TMI Blog2016 (3) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on behalf of Tips Industries Ltd. and is not being held by the assessee in his own right as the assessee can be deemed to hold the said amount in his own right on commencement of the film. No income is being generated or earned even under the cash system of accounting followed by the assessee as in the instant case the film has not commenced as per agreed terms and the amount has become refundable to Tips Industries Limited which is stated to be asking for refund of their advance. In our considered view, the addition made by the A.O. is not sustainable in law because the amount is being still held by the assessee on behalf of the Tips Industries Ltd and not on his own right as per the agreed terms of conditions as agreed vide mutual understanding dated 05-02-2008 as the assessee will be deemed to appropriate the said amount or hold the said amount in his own right only on the commencement of film and till then the assessee is holding the said amount on behalf of Tips Industries Limited which is refundable in case of non-starting of the film as per agreed terms as per mutual understanding dated 05-02-2008. The addition made by the A.O. as confirmed by the CIT(A) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee in de-novo proceedings - I.T.A. No. 4832/Mum/2012, I.T.A. No. 5601/Mum/2012 - - - Dated:- 25-2-2016 - Shri Saktijit Dey, Judicial Member And Shri Ramit Kochar, Accountant Member For the Petitioner : Shri Sanjiv M. Shah For the Respondent : Shri Rakesh Ranjan (D. R.) ORDER Per Ramit Kochar, Accountant Member These cross appeals by the Assessee and the Revenue are directed against the orders of the learned Commissioner of Income Tax (Appeals)- 3, Mumbai (Hereinafter called the CIT(A) ) dated 18-06-2012 pertaining to the assessment year 2008-09. These cross appeals are heard together and disposed of by this common order for the sake of convenience and brevity. 2. The ground raised by the assessee in the memo of appeal filed with the Tribunal reads as under:- 1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income-Tax (Appeals) [hereinafter referred to as Ld. CIT(A)] erred in confirming the addition of ₹ 4,38,395/- on account of bad-debts written off in case of Prachi Narmada Films Pvt Ltd. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if the said amount has been offered to tax in any previous year then it can be written off as bad debts. The amount written off as irrecoverable is not debtors of the assessee as the assessee has given the advances. The amount which have been written off as irrecoverable are not the debtors of the said assessee but the assessee had given advances to the PNF and the assessee himself stated that an advance of ₹ 10 lakhs was given to the PNF out of which ₹ 4,38,385/- was outstanding since 6 years therefore the said amount has never been taken into account while computing the income of the assessee of any previous year. The balance sheet as at 31st March, 2007 which reflected the name of the PNF under the head Investment . The A.O. observed that the investment as appearing in the balance sheet as at 31-3-2007 of the assessee are in the nature of capital advance and non recovery of the said investment can be capital loss but cannot be allowed as revenue loss, hence, the entry is passed by the assessee to reduce the burden of tax and accordingly the A.O. disallowed the same and added the same amount i.e. ₹ 4,38,385/- to the total income of the assessee vide asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as bad debts as held by the CIT(A). The CIT(A) also noticed that the assessee had failed to furnish details to show that as to how loss had occurred and accounted for in books of accounts. In view of all these facts, the CIT(A) upheld the findings of the AO vide orders dated 18-06-2012. 6. Aggrieved by the orders dated 18-06-2012 passed by the CIT(A), the assessee is in appeal before the Tribunal. 7. The ld counsel for the assessee submitted that the advance of ₹ 10 lacs was paid to the PNF in 2001 for buying the film Nayak . The assessee was having 25% share in the film Nayak . The Ld. Counsel for the assessee submitted that the loss incurred in this film was ₹ 5,61,605/- which was claimed by the assessee and allowed by the Revenue in the assessment year 2002-03. The ld. Counsel drew our attention to the balance sheet and P L account for financial year 2001-02 along with return of income filed with the Revenue for the assessment year 2002-03 whereby the distribution business loss of ₹ 5,61,605/- was claimed by the assessee in the return of income filed with the Revenue. The ld. Counsel also drew our attention to the agreement entered into with the PNF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 5,61,605/- which was offered for taxation in the assessment year 2002-03 and thereafter as per the facts emanating from the records the balance amount of ₹ 4,38,395/- was still recoverable from M/s PNF which was advanced in the year 2001. The income from this film Nayak was also offered for taxation in the assessment year 2002-03 although it was loss and it is well established and settled proposition that the income include losses and hence negative income i.e. loss is also an income which was offered for taxation by the assessee in the assessment year 2002-03. The assessee has made efforts to recover the amount but could not recover the same for which necessary evidences are placed on record by the assessee in the paper book filed with the Tribunal. This amount has been considered to be bad debt by the assessee and has been written off in the books of account in the current assessment year under appeal. In the opinion of the assessee, the said amount has become irrecoverable and has been written off in the books of accounts maintained by the assessee. In our considered view , the assessee has fully satisfied the conditions laid down in section 36(1)(vii) of the Act read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is following cash system of accounting and accordingly the A.O. added the said amount of ₹ 25,00,000/- to the total income of the assessee vide assessment orders dated 07-12-2010 passed by the AO u/s 143(3) of the Act. 11. Aggrieved by the orders dated 07-12-2010 passed by the AO u/s 143(3) of the Act , the assessee filed first appeal with the CIT(A). 12. Before the CIT(A) , the assessee submitted that the advance received is in the nature of refundable deposit/earnest money and to show the commitment to the director that the producer will not go back if viable project is put in place. The said advance was to be refunded if no new film is started and then it was to be adjusted against remuneration of film. The current status is that none of the film has been started and such deposit does not get character of income even under cash basis of accounting and hence income is not assessable to tax. The CIT(A) after considering the submission of the assessee rejected the claim of the assessee and held that since the assessee is following cash system of accounting, the principle of cash system of accounting is that the revenue is recognized on the basis of cash receipts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by rival parties. We have also carefully perused the mutual understanding dated 05-02-2008 entered into between the assessee and the Tips Industries Ltd. whereby the assessee has agreed to work with Tips Industries Ltd. It was also agreed by the assessee that both the film will start one after the other immediately after the film on the floor are completed or at least start one film within one year of the agreement whichever is earlier. The assessee was paid ₹ 25 lacs with the clear understanding that advance is not remuneration but paid only for accepting the directorial assignment and the advance shall be adjusted against the remuneration only on the commencement of the first film and in the event of not starting the first film, the assessee would refund the advance immediately. The assessee is following cash system of accounting whereby the income is taxed based upon the receipt of income whether the services are rendered or not is immaterial. However, in the instant case, the amount of ₹ 25,00,000/- has been advanced by the Tips Industries Ltd. with a clear understanding that it will not form part of the remuneration but for accepting the directorial assignment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of business. The A.O. asked the assessee as to whether electricity is being charged at commercial rates as if it is a commercial property as rate of electricity are different for commercial properties vis- -vis residential properties. The assessee replied that the assessee is mostly working on multiple projects at one time in his capacity as an actor, director for which he requires the use of different properties as office space. The assessee submitted that the he has the following properties and the details of use of each of the properties are given below:- (a) SAIDWAR :- This property is being used as office for companies like Chitrayug Productions Pvt. Ltd. in which the assessee is a Director and also for his professional purpose. The assessee has earned rental income of ₹ 60,000/ - during the year which has been duly offered for tax. (b) EVERSHINE GREENS:- This property is being used by the assessee as office premises for himself for his creative activities as an Actor, Director etc. for conducting story sessions, photo shoots, rehearsals etc. (c) TRANQUIL TREAT :-This property is also being used as godown and storage space for various materials, costumes, scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to the professional income of the assessee by the AO vide assessment order dated 07-12-2010 passed u/s 143(3) of the Act. 18. Aggrieved by the assessment order dated 07-12-2010 passed u/s 143(3) of the Act, the assessee preferred an first appeal before the CIT(A). 19. Before the CIT(A), the assessee submitted that section 32(1) provides that depreciation is allowable in respect of plant or furniture owned and used in business or profession on the written down value. It is of no consequence whether entire property is used for the purpose of business or not. With regard to Saidwar property, the assessee stated that the assessee is director of M/s. Chitrayug Production Pvt. Ltd. which was previously engaged in production of film and considering that the company is dormant, hence a small part was given on rent @ ₹ 60,000 per annum to that company. The assessee being director , producer , hence his profession requires substantial use of the property by the assessee, hence, depreciation is claimed on furniture and fixtures which should be directed to be allowed. With respect to Evershine Greens property, the assessee claimed that this property is being used by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that depreciation has been claimed of by the assessee of ₹ 2,12,184/- which was disallowed by the A.O. and same has been confirmed by the CIT(A). The ld. Counsel submitted that the assets are part of block of assets in which depreciation was allowed by the Revenue in earlier years, the depreciation has to be also allowed in the impugned assessment year under appeal based on the principle of consistency and the same cannot be denied to the assessee in this assessment year under appeal. The ld. Counsel submitted that the case was selected by the Revenue for scrutiny for the assessment year 2006-07 and assessment order dated 15-12-2008 was passed u/s 143(3) of the Act whereby the depreciation was allowed by the Revenue. In support, he relied on the decision of the Mumbai-Tribunal in the case of E-City Entertainment (India) Pvt. Ltd. v. Addl. CIT, [2013] 24 ITR (Trib) 73 (Mumbai) and the decision of Mumbai-Tribunal in the case of G.R. Shipping Ltd. v. DCIT in ITA No. 822/Mum/05 for the assessment year 2001-02 dated 17th July 2008 which was confirmed by the Hon ble Bombay High Court in Income Tax Appeal No. 598 of 2009 dated 28th July, 2009. The ld. Counsel also relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directed to admit evidences furnished by the assessee in de-novo proceedings in his defense and the AO should consider the necessary evidences submitted by the assessee before deciding the matter on merit.Needless to say that proper and adequate opportunity of hearing in accordance with law shall be granted to the assessee by the AO before deciding the issue on merits in denovo proceedings. We order accordingly. 24. Ground No. 4 relates to the action of the A.O. in treating three properties namely Evershine Greens , Saidwar and Tranquil Treat as deemed to be let out properties. The assessee was asked as to why these three properties other than Raj Classique (self occupied property) should not be considered as deemed let out properties. The assessee submitted the same submissions as submitted while replying with respect to disallowance of depreciation on furniture and fixtures and computers installed at these properties which are reproduced hereunder : (b) SAIDWAR :- This property is being used as office for companies like Chitrayug Productions Pvt. Ltd. in which the assessee is a Director and also for his professional purpose. The assessee has earned rental income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of purchase of property, therefore rental income computed by taking 10% of book value is not commensurate with amount of investment. Section 23(1)(b) of the Act does not specify any such formula for determination of annual letting value. The assessee relied on the judgment of Hon ble Supreme Court in the case of CIT v. Bharat Ram Sons, 266 ITR 106 (SC) and requested to consider the ALV @4% of half the book value from which deduction of Municipal tax and standard deduction should be allowed u/s 24(a) of the Act. The CIT(A) after considering the submission of the assessee directed the A.O. to recalculate the income from house property by taking ALV @8% of book value of above properties vide orders dated 18-06-2012. 27. Aggrieved by the orders dated 18-06-2012 of the CIT(A), the assessee is in appeal before the Tribunal. 28. The ld. Counsel for the assessee submitted that the properties have been used for the personal use of profession and hence it should not be treated as deemed let out properties as Section 22 of the Act clearly laid down that with respect to properties used for the purposes of business or profession, the annual value of such property shall be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, no appeal shall be filed by the Revenue in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. Para 3 of the Circular No. 21/2015 S No. Appeals in Income tax matters Monetary Limit (in Rs) 1 Before Appellate Tribunal 10,00,000/- 2 Before High Court 20,00,000/- 3 Before Supreme Court 25,00,000/- In the said circular vide para 10, it is stipulated that this instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/not pressed. 31. The ld. D.R. fairly conceded that tax effect involved in this appeal of the Revenue is less than ₹ 10 lacs and the CBDT Circular No. 21/2015 is applicable to this appeal and the appeal is not maintainable. 32. Keeping in view the CBDT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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