TMI Blog2013 (11) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... a director. In fact, as observed earlier, being a part of APPL, he would only be well aware of the market rates being quoted for the film. The assessee, has been clearly unable to make out any case in this regard. He, in fact, enters the agreement on MG basis, rather than on a revenue sharing basis, assuming all the risk. That the assessee had earned confirmed profits from another project/business, further indicts his case qua bona fides, vindicating the Revenue’s stand. The assessee has thus failed to make a case on both the parameters - decision in the instant case, based on the well settled jurisprudence in the matter, rests on the finding of the fact of the assessee having not furnished any explanation, much less a valid one, qua the reasonableness of the purchase price in the facts and circumstances of the case. Further, he has also not explained his conduct, which clearly, given the surrounding facts and circumstances, indicts the bona fides of the transaction - Decided against Assessee. - ITA No.907/Mum/2012 - - - Dated:- 3-5-2013 - Sanjay Arora and Vijay Pal Rao, JJ. For the Appellant : Shri A L Sharma For the Respondent : Shri O P Meena ORDER:- PER : Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood received by him up to June, 2000. The assessee was, thus, only well aware of his profits from that film and the concomitant tax liability. The Assessing Officer (AO), therefore, inferred that the assessee had, by design, interposed himself between his two other related concerns, APPL and AG, i.e., by the purchase of distribution rights (for the eastern circuit) on MG basis from the former, and then entering into a sub-distribution agreement with the latter on a commission basis of 15% of the net realization. This according to him was done to set off the loss against the confirmed profit from the production business (Rs.166.44 lakhs). He, therefore, restricted the claimed loss to Rs.12.24 lakhs (i.e., the expenses other than on the cost of the distribution rights), disallowing the balance (loss of) Rs.90.12 lakhs. This was done by him by restricting the claim of expenditure of Rs.111 lakhs to Rs.20.88 lakhs, i.e., the receipt during the year on the exhibition of the said film, u/s. 40A(2)(a) of the Act. 3.2 The assessee was successful in first appeal. The Revenue carried the matter to the tribunal, which, while confirming the disallowance, restricted it by treating the purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. Reliance was placed on the decision in the case of Union of India and Anr. v. Dharmendra Textile Processors and Ors. (2008) 306 ITR 277 (SC); and Madanlal Kishorilal v. CIT (2005) 277 ITR 209 (All.) [197 CTR 144]. Findings 5. We have heard the parties, and perused the material on record as well as the case law cited. 5.1 Our first observation in that matter is that the issue under reference is primarily factual, i.e., whether the assessee has a reasonable explanation for having made the purchase of the distribution rights (of the Bengali film Haar Jeet ) on 05.12.2000 at Rs.111 lakhs. If he has, being made bona fide, as a businessman in the ordinary course of his business, no penalty would be exigible despite the fact that it finally led to a loss, or the said price was found unjustified or in excess by Rs.30.26 lakhs, on which sum, therefore, penalty has been levied. This is for the simple reason that the loss is a matter subsequent, which could not presumably have been foreseen earlier and, therefore, incurring the same (loss) by itself cannot lead to the conclusion of the assessee having no valid basis for purchasing at the stated price. The standard of proof require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. This is again for two reasons. Firstly, is the legal mandate, i.e., the requirement of law, as sought to be projected per the relevant provision. Secondly, it is only the assessee who has undertaken the impugned transaction and is, therefore, in the know of all the relevant and incidental facts. Why and under what circumstances he has done what he has could only be explained by him. Thirdly, which is only an adjunct to the second, is that the fact as to the cost being excessive to that extent having been determined by the tribunal, the final fact finding body, it is for the assessee to show the grounds on which the said fact is to be reviewed, leading to the conclusion of the assessee having, nevertheless, a reasonable explanation. The purview of the Revenue in the matter is only to examine the same from the stand point of the bona fides (of the conduct) and the reasonableness (of the expenditure) with reference to some material or corroborative facts. This follows, apart from the express provision of law, the well settled legal principles of jurisprudence on penalty, for which we may refer to the decisions by the apex court, clarifying and elucidating the same, viz. Dharmend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization. This is precisely what the AO means when he states that the assessee has interposed himself in the transaction for a tax advantage, being well aware of having earned Rs. 1.66 crs. (and of the concomitant tax liability) on the sale of the film Badal . Coupled with the fact that the assessee is not in the distribution business, the whole transaction does become suspect indeed, leading us to examine the same further. The distribution rights were acquired vide agreement dated 05.12.2000, while the movie was released in the market (theatres) on 22.12.2000. That is, even up to about 15 days before the release date, the distribution of the film itself had not matured or been decided upon. The one thing that, therefore, can be reasonably inferred is that there were no takers for the film in the market. We have already observed the assessee to have received advances from the distributors as a producer. This in fact agrees with the common knowledge and observation, as the distributors, in case of demand and anticipated hype for the film, would vie with each other and want to book the film (for the given territory), even extending advance for the purpose, thus securing what in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allments of advance tax, which fell prior to the release of the film (or incurring the loss), are at amounts corresponding with the returned income (PB pgs. 2-5). What, one may ask, does that suggest? Most importantly, the assessee has not at any stage rebutted or met any of the primary facts, leading to the charge of the said interposition in the assessment order, indicting the bona fides of the transaction, and on the basis of which the satisfaction for the imposition of the penalty was drawn by the AO, either in the quantum or in the penalty proceedings. Our inferences are based on these uncontroverted facts, on which no explanation has been offered, reinforcing the interferences drawn. The assessee s claim of the genuineness of the transaction having been not doubted by the Revenue cannot be accepted. The assessee has clearly failed to prove the bona fides of the impugned transaction. 5.3 Next, we examine the case from the stand point of reasonableness of the cost of acquisition. This assumes significance as even if the business rationale of the transaction remains unexplained, where it is shown that the price agreed was an arm s length price, no disallowance, much less pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered (Rs.102.36 lakhs) is almost at par with the cost of the distribution rights (Rs.111 lakhs), so that it is not a case of a marginal error, and the ground realities were far removed from the assessee s estimate, if any, and in consonance with the market perception. Without doubt, a higher gap places that much more onus to explain the price purchase price paid inasmuch as a good profit would confirm the business realities as perceived. The expectation of profits is only the assessee s explanation, who, therefore, only could support or substantiate the same. In fact, where so, no disallowance would stand to be effected in first place; a degree of variation being intrinsic to any estimation exercise. It, again, needs to be noted that the tribunal by restricting disallowance to Rs. 30.26 lakhs, has acted, given the vagaries of the business, in a liberal manner, allowing thus loss to the extent of Rs. 72.10 lacs (102.36-30.26). However, despite this the unexplained loss (Rs.30.26 lacs) works to a significant proportion (over 27%) of the price paid or over 37% of the price considered reasonable. As such, merely stating that the disallowance arises out of an estimate, would not be of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better informed than would be the outside distributors (also refer para 5.2, 5.3 of the order). The assessee s only defense is that the disallowance as finally sustained by the tribunal is on an estimate basis. There is no law that penalty cannot be levied where the income or the disallowance under reference involves estimation. The argument thus lays down no rule for universal application, so that it has to be examined in the facts and circumstances of each case. The tribunal in the instant case made the estimation in the absence of any specific data or information being led by the assessee in explanation of his case. The said argument, thus, does not lie in the mouth of the assessee. Would that, therefore, imply that the assessee concedes to having himself made the purchase on an estimate basis? In fact, the tribunal made a very liberal estimation, as would be apparent from the fact that it thereby allows loss equivalent to 70% of that sustained on the transaction. Continuing further, an examination of the facts and circumstances of the case shows that there was a valid basis with the Revenue for stating of the transaction to be device, and the loss, thus, self inflicted. To b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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