2015 (1) TMI 693 - AT - Income Tax

Enhancement of income - revenue recognition - whether accrual of income has taken place or not? - CIT(A) held that the 1/5th of the consideration amounting to 2.30 crores in respect of the agreement of home video rights and satellite rights with Moser Baer granting rights for various films for a period of 5 years was assessable in the year under appeal - Held that - Rights would commence in respect of each of the films on different dates and accordingly the assessee has offered the income in subsequent years as exhibited on page 22 to 24 of the paper book. These facts are so clear and it is difficult to hold or even to contend that there was accrual in the very first year. We therefore set aside the findings of the Ld. CIT(A) on this issue and direct the AO to delete the addition of 10.50 crores on account of revenue recognition. - Decided in favour of assessee. Addition u/s. 68 - unaccounted unsecured loans - Held that - The loan was given by these persons to the assessee for which recovery proceedings are taken by the parties against the assessee which proves beyond all doubts that the money was borrowed by the assessee. Subsequent payments by cheques on settlement also show that there remains no reason for making the impugned addition. We accordingly set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of 3.70 crores. - Decided in favour of assessee. Adhoc disallowance of 20% of motor car expenses interest on car loan and depreciation - Held that - Considering that in A.Y. 2004-05 adhoc disallowance was accepted by both parties. We do not find any reason to interfere with the findings of the Ld. CIT(A). Decided against assessee.

Issues Involved:
1. Whether the consideration for home video rights and satellite rights should be assessed in the year of agreement or apportioned over the period of the agreement.
2. Addition under Section 68 of the Income Tax Act for unsecured loans.
3. Disallowance of motor car expenses, interest on car loan, and depreciation.

Detailed Analysis:

1. Assessment of Consideration for Home Video and Satellite Rights:
The first issue is whether the Ld. CIT(A) was justified in holding that 1/5th of the consideration amounting to Rs. 2.30 crores in respect of the agreement of home video rights and satellite rights with Moser Baer should be assessable in the year under appeal. The assessee contended that the rights of each film commenced on different dates, and thus, the income should be spread over five years from the date of commencement of each film. The AO believed that the entire consideration should be taxed in the year of the agreement, citing AS-9 issued by ICAI, which stipulates recognizing revenue when the significant risks and rewards of ownership are transferred. The Ld. CIT(A) partially agreed with the assessee, holding that the total consideration of Rs. 11.50 crores should be apportioned over five years. However, the Tribunal found that the rights commenced on different dates and directed the AO to delete the addition of Rs. 10.50 crores, thus allowing the assessee's appeal on this ground.

2. Addition under Section 68 for Unsecured Loans:
The AO observed unsecured loans in the assessee's balance sheet and made an addition of Rs. 10.73 crores under Section 68 due to lack of confirmations. The Ld. CIT(A) reduced this addition to Rs. 3.70 crores for three parties (Ashok Thawani, Devidas Thawani, and Jaya Thawani) due to non-furnishing of confirmations. The Tribunal considered the recovery suits filed by these parties in the High Court, which evidenced that the loans were genuine. The Tribunal directed the AO to delete the addition of Rs. 3.70 crores, thus allowing the assessee's appeal on this ground.

3. Disallowance of Motor Car Expenses, Interest on Car Loan, and Depreciation:
The AO made an adhoc disallowance of 20% of motor car expenses, interest on car loan, and depreciation, which the Ld. CIT(A) reduced to 5%, resulting in a disallowance of Rs. 4,63,110/-. The Tribunal found no reason to interfere with the Ld. CIT(A)'s findings, considering that a similar disallowance was accepted in the previous assessment year. Thus, the Tribunal dismissed the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the assessee's appeal in part by directing the AO to delete the addition of Rs. 10.50 crores on account of revenue recognition and Rs. 3.70 crores under Section 68. However, it upheld the disallowance of Rs. 4,63,110/- for motor car expenses, interest on car loan, and depreciation. The appeal filed by the Revenue was dismissed. The order was pronounced in the open court on 14th January, 2015.

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