Today was to arrange:
(a) Place of display of the paintings.
(b) Publicity and advertisement at his own cost.
(c) Meet the cost of air-conditioning, electricity, lighting, display, security and literature etc.
(d) Art Today had to arrange transportation of paintings to New York after completing the formalities on behalf of the assessee:
(i) NOC from Archeological Survey of India to ensure that they are not antique;
(ii) FERA/FEMA regulations and furnishing of undertaking to bring the foreign exchange on behalf of the assessee to India for the paintings sold.9
ITA Nos. 2932 & 3397/Del/2007
(iii) Arrange custom clearance in India as well as USA in respect of the paintings.
(iv) Arrange packing, forwarding and insurance of the paintings.
The sharing of sale proceeds of paintings had to be made in the manner mentioned in schedule attached to the agreement. As per schedule, the assessee was entitled for the Artist Price mentioned in front of each painting, whereas the difference between the Artist's Price and suggested sale price was to be retained by Art Today as its share. Out of 26 paintings sent to New York, only 19 paintings could be sold and the assessee had received Rs.44,80,000/- as his share and had claimed the deduction u/s 80RR of the Act thereon. The remaining unsold seven paintings were brought back to India. The AO from same website obtained information of the paintings displayed. On the basis of such information, the AO alleged that the assessee had displayed 24 paintings and out of them 11 paintings were sold and 13 paintings remained unsold. The AO further alleged that such 11 paintings were sold for $92,500 and by applying the conversion rate of Rs.48, the proceeds work out to Rs.44,40,000 approximately which almost tallied with the receipts shown by the assessee at Rs.44,80,000 received by Art Today Living Media. In the earlier part of the order, the AO alleged that the assessee is a commercial artist and he reached 10 ITA Nos. 2932 & 3397/Del/2007 the pinnacle of his career and already developed a style and his paintings are assembly type production. Hence whatever the paintings remained there, the same should be shown as closing stock of the year and then observed that the cost of paper, color and ink would be about 10% of the price of paintings. On the basis of such inference, the AO alleged that because unsold 13 paintings have not been brought back to India and not showing part of closing stock, hence he presumed that the assessee has sold the paintings outside the books of account. He valued the paintings at gross price at $1,13,500 and by multiplying the conversion rate of Rs.48.67, the gross price was worked out at Rs.54,48,000/- and out of that after allowing the expenditure of 10% for this stock, the AO worked out the balance figure at Rs.49,03,200/- and treated the same as sale outside the books of account.
12. Aggrieved, the assessee went in appeal before the ld. CIT(A) and contended that he was an artist by profession and had been a regular income-tax assessee for more than 40 years. The assessee accounts his professional receipt as an artist on receipt basis. In other words, as and when any painting is sold, the whole proceed is accounted as professional receipt and this method of accounting has always been accepted by the department in the past as well as in subsequent 11 ITA Nos. 2932 & 3397/Del/2007 years. In this isolated year, the AO has stated that the professional accounting should also be on same lines as that of normal businessman and accordingly the unsold stock of paintings and work in progress of incomplete paintings and sculptures be also shown as closing stock. The assessee objected to such observation of AO and stated that:
(i) Artist, playwright, author, poet, musician and similar professionals are creative and intellectual persons when they do their work, it is done out of inspiration and creative urge.
(ii) A work created by artist may be well appreciated by the public or may receive a lukewarm response on painting of some size on the same medium can fetch him boutiques or brickbats. Sometimes the work of an artist is not appreciated in his lifetime but appreciated posthumously (Monalisa painting of Leonardo Devinci is the example thereof).
(iii) Creative work of an artist, author, playwright or poet cannot be equated and compared with the goods produced by a manufacturer or businessman.
(iv) For artist, the papers, canvas, ink, cloth, stone etc. are only the medium of creation and expression of his urge.12
ITA Nos. 2932 & 3397/Del/2007
(v) The volume of papers, ink, canvas etc. consumed by the artist cannot determine the cost of any painting because an artist can start painting on a canvas for days together and can destroy it or scrap it altogether if it does not come out as per his creative concept. An artist can mix number of colors and can wash them of in drain if they do not match with shade as per his creative concept.
(vi) Neither in past nor in subsequent years, the assessee has ever shown the closing stock of paintings and on the contrary as and when any painting is sold, the same was treated as professional receipt.
From the relevant operative part of the order of the ld. CIT(A), we observe that he granted relief to the assessee by observing as follows:
"Therefore, after considering the submissions of the appellant and the circumstances of the case, it is held that the AO's action in holding that the closing stock is not properly valued and the appellant had sold some paintings outside the books adopted by of account is not correct and cannot be upheld. The very method the AO to arrive at the value of closing stock and the value of sales made outside the books of account by applying a uniform rate which has been culled by the AO from a Website and Internet and deducting an estimated expenditure of 10% from the above figure to 13 ITA Nos. 2932 & 3397/Del/2007 arrive at the net undisclosed income of the appellant is held to be faulty and is held to be arrived at on the basis of incorrect appreciation of the facts and circumstances. It is further observed that the method of accounting followed by the appellant wherein sale proceeds are recorded as and when the sale materialized is upheld to be correct. The AO did not have sufficient reasons to hold that the appellant's method of accounting was incorrect. The application of the case of British Paints Ltd to the case of the appellant is held to be inadequate and erroneous on the ground that one can only likes can be compared with the likes. Since the respective facts of the two cases [British Paints Ltd and that of the appellant] are different and are in fact, miles apart, the same cannot be equated. The two could not have been possibly compared. Therefore, the imaginary thesis constructed by the AO on the basis of certain information on the Internet is not found to be sufficient grounds for arriving at the conclusion that the appellant was engaged in sales outside the books of accounts and a wrong method of accounting was followed. . The very foundation upon which the AO has built the shaky edifice of undisclosed income is found to be weak. Hence it is held that the same deserves to be demolished. The addition made on this account is directed to be deleted."
13. As regards reliance of AO on the website information with regard to painting displayed in New York, the assessee stated that such information is not correct and cannot be relied upon when sufficient 14 ITA Nos. 2932 & 3397/Del/2007 contrary material is available on record. As per records 26 paintings were dispatched after obtaining NOC from Archeological Survey of India. As per records 19 paintings were sold and the sale proceeds of such paintings were brought to India by Living Media on behalf of the assessee as per FIRC. The remaining seven unsold paintings were brought back by Living Media and handed over to the assessee.
14. Out of such sale proceeds, the assessee had received Rs.44,80,000 [as his agreed share] as admitted by the AO, as his share and had claimed the deduction u/s 80RR of the Act. The assessee, therefore, concluded that the assumption of the AO that the figure of unsold paintings at 13 [it is actually seven] is wrong. In the absence of any evidence, that such paintings have been sold out of the books of account is wrong. The ld. AR pointed out that actually the assessee sent 26 paintings and not 24 as wrongly noted by the A.O and after sale of 19 paintings, 7 paintings were brought back to India and handed over to the assessee by Living Media. The ld. AR pointed out that when the assessee is entitled for deduction u/s 80RR of the Act in respect of professional income earned as an artist then he is not required to hide sale of painting. When we logically analyze the facts of the case on the touchstone of the provisions of the Act, at the very 15 ITA Nos. 2932 & 3397/Del/2007 outset, we note that the A.O proceeded to make addition by alleging sale of paintings sent abroad and sold outside the books of accounts but he ignored the very fact that when the income of the assessee from abroad is entitled for deduction u/s 80RR of the Act, then why the assessee would hide its income from abroad on sale of paintings. After evaluation of the allegations of the A.O and explanation of the assessee, the ld. CIT(A) rightly held that the impugned figure to arrive at the undisclosed income of the assessee is faulty and the same was arrived at on the basis of correct appreciation of facts and circumstances. As we have already observed that the method of accounting followed by the assessee, wherein sale proceeds is recorded as and when sale is materialized has been accepted by the Revenue in the earlier A.Ys and the present case of the A.O did not have sufficient reasons to hold that the assessee's method of accounting is incorrect or different from the earlier A.Ys. Therefore, we also observe that the addition made by the A.O on the basis of incorrect facts cannot be held a sustainable. The imaginary facts leading to the impugned addition are not based on correct facts but the same are based on the information on the internet which cannot be relied for establishing allegation of sale outside books of account. 16
ITA Nos. 2932 & 3397/Del/2007
15. On the contrary there was sufficient evidence to establish that Living Media had brought back to India the unsold seven paintings and returned them to the assessee. As per the method of accounting followed consistently in the past as well as in the subsequent years, as well as accepted by the Department, no closing stock had ever been taken into account and the professional receipts had been shown as and when any paintings were sold. This method of accounting has been consistently followed.
16. After considering the above elaborate submissions of the assessee, the CIT (A) was satisfied with the contentions of the assessee and held as under:
(i) The normal process of manufacture cannot be applied to the creative process of an artist.
(ii) The method of accounting adopted by the appellant is a reasonable and correct method and need not be disturbed.
(iii) As far as paintings sent for display at New York, the information obtained from website was not authentic.
(iv) The assessee provided convincing evidence about the total number of paintings dispatched.
(v) Out of 26 paintings, only 19 paintings were sold and the Art Today of Living Media has duly certified the payment of assessee's share therein about which necessary evidence available on record.
(vi) The assessee provided convincing evidence relating to the Art Today and also relating to the unsold paintings which have been sent back to India.17
ITA Nos. 2932 & 3397/Del/2007
(vii) Once having held that the method of accounting of the appellant is that professional fee was recorded only as and when sale prices of paintings is received, the AO's action of estimating the value of paintings alleged to have been sold outside the books of account without corroborating evidence cannot be upheld. This method of accounting has been consistently followed by the assessee. The valuation of paintings on a fixed price is also not correct and it is not correct to adopt the suggested price of the paintings because there can be many different situations with regard to valuation of paintings.
(viii) The AO has not made out a case that the assessee has not recorded the sale proceeds in the books of account even after the sale has been made.
17. We have heard the rival submissions and have perused the relevant material on record. Before us also the rival representative have reiterated their contentions as made before the authorities below. We find force in the contention of the ld. AR that the assessee is an artist by profession and the professional receipts are declared and offered as and when any painting is sold. This method of accounting has consistently been followed by the assessee in earlier year and also in subsequent years. Assessment Year 2006-07 has also been completed u/s 143(3) of the Act and no addition has been made on account of closing stock. The ld. AR has relied on the various decisions in support of his contention including the decision in 193 ITR 321 (SC), Radha Soami Satsang vs. CIT 220 CTR 105 (SC), CIT vs. J.K. Charitable Trust 264 ITR 276 (Del), CIT vs. ARJ Security Printers 113 ITD 624 (Del - T.M.), DCIT vs. Jindal Photo Films 304 ITR (AT) 76 18 ITA Nos. 2932 & 3397/Del/2007 (Mum), IRB Infrastructure Ltd. vs. ITO. We also find that the ld. CIT(A) has held that once having held that the method of accounting of the appellant is that professional fee was recorded only as and when sale prices of paintings is received, the AO's action of estimating the value of paintings alleged to have been sold outside the books of account without corroborating evidence cannot be upheld, which is correct and justified. The ld. CIT(A) has categorically held that the assessee provided convincing evidence relating to the Art Today and also relating to the unsold paintings which have been sent back to India. In view of the above submissions and finding of the ld. CIT(A), we decline to interfere with the just and proper conclusion arrived at by the ld. CIT(A) which we uphold and dismiss ground No. 2 raised by the revenue.
18. The third ground relates to the CIT(A)'s acceptance of fresh evidence from the assessee in violation of Rule 46A of the income tax rules. The ld. DR strongly agitated the ld. CIT(A)'s action in accepting fresh evidence.
19. Per contra, the ld. AR submitted that there is no violation of Rule 46A of the I.T. Rules, 1962 by the ld. CIT(A) as the additional evidence has not been considered and the same is not a basis for granting relief to the assessee on any grounds.
19
ITA Nos. 2932 & 3397/Del/2007
20. We have heard the rival submissions and have perused the relevant material on record. From the relevant operative part of the impugned first appellate order as reproduced above, we observe that the ld. CIT(A) has not granted relief on the basis of so called additional evidence. The assessee submitted additional evidence alongiwth letter dated 19.1.2007 but information regarding sales and remittances which form basis of relief by the ld. CIT(A) was already on the record of the A.O. The ld. counsel of the Revenue could not controvert this fact that for granting relief the papers submitted as additional evidence have not been considered hence there was no violation of Rule 46A of the Act. Thus we are inclined to hold that Ground No. 3 of the Revenue is not sustainable in the light of the facts and circumstances of the case as merely because some additional evidence were submitted by the assessee during the first appellate proceedings, which was not considered for granting relief to the assessee violation of Rule 46A cannot be alleged against the impugned order. Thus Ground No. 3 being devoid of merits stands dismissed.
21. With regard to the 4th ground, the ld. DR contended that Ld. CIT(A) was not justified in deleting bogus payment of Rs. 1,56,010/- without appreciating the fact that the said Shri Ramesh Jena has clearly denied, in his recorded statement that he had never rendered 20 ITA Nos. 2932 & 3397/Del/2007 any service to the assessee to receive the payment.
22. Per contra, the ld. AR submitted that the AO relied on the report of ITO Balasore dated 9th February 2005 and disallowed the payments made to Ramesh Jena on the ground that the assessee failed to file details of bank account in which the payment was credited. The CIT (A) accepted the claim of the assessee and deleted the disallowance made by the AO. Aggrieved, the Revenue is in Appeal before the Tribunal.
23. We have heard the rival submissions and have perused the relevant material on record. The ld. AR reiterated his submissions made before the authorities below and submitted that and AO has abdicated his power to ITO Balasore and has not made any enquiry on his own which is not permissible under law. In this connection, the ld. AR relied on the decisions in the case of 144 ITR 225-237 (SC), CIT vs. Mahindra & Mahindra Pvt. Ltd., 74 ITR 115 (Patna), Elphinstone Picture Palace vs. UOI. The ld. AR vehemently submitted that enquiry by ITO Balasore was made behind the assessee which cannot be used against the assessee in the absence of cross- examination. The ld. AR relied on the judgments of the Hon'ble Supreme Court reported in 125 ITR 713 (SC), and the Hon'ble High Court of Delhi in the case of Kishan Chand 21 ITA Nos. 2932 & 3397/Del/2007 Chela Ram 306 ITR 27 (Del). We find force in the submission of Shri Ramesh Jena has not assisted the assessee, how he got passes from the office of Power Grid Corporation. From the perusal of the relevant operative part, we find that the ld. CIT(A) has observed that the AO obtained statement from Shri Ramesh Jena stating that he never did any work for the assessee, then how come Shri Ramesh Jena obtained payments through cheques from the bank account of the assessee to his own account if he did not do any work for the assessee? This remained unanswered by the AO. The AO had also not produced his own witness, when the assessee demanded that he may be produced before him for cross examination. Lastly, we find force in the contention of the ld. AR that if Shri Ramesh Jena did not work for the assessee, then how he could get temporary passes to work in the office of Power Grid Corpn Ltd to work on the sculpture. Accordingly, we find no infirmity in the order of the ld. CIT(A) holding the payment made has been genuinely made to Shri Ramesh Jena. Therefore, finding no merit in the ground raised by the Revenue, we hold that the ld. CIT(A) has rightly deleted the addition made by the AO amounting to Rs. 1,56,010/-. Ground No. 4 stands dismissed. 22
ITA Nos. 2932 & 3397/Del/2007
24. In Ground No. 5, the ld. DR has argued that the ld. CIT(A) was not correct in deleting the addition of Rs. 1,50,000/- made by the AO shown as paid by the assessee to his wife. The ld. DR submitted that the assessee has not shown any proof of his wife Smt. Kiran Gujral as having rendering any services for which payment was made to her.
25. Per contra, the ld. AR submitted that Smt. Kiran Gujral, wife of the assessee was an artist and having diploma in Fire Arts from College of Arts, Delhi. Assessee has an impaired hearing and speech problem. Mrs. Gujral spends considerable time in assisting the assessee to communicate with his clients and explain the expression of painting. Her professional qualification has helped a lot in the process of dialogue and communication. In recognition of her contribution to the profession of the assessee, he has paid her Rs 1,50,000/- as remuneration. The ld. AR further submitted that Mrs. Kiran Gujral is liable to tax at highest slab rate as her income from other activities and sources itself and thus there is no question of any loss to the Revenue on the remuneration paid to her. However, the AO disallowed the same u/s 64(1 )(ii) of the Act which is not sustainable.
26. Satisfied with the explanation tendered by the assessee, the ld. CIT(A) deleted the addition of Rs. 1.50,000/- against which the Revenue is in appeal before the Tribunal.
23
ITA Nos. 2932 & 3397/Del/2007
27. We have heard the rival submissions and have perused the relevant material on record. We find that Mrs. Kiran Gujral possesses professional qualification in the field of Art and paintings and has experience of more than 40 years. She had passed the diploma in Fine Arts in the year 1957. We further find that for technical/professional qualification as contemplated u/s 64(1)(ii) of the Act, there is no need to have any degree from any university and if a person has sufficient experience, then it amounts to professional qualification and no disallowance can be made. The ld. AR has relied on the decision of the Hon'ble High Court of Andhra Pradesh in the case of Bata Kalyani vs. CIT reported at 154 ITR 59 (AP) and ITA No. 1342/Del/95 dated 12.2.01-DCIT Vs. Smt. Neelam. In that view of the matter, we find no infirmity in the finding of the ld. CIT(A) and decline to interfere with the same. Ground No. 5 of the Revenue stands dismissed.
28. Vide Ground No. 6, the ld. DR vehemently agitated the ld. CIT(A)'s action in allowing full claim of assessee amounting to Rs. 1,09,92,953/- u/s 80RR of the Act ignoring the fact that the assessee had filed necessary certificates in form 10H only in respect of Rs. 19,98,700/-.
24
ITA Nos. 2932 & 3397/Del/2007
29. Briefly stated the facts of the case are that the assessee claimed deduction u/s 80RR of the Act on the following remittances:
(i) Amount received through Art Today of Living Media India Pvt.Ltd. in respect of sale proceeds of paintings exhibited at New York Rs.44,80,000
(ii) Receipts of $93,381 from Govt, of Mauritius Rs.45,44,853
30. As far as item No. (i) is concerned, the AO has disallowed the claim on the ground that in FIRC, the name of beneficiary is Living Media and not Satish Gujral. As far as item No. (ii), is concerned, the AO disallowed the claim that no bank certificate has been filed. Admission letter from the High Commission / Govt, of Mauritius of is not sufficient. CIT (Appeals) allowed the deduction and held that the AO disallowed the deduction on technical grounds.
31. We have heard the rival submissions and have perused the relevant material on record. We find that the assessee has contended that as regards amount received in respect of paintings sold at New York, the paintings were sold through Living Media who also undertook to bring the sale proceeds on behalf of assessee. The further contention of the assessee that to claim deduction u/s 80RR, of the Act it is not necessary that such receipt should be brought into India by the assessee himself but as per section it will be sufficient that 25 ITA Nos. 2932 & 3397/Del/2007 receipts may be brought into India by other agency on behalf of the assessee, as laid down by section 80RR of the Act, has not been rebutted by the revenue. The department has not brought any evidence to disregard the contention of the ld. AR. Accordingly, finding no infirmity in the finding of the ld. CIT(A), we dismiss Ground No. 6 raised by the department.
32. Ground No. 7 is with regard to the action of the ld. CIT(A) in allowing deduction u/s 80U of the Act.
33. Briefly stated, the facts as emerging from the assessment order of the AO is that the assessee has claimed deduction u/s 80U of the Act on account of permanent physical disability. As per the provisions of the Act, for claiming such deduction the assessee has to file a certificate in the prescribed format along with the return. Assessee has not filed the same. To uphold the principles of natural justice several opportunities were accorded to the assessee vide letter dated 30-01-2006 and note sheet entries on various dates to file certificate u/s 80U(2) of the Act. The same was not done. Even under this section the mandatory requirement is that the assessee has to file the certificate along with the return. In response, the assessee stated vide his letter dated 24.2.06 that since 1971-72 he is being granted the deduction, however, the relevant papers may 26 ITA Nos. 2932 & 3397/Del/2007 have got destroyed while weeding out the time barred records. The assessee has finally mentioned that he should be granted the deduction permanently, it need not be reviewed each year. This submission/argument of the assessee was not accepted by the AO since it is the requirement under the law of the land that the specified disability should exist in the year in which it has been claimed, the same should be certified by a qualified doctor to be so, and the said certificate should be filed along with the return of income. The AO declined to give deduction against the provisions of the Act. Aggrieved, the assessee went in appeal before the ld. CIT(A) who held as under:
"The submissions of the appellant have been considered. It is seen that the deduction has been statedly granted since 1971- 1972 by the Department. It is not in doubt that the appellant suffers from the impairment of hearing. Therefore, since such benefit has been allowed to the appellant in earlier decades and the impairment is reportedly irreversible, the disallowance should not have been made on a mere ground of technicality. Hence the AO is directed to allow the deduction claimed u/s 80U of the Act."
34. We have heard the rival submissions and have perused the relevant material on record. We find that the assessee has claimed deduction u/s 80U of the Act on account of permanent physical disability. But as per the provisions of the Act, for claiming such deduction the assessee has to file a certificate in the prescribed 27 ITA Nos. 2932 & 3397/Del/2007 format along with the return, which the assessee has not filed. Several opportunities were accorded to the assessee vide letter dated 30-01-2006 and note sheet entries on various dates to file certificate u/s 80U(2) of the Act. The assessee, vide his letter dated 24.2.06 stated that since 1971-72 he is being granted the deduction, however, the relevant papers may have got destroyed while weeding out the time barred records. The assessee mentioned that he should be granted the deduction permanently, it need not be reviewed each year. We find that the ld. CIT(A) has directed the AO to allow deduction in view of the fact that there is no doubt that the assessee is suffering from permanent impairment of hearing, which is irreversible and disallowance cannot be made on the ground of mere technicality. Accordingly, we find substance in the finding of the ld. CIT(A) and direct the AO to allow deduction u/s 80U of the Act as claimed by the assessee. Ground No. 7 stands dismissed.
Ground No. 8 of the Revenue and Ground Nos. 1 and 2 of the assessee.
35. Last ground No. 8 is with regard to reduction in estimated value of stocks of drawing and studio material from Rs. 10,53,450/- to Rs. 5 lakhs. In the ground Nos. 1 and 2, the assessee has 28 ITA Nos. 2932 & 3397/Del/2007 challenged the upholding addition to the extent of Rs. 5 lakhs.
36. Brief facts relating to these cross grounds are that the AO, during the course of assessment proceedings, observed that the assessee had neither shown any closing stock or work in progress in his books nor has he any record of the painting made by him during the year. He further observed that a painter of the caliber and standing of Shri Satish Gujral, each painting is identified by a name, particular size, canvas on which painted, the type of paint used, the series of which it is part and the year in which it is made. Therefore, the AO came to the conclusion that the auditor's certificate that the assessee is an artist hence no stock record is maintained is not acceptable since the cash basis of accounting does not give the right to maintain a stock record. Accordingly, the AO rejected the method of accounting of the assessee by following the decision in the case of British Paints of the Hon'ble Supreme Court and made the addition of Rs. 10,53,450/-. Aggrieved, the department went in appeal before the ld. CIT(A) who reduced the addition to Rs. 5 lakhs. Further aggrieved, the revenue is now in appeal before the Tribunal.
29
ITA Nos. 2932 & 3397/Del/2007
37. We have heard the rival submissions and have perused the relevant material on record. We find that the AO observed that the assessee incurred a total sum of Rs. 38.72 lakhs on drawing and studio materials during the year under consideration against which professional receipts of Rs. 171.09 lakhs have been shown. It is noticed that the raw material of the assessee comprises of blank canvasses, oils, and acrylic colors, brushes, pellets etc. The AO made an addition of Rs. 10,63,485/- as estimated value of stock of raw material. The ld. CIT(A) however, agreed that the assessee has not shown any value of the closing stock of raw material and hence the AO was correct in holding that at the end of the year the assessee must have some left over closing stock of studio material and other related materials. The ld. CIT(A) further held that the addition made by the AO would amount to evaluating the stock of paper and pens in the case of a poet is a misplaced comparison because the nature of the creative work of an author/writer/poet using only a pen and pencil is different from that of a painting artist. In the absence of amyl material information on record except the amount spent of purchase of raw material inputs, the AO has applied her mind on the right tract and estimated the value of stock of drawing and studio material at the end of the year to 30 ITA Nos. 2932 & 3397/Del/2007 the best of her judgment. Accordingly, the ld. CIT(A) keeping in mind the addition made by the AO to be excessive, felt that an addition of Rs. 5 lakhs would be sufficient to cover the estimated cost of such input material.
38. After considering the rival submissions, and perusing the relevant material on record, we find that the action of both the authorities below are not correct and justified. Addition made on the basis of conjectures and surmises cannot survive. We do not agree with the AO's action in making the addition and the ld. CIT(A)'s action in reducing the same to Rs. 5 lakhs without any concrete material on record to do so. It is not clear as to how and why such addition was made and part relief given to the assessee on such estimated basis. It is relevant to note that the ld. counsel of the Revenue has not disputed this fact that no addition on this count has been made in the earlier and subsequent assessments on this issue. We may also point out that if addition is being made towards estimated value of closing stock then the same should be reduced by estimating opening stock which certainly was brought forward from earlier A.Y and when a method of accounting is being followed by the assessee and accepted by the Revenue during the earlier and subsequent A.Y without alleging the same as incorrect 31 ITA Nos. 2932 & 3397/Del/2007 then no addition can be made on the estimation of value of raw material. The basis accounting principle cannot be flouted by making addition on the basis of estimation of closing stock of raw material, which are brushes, paints, canvass etc in the case of present artist assessee, without giving any attention to the fact that there was no opening stock brought forward shown by the assessee in the balance sheet and without giving credit of the same estimated the value of closing stock cannot be added to the income of the assessee on the basis of surmises and conjectures. Consequently, conclusion of the authorities below viz. the action of the A.O making the addition on estimation of value of closing stock and conclusion of the ld. CIT(A) restricting the same to Rs. 5 lakhs being without any basis cannot be held as sustainable. Accordingly, finding no merits in the ground raised by the Revenue, we dismiss this ground of appeal raised by the Revenue and Ground Nos. 1 and 2 of the assessee are allowed and the A.O is directed to delete the entire addition.
39. In the result, the appeal of the Revenue stands dismissed. ASSESSEE'S APPEAL IN ITA NO. 3397/DEL/2007
40. The assessee has raised the following grounds of appeal: 32
ITA Nos. 2932 & 3397/Del/2007 "1. The ld. CIT(A) should have deleted the whole of the addition on account of stock [in case of an artist] once it has been held that the regularly followed and accepted method of accounting cannot be disturbed.
2. The ld. CIT(A) has erred in sustaining the addition on account of stock to the extent of Rs. 5 lakhs disturbing the method of accounting regularly followed by the appellant.
3. The ld. CIT(A) has erred in sustaining the amount of salaries payable out of sundry liabilities.
The above grounds are independent and without prejudice to each other."
41. While disposing of ground No. 8 of Revenue, we have dealt with this issue and dismissed the ground raised by the Revenue and Ground Nos 1 and 2 f the assessee have been allowed in the final conclusion as recorded in the earlier part of this order.
42. The last ground No. 3 raised by the assessee is with regard to the sustenance of the amount of salaries payable out of sundry liabilities.
43. During the course of assessment proceedings, the AO noticed that the method of accounting according to the audit report was cash basis. However, the balance sheet indicates that sundry liabilities to the tune of Rs. 1,00,159.88 was appearing with reference to various expenses. 33
ITA Nos. 2932 & 3397/Del/2007 The AO held that under the method of accounting, such expenses could not be allowed. When the assessee did not respond to the AO's query in this regard, he made an addition of Rs. 1,00,159.88 and added the same to the income of the assessee and also initiated penalty proceedings u/s 271(1)(c) of the Act. When the aggrieved assessee went in appeal, the ld. CIT(A) held that the professional income of the appellant is being accounted for on receipt basis and the assessee has provided for regular expenses like salaries, telephone and electricity on mercantile basis. After considering the nature of expenses, the ld. CIT(A) held that the expenses were periodic bills and allowed the bills relating to telephone and electricity but upheld the action of the AO on account of salaries paid. The aggrieved assessee has challenged the action of the A.O and the ld. CIT(A) in Ground No. 3.
44. We have heard the rival submissions and have perused the relevant material on record. The A.O made addition by observing in para III at page 4 of the assessment order as follows:
"Method of accounting according to the audit report is cash basis. However, balance sheet indicates that sundry liabilities to the tune of Rs. 1,00,159.88 (Rs. 1,05,559/- -TDS payable 5400/-) is appearing with reference to various expenses. Under the cash method of accounting such expenses cannot be allowed. Assessee when asked about this and was given an opportunity 34 ITA Nos. 2932 & 3397/Del/2007 chose to remain silent on this issue. Hence addition on account of this point to the tune of Rs. 1,00,159.88 is being made to the income of the assessee."
45. From the relevant operative part of the order of the ld. CIT(A) we note that the first appellate authority granted part relief to the assessee and upheld the action of the A.O to the extent of liability shown on account of salaries by observing as follows:
" The above submissions of the appellant have been considered. It has been seen that although the professional income of the appellant is being accounted for on receipt basis, the appellant has provided for regular expenses like salaries, telephone and electricity on mercantile basis. After considering the nature of the expenses, which are periodic bills and other relevant facts and circumstances of the case, it is held that the liabilities relating to telephone and electricity bills are to be allowed. The liability shown on account of salaries is not allowed and the action of the A.O is upheld to that extent."
46. On careful and vigilant perusal of the above in the light of the facts of the issue, the ld. CIT(A) was correct in holding that the nature of expenses which are periodic bills the liabilities relating to telephone and electricity bills are allowable. The ld. Counsel could not controvert the contention of the ld. CIT(A) that the liability shown on account of salaries is not allowable as it was not crystallised and 35 ITA Nos. 2932 & 3397/Del/2007 paid during the year i.e. financial period 2002-03. Thus we are unable to see any valid reason to interfere with the impugned order on this issue and hence we uphold the same. Consequently, Ground No. 3 of the assessee is dismissed.
47. To sum up, in the result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed.
The decision is pronounced in the open court on 22.07.2015.
Sd/- Sd/-
(O.P. KANT) (C.M. GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 22nd July, 2016
VL/
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR Asst. Registrar
ITAT, New Delhi