2013 (11) TMI 125 - AT - Income Tax

Addition of income cash system or mercantile system of accounting Held that - Provisions of section 145 of the Act have been amended with effect from April 1, 1997 - The assessee can follow either cash system or mercantile system of accounting - Prohibiting the hybrid system of accounting, which the assessee was following in the earlier years - The advances are taken as income in the year of the release of the films which is a faulty practice as the release of the films are not in the hands of the assessee as it is the sole prerogative of the producers of the films, whereas the assessee is enjoying the fruits of the advances from the day he gets them - Restoring the issue back to the files of the Assessing Officer - Assessee has already offered ₹ 53,52,000 in the computation of income in the relevant assessment year - The Assessing Officer is directed to verify the claim of the assessee that he has offered out of the total advance of ₹ 1,10,10,062, ₹ 27,58,062 in the assessment year 2006-07 and ₹ 2,50,000 in the assessment year 2007-08 and if found correct only the balance amount should be taxed in the year under consideration, to avoid double taxation Decided in favour of assessee. Unexplained cash credits u/s 68 payment of school fees of children was made by assessee s mother-in-law - A copy of the confirmation and passport was submitted along with the reply Held that - Section 68 is not applicable as nothing has been found credited in the books of the assesse - The above confirmation does not mention the amount which has been paid by Mrs. Claude M. Grout nor she has given any details of her bank account - the mode of payments has also not been mentioned - Assessee has not filed any other corroborative evidence to substantiate the claim that the payment of school fees has been made by his mother-in-law - the assessee has failed to discharge the onus cast upon him Decided against assessee. Disallowance of interest on loan Amount borrowed for personal usage and purchase of some assets - Held that - The assessee being a film star has to maintain a certain set of standard of living for which he may require money from time to time - Assuming that the assessee has borrowed money to purchase luxurious car, that would justify looking to the nature of profession of the assesse Decided against Revenue.

Summary

Issues Involved:
1. Addition of professional fees as income under cash system of accounting.
2. Addition of unexplained cash credits for school fees.
3. Deletion of addition on account of interest on loan.

Issue 1: Addition of Professional Fees as Income:
The assessee, a film actor, followed the cash system of accounting. The Assessing Officer added Rs. 1,34,40,137 as income for the year under consideration, considering advances received from producers. The Commissioner of Income-tax (Appeals) confirmed an addition of Rs. 56,58,062. The ITAT found the assessee's method of accounting faulty, as advances are not income until film release. The ITAT directed the Assessing Officer to verify if the assessee already offered parts of the advances in subsequent years to avoid double taxation. The ITAT concluded that the method of computing income by the assessee was incorrect and restored the issue for further verification.

Issue 2: Addition of Unexplained Cash Credits for School Fees:
The Assessing Officer added Rs. 16,44,426 as unexplained cash credits for school fees. The assessee claimed that the fees were paid by his mother-in-law, supported by a confirmation letter. However, the ITAT found the confirmation lacking crucial details and the assessee failed to provide bank statements to substantiate the claim. The ITAT held that the assessee failed to discharge the onus of proof, confirming the addition under section 68 of the Act.

Issue 3: Deletion of Addition on Account of Interest on Loan:
The Assessing Officer disallowed Rs. 25,99,311 as interest on loans taken by the assessee. The Commissioner of Income-tax (Appeals) allowed the claim based on past precedents. The ITAT found that the loans were taken in earlier years for personal liabilities and assets. Despite the Department's objections, the ITAT upheld the Commissioner's decision, noting the lack of material to substantiate the Assessing Officer's claim. The ITAT confirmed the Commissioner's findings, dismissing the Revenue's appeal on this ground.

In conclusion, the ITAT partially allowed the assessee's appeal and partly allowed the Revenue's appeal for statistical purposes, addressing the issues of addition of professional fees as income, unexplained cash credits for school fees, and deletion of addition on account of interest on loan. The judgment provided detailed analysis on each issue, emphasizing the importance of proper documentation and adherence to accounting principles.