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2008 (10) TMI 396 - AT - Income TaxProfessional fees and Drama receipts - Method of accounting - Rejection of accounts - CIT Sustained the addition received during the previous year relevant to the AY 2001-02 and also sustained the balance of the b/f advances, outstanding without appreciating the assessee’s method of accounting and the policy in respect of income recognition - Assessee follows Mercantile system of accounting and the income recognition in respect of advances received for professional fee is only when the film is either completed or released - HELD THAT:- There is no dispute on the regularly employing of the method of accounting and, therefore, the same is irrelevant to this case. Regarding the completeness of accounts, it refers not only to the accounting entries for all the transactions done in the previous year but also to the list of books of account. Thus, the completeness refers to list of books of account and entries therein and the accuracy refers to the quality of the accounts of the assessee. The scope of the provisions of section 145 conclusively establishes the fact that, what is important for rejection of books is the AO being not satisfied about the correctness or completeness of the accounts as specified in section 145(3) and it is not the question of assessee establishing the method applied is fit enough to deduce from the accounts the correct profits. Therefore, we proceed to examine the fact, where the rejection was done merely without any finding on the ‘correctness or completeness’ of the books of account. In our opinion, the rejection the books of account u/s 145, while accepting the books as correct and complete, is an invalid assumption of jurisdiction by the AO. On merits, we find that the assessee has finally recognized the un-refunded advances as income of the assessee in the later years. Therefore, we are of the opinion that the order of the CIT(A) is set aside and the addition made by the AO are deleted. Above views are fortified by the Madras Bench decisions in the cases of S. Kamalahasan [1988 (2) TMI 128 - ITAT MADRAS-C]and S. Priyadarshan [2001 (7) TMI 298 - ITAT MADRAS-B]. Accordingly, the ground of the assessee in this regard is allowed. Recognition of Income - AO has invoked the provisions of section 145 without jurisdiction and additions are made arbitrarily thrusting the cash system of accounting on the assessee with regard to the advances from the producers. Resultantly, the ground of the revenue is dismissed. In the result, appeal of the assessee is allowed and appeal of the revenue is dismissed.
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