2022 (1) TMI 845 - HC - Income Tax

Undisclosed income as assessable u/s 158 BC - Assessee submitted the amount was not received and waived as bad debts, accordingly should be excluded from income - Reliance on the documents seized during the search - Computation of undisclosed income of the block period - whether the plea of waiver raised by the appellant with respect to the amount as justified or it has to be added by treating it as undisclosed income, as contemplated u/s 158BC? - Tribunal confirming the addition as undisclosed income assessable under Section 158 BC - HELD THAT - Undisclosed amount determined by the Assessing Officer has a direct nexus with the incriminating materials seized during the search. We also agree with the findings of the Tribunal that the three agreements that had been entered into by the assessee with the distributors clearly indicate that the same have nothing to do with the flop of the film at the box office or otherwise. We have also noticed that clause 4 of the agreement between the appellant / assessee and the assignee provides a default clause that in case of default in payment, the appellant is at liberty to proceed against the defaulter. Whereas, it was stated before the lower authorities that the appellant did not proceed to recover the balance amount and that, they waived the same. Tribunal, on examination of the ledger account pertaining to G.V. Films, which was seized during the search, has concluded that the amount of ₹ 35,00,000/- were received by the assessee on various dates between 23.08.1995 and 11.01.1996 and the same were duly accounted. In view of the same, the Tribunal has come to a definite conclusion that the appellant already received the entire amount from the distributors much before the release of the film and therefore the question of waiver would not arise. Such a factual finding arrived at by the Tribunal, based on the material evidence, cannot be found fault with, in the opinion of this court. Assessee filed their returns only after the conduct of inspection by the Enforcement wing officials and the materials seized disclosed the unaccounted income of ₹ 34.25 lakhs and the appellant did not pinpoint anything by supportive material to rebut the same, we find no reason to differ with the finding so rendered by the Tribunal. The judgment of the Andhra Pradesh High Court rendered in Srinivasa Ferro Alloys Ltd 2014 (9) TMI 390 - ANDHRA PRADESH HIGH COURT relied on the side of the appellant, is factually distinguishable and not applicable to the facts of the present case. Therefore, we answer the substantial question of law raised herein, against the appellant/assessee.

Issues Involved:
1. Legality and validity of the block assessment order.
2. Treatment of waived amounts as undisclosed income.
3. Determination of undisclosed income based on seized materials.
4. Justification for adding waived amounts to undisclosed income.
5. Applicability of Section 158BC of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Block Assessment Order:
The appellant questioned the legality and validity of the order dated 15th July 2018 passed by the Income Tax Appellate Tribunal, Chennai "B" Bench, relating to the block assessment period from 01.04.1987 to 17.03.1997. The search conducted on 17.03.1997 under Section 132 of the Income Tax Act, 1961, led to the recovery of several incriminating materials, including books of account. Based on the search report, proceedings under Section 158BC read with Section 158BD were initiated against the assessee firm, which filed a return indicating income as 'Nil'. The assessment was finalized based on the sworn statement of one of the partners, V. Natarajan, and the assessing officer determined the total undisclosed income at ?107,15,000/-.

2. Treatment of Waived Amounts as Undisclosed Income:
The appellant contended that the amounts not received from the assignees were treated as bad debts and should not be considered undisclosed income. The agreements with M/s. GV Films Limited and M/s. Nirmala Arts indicated that the appellant waived certain amounts due to the poor performance of the film "Love Birds" at the box office. The assessing officer, however, did not accept this explanation, noting that the amounts were received and duly credited to the ledger account before the film's release. The Tribunal upheld the assessing officer's decision, stating that there was no evidence of a revised agreement or waiver request from the assignees.

3. Determination of Undisclosed Income Based on Seized Materials:
The Tribunal emphasized that the undisclosed income was determined based on the materials seized during the search, which showed that the appellant received the full amounts as per the agreements. The Tribunal found that the appellant's claim of waiver was unsupported by evidence and contradicted by the seized documents. The Tribunal's findings were based on the statement of V. Natarajan and the ledger entries, which indicated that the amounts were received before the film's release.

4. Justification for Adding Waived Amounts to Undisclosed Income:
The Tribunal rejected the appellant's plea of waiver, noting that the agreements were on a minimum guarantee basis, and the appellant did not take any legal steps to recover the balance amounts. The Tribunal concluded that the appellant received the full consideration as per the agreements, and the question of waiver did not arise. The Tribunal's decision was supported by the seized materials, which showed that the amounts were received and accounted for before the film's release.

5. Applicability of Section 158BC of the Income Tax Act, 1961:
The Tribunal held that the addition of ?34,25,000/- as undisclosed income was justified under Section 158BC of the Income Tax Act, 1961. The Tribunal noted that the undisclosed income was determined based on the seized materials, which had a direct nexus to the documents found during the search. The Tribunal's findings were consistent with the provisions of Chapter XIVB of the Act, which deals with the computation of undisclosed income for the block period.

Conclusion:
The High Court dismissed the appeal, upholding the Tribunal's decision to add ?34,25,000/- as undisclosed income. The Court found no reason to differ with the Tribunal's findings, which were based on material evidence and consistent with the legal provisions. The Court concluded that the appellant's plea of waiver was unsupported by evidence and contradicted by the seized documents, and the addition of the undisclosed income was justified under Section 158BC of the Income Tax Act, 1961.

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