2016 (7) TMI 507 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - Held that - CIT(A) has granted relief to the assessee by following the order of his predecessor for A.Y 2006-07, which has been confirmed by the Tribunal vide order dated 31.3.2010. It is also pertinent to mention that the ld. CIT(A), in last operative para 4.6 has categorically noted that the assessee company ahs duly discharged the initial burden cast upon it by filing detailed copies of accounts of both the parties by authorized signatories and by showing that there is no question where by means of account payee cheques/drafts and by providing that the identity and existence of both the parties was not in doubt. The ld. CIT(A) finally concluded that no addition was called for in this case because the factual situation reveals that the genuineness of the transactions and credit worthiness and identity of the creditors cannot be doubted in view of the earlier first appellate order of the ld. CIT(A) and the Tribunal for A.Y 2006-07. In the light of the above, we are unable to see any ambiguity or perversity or any other valid reason to interfere with the impugned order and thus we uphold the same. - Decided against revenue Addition on account of under-statement of subscription fee and on account of pay channel expenses - Held that - he issue requires detailed examination and verification at the end of the AO regarding actual amount of subscription claimed by the assessee by raising bills against SITI for entire financial period i.e. from April to 2006 to March 2007 because the assessee is following Mercantile system of accounting. Further verification of actual expenses claimed by the assessee also requires verification at the end of the AO, which could not be done during the assessment proceedings and thereafter any conclusion as per the provisions of the Act may be drawn by the AO after verification of relevant bills/vouchers and other documents about the claim of expenses placed by the assessee. In view of the above order of the AO making addition and enhancement by the ld. CIT(A) are set aside and issue of verification of expenses claimed by the assessee and Revenue recorded by the assessee pertaining to subscription fees/ charges by way of raising bills against distributor SITI is set aside to the file of the AO for fresh adjudication and examination after affording due opportunity of being heard to the assessee and without being prejudiced from earlier assessment and impugned order and ld. CIT(A) - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition of ?2,18,86,000/- made by the AO under Section 68 of the Income-tax Act, 1961.
2. Enhancement of income by ?2,25,89,668/- by the CIT(A) on account of alleged understatement of subscription fee and disallowance of pay channel expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The Revenue contended that the CIT(A) erred in deleting the addition of ?2,18,86,000/- made by the AO under Section 68 of the Income-tax Act, 1961, as unexplained unsecured loans. The AO had added this amount due to the assessee's failure to provide documents proving the genuineness of the transactions, creditworthiness, and identity of the parties from whom the loans were claimed to have been taken. The CIT(A), however, found that the assessee had filed confirmed detailed copies of accounts of both the parties, which were not doubted by the AO. The CIT(A) also relied on the order of his predecessor for A.Y 2006-07, which had been upheld by the ITAT. The Tribunal noted that the issue had attained finality in A.Y 2006-07 in favor of the assessee and upheld the CIT(A)'s order, dismissing the Revenue’s grounds.

2. Enhancement of Income by the CIT(A):
The CIT(A) enhanced the income of the assessee by ?2,25,89,668/- on account of alleged understatement of subscription fee and disallowance of pay channel expenses. The assessee contended that the CIT(A) misinterpreted the agreement with Siti Cable Network Ltd., which stated that the assessee was entitled to service charges not exceeding 90% of the collections, not the bills raised. The assessee had declared such receipts in the preceding and succeeding years, which were accepted by the Revenue. The CIT(A) incorrectly presumed that the assessee was to receive 90% of the subscription charges as per the bills raised by Siti Cable.

Regarding the disallowance of pay channel expenses, the CIT(A) disallowed ?1,49,67,891/- for the period January to March 2007, as the revenue for these months was not accounted for by the assessee. The assessee argued that the revenue was duly accounted for, and the expenses were obligatory as per the agreement. The Tribunal found that the CIT(A) had not verified the bills raised by the assessee for the period January to March 2007, which were necessary for proper calculation and estimation of the revenue. The Tribunal held that the issue required detailed examination and verification by the AO regarding the actual amount of subscription claimed and expenses incurred. Consequently, the Tribunal set aside the orders of the AO and CIT(A) and remanded the matter to the AO for fresh adjudication.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, directing the AO to verify the relevant documents and re-adjudicate the matter after affording due opportunity to the assessee.