This is a block assessment appeal. The appeal arises out of the block assessment order dated 31-12-1996, passed by the Deputy Commissioner (Assessment), Special Range-2, Hyderabad. The assessment has been made under section 158BC(c) read with section 143(3) of the Income Tax Act, 1961. The block assessment years are the ten years from 1986-87 to 1996-97 relevant to the previous years commencing from the financial year 1985-86 till the date of search falling in the financial year 1995-96 : The appellant is a Hyderabad based director and producer of Telugu and Hindi feature films, usually produced under the banner of M/s Varma Creation. The Directorate of Investigation, Income Tax, Bombay, had carried out search operations at the office-cum-residence of the appellant at Bombay on 6-12-1995, which was concluded next day. Search was also conducted at the premises of the appellant in Hyderabad from 7-12-1995 to 20-1-1996. As a result of the search operations, the income-tax authorities seized a lot of records in the form of loose slips as well as computerised accounts for the previous years 1993-94, 1994-95 and partly for 1995-96 in addition to cash of Rs. 3,40,000 out of Rs. 3,50,000 found at the Bombay residence. On processing the abovementioned seized materials, the assessing officer came to a conclusion that the appellant had undisclosed income to be assessed under the provisions of Chapter-XIV-B of the Income Tax Act as introduced by the Finance Act, 1995.
Therefore, he issued notice under section 158BC(a) calling for return for the block period. The appellant filed the block return which was verified by the assessing officer and being not satisfied, proposed an estimate based on the seized materials The proposal was communicated to the assessee. who filed detailed objections and explanations before the assessing officer. The assessing officer, after going through the objections explanations, sworn statements of the assessee and other concerned persons and on the basis of the materials seized at the time of searches, completed the block assessment, against which the assessee has now come in appeal, before the Tribunal.
It is stated that the assessee has returned an undisclosed income of Rs. 44,48,600 as follows : But the above amount is found corrected in the assessment order, as a result of the reconciliation worked out by the assessing officer in respect of the undisclosed income for the assessment year 1996-97. As per the reconciliation, the undisclosed income returned for the assessment year 1996-97 is Rs. 40,75,370. Accordingly, the admitted undisclosed income returned is Rs. 44,18,970 (Rs. 3,43,600 - Rs 40,75,370), which is also acknowledged by the assessee in his ground No. 5 raised in the appeal.
Against the undisclosed income of Rs. 40,75,370 returned by the assessee, the assessing officer has determined an undisclosed income of Rs. 1,33,78,974, which is questioned in this appeal.
3. The learned Deputy Commissioner having regard to the facts of the case, ought not to have added a sum of Rs. 3,91,630 for the assessment year 1994-95.
4. The learned Deputy Commissioner having regard to the facts of the case ought not to have, added a sum of Rs. 62,941 for the assessment year 1995-96.
5. The learned Deputy Commissioner ought not to have treated as sum of Rs. 40,75,370 as income which would not have been disclosed for the purpose of the Act for the assessment year 1996-97.
6. The learned Deputy Commissioner having regard to the facts of the case ought not to have added a sum of Rs. 2,78,350.
7. The learned Deputy Commissioner ought not to have treated a sum of Rs. 3,50,000 as unexplained cash inasmuch as the cash seized at the time of section 132 operations was supported by withdrawals from the bank.
8. The learned Deputy Commissioner ought not to have treated as sum of Rs. 34,63,661 as unexplained expenditure inasmuch as no evidence was brought on record to suggest that the actually so much expenditure was incurred outside the books of account in the production of movie "ANAGANAGA OKA ROJU. Even assuming but not admitting that so much expenditure was incurred outside the books of account, the same should have been allowed as deduction in computing the taxable income.
9. The learned Deputy Commissioner ought not to have made addition of Rs. 64,000 on account of rent of office maintained at Bombay as same is allowable as deduction in computing taxable income.
10. The learned Deputy Commissioner ought not to have made addition of Rs. 1,43,000 being expenditure incurred on the lease premises.
11. The learned Deputy Commissioner ought not to have disallowed a sum of Rs. 2,72 5.
12. The learned Deputy Commissioner ought not to have added a sum of Rs. 21,00,000 placing reliance on the sworn statement of the appellant without bringing any further evidence on record, suggesting that so much payments were actually made to the technicians, artists. In any event the learned Deputy Commissioner ought to have appreciated that the same is allowable as deduction in computation of total income.
13. The learned Deputy Commissioner ought not to have added a sum of Rs. 5,15,300 as unexplained expenditure, inasmuch as the seized papers suggests that only so much cash was required for various purposes. It did not mean that actually it had been expended. In any event the learned Deputy Commissioner ought to have appreciated and allowed the same as a deduction in the computation of taxable income.
14. The learned Deputy Commissioner ought not to have added a sum of Rs. 18,95,000 as unexplained expenditure inasmuch as the seized papers does not suggest any cash outgoing, in any event the learned Deputy Commissioner ought to have allowed the same as deduction in the computation of taxable income.
15. The learned Deputy Commissioner ought not to have added a sum of Rs. 36,997 representing the maintenance expenditure of branch office at Bombay.
All the thirteen grounds are against various additions made by the assessing officer for the three assessment years 1994-95 to 1996-97, included in the block assessment period. The sum total of all the additions challenged by the assessee in this appeal comes to Rs. 1,33,78,974. Even though the block period covers 10 years, undisclosed income in this case pertains only to the three latest assessment years 1994-95 to 1996-97. The undisclosed income assessed yearwise is as follows : The sum total of all the disputed items as well as the undisclosed income assessed is Rs. 1,33,78,974, which makes it clear that the assessee has disputed the entire undisclosed income assessed by the assessing officer.
But, as a matter of fact, the assessee himself has returned an undisclosed income to the extent of Rs. 44,18,970 as mentioned in para 5 above. At the same time, the assessee nowhere makes it clear for what reason or on which ground, he proposes to fight against the very same amount of undisclosed income admitted and returned by him in the block return filed. Therefore, there is no point in examining or entertaining those contentions relating to the undisclosed income already returned by the assessee himself.
Therefore, those grounds raised by the assessee against the additions made by the assessing officer alone need to be considered by the Tribunal in this appeal. The particulars of those grounds and additions are summarised below : Unexplained expenditure for which no entry has been pawed in accounts and not covered by peak cash deficit The various disputes raised by the assessee in his grounds of appeal as summarised and detailed in the above paragraph shall be examined in this appeal in the paragraphs to follow, before which we would advent upon the general contentions of facts and law advanced by both the sides.
Shri K.S. Viswanathan, the learned Counsel for the assessee, has raised two sets of arguments. The first set of arguments related to the evidence and basis of the various additions made by the assessing officer. On this point, the learned counsel argued as follows. There are no basis for direct or indirect evidence for concluding that the assessee had spent this much of amount outside the books of account.
The assessing officer has placed undue, reliance on the statements made by the assessee at Bombay at the time of search. The assessee was under stress and strain both physical and mental at the time of search as the search extended till the wee hours of the next day. He was stating so many things at that time out of his stray memory. He had no access to books of account or any records. Therefore, it was not possible for the assessee to give graphic account of all his business activities as alleged by the assessing officer. Later, he has explained all the questions and queries put by the assessing officer more correctly and clearly in the light of accounts and records and naturally revised/modified many of his earlier statements. Therefore, there is no legal sanctity in relying only on earlier statements of the assessee while ignoring the subsequent statements. The loose slips seized at the time of search are the evidence relied on by the assessing officer for details and amounts said to be spent by the assessee outside the accounts. Many of those slips contain only scribblings and not from which no specific and reliable inference could be made. Many of those slips further contained only estimates of various expenses likely to be incurred from time to time and from project to project to respect of films produced by the assessee. Therefore, these slips could not be based as evidence for making allegations of unaccounted expenditure and subsequent additions as undisclosed income. The learned counsel further argued that almost the entire undisclosed income worked out and assessed by the assessing officer has already been reflected in the block return filed by the assessee for the assessment year 1996-97 for the period till the search and in regular return of income for the assessment year 1996-97, as major portion of the income from the films like Rangeela and Nayak were earned by the assessee during the previous year period relevant to the assessment year 1996-97.
In his second set of arguments, the learned counsel explained his grounds on alternate remedy legally available to the assessee. He contended that items alleged as unaccounted expenditure and added by the assessing officer towards undisclosed income, are all barring certain personal expenses, items expended for the purpose of business and, therefore, liable to be allowed as admissible expenses in the computation of undisclosed income. He argued that as the alleged unaccounted expenses are business expenditure, any addition made on that ground would be set off by the corresponding deduction as admissible business expenditure. He submitted that these are all expenses incurred in the course of production of films. So, according to him, barring the personal expenses, the balance items should be allowed as deduction. The learned counsel argued that the above alternate contention has to be considered by the Tribunal even though the assessee had not raised such a contention at the assessment stage.
He relied on the Supreme Court decision in National Thermal Power v.CIT (1998) 229 ITR 383 (SC). In support of his alternate contention, the decisions in Pondicherry Railway Co. Ltd. v. CIT 5 ITC 363 (PC), Kedarnath Jute Mfg. Co. v. CIT (1971) 82 ITR 363 (SC) and CIT v. S. C.Kothan (1971) 82 ITR 794 (SC) among various other rulings are relied.
In their turn, the revenue confronted both the sets of arguments advanced by the learned counsel for the assessee. On the first set of contentions, Shri T. Jaya Sankar, the learned Departmental Representative, argued that the block assessment has been made on the basis of solid evidences collected from seized materials, sworn statements and explanations. The seized materials were maintained by the assessee in the course of his business. All those materials including slips, accounts, statements and messages, etc., astonishingly related to the business activities of the assessee in respect of films.
They are all clean and direct evidence. The findings available out of seized materials have been sufficiently supported by the sworn statements made by the assessee in the course of search. These are all direct evidence. The facts have been manipulated by the assessee in his subsequent statements and explanations to suit his convenience. The assessee cannot approbate and reprobate at his convenience. The rebuttal of the earlier admission need to be supported by cogent evidence. The assessee had no evidence to substantiate his subsequent rebuttal. Therefore, the earlier admission in the light of the particulars available from the seized records proves to be the best form of evidence in this case. The learned Departmental Representative relied on a series of case laws in AIR 1977 SC 409, 415 ; AIR 1977 SC 1724, 1926-7, 76 STC 183 (Ker); AIR 1960 SC 100, 105, Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18 (SC), etc., to support his contention on the binding nature of sworn statements made by the assessee. He submitted that the block assessment in this case has been completed on the basis of proper material and clear evidence, that the assessment does not suffer from any infirmity, whether factual or legal and, therefore, needs to be sustained in toto; and the assessee's appeal may be dismissed.
On the alternate ground advanced by the assessee, Shri C.P. Ramaswamy, the learned Senior Departmental Representative, argued at length.
According to Shri Ramaswamy, those undisclosed expenses are deemed as the income of the assessee under section 69C, and no deduction is permissible from that deemed income even if those undisclosed expenses are incurred for the purpose of the business of the assessee. He argued that section 69C is a deeming provision by which income is deemed against, unexplained expenditure and, therefore, once income is deemed against unexplained expenditure the same shall be added and the expenditure cannot be claimed as deduction. According to the learned Senior Departmental Representative, this position of law is now expressly declared by the proviso inserted at the end of section 69C by the Finance (No. 2) Act, 1998, with effect from 1-4-1999, as follows : "Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." According to him, the proviso is declaratory in nature and is, therefore, applicable retrospectively. He contended that as held by Delhi High Court in Yadu Hari Dalmia v. CIT (1980) 126 ITR 48 (Del), section 69C is a clarificatory provision and, therefore, any Explanation or proviso added to that provision has to be given retrospective operation. The learned Senior Departmental Representative relied on a recent decision of the Supreme Court in CIT v. Poddar Cements Ltd. (1997) 226 ITR 625 (SC) wherein the court has held that "the presumption against retrospective operation is not applicable to declaratory statutes. A declaratory Act may be defined as an Act to remove doubts existing as to common law, or the meaning or effect of any statute. Such acts are usually held to be retrospective. It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended." On these grounds, he submitted that it is not permissible in law to deduct these expenses added by the assessing officer towards undisclosed income.
We heard both sides in details and carefully perused the rival contentions and arguments poured in abundance in the light of the records of the case, argument notes and paper book submitted and the case laws cited.
We find much force in the contentions advanced by the Senior Departmental Representative against the alternate ground raised by the assessee. As rightly put it by the revenue, section 69C is a deeming provision, where unexplained expenditure is deemed as income. Only income is deemed against the factum of unexplained expenditure. The income deemed in section 69C is not gross income or gross receipt. It is only in cases where income deemed is gross, the deduction of related expenditure arises so as to ensure the computation of real income. In section 69C there is no presumption of any computation of income. It only deems income against unexplained expenditure. Unexplained expenditure for the purpose of section 69C means the expenditure incurred by the assessee for which he offers no satisfactory explanation about the source of such expenditure. The thrust is towards the source of expenditure only, and not towards the nature of expenditure. It may be personal in nature, or business expenditure or capital expenditure or whatsoever. The provision is not bothered about the nature of the expenditure at all. Therefore, one cannot say that where the expenditure is business expenditure, it should be deducted out of the income deemed against the very same expenditure. If such expenditure is allowed to be deducted, the very object and purpose of section 69C would be defeated. Whenever income is deemed against unexplained expenditure and the very same unexplained expenditure, be in the nature of business expenditure, is allowed as deduction, then in all such cases, the income so deemed would be set off by the corresponding deduction. If this position is accepted, then section 69C would serve no purpose. It becomes non est. We cannot read off a provision of law as of no use or for no purpose to serve. Section 69C is inserted in the Act as a rule of convenience to take cognizance of income to the extent of unexplained expenditure. Section 69C presupposes not only the income against unexplained expenditure, but also the financial year to which that income is to be considered by stating that the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of assessee for such financial year, so that the deemed income may not be filtered away through different previous year periods.
Section 69C deals with a peculiar situation where expenditure is found out, but no corresponding income/source is explained. It is different from the normal concept and method of income and its computation where receipt/income is reckoned first and the expenses are deducted therefrom. The case laws cited by the learned counsel for the assessee relate to the situations where income has to be computed in the normal concept method mentioned above. Therefore, those deductions are not relevant in this context where we are examining the deeming provision contained in section 69C.It is because of this peculiarity that section 69C is inserted in Chapter VI of the Act which deals with "Aggregation of income and set off or carry forward of loss". The chapter deals with the aggregation of different income already computed under different contexts and not deals with the computation of any income or any deduction therefrom. By virtue of section 69C, unexplained expenditure is also deemed as income which is to be aggregated with other types of income already computed elsewhere. The deeming nature of section 69C does not go beyond this.
When the provisions are clear, there is no room for any presumption or intendment. Where income alone is deemed under section 69C, one cannot presume any deduction out of that deemed income. The unexplained expenditure are part of assessee's secret capital deployed in the business subject to future realisation outside the accounts. As the deployment and recoupment of the secret circulating capital of the assessee is always outside the accounts, that undisclosed income in the form of secret capital can never be brought to tax, if such unexplained expenditure deemed as income are again allowed to be deducted as business expenditure. It will set off each other. It is to avoid this lacuna that section 69C has been inserted in the statute book where every unexplained expenditure is deemed as income. Therefore, if the contention of the assessee that deduction should be allowed for such unexplained business expenditure is accepted, that would render the deeming of income under section 69C itself futile. Therefore, the alternative ground advanced by the assessee regarding the deductibility of unexplained expenditure from the corresponding deemed income cannot be accepted and accordingly dismissed.
Therefore, we will examine the first set of grounds advanced by the assessee which relate to the evidence and the basis for various additions made by the assessing officer and examine whether those additions are sustainable or not. The various additions are already summarised in para 10 above.
In ground No. 3, the assessee has contended against a total addition of Rs. 3,91,630 made up of three amounts, viz., Rs. 3,43,600, Rs. 18,030 and Rs. 30,000. The amount of Rs. 3,43,600 related to the cash deficit noticed in the accounts for financial year. 1993-94, which has already been offered by the assessee as undisclosed income in his block return.
As stated by us in paras 9 and 10 above, the amounts already returned by the assessee as undisclosed income will not be considered in this appeal. The other two amounts are added by the assessing officer. The amount of Rs. 18,030 is considered in this paragraph and other amount of Rs. 30,000 is considered in the next paragraph.
The amount of Rs. 18,030 has been added by the assessing officer on the basis of seized document A/2 page 49. The amount was paid towards life-time tax of car. No doubt, the payment is proved. The contention of the assessee is that the assessee had enough drawings out of which this payment could have been made. The aspect of drawings by the assessee has not been considered by the assessing officer. Moreover, the assessee has already admitted unaccounted receipt for the period and offered for assessment. Therefore, the benefit of doubt should go to the assessee and the addition of Rs. 18,030 is deleted.
According to the assessing officer, this is the payment to Ameer Khan, the cine artist, which has not been accounted by the assessee. In the course of investigation, a letter was addressed to Ameer Khan who admitted a receipt of Rs. 10 lakhs from the assessee whereas the account of the assessee disclosed only Rs. 9,70,000. Therefore, the difference has been added. The case of the assessee is that this point was never put to the assessee. The assessing officer ought to have confronted the assessee with the specific amount, and in the case of payments to cine artists, the assessing officer has made separate additions. Therefore, we do not find any justification for making this addition. Accordingly, the addition of Rs. 30,000 is deleted.
Regarding the, first amount of Rs. 1,341, this could be easily met out of cash available in the hands of the assessee. Therefore, that amount is deleted. But in respect of the other two items, the seized documents clearly established the payments and the assessee has no explanations towards corresponding source. Accordingly, those two additions are confirmed.
These expenditures are evidenced by seized documents in the form of loose sheets, the reference numbers of which are mentioned above along with the items of expenditure. The assessee has no much explanation towards the item of excess baggage, hiring of cabs and personal expenses. Inflated expenditure does not mean actual cash outflow and, therefore, cannot be construed as unexplained expenditure. Therefore, the amount of Rs. 72,000 is deleted.
This amount was the cash found at the time of search at Bombay, out of which Rs. 3,40,000 was seized by the department. The assessing officer treated the amount as undisclosed income on the ground that the assessee had made initially an admission to that effect. But as submitted by the learned counsel, there is no such admission from the side of the assessee. Initially it was stated that the amount was handed over by one Jamu Sugandh out of collections received from distributors. Later, he stated that the amount was withdrawn from Syndicate bank account. The assessee further stated that the bank accounts of the assessee were operated by Jamu Sugandh through the signed cheques handed over by the assessee in advance as Jamu sugandh had financed the film in large way and he had to be convinced that the collections from the distributors are not taken away by the assessee, but paid to the financier. The search was on 6-12-1995. The Syndicate bank Account No. 17959 of the assessee showed that an amount of Rs. 3,50,000 was withdrawn on 6-12-1995. Therefore, prima facie the submission of the assessee has to be accepted. Moreover, as pointed out by the learned counsel, this amount has been considered for working out the peak cash deficit as on 6-12-1995 (p.17 of the paper book), and this peak cash deficit of Rs. 15,06,159 has already been considered for assessment. In the circumstances, the explanation of the assessee carries much weight and the finding of the assessing officer is not convincing. Therefore, the addition of Rs. 3,50,000 is deleted.
This amount has been added by the assessing officer on the ground that this amount represented unexplained expenditure by the assessee in the making of the film 'ANAGANAGA OKA ROJU'. Among the seized papers, there was a telex message dated 12-6-1995, sent to Sonusingh at Bombay, the Production Manager of Varma Creations. The telex message contained such details as the total budget estimate of that film and the total expenditure incurred on that film till date. The amount expended till date was Rs. 55,38,661. The assessing officer confronted these details with the assessee on the presumption that the film was actually produced by the assessee. The assessee explained that the film was originally produced by one A.V. Subba Raju under the banner 2010 Productions and as Mr. Raju was not in a position to complete the film, assessee took over it and completed, for which expenses have been properly explained. The assessing officer did not accept this explanation on the following grounds : (2) he stays with the assessee at Hyderabad and virtually depends on the assessee even for personal expenditure; (3) his only source of income was 12 acres of ancestral agricultural land belonging to the joint family and it was not proved that Raju had any source of funds to invest in film production; (4) that out of total investments in film as per accounts of Rs. 24,27,000 excluding creditors, the assessee has financed to the extent of Rs. 16,75,000; (5) that the telex message sent to the Bombay office of Varma itself proves that Varma exercises full control over the production of the film.
Therefore, the assessing officer held that A.V. Subba Raju was only a name-lender. Accordingly, the assessing officer added Rs. 34,63,661 to the undisclosed income of the assessee, being the unexplained portion of his investment in the film, after deducting Rs. 4,00,000 towards creditors and Rs. 16,75,000 already reflected in the accounts.
The assessee objects to the addition on the ground that it is arbitrary and without any basis. The contentions are as follows-The assessee or Raju has never admitted this. A telex message by itself; (sic) already been explained. Assessee's premises were thoroughly searched by the Department. No material, whatsoever, relating to this film was ever found out. The telex message recording the total expenses shows that the assessee has no records of those expenses. It also shows that the books might be elsewhere; otherwise the details as per the telex message could not have been made. Such records are not with the assessee has been proved by the search itself. They are with someone else. The assessee was never asked any question with reference to this film. The books of 2010 Creations were never called for. Subba Raju has made substantial investments therein. The telex message, however, is consistent with the assessee's contention that he took over the film in the middle of production and the payment was less than production expenses because of poor quality of the film. The hypothesis that Subba Raju is Benami requires strict proof and it cannot be assumed or presumed.
We considered the matter in detail. The addition has been made on the basis of the telex message. Apart from the telex message, dated 12-6-1995, the assessing officer has no other evidence. According to the assessee, that film was taken over from A.V. Subba Raju on 15-9-1995. The books of accounts of the assessee showed the purchase cost of the film at Rs. 28,27,975 credited in the accounts of 2010 Productions on 15-9-1995. These were well before the search conducted on 6-12-1995. Therefore, there is a strong prima facie evidence in favour of the assessee when he stated that the film was taken over from Raju for Rs. 28,27,975. On the date of takeover, i.e., on 15-9-1995, the amount found financed by the assessee was only Rs. 16,75,000. It shows that the balance amount which comes to Rs. 38,63,661 (Rs. 55,38,661-Rs. 16,75,000) was spent by somebody else, if not by Raju.
Therefore, it is not true to say that the major portion was financed by the assessee at the time of telex message.
Further, the search conducted in the premises of the assessee did not yield any material implicating the assessee with the initial production of that film. The books of account of 2010 Creations were never called for and examined. Subba Raju was never confronted with this issue.
In the circumstances, we do not find any evidence to support the addition of Rs. 34,63,661 made by the assessing officer. The main reason relied on by the assessing officer to make the addition in the hands of the assessee is that Subba Raju has no independent financial sources to produce a film. That is not a matter to be answered by the assessee. The assessing officer should have confronted Raju with those questions. There is no sanctity for making addition in the hands of the assessee for the reason that Raju has no sources of his own.
Therefore, we find no lawful evidence on record to implicate the assessee in the initial production of the firm. 'ANAGANAGA OKA ROJU' in the light of the telex message. Therefore, there is no basis for working out the unexplained expenditure in this regard. The addition of Rs. 34,63,661 is, therefore, deleted.
This is the amount of rent paid by the assessee for his Bombay flat at Rs. 8,000 per month. The payment has not been accounted. The assessee has no case against this. The addition is confirmed.
This amount represented the expenses incurred by assessee outside the accounts for the renovation of his Bombay flat. The assessee contends that the details were collected from loose sheets and such loose sheets could not be taken as proper evidence. The sheet containing the details was seized at the time of search. The sheet contained separate details regarding purchase of tiles, fittings, etc., and payment of labour.
Therefore, the assessing officer is justified in treating the same as towards expenses on renovation. If not so, it is the duty of the assessee to explain and convince. The same was not done. But, we find that the correct total of the expenses as per the seized slip works out to Rs. 1,08,000 and not Rs. 1,43,000. Therefore, we modify the addition to Rs. 1,08,000.
This amount is the total of various unexplained expenses in respect of the Bombay flat worked out on the basis of seized material (Annexure A/1 page 16 to 24). The assessee has no much explanation to offer in this regard. The addition is, therefore, confirmed.
The reasoning of the assessing officer to allege unexplained bank deposits to the extent of Rs. 2,725 is not at all convincing. This addition is accordingly deleted.
This amount of addition is the difference in the payments made to various cine artists as per the assessee's statement in the course of search and as per his books of account.
As per the sworn statement given by the assessee on 6-12-1995, the assessee has stated before the authorities that payments made to certain artists and technicians in respect of the film 'Rangeela' totalled to Rs. 55,50,000. At the same time, the payments as per the seized books totalled to Rs. 34,60,000 only. The details are as follows : In view of the categorical admission which was never disputed during the course of investigation, the assessing officer treated the above difference as unaccounted payments made out of unaccounted cash receipts from distributors and added to the undisclosed income of the assessee.
The contention of the assessee is that the statement at the time of search was given out of memory without any access to books and details and, therefore, those casual statements made out of fade memory cannot be taken as the basis for the addition.
We considered this matter. The assessee has stated the details of payments made to the artists for the film 'Rangeela' at the time of search. The details were furnished in unequivocal terms. We cannot believe the version of the assessee that those details were made casually and from faded memory. The details of the payments made to the leading stars of the cinema world for the assessee's prestigeous movie project, that too, during the relevant period, when the production of movie was in actual progress, could not be faded away out of memory by any amount of fatigue and exhaustion. The high rate of the stars and the huge amounts paid by the assessee would be at the tip of his fingers even during sleep. Because, the payments made to the leading artists are the major chunk of the total expenditure incurred for a film.
Therefore, we are not inclined to accept the argument of the assessee in this regard.
Accordingly, the addition is confirmed. But the actual difference is Rs. 20,90,000 and not Rs. 21 lakhs as approximated by the assessing officer. We direct the assessing officer to make an addition for the correct amount of Rs. 20,90,000.
This amount has been added on the basis of the details collected from seized material (being Annexure A/2 page 24) seized from Bombay office.
As per the paper seized, the total of various expenditure incurred at Madras for certain days in July, 1995, worked out to Rs. 7,10,000 against which the assessee has accounted only Rs. 1,94,700. The difference of Rs. 5,15,300 has been added by the assessing officer as unexplained expenditure.
The contention of the assessee is that the paper contained only certain projected expenses and such notings in loose sheet cannot be conclusive proof of any actual expenditure incurred.
The details noted down in the seized paper related to hotel and other on the spot expenses relating to shooting of movie. During the relevant period, the film Rangeela was nearing completion and various studio works were being carried out at Madras. The particulars of expenses debited in the accounts for the relevant period prove those activities undertaken by the assessee during that period. Therefore, the assessing officer is justified in treating the differential amount as unexplained expenditure.
The assessee has not made any attempt to successfully explain those amounts recorded in the seized paper, except making a general statement that those entries related to certain projections. But the projections were never explained.
This addition represents the total of various unaccounted payments made by the assessee and worked out on the basis of seized document Annexure/A/V/2). The seized document worked out a total of Rs. 28.60 lakhs against which an amount of Rs. 9,65,000 has been reflected in the entries relating to bank account and cash account. The difference of Rs. 18,95,000 has been added by the assessing officer as unexplained expenditure.
The contentions of the assessee are that the seized paper contained only preliminary estimates for some part of film production and those jottings in a loose sheet of paper could not be acted upon as evidence for the purpose of making additions.
We considered the matter in detail. The assessing officer has considered the matter in detail in paragraphs 082B, 082C and 082D of the assessment order. The persons against whom payments were recorded as paid are very much related to the assessee's business as artists, technician, manager, etc. Certain others are personally related to him.
The payments even though made in codes, certain amounts have been recorded in the books in its full value. Certain payments included in the seized paper have been passed through accounts, totalling to Rs. 9,65,000.
Therefore, there is no force in the arguments of the assessee that those particulars related to certain preliminary estimates. The assessee could not explain these works for which the preliminary estimates were said to have been made.
In the circumstances, there is no merit in the contention of the assessee, whereas the assessing officer has clearly established a nexus between those amounts and the activities of the assessee. Therefore, the addition of Rs. 18,95,000 is confirmed.
After rejecting the general contention of the assessee regarding the deduction of unexplained expenditure incurred for the purpose of assessee's business from the corresponding addition made by the assessing officer, we have examined the contentions. relating to various additions item-wise on their merits from paras 22 to 34. Some of the additions are deleted and some are modified. The total relief from the said deletions and modifications works out to Rs. 42,97,757 against the undisclosed income of Rs. 1,33,78,974 assessed by the assessing officer.
The assessing officer is directed to modify the assessment order on the basis of the directions given in paras 22, 23, 24, 25, 26, 27, 29, 31 and 32 of this order.