TMI Blog2016 (7) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... other valid reason to interfere with the impugned order and thus we uphold the same. - Decided against revenue Addition on account of under-statement of subscription fee and on account of pay channel expenses - Held that:- he issue requires detailed examination and verification at the end of the AO regarding actual amount of subscription claimed by the assessee by raising bills against SITI for entire financial period i.e. from April to 2006 to March 2007 because the assessee is following Mercantile system of accounting. Further verification of actual expenses claimed by the assessee also requires verification at the end of the AO, which could not be done during the assessment proceedings and thereafter any conclusion as per the provisions of the Act may be drawn by the AO after verification of relevant bills/vouchers and other documents about the claim of expenses placed by the assessee. In view of the above order of the AO making addition and enhancement by the ld. CIT(A) are set aside and issue of verification of expenses claimed by the assessee and Revenue recorded by the assessee pertaining to subscription fees/ charges by way of raising bills against distributor SITI is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect and justified treating the amount as assessee company s own company introduced in the books of accounts u/s 69C of the Income-tax Act, 1961 ['the Act' for short] . The ld. DR vehemently pointed out that the ld. CIT(A) was not correct and justified in deleting the addition made by the AO. Therefore, the impugned order may be set aside by restoring that of the AO. 4. Replying to the above, the ld counsel for the assessee reiterated the assessee s written synopsis and contended that assessee is in the business of distribution of channel signals to cable operators through cable wire. Return was filed on 31/10/2007 declaring loss of ₹ 2,23,19,385/-, which was accepted as mentioned by the AO u/s 143(1) of the Act. As regards various notices issued viz. 143(2)/142(1) as mentioned in paras 1 2 of the assessment order and their alleged non-compliance, the assessee had explained the actual position vide its letter dated 25/01/2010 in response to notice u/s 271 (1 )(b) of the Act. No penalty had however been levied by the AO and the impugned assessment order had been passed u/s 143(3) of I.T. Act. 5. The AO made addition u/s 69C of the Act whereas Revenue s ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s letter dated 21/12/2009 has filed duly confirmed detailed copies of accounts of both the parties. 7. The ld. AR further pointed out that the ld. CIT(A) granted relief to the assessee by relying on the order of his predecessor i.e. ld. CIT(A) for A.Y 2006-07 wherein the first appellate authority granted relief to the assessee. The ld. AR also pointed out that the order of the ld. CIT(A) for the assessment year 2006-07 dated 3.11.2009 has been upheld by the ITAT D Bench vide order dated 31/03/2010 in ITA No. 249/Del/2010 and the order of the ld. CIT(A) and the Tribunal has been considered by the ld. CIT(A) while granting relief to the assessee for A.Y 2007-08. 8. The ld. DR, placing rejoinder to the above submissions of the ld. AR, contended that the AO made addition pertaining to unsecured loans shown by the assessee and by bonafide mistake mentioned section as 69C of the Act and the ld. CIT(A) has considered this bonafide mistake in the operative relevant para No. 4.4 to 4.6 of the impugned order. However, on a specific query from the Bench, the ld. DR could not show us any contrary order establishing that the order of the ld. CIT(A) and Tribunal [supra] for A.Y 2006-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or are not tenable. 2. That no proper and legal enhancement notice had been issued by the ld. CIT(A) before making the above addition/disallowances and consequently the income enhanced by the ld. CIT(A) by ₹ 2,25,89,668 is wholly unjustified. 11. Briefly stated, the facts of the case are that the AO completed assessment u/s 143(3) of the Act by making addition of ₹ 218.86 lakhs on account of unsecured loans and adhoc disallowance of expenses @ 7.5% claimed by the assessee. Aggrieved, the assessee went in appeal before the ld. CIT(A) who granted part relief to the assessee on account of addition made pertaining to unsecured loans but while considering Ground No. 4 of the assessee, the ld. CIT(A) instead of deleting the addition, enhanced it by ₹ 2,25,89,668/- on account of under-statement of subscription fee and on account of apy channel expenses and addition made by the AO on this count was adjusted to the total amount calculated by the ld. CIT(A) for making enhancement of income. Now the empty handed assessee is before the Tribunal challenging the addition made by the AO and enhanced by the ld. CIT(A). 12. The ld. AR submitted has furnished a syno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages G - \ to these Synopsis. 5. Details/breakup of income from distribution charges of ₹ 1,60,65,485/- shown in the P L A/c at page 114 of the paper book is placed at pages 124 - 125 of the paper book. Copy of A/c of the Assessee Co. in the books of M/s Wire Wireless (I) Ltd. formerly known as Siti Cable Network Ltd. for the year under consideration is placed at pages 24 - 28 of the paper book from which the month-wise collections as made by them are evident. 6. The Assessee having duly declared collection charges as per clause 4.1 of the Agreement (kindly see page 70) as reproduced above, no justification subsisted on the part of the Ld. CIT(A) to make the addition of ₹ 1,05,01,777/- challenged by the Assessee vide ground No. 1(a). Therefore, the Id. CIT(A) was incorrect in making enhancement of ₹ 1,05,01,777/- because there was no understatement of subscription fee at all as recorded by the Assessee. Consequently, the disallowance and enhancement of ₹ 1,05,01,777/- as made by the Id. CIT(A) deserves to be deleted. Apropos Ground 1(b), the ld. AR submitted as under: As regards disallowance of pay cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.57,91,162 to M/s Star Pack - kindly see pages 160- 161of the paper book. Rs.24,94,655 to M/s Sony Pack - kindly see page 162 of the paper book. Rs.22,27,730 to M/s ESPN Star Sports - kindly see page 163 of the paper book ₹ 1,49,67,891 Tota ₹ 28,80,000 Disallowance as made by AO Less ₹ 1,20,87,891 Enhanced disallowance made by CIT(A) As shown above, revenue for three months period ended March, 2007 was duly accounted for by the Assessee and hence, the very basis/rationale for making the disallowance of pay channel expenses for such three months period by the Ld. CIT(A) did not exist. 4. In para 5.4.3 at page 10, the Ld. CIT(A) has himself observed as under: However, a perusal of records maintained in the office of the AO reveals that Sh. Anirudh Singh Jadeja who controls M/s Gujarat Telelinks Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That even assuming that the proviso was attracted, the income-tax authorities, not having determined any basis or manner of computation of the true income, profit and gains of the assessee-firm, were not justified in arbitrarily adding ₹ 15,000 in round figure to the income of the assessee-firm. 94 TTJ 736, ACIT vs. Arthur Anderson Co. (ITAT Mumbai Bench), in which it was held as under Even though the AO has given categorical finding that the expenditure was for the purpose of the business and commercially expedient and the same was admissible as deduction, he made a token disallowance of 20 per cent of such expenses on the ground that element of excessiveness in such reimbursement cannot be ruled out - Not justified -AO has accepted that the accounts were duly admitted - Disallowance was inherently based on surmises and conjectures and devoid of a legally sustainable foundation - CIT(A) justified in deleting the disallowance . ITAT Delhi Bench judgment in the case of Duli Chand Narender Kumar Exports Pvt. Ltd Vs. ACIT 13 Replying to the above, the ld. DR first of all drew our attention towards audit report placed at pages 55 and 56 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscription charges levied as per bills raised by the SITI cable during the period April to December 2006 were examined by the ld. CIT(A) and it was found that during the said period, total service charges/ subscription fees of ₹ 2.95,19,181/- excluding the service tax and other government levies was to be collected from the cable operators/ subscribers and thus, as per the distribution agreement, the assessee company was to receive 90% of the said billed amount i.e. 2,65,67,262/- during the period April to December 2006 and as against ₹ 2,65,67,262/- the assessee company has shown only income of ₹ 1,60,65,485/- only. Therefore, it was rightly held that the assessee under stated the revenue collected by it during the period. The ld. DR also pointed out that the ld. CIT(A) from the perusal of assessee s account as appearing in the books of SITI cable, noted that the SITI cable has raised bills and debited the account of the assessee on a monthly basis and the amounts debited in the accounts of the assessee company represented the Revenue which had become due during the period under consideration and therefore, as per Mercantile System of Accounting, as adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the ld. CIT(A) may kindly be upheld. 17. The ld. AR also placed rejoined to the above submissions of the ld. Sr. DR and submitted that on one hand the ld. CIT(A) is alleging that the assessee understated the subscription fee and therefore, he made enhancement of ₹ 1,05,01,777/- and at the same time, the ld. CIT-DR alleged that the assessee made payment of pay channel fees for the period January 2007 to March 2007 i.e. for three months for which no subscription fees has been shown as collected. The ld. AR pointed out that the Revenue cannot blow hot and cold at the same time as the addition for understatement of subscription i.e. the Revenue receipt on one hand and disallowance on pay channel expenses for the same part of the financial period on the other hand because when the understatement of subscription is there, and the addition is being made on this count, then pay channel expenses has to be allowed to the assessee. Therefore, the order of the ld. CIT(A) cannot be held as sustainable on facts and on the provisions of the Act. 18. On careful consideration of the above rival submissions, from the relevant part of the order of the ld. CIT(A) making enhance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in agreement with the contention of the ld. DR that the assessee has not shown subscription fees/charges from the period January to March 2007 and the distribution charges shown by the assessee of ₹ 6,05,290/- cannot justify the actual amount of subscription received by the assessee for these three months because on one hand the assessee is paying huge charges of ₹ 1,49,67,891/- continuously for the period of last months i.e. January to March 2007 without collecting Revenue which is not an acceptable fact, even for a man of ordinary prudence, in the ordinary course of business. As we have noted earlier that collection of subscription fees as well as payment of pay channel charges was under the control of the assessee, then if due to some dispute between the assessee and the SITI the subscription charges was not allowed to be collected by the assessee for his period of three months, then it is not acceptable that the assessee continuously made payments for the last three months of the year despite the fact that he could not collect any subscription from respective clients for the same period of three months. 20. The bills raised by the assessee for this period agains ..... X X X X Extracts X X X X X X X X Extracts X X X X
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