TMI Blog2023 (4) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... ie M/s. Reliance Big Entertainment Pvt Ltd. Since, the assessee was acting as an agent of M/s. Kural TV Creations Pvt Ltd, they have directed the assessee to settle the accounts of various parties on behalf of M/s. Reliance Big Entertainment Pvt Ltd and accordingly, the assessee has made cash payments to various parties on behalf of the M/s. Reliance Big Entertainment Pvt Ltd and debited to the accounts of M/s. Kural TV Creations Pvt Ltd. If you go by the arrangement between the parties, the assessee is neither producer of the movie nor distributor and exhibitor. But, he has acted as an agent for distribution and marketing of movie. Therefore, amount paid by the assessee to various parties and debited into ledger account of Osthi right purchase account and VTV production Vaanam account, cannot be considered as amount paid for purchase of movie, even though the assessee by mistake has debited said amount to profit and loss account. It is a settled principal of law by various decisions that, entries in books of accounts will not decide the taxability of any income, but what is relevant is to see the nature of income and its taxability. Since, the assessee was only an agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal which resulted in delay of 32 days. The delay in filing of appeal is neither intentional nor for want of undue benefit, but purely beyond control of the assessee. Therefore, delay may be condoned in the interests of justice. The ld. DR, on the other hand submitted that although the assessee gave medical reasons for non-filing of appeal in his affidavit, but no evidence has been filed. Therefore, delay should not be condoned. 3. We have heard both the parties and considered relevant contents of petition filed by the assessee for condonation of delay. We find that the assessee was suffering from various ailments and was under treatment and in this regard, he has filed a certificate from the doctor, who was treating the appellant. From the reasons given by the assessee for not filing appeal, it is very clear that there is no deliberate attempt from the assessee to delay in filing of appeal. Therefore, considering the reasons given by the assessee, we condone the delay in filing of appeal and admit appeal filed by the assessee for adjudication. 4. The assessee has raised the following grounds of appeal: 1. The Assessment Order for the Assessment Year-2012-13, passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in the books of proprietary concern of the assessee M/s. Chimbu Cine Arts, substantial portion of the payment has been made in cash amounting to Rs. 4,73,65,001/- and the particulars of cash transactions are tabulated in para 3 of assessment order. The AO, called upon the assessee to explain as to why cash payment in excess of Rs. 20,000/- shall not be disallowed u/s. 40A(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 6. In response the assessee submitted that during the assessment year 2012-13, the film in the name of Osthi was produced by M/s. Reliance Big Entertainment Pvt Ltd and released on 8th December, 2011. M/s. Reliance Big Entertainment Pvt Ltd entered into a tri-party agreement on 09.11.2011, for distribution of the said film with M/s. Kural TV Creations Pvt Ltd and M/s. Balaji Real Media Private Limited. As per agreement, the release date and time for the movie was fixed on 08th December, 2011. M/s. Kural TV Creations Pvt Ltd, a private limited company, had engaged the services of the appellant, the proprietor of Chimbu Cine Arts, as an agent for the purpose of further distribution and marketing of the film. As per agreement between M/s. Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act does not arise. The assessee further contended that, there is a business expediency in collecting cash, because there was a condition in the tri-party agreement between the producer of the movie M/s. Reliance Big Entertainment Pvt Ltd and distributors M/s. Kural TV Creations Pvt Ltd and M/s. Balaji Real Media Private Limited, for payment of specified amount one day before the release of the film. Unless, the payment is made the distributor cannot exhibit the movie. Therefore, there was urgent requirement for payment of cash and thus, the assessee has collected cash from exhibitors and paid to distributors. 9. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of provisions of section 40A(3) of the Act and Rule 6DD of IT Rules, 1962, opined that there is no dispute with regard to the payment made in cash which is in excess of Rs. 20,000/- as prescribed under 40A(3) of the Act and further, when the case of the assessee does not come under any of exception as provided under the Rule 6DD of IT Rules, 1962, the AO has rightly disallowed cash payments u/s. 40A(3) of the Act. Therefore, rejected arguments of the assessee and sustained additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting of the film exhibition in the State of Tamilnadu. As per the agreement between the assessee and M/s. Kural TV Creations Pvt Ltd, the role and responsibility of assessee is to enter into agreement with exhibitor/theatre owners for screening the movie and collect money in cash/cheque from each of said exhibitor/theatre owner for onward payment to M/s. Reliance Big Entertainment Pvt Ltd through bank account of M/s. Kural TV Creations Pvt Ltd. The assessee has collected cash from various exhibitors/theatre owners on behalf of M/s. Kural TV Creations Pvt Ltd and gave to distributor for onward payment of money to M/s. Reliance Big Entertainment Pvt Ltd. Although, the assessee has credited and debited cash collected from exhibitors/theatre owners in his profit and loss account as income and expenditure, but fact remains that the role and responsibility of assessee is limited to the extent of working as an agent for M/s. Kural TV Creations Pvt Ltd and M/s. Balaji Real Media Private Limited. Therefore, it is necessary to examine whether provisions of section 40A(3) of the Act is applicable in the given facts and circumstances of this case, in light of arrangements between the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 40A(3) of the Act deals with disallowance of cash payment in excess of prescribed limit, but proviso provided therein has carved out an exception having regard to consideration of business expediency and other relevant factors. Therefore, the payment in cash needs to be examined in light of proviso provided therein to ascertain whether is there any business expediency in making cash payments. It was the argument of the assessee that as per the tri-party agreement between M/s. Reliance Big Entertainment Pvt Ltd and M/s. Kural TV Creations Pvt Ltd and M/s. Balaji Real Media Private Limited, the distributor of the movie shall remit Rs. 12.75 crores one day before theatrical release of the movie i.e., on 07th December, 2011. As per agreement between the parties, the producer of the movie Osthi , M/s. Reliance Big Entertainment Pvt Ltd, has imposed certain conditions to both M/s. Kural TV Creations Pvt Ltd and M/s. Balaji Real Media Private Limited, to settle the accounts of various parties for a sum of Rs. 3.91 crores, one day prior to the theatrical release to the movie. Unless, the accounts of various persons including technicians of the movie was settled, it is impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew the AO ought not to have disallowed said payments u/s. 40A(3) of the Act. 15. At this stage, it is relevant to consider a very important decision of ITAT Delhi Benches in the case of M/s. Geo Connect Ltd vs DCIT (Supra), where the tribunal under identical set of facts and by following certain judicial precedents held that where genuineness of the payment made was not doubted and the recipient of the amount made a pre-condition for payment in cash and further, due to business expediency, the assessee had to make payment in cash, said payment cannot be disallowed u/s. 40A(3) of the Act. The relevant findings of the Tribunal are as under: 8. We have considered rival submissions and perused the materials on record. The factual matrix reveal that the assessee is in real estate business and for that purpose it purchased an agricultural land from one Sh. Ugma, an old man of 75 years. Towards sale consideration of the said land, the assessee issued bearer cheques for an amount of Rs.1,06,50,000/- to the seller. It is the stand of the assessee from the stage of assessment proceeding itself that the seller of the agricultural land made a precondition of payment of cash for registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required in cash. In case of Attar Singh Gurmukh Singh Vs. ITO, 191 ITR 667 (SC), the Hon ble Supreme Court while interpreting the provisions of section 40A(3) read with Rule 6DD has held as under: 6. As to the validity of section 40A(3), it was urged that if the price of the purchased material is not allowed to be adjusted against the sale price of the material sold for want of proof of payment by a crossed cheque or crossed bank draft, then the income-tax levied will not be on the income but it will be on an assumed income. It is said that the provision authorizing levy tax on an assumed income would be a restriction on the right to carry on the business, besides being arbitrary. 7. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bonafide transaction are not taken out of the sweep of section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer, the circumstances under which the payment in the manner prescribed under section 40A(3), was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person, who has received the cash payment. 12. Following the aforesaid decision of the Hon ble Apex Court, the Hon ble Gujarat High Court in case of Anupam Tele Services (supra) has observed as under: 17. Rule 6DD of the Income Tax Rules, 1962 provides for situations under which disallowance under section 40A (3) shall not be made and no payment shall be deemed to be the profits and gains of business or profession under the said section. Amongst the various clauses, clause (j) which is relevant, read as under: (j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike; 18. It could be appreciated that Section 40A and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, neither the genuineness of the payment nor the identity of the payee were in any case doubted. These were the conclusions on facts drawn by the Appellate Commissioner. The Tribunal also did not disturb such facts but relied solely on Rule 6DD (j) of the Rules to hold that since the case of the assessee did not fall under the said exclusion clause nor was covered under any of the clauses of Rule 6DD, consequences envisaged in Section 40A(3) of the Act must follow. 21. In our opinion, the Tribunal committed an error in coming to such a conclusion. We would base our conclusions on the following reasons: (a) The paramount consideration of Section 40A(3) is to curb and reduce the possibilities of black money transactions. As held by the Supreme Court in Attar Singh Gurmukh Singh (supra), section 40A(3) of the Act does not eliminate considerations of business expediencies. (b) In the present case, the appellant assessee was compelled to make cash payments on account of peculiar situation. Such situation was as follow (i) the principal company, to which the assessee was a distributor, insisted that cheque payment from a cooperative bank would not do, since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way. At the same time, we also believe that Rule 6DD as amended are not exhaustive enough and which visualizes all kinds and nature of business expediency in all possible situations and it is for the appropriate authority to examine and provide for a mechanism as originally envisaged which provides for exceptional or unavoidable circumstances to the satisfaction of the Assessing officer whereby genuine business expenditure should not suffer disallowance. 28. Further, the Courts have held from time to time that the Rules must be interpreted in a manner so as to advance and not to frustrate the object of the legislature. The intention of the legislature is manifestly clear and which is to ITA No. 1065/JP/2016 M/s A Daga Royal Arts, Jaipur Vs ITO, Jaipur curb the chances and opportunities to use or create black money and to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. And Section 40A(3) continues to provide that no disallowance shall be made in such cases and under such circumstances as may be prescribed having regard to the nature and extent of the banking facilities available, consideration of business expediency and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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