TMI Blog2008 (10) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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] . Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urned by the assessee. This amount includes two components, - (1)Rs. 23.5 lakhs refers to the opening balance as on 1-4-2000 not transferred by assessee to Profit and Loss account (Rs. 79,05,555 - Rs. 55,55,555). Assessee transferred only Rs 55,55,555 out of b/f amount from the advances account in the B/S to the P L account. (2)Rs. 1,56,05,000, which consists of advances received from Megha Star (Rs. 30,00,000) : Century films (Rs. 61,42,500) : Mehul Kumar (Rs. 11,00,000) : Sridevi films (Rs. 40,00,000) and Ram Gopal Verma (Rs. 13,62,500). 5. During the assessment proceedings, the assessee made various submissions to prove that the assessee follows Mercantile system of accounting consistently, since assessment year 1997-98. Prior to that the assessee was following Mixed system of accounting which means Mercantile system of accounting for income recognition and cash system on accounting for expenses. A change over from Mixed system to Mercantile system was necessitated in view of the amendment to section 145(1) with effect from assessment year 1997-98 onwards. Assessee could not supply the relevant material and details to the Assessing Officer relating to extent of completio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entertain- ment as shooting never took place. The CIT(A) considered the assessee s explanation and held that the advances received from ( i ) Archana Entertainment (Rs. 15,00,000), ( ii ) Mehul Kumar (Rs. 11,00,000), ( iii ) Ram Gopal Verma (Rs. 13,62,500) and ( iv ) New Century Films (Rs. 61.42 lakhs) are not to be considered as income of the assessee for the reason the shootings of the films did not commence till the end of the instant year. Accordingly, he granted full relief in respect of the above advances from Sridevi Films, Shakti Films, Megastar. Relevant discussions of the CIT(A) in the impugned order is given as under :- "Shooting of film for M/s. Sridevi Films commenced from 19th February, 2001 and continued up to 16-3-2002, i.e., almost for full one year. As per the agreement dated 7-12-2000 with M/s. Sridevi Productions for the movie Shakti - The Power the assessee was paid an amount of Rs. 15,00,000 on signing of the film and the remaining amount of Rs. 85,00,000 was to be paid before the release of the film. The shooting of the film for M/s. Shakti Films had commenced during there current previous year, therefore, at least the signing amount of Rs. 15,00,000 out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision on the invoking of the provision of section 145(1) and the rejections of the books of account of the assessee. He further has taken as through the contracts with the producers for the proposition that the assessee recognises taxable income only when the films are released. He also mentioned that the amounts have refunded in the case of failure of completing the films. The CIT(A) erred in rejecting the above facts and in going for estimation of the income relatable to the year under consideration. AR further relied on the Madras Bench decisions in the case of ITO v. S. Kamalahasan [1988] 30 TTJ (Mad.) 659, S. Priyadarshan v. Jt. CIT [2001] 73 TTJ (Chennai) 738 for the proposition, in the case of a cine artist, that the accounting method of working out entire consideration on completion of pictures and, not taking into consideration the advance as and when received, cannot be said to be wrong so as to attract the provision to section 145(1). On the other hand, the ld. DR relied on the orders of the Assessing Officer and argued that the assessee followed a system of accounting, which does not deduce the correct profits of the assessee. He argued that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ularly employ either cash or mercantile system of accounting and meaning and consequences of not regularly following the system of accounting; ( b ) Assessing Officer being not satisfied about the correctness or completeness of the accounts of the assessee and the very meaning of the correctness and completeness of the accounts; and ( c ) making of an assessment in the manner provided under section 144. 13. 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. In other words, the failure to maintain certain registers or any other books makes the accounts of the assessee incomplete. On the other hand, the correctness of the accounts refers to the quality or accuracy or reliability of the accounts maintained by the assessee and it covers the reconcilable mistakes or errors in accounts. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /M/04 - Revenue s Appeal 17. The only ground in this appeal is against the decision of the CIT(A) in holding that the amount of Rs. 156.05 lakhs being advances considered by the Assessing Officer is not the income of the assessee. In this regard, the ld. DR reiterated the submissions already mentioned in the preceding paragraphs. However, he relied on the orders of the Assessing Officer. On the other hand, the ld. AR for the assessee repeated the above submissions in favour of the assessee s method of recognizing income after the completion/release of the film. He relied on the orders of the CIT(A) as regard and decision of the Madras Bench in the cases of S. Kamalahasan ( supra ) and S. Priyadarshan ( supra ). 18. We have heard the rival submissions and perused the orders of the Assessing Officer and the CIT(A) in this regard. The issue that arises from the argument of both the parties relates to the income recognition whether the CIT(A) is correct in deleting the additions made by the Assessing Officer. We have dealt with this issue while adjudicating the grounds of the assessee vide paragraphs 9 to 15 of this order. We have held that the Assessing Officer has invo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
