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R.S. SURIYA Versus ASSISTANT COMMISSIONER OF INCOME-TAX

Accrual of income - Advances received from various producers - whether assessable as income for the respective assessment years or not? - Held that:- The amounts received by the assessee from various producers towards advances cannot be assessed as income of the assessee. Therefore, we set aside the orders of the lower authorities and delete the additions in respect of the advances treated as income of the assessee.

These token amounts were received by the assessee for giving preferen .....

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terms and conditions mutually by both the parties. When the assessee has returned these amounts in the subsequent years as the proposed assignment were not materialised then it would not be proper and appropriate to treat these amounts as income of the assessee.See S. Priyadarsan. Versus Joint Commissioner Of Income-tax [2001 (7) TMI 298 - ITAT MADRAS-B] - Decided in favour of assessee. - I. T. A. Nos. 1944, 1945, 1946 /Mds/ 2014 - Dated:- 30-6-2015 - CHANDRA POOJARI (Accountant Member) and CHA .....

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ssessee from various producers is assessable as income for the respective assessment years or not. 2. Brief facts of the case are that there was a search in the case of the assessee on January 19, 2010. In response to the notice under section 153A, the assessee filed returns for all these three assessment years declaring taxable income of ₹ 61,61,778, ₹ 1,05,10,608 and ₹ 44,53,224 for the assessment years 2004-05 to 2006-07 respectively. The assessments were completed under sec .....

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as income of the assessee. On appeal, the Commissioner of Income-tax (Appeals) sustained the additions treating the said amounts as income of the assessee for the reason that the assessee is following cash system of accounting and therefore they have to be considered as income of the assessee, against which the assessee is in appeal before us. 3. The authorised representative for the assessee submits that the advances brought to tax in the hands of the assessee were already assessed while compl .....

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2009 for the assessment years 2004-05 and 2005-06 and in I. T. A. No. 1329/ Mds/2009 dated January 19, 2010 for the assessment year 2006-07 (R. S. Suriya v. Deputy CIT [2010] 2 ITR (Trib) 746 (Chennai)) deleted these additions holding that the amounts received are only advances and cannot be assessed in these assessment years. Therefore, counsel for the assessee submits that the advances brought to tax by the Assessing Officer in the search assessments are the same amounts, where the Tribunal de .....

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inarayana Films v. CIT [2000] 244 ITR 344 (Mad) in support of his submission that advances shall have to be treated as income of the assessee. 5. Heard both sides. Perused the orders of the lower authorities and the decisions relied on. In this case, search was conducted in the premises of the assessee on January 19, 2010 and assessments were completed for the assessment years 2004-05 to 2006-07 on December 30, 2011 and while completing the assessments, the Assessing Officer assessed various amo .....

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A. Nos. 596 and 597/Mds/2009 dated August 21, 2009 for the assessment years 2004-05 and 2005-06 and by I. T. A. No. 1329/Mds/2009 dated January 19, 2010 for the assessment year 2006-07 (R. S. Suriya v. Deputy CIT [2010] 2 ITR (Trib) 746 (Chennai)). We also find from the order of the Commissioner of Income-tax (Appeals) that though the assessee produced these orders of the Tribunal, he failed to follow these orders stating that the assessee has not produced the written agreements and therefore, h .....

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the producers of films were entered into. Therefore, in the absence of any written agreement the Commissioner of Income-tax (Appeals) should not have tried to distinguish the orders of the Tribunal and refused to follow the same. On going through the orders of the Tribunal, we find that the issue in appeal is already decided in the proceedings under section 143(3) of the Act. 6. The co-ordinate Bench in I. T. A. Nos. 596 and 597/Mds/2009 dated August 21, 2009 while arriving at the conclusion th .....

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ew of the peculiar fact that in the subsequent years these advances were returned by the assessee as the proposed assignments were not materialised, the advance token receipt cannot partake the character of income for the assessment year under consideration. The Commissioner of Income-tax (Appeals) has relied upon the hon'ble jurisdictional High Court in the case of Lakshmi narayana Films v. CIT [2000] 244 ITR 344 (Mad), wherein the amounts were to be received by the assessee as per the writ .....

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f Income-tax (Appeals) is not directly applicable because in the present case there is no written agreement as well as there are no dates on which the amounts to be paid on fulfilment of certain conditions. 6. From the facts of the present case, we find that these token amounts were received by the assessee for giving preference to the parties for making himself available for future assignments, if finalised after deliberations and consideration of various factors and criteria. Which means that .....

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hen it would not be proper and appropriate to treat these amounts as income of the assessee. In the case of Shri S. Priyadarsan v. Joint CIT (supra), the Tribunal has held in para 5 as under : '5. After carefully considering the record available with the Tribunal and in the light of the arguments advanced on behalf of both the parties, we find that the assessee had shown the disputed amount of ₹ 25 lakhs in the list of sundry creditors in the balance-sheet filed by him for the period e .....

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period. Therefore, in our considered opinion and in the light of the Supreme Court decision cited supra there is no part of the said advance accrued to the asses see to constitute income to be chargeable to tax during the period. Thereby the addition of ₹ 25 lakhs to the returned income of the assessee is unsustainable under law and it is to be set aside.' 7. Similarly, in the case of K. K. Khullar v. Deputy CIT [2008] 304 ITR (AT) 295 (Delhi), the Delhi Benches of this Tribunal has h .....

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ual, receipt and deemed receipt, etc. Section 145 deals with the method of accounting in respect of 'profits and gains of business or profession' or 'income from other sources'. Thus, while sections 4 and 5 deal with the scope of income and its charge to Income-tax, section 145 is a procedural section regarding the method to be followed for recording of income in the books of account. It is no doubt true that for the assessment year 1997-98 and onwards, the assessee can follow ei .....

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further mentioned that the substance of the matter is 'income'. It may be emphasised that it is accrual of income or receipt of income that can become the subject- matter of tax and it is the income which has to be recorded as per the system of accounting followed by the assessee in view of section 145 of the Act, because the substance of the matter is 'income'. Therefore, there is an infirmity in the order of the learned Commission of Income-tax (Appeals) in paragraph 4.7 where .....

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was shown as income, the reason being that the assessee became entitled to receive that amount from the client in respect of the services rendered. In other words, debt to the extent of the amount pertaining to services rendered only got vested in the assessee. The rest of the amount was taken as liability to be adjusted in subsequent years as and when the service was rendered. It is but clear that the excess amount would have to be returned in case the service was not performed in subsequent ye .....

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onsistency of assessments, it may be mentioned that the hon'ble Supreme Court itself mentioned in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) that their findings should not be taken as a general proposition of law to be followed in every case as it was confined to the facts of that case. We may add that if a manifestly wrong decision has been taken by the Assessing Officer in one year or in a number of years, it will not bind the Assessing Officer in the assessment of a sub .....

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ed upon by the assessee. Therefore, following the decision of this Tribunal as well as the Delhi Benches of this Tribunal, we hold that when the assessee has shown as these advance receipt as liability in his balance-sheet and the advances were not on the finalisation of any agreement but were received as a token amount for giving a priority to the parties to negotiate for future assignment without finalising the terms and conditions. When the future assign ments were not materialised and the am .....

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rival contentions. There is no dispute that the learned Commissioner of Income-tax (Appeals) had confirmed the advance professional fee of ₹ 55 lakhs as income for the impugned assess ment year relying on his own decision in the assessee's appeals for the assessment years 2004-05 and 2005-06. It is clear from the assessment order itself that the amounts received by the assessee from M/s. Photon Factory and M/s. Studio Green were not against any particular films. The assessee's con .....

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h income can be considered as recognised. Just because the assessee had received an amount of advance such sum cannot be treated as income, only for a reasoning that it was following the cash system of accounting. It is on account of this reason that in the assessee's own case for the earlier years, this Tribunal had held that it would not be proper and appropriate to treat professional advance received as income, unless and until proposed assignments had materialised. Though the learned Dep .....

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nce placed by learned counsel for the Revenue on the decisions of A. Ramki and D. Meena; the former case was decided relying on the latter decision. If we advert to the decision of D. Meena's case, there the assessee who was also a cine artist, had received advance on the basis of a contract for acting in a film. In other words, there was a subsistent contract for acting in a particular film, whereas in the given case the advances were received from two parties with no clear crystallisation .....

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