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The I.T.O, Ward 5 (3) , New Delhi Versus M/s Konark Telelinks Pvt. Ltd and Vica-Versa

2016 (7) TMI 507 - ITAT DELHI

Addition u/s 68 - unexplained cash credit - Held that:- CIT(A) has granted relief to the assessee by following the order of his predecessor for A.Y 2006-07, which has been confirmed by the Tribunal vide order dated 31.3.2010. It is also pertinent to mention that the ld. CIT(A), in last operative para 4.6 has categorically noted that the assessee company ahs duly discharged the initial burden cast upon it by filing detailed copies of accounts of both the parties by authorized signatories and by s .....

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ght of the above, we are unable to see any ambiguity or perversity or any 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 perio .....

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ve 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 set aside to the file of the AO for fresh adjudication and examination after affording due opportunity of being heard to the assessee and without being prejudiced from earlier assessment and impugned order and ld. CIT(A) - De .....

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New Delhi, dated 05/10/2010 passed in first appeal No. 152/2009-10. Revenue s Appeal ITA No. 5116 /Del /2010 [Assessment Year: 2007-08] 2. Ground Nos. 1 and 3 of the Revenue are general in nature which need no adjudication. Remaining effective Ground Nos. 2 and 2.1 read as under: 2. On the facts and circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition of ₹ 2,18,86,000/- made by the AO u/s 68 of the Act being unexplained unsecured loans. 2.1 The ld. CIT(A) .....

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sideration but there was no compliance. The ld. DR further pointed out that in view of the non cooperation of the assessee the AO had no alternative but to draw adverse inference and he rightly held that the assessee has failed to discharge its onus with regard to unsecured loans taken during the year as the assessee has failed to file any documents which could prove the genuineness of transaction, credit worthiness and identity of the parties from whom the assessee has claimed to have taken uns .....

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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 .....

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. The ld. AR took us through page 112 of the paper book and submitted that from the balance sheet as on 31/03/2007, it is evident that the unsecured loans amounting to ₹ 2,45,06,078/- of which the breakup is given at page 116 forming part of the balance sheet as under: List of unsecured loan Closing balance as at 31/03/2007 Opening balance as at 01/04/2006 Ahmedabad Network System 4,15,967 4,15,967 Gujarat Telelink (P) Ltd. 34,71,554 - Maninagar Network P Ltd. 4,74,520 4,74,520 Sabarmati N .....

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ions. The ld. AR further pointed out that in para 3.1 of the impugned order, the ld. CIT(A) noted that the AO himself has not doubted the existence, identity and credit worthiness of M/s Sabarmati Network P. Ltd. Therefore, merely because the assessee could not file bank statement of a party which was not within the assessee s control, addition cannot be held as justified. 6. The ld. AR further pointed out that the ld. CIT(A) granted relief to the assessee on this ground by holding as under: I f .....

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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 be .....

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how us any contrary order establishing that the order of the ld. CIT(A) and Tribunal [supra] for A.Y 2006-07 has been modified, set aside or dismissed. Therefore, we are inclined to hold that this issue has attained finality in A.Y 2006-07 in favour of the assessee by the order of the Tribunal. 9. On a careful consideration of the above submissions, from the operative para 4.4 to 4.6 of the impugned order, we note that the ld. CIT(A) has granted relief to the assessee by following the order of h .....

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nce of both the parties was not in doubt. The ld. CIT(A) finally concluded that no addition was called for in this case because the factual situation reveals that the genuineness of the transactions and credit worthiness and identity of the creditors cannot be doubted in view of the earlier first appellate order of the ld. CIT(A) and the Tribunal for A.Y 2006-07. In the light of the above, we are unable t see any ambiguity or perversity or any other valid reason to interfere with the impugned or .....

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a) ₹ 1,05,01,777/- on account of alleged understatement of subscription fee b) ₹ 1,49,67,891/- being the disallowance on account of pay channel expenses ₹ 2,54,69,668/- Various observations made by the ld. CIT(A) while making the above addition/disallowances on his own are either incorrect 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 th .....

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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 synopsis o .....

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ced below: In consideration of the services rendered by the Distributor to SITI, Distributor shall be entitled to such service charges as may be mutually determined by the parties to this Agreement from time to time. Provided that such service charges shall not, at any time, exceed 90% of the collection effected against the bills raised on the subscribers during the preceding month(s) on or after 1st day of April, 2005. 3. Therefore, the following observations of the Ld. CIT(A) in para 5.4 and 5 .....

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clause 4.1 of section 4 at page 70 of such Distribution Agreement dated 13/08/2005, the Assessee Co. was entitled to service charges from M/s Siti Cable Network Ltd. as mutually determined by the Parties to this Agreement from time to time but not exceeding 90% of the collections received by the said Co. and not 90% of the bills raised by the said Co. on the cable operators. In the immediately preceding assessment year viz. 2006-07 the Assessee had declared such receipts viz. 90% of the collect .....

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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. .....

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es of ₹ 1,49,67,891/- pertaining to January - March, 2007, the Id. CIT(A) is wrong in making the following observations at page 10 para 5.4.3 of the appellate order: Therefore when the revenue for the months of January to March, 2007 has not been accounted for by the appellant company and the dispute is pending before the Delhi High Court, it will be only appropriate that the payments made to pay channels for the period from January - March, 2007 are also not allowed as no income has been .....

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ses and pay channel/broadcaster charges (but excluding monthly rents of the head- end/control room premises, pole rents and programming expenses) out of its own funds . 2. The Ld. CIT(A) is factually incorrect in saying that the revenue for the months of January to March, 2007 has not been accounted for by the Assessee Co. The fact remains that the Assessee had duly accounted for revenue for the months of January to March, 2007 as is evident from copy of distribution charges shown in the books o .....

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ame three months period are also not allowed: Rs.44,54,704 to M/s Zee Pack - kindly see page 159 of the paper book. 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, revenu .....

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substantial stakes in the appellant company has taken over the entire cable network belonging to the SITI, now known as Wire and Wireless (I) Ltd. and has been running the cable TV business operations with the help of M/s Gujarat Telelinks Pvt. Ltd. and M/s Sabarmati Network Pvt. Ltd. and had prevented both the appellant company and SITI from operating within the territory of Vadodara and Ahmedabad. A perusal of records also suggests that owing to the dispute between the Wire & Wireless (I) .....

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ks Pvt. Ltd. and M/s Sabarmati Network Pvt. Ltd. It was due to the above dispute followed by litigation about which the Id. AO was informed vide Assessee s letter dated 21/12/209, copy placed at pages 41 - 43 of the paper book - kindly see Sr. No. 20 at page 43 during which copies of the litigation as going on were also filed. Therefore, the Assessee had ultimately to close its business w.e.f. 31st October, 2007. Consequently, the enhanced disallowance of ₹ 1,20,87,891/- as made by the Id. .....

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has been made without pinpointing any specific item of unvouched or unverifiable nature out of the expenses claimed. 6. Moreover, ad-hoc disallowances have not been approved by the Courts as held in the following case laws: 73 ITR 192. Jhandumal Tarachand Rice Mills vs. CIT (P & H High Court), in which it was held as under: 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 ga .....

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cessiveness 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 .....

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see who has adopted cash system of account. The ld. DR supporting the action of the AO as well as the enhancement order of the first appellate authority drew our attention towards operative para 5.4 and 5.5 of the order of the ld. CIT(A) and submitted that while admittedly and undisputedly as per terms of agreement dated 13.8.2005 assessee company was appointed as distributor in order of carry on the business of distribution and retransmission of cable signals, to procure pay TV channels by exec .....

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by the assessee on behalf of SITI and further remittance was to be made to SITI cable. The ld. DR pointed out that as per clause 2.ii the assessee was entitled to bear all expenses including operational expenses and pay channel/broadcasters charges which shows that the payments to pay channels/broadcasters expenses was to be made by the assessee itself. The ld. DR further pointed out that when collection of service charges and payments to pay channels/ broadcasting channels has to be made by the .....

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er 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 sho .....

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the period under consideration and therefore, as per Mercantile System of Accounting, as adopted by the assessee, the assessee has to account for this Revenue, irrespective of the fact whether all the payments/dues have been cleared by debtors or not. The ld. DR strenuously pointed out that it is the settled position of law that in the case t company fails to recover/realize outstanding debtors, it will be allowed necessary deduction in the year of write off of the debts. 14. The ld. DR lastly .....

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ponding period. 15. On the issue of disallowance of expenses claimed by the assessee, the ld. DR pointed out that for the year under consideration, the assessee has claimed total expenses of ₹ 3,83,99,743/- which includes payments of ₹ 3,55,62,164/- made to pay channels and the AO has made disallowance of ₹ 28,80,000/- being 7.5% of ₹ 3,83,99,743/- on account of unverified and unproved expenses. The ld. DR supporting the enhancement order elaborated that on careful examin .....

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y to March 2007 was not allowable as no income was recognized for the said period. The ld. DR also took us through para 5.4.3 and contended that the ld. CIT(A) rightly disallowed payment for the period January to March 2007, made to Star Pack, Sony Pack, ESPN and Star Sports. The ld. DR contended that the ld. CIT(A) was justified enough in allowing set off of ₹ 28,80,000/- already disallowed by the AO for computing the final enhancement and disallowance on this count. Therefore, the order .....

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lected. 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 .....

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akhs of the total claim of expenses and worked out disallowance of ₹ 28.80 lakhs. Undisputedly, the said claim of expenses of 383.99 lakhs also included the pay channel expenses of ₹ 3,55,62,164/- which was alleged as excess claim by the ld. CIT(A) for making enhancement on account of pay channel expenses of ₹ 1,49,67,891/-. Be that as it may, further the ld. CIT(A) for making another enhancement held that the assessee has claimed expenses for the entire financial period wherea .....

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y to March 2007 of three months. In all fairness, from the operative para 5.4 of the ld. CIT(A), it is amply clear that the ld. CIT(A), for making the impugned enhancement on account of understatement of subscription fees has taken into account only bills raised against SITI by the assessee for the period April to December 2006 and on this basis subscription fees for next three months has been estimated for making enhancement and consequent addition. 19. On specific query from the Bench, the ld. .....

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the hands of the assessee as per Mercantile system of accounting. Finally, we are 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 pe .....

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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 against SITI have not been verified by the authorities below, which are necessary for estimation and calculation of actual subscription billed by the assessee agaisnt SITI for the whole financial period. In view of the above, w .....

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