M/S Larsco Entertainment Pvt. Ltd.,, ... vs Department Of Income Tax

This is a Revenue's appeal filed against the order of the Commissioner of Income Tax(Appeals)-V, Hyderabad dated 31-10-2013.

2. Briefly stated, assessee-company is engaged in the business of production and distribution of feature films. It filed its return of income admitting total income of Rs.16,75,450/- before set-off of unabsorbed losses/depreciation. In the course of scrutiny proceedings, Assessing I.T.A. No. 249/Hyd/2014 :- 2 -: M/s.Larsco Entertainment Pvt. Ltd.,

Officer [AO] noticed that assessee has received Rs.15 Crores as share application money during the year. AO wrongly noted that this amount was received from M/s. Lanco Infratech Pvt. Ltd., whereas the amount was received from one of the directors Shri L. Sridhar. AO further noted that assessee-company has invested the same in M/s. Jubilee Media Communications (P) Ltd. He noticed that the said company has further invested the amount in M/s. Jagathi Publications Ltd. He also states that a similar transaction was involved in previous year relevant to AY.2008-09 wherein Rs.20 Crores was received from M/s. Lanco Infratech Pvt. Ltd., which in turn was invested as share application money in M/s. Jubilee Media Communications (P) Ltd. He further states that neither M/s. Jubilee Media Communications (P) Ltd., allotted shares to assessee-company nor assessee-company allotted shares to M/s. Lanco Infratech Pvt. Ltd., He comes to the conclusion that the funds that originate from M/s. Lanco Infratech Pvt. Ltd., have transferred to M/s. Jagathi Publications Ltd., through intermediaries and since CBI is enquiring the investments made in M/s. Jubilee Media Communications (P) Ltd., AO held that amount of Rs.15 Crores received by assessee in the guise of share application money as its income and the same was brought to tax. AO did not mention under which section of the Income Tax Act, the share application money was considered as income.

3. Before the Ld.CIT(A), assessee claimed that the amount of Rs.15 Crores was borrowed by Mr.L. Sridhar, Director of M/s. Lanco Group Ltd., as unsecured loan. This amount was received through RTGS from the lender and introduced in assessee-company as share application money from Shri L. Sridhar. This amount was finally paid by Shri L. Sridhar to M/s. Lanco Group Ltd., and hence in support of introduction of capital into the company, a confirmation from the lender was filed. It I.T.A. No. 249/Hyd/2014 :- 3 -: M/s.Larsco Entertainment Pvt. Ltd.,

was further submitted that shares were also allotted to Shri L. Sridhar subsequently. It was further submitted that assessee invested a similar amount in M/s. Jubilee Media Communications (P) Ltd., as share application money against which shares were allotted to the company on 01-03-2011. As a part of company's investment strategy, it was decided to route the investment through a company so that all media related investments can be channeled through one company so as to have flexibility in the matter at the time of dis-investment or restructuring of the investments made. Further, it was submitted to the CIT(A) that there is no case against M/s. Jubilee Media Communications (P) Ltd. by CBI and filed certain evidence in support. It was further contended that AO has not brought anything on record to substantiate that un- accounted income of assessee was routed. There were other objections also by assessee on the order of the AO with which we are not concerned in this appeal. Ld.CIT(A) remitted the matter twice to AO and obtained various comments/objections from the AO with reference to the merits of the addition, AO simply relied on the assessment order in the first remand report. Not satisfied with the first Remand Report, CIT called for second Remand Report which was extracted at para 7.4 of the order. Finally, considering the objections from AO and comment from the assessee, Ld.CIT(A) deleted the amount by stating as under:

8. I have carefully considered the submissions of the appellant, remand reports of the A.C. and the remarks of the CIT(Appeals)-

II, Hyderabad on the remand report of the A.C. and the assessment order. I am of the considered view that the addition is not called for the following reasons:

i)The Assessing officer has not disbelieved the initial source of loan of Rs.15 crores incurred by Sri L Sridhar through banking channel from Lanco Group Ltd. Appellant had filed necessary evidence in this regard. This is an undisputed fact on record as there is no adverse comment of the Assessing officer in the assessment order.

I.T.A. No. 249/Hyd/2014 :- 4 -: M/s.Larsco Entertainment Pvt. Ltd.,

ii) Assessing officer has not doubted the fact that said amount of Rs.15 crores received from Lanco Group Ltd was invested in appellant company by Sri Sridhar towards share application money and shares were allotted to him. This is an undisputed fact as would be clear from the assessment order. Therefore the source of money of Rs.15 crores introduced in the books of appellant company stood explained.

iii) As per the provisions of section 68, where any sum of money is found credited in the books during a previous year and the assessee fails to offer an explanation about the nature and source of thereof or the explanation of the assessee is found not satisfactory, the Assessing officer can treat the amount as unexplained cash credit and deem the amount as income of the assessee for the previous year. As mentioned above, the flow of fund has been satisfactorily explained by the appellant and Assessing officer has no allegation or doubt about the nature and source of the said amount of Rs.15 crores. There is no whisper in the assessment order that the appellant-company has failed to explain the sources of investment originating from L. Sridhar. Therefore, the provision of section 68 is not attracted to make the addition merely because the amount was subsequently invested in Jubilee Media Ltd, an entity which was investigated by Investigation Agency.

iv) It is a legal mandate that Assessing officer is required to make his own enquiries and when he is satisfied that source of any investment is not explained by the assessee or he is not satisfied about the explanation, he would reach his own findings as required under law. The Assessing officer has failed to record any such finding. On the other hand, he was satisfied with the origin of fund which was invested in the appellant company. AO cannot add any amount merely on the ground that the explained amount was subsequently invested in another company.

v) It would be relevant to mention here that in the A.Y.2008-09 and A.Y.2010-11, similar transaction had been accepted in scrutiny assessment after necessary verification of books and bank account.

vi) Even the CIT (Appeals)-II, Hyderabad, vide her letter dated 7-11-2012 addressed to the DCIT Circle 3(1), Hyderabad, commenting on his remand report dated 1- 11-2012 had held in Para.3 that as observed from the I.T.A. No. 249/Hyd/2014 :- 5 -: M/s.Larsco Entertainment Pvt. Ltd.,

assessment order, the order was passed on surmises without any supporting clarifications before making the addition of Rs. 15 crores.

8.1 It is an established position of law, as stated by the Hon'ble Supreme Court in Chhatrasinhji Kesarisinhji Thakore v. Commissioner of Income-tax [1966] 59 ITR 562 SC, that the Income-tax Officer is, within the limits assigned to him under the Act, a Tribunal of exclusive jurisdiction for purposes of assessment and he has, under the Act, to decide whether a particular receipt is 11 income 11 or not. It is equally beyond doubt that a statutory authority is bound to hold statutory inquiry and perform statutory duties and such authorities could never be precluded from discharging statutory functions. Therefore, he should not have been influenced by the fact that some enquiry is launched by some other authority, the outcome of which was not known. The Assessing Officer is not required to travel in an unknown territory which has no sanction in law, ignoring a statutory provision and make addition when he was satisfied about the source of fund introduced in the books of the appellant company. It may be noted that utilisation of an explained fund is not material to make addition under section 68.

8.2 In course of appeal hearing, the AR produced before me a press cutting in 'Hindu' dated 24th September, 2013, that no action has been suggested against Jubilee Media (P) Limited by the Investigation Agency as no charge sheet alleging quid pro quo against it was filed. An affidavit has been filed corroborating the press note. Be that as it may, the source of fund in the hands of appellant company (Larsco Entertainment), which was invested in jubilee Media, having not been doubted, the addition of Rs.15 crore is not called for in the hands of the appellant company.

8.3 For the fore-going reasons, I hold that the A.D. was not justified in making addition of Rs.15 crores towards share application money, particularly when the source of investment was explained and not doubted by the A.D. and hence, delete the addition.

4. After considering the rival contentions and perusing the Paper Book placed on record by assessee, we are of the opinion that there is no merit in the Revenue's appeal. First of all, AO gives a finding that the I.T.A. No. 249/Hyd/2014 :- 6 -: M/s.Larsco Entertainment Pvt. Ltd.,

money was received from one company and in turn was invested in another company. There is no finding that money received was un- explained. Invoking the provisions of Section 68 / 69 of the Act require a finding by AO that the credit is un-explained. There is no such finding either in the assessment order or in the Remand Reports. Moreover, just because another Government authority is investigating the fund flow, it cannot be conclude that the funds received by assessee- company are un-explained. Therefore, considering the facts of the case and the findings by the CIT(A), we do not see any reason to interfere with the order. However, this finding is only with reference to the provisions of the Act and should not come in the way of CBI investigating the various sources of funds and Revenue is free to take necessary action in case the funds are found to be un-explained.

5. With these observations, Revenue's appeal is dismissed.

Order pronounced in open Court on 17th April, 2015.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 17th April, 2015

TNMM I.T.A. No. 249/Hyd/2014 :- 7 -: M/s.Larsco Entertainment Pvt. Ltd.,

Copy to :

1. Office of the Asst. Commissioner of Income Tax, Circle-13(1), 2nd Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.

2. M/s. Larsco Entertainment Pvt. Ltd., No.822, Road No.40, Jubilee Hills, Hyderabad.

3. CIT(Appeals)-V, Hyderabad

4. CIT-I, Hyderabad

5. D.R. ITAT, Hyderabad