Nadiadwala Grandson Entertainment Pvt. Ltd. Vs DCIT (ITAT Mumbai)
The Hon’ble Madras High Court in the case of M. Narayan N. Boos. Vs. ACIT, Circle (339 ITR 192) held that addition made by the A.O merely on the basis of retracted statement u/s 132(4) could not be sustained in the absence of any evidence material or recovery of any movable or immovable assets at the time of search to corroborate the disclosure made by the assessee.
Facts-
Search and seizure action u/s 132(1) of the Act was carried out on 08.12.2015 at Nadiadwala Group covering group concerns and connected cases. The assessee company is a film production company and it was incorporated in the year 2005 with main business of the company being production of cinematographic movies.
The case was selected for scrutiny and assessment order u/s 143(3) of the Act was passed assessing total income at Rs.11,06,92,352/-. Consequent to search action a notice u/s 153A of the Act was issued on 22.12.2016 and assessee has filed its ROI declaring total income at Rs.11,06,92,352/-. During the course of the search action statement of some employees of the assessee were recorded u/s 132(4) of the Act in which they stated that assessee had inflated the expenses of various movies with the motive to reduce the taxable profit. One employee Mr. Nushrat Javed Khan has identified some expenses in which bogus bill had been issued by some parties to the assessee. During the course of assessment the A.O stated that Mr. Nushrat J. Khan explained the modus operandi in detail and on the basis of statement of Mr. Nushrat J. Khan certain expenses totaling to Rs.8,60,50,160/- was identified in which bogus bills had been issued by the certain parties. Assessment u/s 143(3) r.w.s 153A of the Act was finalized on 29.12.2017 assessing the total income of the assessee at Rs.21,15,86,117/-.
Being aggrieved, the assessee filed appeal before CIT(A) which was partly allowed.
Conclusion-
The Hon’ble Madras High Court in the case of M. Narayan N. Boos. Vs. ACIT, Circle (339 ITR 192) held that addition made by the A.O merely on the basis of retracted statement u/s 132(4) could not be sustained in the absence of any evidence material or recovery of any movable or immovable assets at the time of search to corroborate the disclosure made by the assessee. The Hon’ble Supreme Court in Vinod Solanki Vs. Union of India (92 SCL 157 held that evidence brought as record by way of confession which stand retracted must be substantially corroborated by other independent and cogent evidences which would lead adequate assurance to the court that it may seek to rely thereupon.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
All these cross appeals comprising of assessee and the revenue against the different order of CIT(A) are based on similar facts and identical issue, therefore, for the sake of convenience all these appeals are adjudicated together by taking ITA No. 2221/Mum/2021 and ITA No.1492/Mum/2021 as a lead case wherever the grounds of appeals are similar. The finding of these two appeals will be applied mutatis mutandis to the other appeals based on similar facts and identical issue.
Grounds of Assessee (ITA No.1492/Mum/2021)
“1. On the facts and circumstances of the case and in law, Learned CIT(A) erred in confirming the action of Assessing Officer in making the various additions/disallowance in the absence of any incriminating material found during the course of search action, as per the grounds contained in the assessment order or otherwise.
2. On the facts and circumstances of the case and in law, Learned CIT(A) erred in confirming the action of Assessing Officer in holding that the expenses claimed on account of film production are inflated and bogus expenses, as per the grounds contained in the assessment order or otherwise.
3. On the facts and circumstances of the case and in law, Learned CIT(A) erred in confirming the action of Assessing Officer in disallowing sum to the extent of Rs.5,00,000/ – being film production related expenses, as per the grounds contained in the assessment order or otherwise.
4. On the facts and circumstances of the case and in law, Learned CIT(A) erred in confirming the action of Assessing Officer in disallowing a sum of Rs.2,81,265/-treating the same as personal expenses, as per the grounds contained in the assessment order or otherwise.
5. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing.”
Grounds of Revenue (ITA No.2221/Mum/2021)
“1. On the facts and in the circumstances of the case and in law, whether the ld. CIT(A) has erred in holding that the expenditure of Rs. 1 crore incurred towards post production was booked by Nadiadwala Grandson Entertainment (NGE) [Prop. Sajid Nadiadwala) and not Nadiadwala Grandson Entertainment Pvt. Ltd. (NGEPL) without appreciating the fact that this issue arose from the books of NGEPL and not from the books of NGE.
2. On the facts and in the circumstances of the case and in Law, whether the ld. CIT(A) has erred in deleting the additions of Rs. 8,50,00,000/- made by the AO u/s. 68 of the Act without appreciating the fact that the assessee has failed to satisfy all the three conditions viz. identity, creditworthiness and genuineness of the transaction in respect of the unsecured loan availed by the assessee.
3. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the addition of a sum of Rs.50,00,000/-on account of interest debited towards bogus unsecured loan entries in the books of the assessee.
4. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the addition on account of commission expenses amounting to Rs.1,12,500/- for arranging the entry of bogus unsecured loan.
5. The appellant craves to leave, to add, to amend and/or to alter any of the ground of appeal, if need be.”
2. The fact in brief is that a search and seizure action u/s 132(1) of the Act was carried out on 08.12.2015 at Nadiadwala Group covering group concerns and connected cases. The assessee company is a film production company and it was incorporated in the year 2005 with main business of the company being production of cinematographic movies. The main person of the assessee company was Mr. Sajid Suleman Nadiawala who himself has been involved in the industry as film director. The assessee has filed its original return of income on 30.09.2010 declaring a total income of Rs.10,96,21,749/-. Subsequently, the case was selected for scrutiny and assessment order u/s 143(3) of the Act was passed assessing total income at Rs.11,06,92,352/-. Consequent to search action a notice u/s 153A of the Act was issued on 22.12.2016 and assessee has filed its return of income for assessment year 2010-11 on 14.01.2017 declaring total income at Rs.11,06,92,352/-. During the course of the search action statement of some employees of the assessee were recorded u/s 132(4) of the Act in which they stated that assessee had inflated the expenses of various movies with the motive to reduce the taxable profit. One employee Mr. Nushrat Javed Khan has identified some expenses in which bogus bill had been issued by some parties to the assessee. During the course of assessment the A.O stated that Mr. Nushrat J. Khan explained the modus operandi in detail and on the basis of statement of Mr. Nushrat J. Khan certain expenses totaling to Rs.8,60,50,160/- was identified in which bogus bills had been issued by the certain parties. Assessment u/s 143(3) r.w.s 153A of the Act was finalized on 29.12.2017 assessing the total income of the assessee at Rs.21,15,86,117/-. Further relevant facts pertaining to the grounds of appeal filed by the assessee are discussed while adjudicating these ground of appeal as under:
(1) Ground No. 1: Absence of any incriminating material during the course of search:
3. During the course of appellate proceedings before us at the outset the ld. counsel contended that no incriminating material was found during the course of search and A.O has made the disallowance only on the basis of statement recorded of the employees of the assessee. Therefore, the addition made by the A.O in the assessment order was without any basis. The ld. Counsel stated that Mr. Nushrat J. Khan has retracted his statement immediately after search vide affidavit dated 24.12.2015 stating that statement was given under duress or coercion after continuously grilled by the search parties for more than 4 days and he was pressurized to make the admission on various counts. The ld. Counsel has also submitted that other employee including Mr. Rakesh Madhotra and Mr. Ravindar Khurdan Passi have also retracted their statements on the similar grounds.
On the other hand, the ld. D.R submitted that the employees have themselves admitted the fact of inflation of expenditure and supported the order of A.O.
4. Heard both the side and perused the material on record. The ld. CIT(A) has discussed in detail the factual and legal aspects in his findings at page no. 5 to 12 of his order on the issue of incriminating material found during the course of search. The ld. CIT(A) has referred purchase/work contract and purchase invoices along with the statement recorded u/s 132(4) of the Act holding that because of contrary statements of employees, nature of invoices constituent incriminating material and such facts were not existed at the time of original assessment made in the case of the assessee. After considering the facts and the detailed findings of the ld. CIT(A) discussed at page No. 5 to 12 of his order we don‟t find any reason to interfere in the decision of the ld. CIT(A), therefore, this ground of appeal of the assessee stand dismissed.
(2) Ground Nos. 2 & 3 of Assessee: Confirming expenses claimed on account of film production as inflated and bogus. Disallowing Rs.5 lac being film production related expenses:
5. During the course of assessment A.O stated that it was found during the course of search operation that the Nadiadwala Group was involved in inflating its expenses to increase the cost of production of the movie by claiming non-genuine bills from various parties, making payment to such parties by cheque/RTGS and receiving back such payment made in cash. The A.O has relied on the statement of Mr. Nushrat J. Khan wherein he admitted that assessee company had booked certain expenses which were not genuine in nature for the purpose of reducing the taxable income of the assessee. In his answer to question no. 23 of his statements he provided the details of non-genuine entries from the books of account of the assessee reproduced at page 15 of the assessment order as under:
