B, III Floor, Royal Court,44, Venkatanarayana Road,T.Nagar, Chennai-17 v. The Deputy Commissioner of Income-tax

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 17.07.2007CORAM :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeal) No.47 of 2004M/s.Pyramid Films International,7, West Road, West CIT Nagar,Chennai-35, now at3B, III Floor, Royal Court,44, Venkatanarayana Road,T.Nagar, Chennai-17. .. Appellant Vs.The Deputy Commissioner of Income-tax,City Circle V (Inv),121, Nungambakkam High Road,Chennai-34... Respondent Appeal under Section 260A of the Income-tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Chennai Bench 'A', Madras inIT(SS)A No.52(Mds)/2002 dated 09.06.2003 for the block period 01.04.1987to 17.03.1997 against the order of the Commissioner of Income Tax(Appeals) VI dated 06.02.2002 made in ITA.No.362/2001-02/VI andGI.No./PA.No.2304P years of Assessment year Block Period (01.04.87 to17.03.97) against the order of the Deputy Commissioner of Income Tax CityCircle V(Inv)(2) Chennai dated of order 29.09.2000 made inPA.No./GIR.No.2304P Assessment year Block Period ended on 17.03.97.For Appellant :Mr.V.Ramachandran, Senior Counsel forMrs.Anitha SumanthFor Respondent : Mrs.Pushya Sitaraman,Sr.Standing Counsel for Income-tax Department https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT(Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.)This appeal is filed under Section 260A of the Income Tax Act, 1961by the assessee, against the order of the Income Tax Appellate Tribunal,Chennai Bench 'A', Madras in IT(SS)A No.52(Mds)/2002 dated 09.06.2003. On03.02.2004, this Court admitted the appeal and formulated the followingsubstantial questions of law:- "1. Whether on the facts and in the circumstances ofthe case, the Tribunal was right in confirming theaddition of Rs.34.25 lakhs not received by theappellant as the income of the appellant for the blockperiod 1.4.1987 to 17.3.1997?2. Whether on the facts and in the circumstances of thecase, the Tribunal having accepted the fact that thesum of Rs.34.25 lakhs was not received by theappellant, is justified in holding that the said sumrepresents the appellant's income?"2.The facts leading to the above substantial questions of law areas under:-The assessee is a partnership firm engaged in the production offeature films. There was a search under Section 132 of the Income-tax Act("Act" in short) in the business and residential premises ofShri.V.Natarajan, one of the partners of the assessee firm. The searchresulted in seizure of several incriminating documents. Hence theAssessing Officer initiated proceedings under section 158BC r/w 158BD ofthe Act. In consequence to the same, the assessee filed a Return in FormNo.2B admitting undisclosed income of the block period as 'NIL'. TheAssessing Officer completed the assessment for the said block period anddetermined the total undisclosed income at Rs.1,07,15,000/-. Whiledetermining the undisclosed income, the Assessing Officer made an additionof Rs.34.25 lakhs. Aggrieved by the order, the assessee filed an appeal tothe Commissioner of Income-tax (Appeals) ("CIT(A)" in short). The CIT(A)confirmed the addition made by the Assessing Officer and dismissed theappeal. Aggrieved, the assessee filed an appeal to the Income-taxAppellate Tribunal ("Tribunal" in short). The Tribunal confirmed theorder of the CIT(A) and dismissed the appeal filed by the assessee. Hencethe present tax case by the assessee. 3.Learned Senior Counsel appearing for the assessee submitted thatthe assessee produced a film by name "Love Birds" and the distributionrights of the film were given to M/s.GV Films for Rs.50 lakhs for Salemand TK areas and M/s.Nirmala Arts for Rs.60,01,000/-, respectively. Withregard to M/s.GV Films, the assessee had received only Rs.30,00,000/- andthe same was offered for regular assessment. The balance amount of https://hcservices.ecourts.gov.in/hcservices/ Rs.20,00,000/- was not shown on the ground that the same was not accruedand also that the same is not paid till today. With regard to M/s.NirmalaArts, the assessee had received only Rs.45,76,000/- and the same wasoffered for regular assessment. The balance amount of Rs.14.25 lakhs wasnot shown as it was not accrued. The reason for not receiving the balanceamounts was that the said film was a flop. Hence the said balance amountsshould not be considered as undisclosed income under Chapter XIVB of theAct. The question whether the balance amounts not shown for regularassessment could be considered in the block assessment or not, has notbeen considered and decided by the Tribunal. Hence the learned counselappearing for the assessee requested the Court to give suitable directionto the Tribunal to reconsider the matter and pass orders in accordancewith law. 4.Learned Senior Standing Counsel appearing for the Revenuesubmitted that the findings given by the authorities below are that theassessee had not disclosed the income which has been accrued, but for thesearch under Section 132 of the Act, the accrued income would not havebeen brought to tax. Hence, the authorities are right in making additionunder Chapter XIVB of the Act. 5.Heard the counsel. The assessee produced the film by name "LoveBirds" during the period relevant for the block assessment and thedistribution rights of the film were given to M/s.GV Films and M/s.NirmalaArts. The detailsregarding the same are as under:- "Name of the purchaser Area Agreement amount Rs.1. M/s.GV Films Salem Rs.35 lakhs2. M/s.GV Films T K Rs.15 lakhs3. M/s.Nirmala Arts Telugu rights Rs.60,01,000/-"There were written agreements between the parties and the assessee had notreceived the full amounts mentioned above on the ground that the film wasa flop. Due to the same, the assessee was forced to waive a portion ofthe amount in respect of the above areas. The amount actually receivedfrom M/s.GV Films were Rs.25 lakhs for salem and Rs.5 lakhs for T K asagainst Rs.50 lakhs as per the agreement and hence the difference of Rs.20lakhs was not received. Similarly from M/s.Nirmala Arts the amount ofRs.45,76,000/- was received as against Rs.60,01,000/- as per the agreementresulting in non-receipt of Rs.14,25,000/-. The Assessing Officer was ofthe view that the amounts not received, ought to have been shown as incomeon accrual basis. Hence the Assessing Officer treated the said sum ofRs.34.25 lakhs as undisclosed income for the block period. The reason for https://hcservices.ecourts.gov.in/hcservices/ not showing the income was that, subsequently the assessee waived theabove said difference amounts. In this case, originally the assesseefiled regular Return on 31.10.1996 admitting a net loss of Rs.27,37,590/-.The accounts of the assessee also have been audited and the same wasenclosed along with the said Return. The Return was processed underSection 143(1) of the Act. It has been specifically stated in theAssessment Order that during the year of account, the assessee hadreleased, in January 1996, a Tamil Feature Film by name "Love Birds" forpublic exhibition. Later the assessment was reopened under Section 147 ofthe Act on the ground that certain income chargeable to tax has escapedassessment and notice under Section 148 of the Act was served on29.09.2000. In response to the notice issued under Section 148 of theAct, the assessee also filed Return on 25.10.2000 admitting a loss ofRs.27,37,593/- as admitted earlier. In computing the loss, the amountsreceived from the above Distributors were taken into consideration andonly the balance amounts were not offered on the ground that there was awaiver of the said amount of Rs.34.25 lakhs by mutual agreement andtherefore, there was no accural of income. For the assessment year 1996-97, there was a regular assessment and later the assessment was reopenedunder Section 147 of the Act. There was a further appeal to the AppellateAuthority and the said matter finally came up before this Court on adifferent issue. This Court dealt with the matter and the same isreported in [2007] 292 ITR 103 (Mad). In view of the same, the learnedSenior Counsel appearing for the assessee argued that the said amount ofRs.34.25 lakhs should not be assessed as undisclosed income for the blockperiod and it has to be assessed only in the regular assessment. ChapterXIVB deals with special procedure for assessment of search case. Thespecial procedure for dealing with undisclosed income in a block ofassessment in the form of a single assessment for more than a year wasdevised in Chapter XIVB. In this case the search was taken place on17.03.1997. Much before the search, the assessee filed Return of incomeand also the same was processed under Section 143(1). Later it wasreopened by the Revenue and reassessment was also completed on 24.04.2001.From the scheme of the provision it is clear that the block assessmentand the regular assessment are for different purposes. The blockassessment is for assessing the undisclosed income of the block period asa result of search and the regular assessment is for assessing the totalincome or loss of the previous year on the basis of the Return underSection 139 of the Act. Hence it is clear that Chapter XIVB of the Actrelates to undisclosed income, and regular assessments made under the Actrelate to the disclosed income of the same period. So, both regularassessment as well as block assessment would go on simultaneously. Hencethere could be two parallel assessments, one for undisclosed income andanother for any other income. In the present case, part of the amountsderived from the agreements were shown for regular assessment, and inrespect of the balance amounts not received as per the agreements it wasnot shown and offered for assessment. Later, the block assessment wasmade in consequence of the search and while making the block assessment,the Assessing Officer noticed that the balance amount of Rs.34.25 lakhs https://hcservices.ecourts.gov.in/hcservices/ was not offered for tax and hence he was of the view that it was anundisclosed income for the block period. No details were available on therecord in respect of the same. The Tribunal which is the highest factfinding authority ought to have considered the same as to how the impugnedamount could be considered as undisclosed income under Chapter XIVB of theAct, or not. Unfortunately, we lack the precious finding on the crucialfactor related to answering the above questions of law. Without theprecious finding, it is very difficult for this Court to determine theissue. 6.In view of the foregoing reasons, in the interest of justice, weset aside the order of the Tribunal with a direction to rehear the matterand consider the scope of Chapter XIVB as well as the impact of theregular assessment made by the Assessing Officer in the assessee's owncase for the assessment year 1996-97, for the purpose of determining as towhether the said impugned amount would come under undisclosed income ascontemplated under Chapter XIVB of the Act, or not, and pass orders inaccordance with law, after giving opportunity to the assessee.7.With the above observation, the tax case is disposed of.Consequently, T.C.M.P. No.148 of 2004 is closed. No costs. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarkmTo1. The Assistant Registrar, Income-Tax Appellate Tribunal Rajaji Bhavan, III Floor, Besant Nagar, Chennai - 90.2. The Commissioner of Income-tax (Appeals) VI, 121, Mahatma Gandhi Road, Chennai-600 034.3. The Deputy Commissioner of Income-tax, City Circle V(Inv)(2), Chennai-6.1 cc To Mr.Pushya Sitaraman, Sr.Standing Counsel for I.T.Cases, SR.43622.1 cc To M/s.Dr.Anita Sumanth, Advocate, SR.43562. T.C.(A) No.47 of 2004AKR(CO)RVL 30.07.2007