2019 (11) TMI 355 - AT - Income Tax

Assessment u/s 153A - Suppression of receipts - assessee claimed before us that though as per agreement the minimum guarantee amount has been prescribed, however as the picture was flop and collection of the film was not upto the satisfaction of the distributor/second party, therefore, second party paid only ₹ 70,72,478.06/- and deducted the balance amount as rebate and discount as per mutual understanding - HELD THAT - The observation of the CIT(A) based on no documents or material, as the assessee has claimed that the parties to the agreement have mutually agreed for receiving the amount lower than the minimum guarantee amount and therefore, question of filing any legal claim against the distributor for recovery of the remaining amount ₹ 37,27,522/- does not arise. Both the authorities below sidelined the e-mail confirmation from the second party and held that the said confirmation has no evidentiary value as it is only a self serving document. The confirmation from the second party was the best source to find out the exact figure which the assessee has received and which in the instant case the second party has replied by the sending email and there is nothing on record that the AO has ever tried to summon the second party in order to confirm the veracity of transaction and/or email. No doubt legal agreement has its own value and the legal actions depends upon the agreement/MOU, however, there is no bar to side line and/or amend and/or novation of agreement by way of written or otherwise orally for reaching to the just conclusion of the ultimate object(s) of the agreement, which in the instant case appears to be held orally. Even there is nothing on record to suggest that the assessee has received any other amount except ₹ 70,72,478/- out of ₹ 1,08,00,000/- and therefore, we are unable to find any substantive material to sustain the addition of ₹ 37,27,522/-, consequently the addition under challenge is liable to be deleted, hence stands deleted. Appeal filed by the Assessee stands allowed.

Summary

Issues:
Appeal against assessment order under Income Tax Act, 1961 - Addition of income - Disallowance of expenses - Confirmation of addition of ?37,27,522 - Aggrieved against affirmation of addition - Dispute over minimum guarantee of overseas theatrical rights - Discrepancy in income declared and assessed - Evidentiary value of email confirmation - Legal agreement interpretation - Sustaining or deleting the addition.

Analysis:

The appeal was filed against an assessment order under the Income Tax Act, 1961, where the Assessee contested the addition of income and disallowance of expenses. The dispute primarily revolved around the affirmation of an addition of ?37,27,522 by the Assessing Officer regarding the suppression of receipts. The Assessee claimed to have received a lower amount than the minimum guarantee of overseas theatrical rights as per an agreement found during a search operation. The Assessing Officer contended that the Assessee should have received a higher amount as per the agreement. The Assessee challenged this addition before the Ld. CIT(A), who partly affirmed the addition but deleted the disallowance of expenses claimed on an adhoc basis.

The Assessee, dissatisfied with the affirmation of the addition of ?37,27,522, raised specific grounds in the appeal. The Assessee argued that the amount received was lower due to the film's performance and mutual understanding with the distributor. The Ld. CIT(A) observed that the mode of payment was not specified in the agreement, leaving room for alternative payment methods. The Assessee claimed to have received a lower amount based on mutual agreement, which was not reflected in the documents. The Ld. CIT(A) emphasized that receipts should be at least as per the minimum guarantee amount, disregarding claims of rebates and losses.

Upon thorough analysis, the Tribunal found that the Ld. CIT(A) based their decision on insufficient evidence. The Assessee's claim of receiving a lower amount than the minimum guarantee was not adequately considered. The Tribunal noted the email confirmation from the second party as a crucial piece of evidence, contrary to the lower authorities' dismissal of its evidentiary value. The Tribunal highlighted the possibility of oral agreements modifying written contracts for achieving the agreement's objectives. As no substantial evidence supported the addition of ?37,27,522, the Tribunal concluded that the addition was unjustified and hence deleted it, resulting in the allowance of the Assessee's appeal.

In conclusion, the Tribunal allowed the Assessee's appeal, emphasizing the importance of considering all relevant evidence, including email confirmations and oral agreements, in assessing income discrepancies and additions under the Income Tax Act, 1961.