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2015 (11) TMI 339 - AT - Income TaxAccrual of income - Advances received from various producers - whether assessable as income for the respective assessment years or not? - Held that - The amounts received by the assessee from various producers towards advances cannot be assessed as income of the assessee. Therefore, we set aside the orders of the lower authorities and delete the additions in respect of the advances treated as income of the assessee. These token amounts were received by the assessee for giving preference to the parties for making himself available for future assignments, if finalised after deliberations and consideration of various factors and criteria. Which means that by receiving these advances as token amounts, the assessee is binding not to take up any other assignment prior to finalising the proposed assignment. It is also important to note that on accepting the amounts, the assignments itself is not finalised but the finalisation of the assignment is also dependant on acceptance of the terms and conditions mutually by both the parties. When the assessee has returned these amounts in the subsequent years as the proposed assignment were not materialised then it would not be proper and appropriate to treat these amounts as income of the assessee.See S. Priyadarsan. Versus Joint Commissioner Of Income-tax 2001 (7) TMI 298 - ITAT MADRAS-B - Decided in favour of assessee.
Issues Involved:
1. Whether the advances received by the assessee from various producers are assessable as income for the respective assessment years. Issue-wise Detailed Analysis: 1. Assessability of Advances as Income: The primary issue in these appeals is whether the advances received by the assessee from various producers should be assessed as income for the respective assessment years. The assessee argued that these amounts were merely advances and should not be taxed as income until the commencement of film production. The Commissioner of Income-tax (Appeals) upheld the additions, treating the amounts as income based on the assessee's cash accounting system. The assessee contended that these advances were already assessed under section 143(3) of the Act and no incriminating material was found during the search to justify taxing these amounts again. 2. Tribunal's Previous Decisions: The assessee cited previous Tribunal decisions (I.T.A. Nos. 596 and 597/Mds/2009 and I.T.A. No. 1329/Mds/2009) where similar advances were not treated as income. The Tribunal had previously held that the advances received were not income as the proposed film assignments did not materialize, and the advances were shown as liabilities in the balance sheets. The Tribunal had distinguished the case from the jurisdictional High Court decision in Lakshminarayana Films v. CIT, noting the absence of written agreements and specific conditions for the advances. 3. Departmental Representative's Argument: The Departmental representative supported the lower authorities' decisions, relying on the Tribunal's decision in Ms. D. Meena v. Deputy CIT and the jurisdictional High Court's decision in Lakshminarayana Films v. CIT. These cases suggested that advances should be treated as income. 4. Tribunal's Analysis and Conclusion: Upon reviewing the facts and previous decisions, the Tribunal found no incriminating materials to justify taxing the advances in the search assessments. The Tribunal reiterated that the advances were not income as they were returned when the proposed assignments did not materialize. The Tribunal emphasized that the absence of written agreements and the nature of the advances (token amounts for future preference) supported the assessee's position. The Tribunal also noted that the cash system of accounting does not automatically render all receipts as income unless they are recognized as such. 5. Consistency in Assessments: The Tribunal highlighted the importance of consistency, referencing the Supreme Court's view in Radhasoami Satsang v. CIT that incorrect decisions in one year do not bind subsequent years. However, in this case, the Tribunal found the earlier and subsequent assessments correctly appreciated the principles of cash accounting. 6. Final Decision: The Tribunal concluded that the advances received by the assessee could not be treated as income for the respective assessment years. The orders of the lower authorities were set aside, and the additions were deleted. Result: All appeals of the assessee were allowed, and the order was pronounced in the open court on June 30, 2015.
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