2022 (7) TMI 110 - AT - Income Tax

Undisclosed income - Unexplained expenditure u/s 69C - additional Income towards cost of purchase of movie - order passed u/s.143(3) r.w.s. 153B(1)(b) - CIT-A deleted the addition - as per AO assessee had declared additional Income over and above its regular income during the course of search proceedings u/s.132 - HELD THAT - We ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that once there is no dispute about additional income credited into the profit and loss account, then the AO cannot make further addition on said undisclosed income merely for the reason that the assessee has incurred loss for the year even after undisclosed income - assessee has incurred huge expenditure for the movie Thalaivaa subsequent to the period of search. Further, additional income offered during the course of such is also on account of cost of purchase of movie Thalaivaa. Therefore, once income is credited to the profit loss account, corresponding expenditure relatable to said income also needs to be debited into the profit loss account. In this case, the assessee has done exactly the same which resulted in loss for the year under consideration. In fact, the learned CIT(A) has considered detailed written submissions filed by the assessee, including financial statements and observed that on the additional income offered during the course of search, the assessee has credited into books of accounts for the relevant financial year. The said findings of the CIT(A) goes uncontroverted. The revenue fails to bring on record any contrary evidences to counter the findings of fact recorded by the CIT. Therefore, we are of the considered view that there is no error in the reasons given by the learned CIT(A) to delete additions made towards undisclosed income found during the course of search. Hence, we are inclined to uphold order of the learned CIT(A) and dismiss appeal filed by the Revenue.

Summary

Issues:
1. Whether the addition made on the ground of undisclosed income to the tune of Rs. 7,00,00,000/- is justified.
2. Whether the expenditure claimed in return of income by the assessee against the additional income of Rs. 7,00,00,000/- is allowable.
3. Whether the unexplained expenditure incurred for the movie 'Thalaivaa' can be deemed as income under section 69C of the Income Tax Act, 1961.

Analysis:

Issue 1:
The Revenue challenged the order of the learned Commissioner of Income Tax (Appeals) regarding the addition of undisclosed income of Rs. 7,00,00,000. The search operation under section 132 revealed that the assessee had declared this additional income, but the Assessing Officer made additions to the total income as the assessee failed to justify the expenditure incurred for the subsequent period. The CIT(A) observed that the assessee had already included the income in the profit loss account and deleted the additions made by the Assessing Officer. The Revenue contended that the CIT(A) erred in assuming the inclusion of income in the profit loss account and argued that the expenditure claimed nullified the income declared during the search.

Issue 2:
The Revenue further argued that the additional income offered towards the cost of purchasing the movie 'Thalaivaa' should be treated as unexplained expenditure under section 69C of the Act. The Revenue disagreed with the CIT(A)'s decision to delete the additions made by the Assessing Officer. The counsel for the assessee supported the CIT(A)'s order, stating that necessary evidences were provided to explain the loss declared for the year. The CIT(A) considered relevant facts and deleted the additions, which the counsel argued should be upheld.

Issue 3:
Upon hearing both parties and examining the materials on record, the Tribunal noted that the assessee had credited the undisclosed income into the profit and loss account. The Tribunal disagreed with the Assessing Officer's reasoning for making further additions based on the undisclosed income, especially considering the expenditure incurred for the movie 'Thalaivaa.' The Tribunal found that the assessee had appropriately accounted for the additional income and corresponding expenditure in the profit loss account, resulting in a loss for the relevant year. The Tribunal upheld the CIT(A)'s decision to delete the additions towards the undisclosed income found during the search operation.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to delete the additions made by the Assessing Officer regarding the undisclosed income and unexplained expenditure incurred for the movie 'Thalaivaa.'