COMMISSIONER OF INCOME TAX Vs. R R PICTURES

JUDGEMENT

(1.) THE assessee is a partnership firm engaged in the business of film production. At the material time relevant for the present reference, the assessee-firm had produced a Tamil picture by name "pasam". It came to light that the assessee had paid the artists and technicians, who were engaged in that firm remuneration in excess of that which was brought to account. THE ITO estimated the excess expenditure on this account at Rs. 2,96,520. He regarded this amount as income from "other sources" and assessed it as such in the hands of the assessee-firm. On appeal by the assessee, the AAC sustained the finding of the ITO. He held that Rs. 2,96,520 represented understatement of production expenses and the amount was properly added as income from "other sources" because the assessee-firm had no known sources of income for meeting the excess expenditure which had not been brought into account. THE reasoning of the AAC was as follows :

(2.) FOR some reason known only to themselves the Department did not object to the deletion by the AAC of Rs. 1,05,000 from the total income. They apparently agreed that the amount had to be set off against the years unaccounted expenditure of Rs. 2,96,520. The assessee, however, preferred an appeal to the Tribunal. In that appeal, the assessee raised an additional ground to the effect that the amount of income assessed under "Other sources" and sustained by the AAC in the sum of Rs. 50,000 according to the assessee represented expenditure, which was disallowed in an earlier assessment for the year 1961-62, and it had to be given a set-off in this year. The Tribunal allowed the appeal and reduce the addition of Rs. 1,41,520. The Tribunal accepted the plea of the assessee for the reduction of the assessment by Rs. 50,000 with the following observation :

(3.) WE are conscious that what the AAC did by way of granting set-off for Rs. 1,05,000 is not strictly before us in this reference. This is because the Department did not make a controversy out of it, and did not file an appeal against that part of the AAC's order before the Tribunal. Our discussion of the action of the AAC is only to illustrate how slender can be the link sought to be established by the assessee between proved concealment of income, on the one hand, and amounts added back by way of disallowed expenses or intangible additions on the other. In one sense, the order of the AAC has served us as a plank for discussing the crucial issue in this case as to how and to what extent the undisclosed expenditure of the assessee for 1963-64 could be set off against the disallowance of expenditure in an earlier year 1961-62. For, the Assistant Commissioner's order alone contains a justification on principle for the set off, although briefly stated. The Tribunal's order on the point is far too sketchy for an examination or review to be made of it on the basis of principles or precedents. WE can only gather that the Tribunal must have proceeded on the footing that the disallowance of the expenditure of Rs. 50,000 in the assessment year 1961-62 was a kind of disallowance on which the doctrine of set-off of intangible additions can property be worked out. The Tribunal did not go into the question whether the disallowances to the extent of Rs. 50,000 in the year 1961-62 was on the ground that the expenditure, though incurred has been disallowed as not proved, or on the ground that it was not incurred at all. It does not seem that the Tribunal was aware of the distinction between the two kinds of disallowance of expenditure. Where, for instance, an expenditure is held actually to have been incurred but disallowed by the assessing officer on the ground of want of proof, the money representing that expenditure, could not be still available with the assessee, on the principle that no one can have the cake and eat it too. There is nothing to show in the Tribunal's order that the expenditure was disallowed in 1961-62 on the ground that the expenditure was not incurred at all.