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2023 (4) TMI 691 - ITAT CHENNAIAddition u/s. 40A(3) - additions made towards cash payments in excess of prescribed limit - payments made for purchase of Right of the film "Osthi" and "Vaanam" - as argued money collected from exhibitors and theatre owners as an agent on behalf of the distributor, same cannot be treated as expenditure of the assessee - assessee is in the business of film distribution under name and style of Chimbu Cine Arts, a proprietary concern. The appellant is also the managing director of M/s. Kural TV Creations Pvt Ltd, which is also in the business of film distribution - HELD THAT:- It is an admitted fact that M/s. Reliance Big Entertainment Pvt Ltd, is the producer of the movie Vaanam.There is a tri-party agreement dated 09.11.2011 between M/s. Reliance Big Entertainment Pvt Ltd and M/s. Kural TV Creations Pvt Ltd and also M/s. Balaji Real Media Private Limited It is important to adhere to the pre-determined release date of the movie, the assessee was under obligation to settle the accounts of various parties as directed by the producer of the movie M/s. Reliance Big Entertainment Pvt Ltd. Since, the assessee was acting as an agent of M/s. Kural TV Creations Pvt Ltd, they have directed the assessee to settle the accounts of various parties on behalf of M/s. Reliance Big Entertainment Pvt Ltd and accordingly, the assessee has made cash payments to various parties on behalf of the M/s. Reliance Big Entertainment Pvt Ltd and debited to the accounts of M/s. Kural TV Creations Pvt Ltd. If you go by the arrangement between the parties, the assessee is neither producer of the movie nor distributor and exhibitor. But, he has acted as an agent for distribution and marketing of movie. Therefore, amount paid by the assessee to various parties and debited into ledger account of ‘Osthi’ right purchase account and VTV production ‘Vaanam’ account, cannot be considered as amount paid for purchase of movie, even though the assessee by mistake has debited said amount to profit and loss account. It is a settled principal of law by various decisions that, entries in books of accounts will not decide the taxability of any income, but what is relevant is to see the nature of income and its taxability. Since, the assessee was only an agent for distributor and collected money from exhibitor/theater owners on behalf of distributors, payment made by the assessee to various parties on behalf of producer of movie cannot be considered as income/expenditure of the assessee to invoke provisions of section 40A(3) of the Act. Business expediency in making cash payments - Unless, the accounts of various persons including technicians of the movie was settled, it is impossible to release the movie on the specified date for public audience. Since, there was a business expediency in settling of accounts of various parties and also as per the directions of the producer of the movie, the distributor of M/s. Kural TV Creations Pvt Ltd, directed the assessee to make payment to various parties out of amount collected from exhibitor/theatre owners. The assessee, as per directions of his principle paid amount to various parties and debited to their accounts. Therefore, from the above, it is very clear that there is business expediency in making cash payments and thus, we are of the considered view that provisions of section 40A(3) of the Act cannot be invoked in the given facts and circumstances of this case. The provisions of section 40A(3) of the Act, cannot be made applicable to cash payment made by the assessee. Therefore, we direct the AO to delete additions made towards disallowance of cash payments u/s. 40A(3) of the Act. Decided in favour of assessee.
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