1988 (2) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Method of accounting for professional receipts.
2. Addition of unadjusted advances to income.
3. Deduction of expenditure on a van.
4. Addition for low drawings, purchase of jewelry, and trip to Singapore.

Issue-wise Detailed Analysis:

1. Method of Accounting for Professional Receipts:
The Income Tax Officer (ITO) questioned the method of accounting employed by the assessee, a leading cineartist, for the assessment year 1982-83. The assessee had an agreement with M/s Haazan Brothers, wherein he was entitled to 50% of the gross receipts from the second year onwards. The ITO observed that the method of accounting followed by the assessee did not reflect the true profits of each year. He cited that the production of films often spans multiple years, and some films are never completed. This method could result in unaccounted remuneration for abandoned projects. The ITO relied on Clause 3 of the agreement, emphasizing that the assessee should include all receipts, not just completed pictures, and added Rs. 2,05,001 to the income returned.

2. Addition of Unadjusted Advances to Income:
The ITO called for a list of unadjusted advances from producers, amounting to Rs. 6,28,117 as of March 31, 1982, with Rs. 4,10,002 received in the relevant accounting period. The ITO added Rs. 2,05,001 (50% of Rs. 4,10,002) to the assessee's income. The assessee appealed, stating that the method of accounting was accepted in the firm's case, and the CIT(A) agreed, deleting the addition of Rs. 2,05,001. The Revenue argued that the assessee was entitled to 50% of the gross receipts, including advances, but the Tribunal found that the assessee's method of accounting, which considered advances only upon completion of the pictures, was appropriate. The Tribunal verified that advances were accounted for in subsequent years and upheld the CIT(A)'s decision to delete the addition.

3. Deduction of Expenditure on a Van:
The ITO disallowed the entire claim of Rs. 6,030 for van expenses, arguing it was used for personal purposes, not professional. The CIT(A) allowed 50% of the expenditure. The Tribunal agreed with the CIT(A), noting that if 50% of car expenses were allowed, the same treatment should apply to the van. Thus, Rs. 3,015 was allowed as a deduction.

4. Addition for Low Drawings, Purchase of Jewelry, and Trip to Singapore:
The ITO made an addition of Rs. 45,000 for low drawings, purchase of jewelry, and a trip to Singapore. The CIT(A) sustained Rs. 16,000 for low drawings and Rs. 7,500 for unexplained jewelry purchases but deleted Rs. 21,537. The Tribunal found no basis for the ITO's inference that the assessee spent money on gifts for the Singapore trip but noted that the assessee paid for the tickets. The Tribunal restored an addition of Rs. 10,000 for the trip, considering the fare at that time.

Conclusion:
The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 2,05,001 for unadjusted advances, allowed a 50% deduction for van expenses, and restored an addition of Rs. 10,000 for the Singapore trip. The appeal was disallowed in part.