Dismissed¶78

Vakada Appa Rao v. the Assistant Commissioner

Madras HC1 Dec 2025TCA/567/2010

Case brief

AI extract

What is this about?

Block assessment; Section 132 search (27.06.2002-12.08.2002); Section 158BC read with Section 143(3); Rule 9B Income Tax Rules 1962 - deduction for cost of acquisition of distribution rights of feature films; mandatory maintenance of books of account; bank statements cannot substitute books; expenditure disallowance upheld; ITAT 'C' Bench Chennai orders dated 12.09.2008 in I.T.(SS)A.No.0136/Mds/2006 and I.T.(SS)A.No.0175/Mds/2006; TCA Nos. 567 & 568 of 2010; Vakada Appa Rao v. Assistant Commissioner / Deputy Commissioner of Income Tax, Central Circle IV(3), Chennai; Madras High Court; Dr. Justice Anita Sumanth; P. Dhanabal J.; decided 01-12-2025; appeals dismissed, questions answered in favour of Revenue.

What did the court decide?

None; the Tax Case Appeals are dismissed with no costs and the connected Miscellaneous Petition is closed.

Vakada Appa Rao Vs the Assistant Commissioner — Income Tax | Madras HC (2025)

What the court decided

AI extract

Outcome

None; the Tax Case Appeals are dismissed with no costs and the connected Miscellaneous Petition is closed.

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Issue for consideration

Whether, on the facts and circumstances of the case, the Tribunal is right in law in holding that the assessee has not maintained proper books of accounts and not complied with the provisions of section 9(b). +2 more

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Court's answer

Rule 9B, particularly sub-Rule (5), of the Income Tax Rules, 1962 is categorical that the computation of income of a film distribution company must be based on its books of accounts; accordingly the Revenue must succeed.

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Ratio / Principle

Where the assessee has admittedly not maintained books of accounts, there is no question of proceeding on the basis of other evidences that might be available to assist in the computation of income.

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Key takeaways

Other evidences can at best supplement the computation of income but cannot substitute the books of account in full.ratio¶76
The questions of law are answered in the affirmative and in favour of the Revenue.ratio¶77

Detailed headnote1 paragraphs

Madras High Court (Dr. Justice Anita Sumanth and Mr. Justice P. Dhanabal; judgment by Dr. Anita Sumanth J.) dismisses TCA Nos. 567 & 568 of 2010, filed under Section 260A of the Income Tax Act, 1961 by assessee Vakada Appa Rao against the common order of the Income Tax Appellate Tribunal, 'C' Bench, Chennai dated 12.09.2008 in I.T.(SS)A.Nos. 0136 and 0175/Mds/2006, whereby the Tribunal had allowed the Revenue's appeals and restored the Assessing Officer's disallowance of expenditures claimed for the block period 01.04.1996 to 27.06.2002 (block assessment under Section 158BC read with Section 143(3) following a Section 132 search). Held, dismissing the appeals with no costs and closing the connected M.P.: Rule 9B, particularly sub-Rule (5), of the Income Tax Rules, 1962 is categorical that the computation of income of a film distribution company must be based on its books of account; where maintenance of books is admittedly absent, other materials such as bank statements can at best supplement and cannot substitute the books of account. Substantial questions answered in the affirmative, in favour of the Revenue.

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TCA Nos 567 & 568 of 2010

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED: 01-12-2025

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CORAM

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THE HON'BLE DR.JUSTICE ANITA SUMANTH

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AND

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THE HON'BLE MR.JUSTICE P. DHANABAL

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TCA Nos. 567 & 568 of 2010 AND M.P.No.2 of 2010

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Vakada Appa Rao C/o V.Narayanam & Co, 23, Sir C.V.Raman Road, Alwarpet, Chennai - 600 018.

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..Appellant(s)

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The Assistant Commissioner Of Income Tax, Central Circle Iv (3), Chennai.

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..Respondent(s)

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TCA No. 568 of 2010

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Shri Vakada Appa Rao Plot No.178, Flat No.508, Mothi Nagar, Venkateswara Arcade, Hyderabad.

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..Appellant(s)

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The Deputy Commissioner Of Income Tax, Central Circle IV (3) No.108 N.H.Road, Chennai - 600 034.

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..Respondent(s)

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__________ Page 1 of 8

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https://www.mhc.tn.gov.in/judis

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TCA Nos 567 & 568 of 2010

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Prayer in TCA.No.567 of 2010: Appeal filed under Section 260A of the Income Tax Act, 1961 against order of the Income Tax Appellate Tribunal, 'C' Bench, Chennai dated 12.09.2008 in I.T.(SS)A.No.0136/Mds/2006.

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Prayer in TCA.No.568 of 2010: Appeal filed under Section 260A of the Income Tax Act, 1961 against order of the Income Tax Appellate Tribunal, 'C' Bench, Chennai dated 12.09.2008 in I.T.(SS)A.No.0175/Mds/2006.

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(In both TCAs)

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For Appellant(s): Mr.C.J.Yeswanthram for Mr.K.Vaitheeswaran For Respondent(s): Mr.Karthik Ranganathan Senior Standing Counsel

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COMMON JUDGMENT

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(Judgment of the Court was delivered by Dr.Anita Sumanth J.)

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These appeals have been filed by the assessee challenging the order of the

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Income Tax Appellate Tribunal (in short 'ITAT'/'Tribunal') dated 12.09.2008 for the block period 01.04.1996 to 27.06.2002 passed in terms of the provisions of the Income Tax Act, 1961 (in short 'Act').

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Five questions were raised by the assessee originally and three were rejected even at the time of admission. Two were admitted for consideration and read as follows:

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Page 2 of 8

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https://www.mhc.tn.gov.in/judis

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TCA Nos 567 & 568 of 2010

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‘c.Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the assess has not maintained proper books of accounts and not complied with the provisions of section 9(b) ?

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d. Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the loss claimed by the appellant was not liable to be allowed despite the books of accounts being produced. They ought to have seen that the Commissioner of Income Tax (Appeals) had clearly held that the appellant had all basic documents and vouchers, though to maintained book of accounts?’

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Mr.C.J.Yeswanthram, learned counsel for Mr.K.Vaitheeswaran,

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learned counsel for the appellant makes the following submissions. A search under Section 132 of the Act had been conducted by the Assessing Officer between 27.06.2002 and 12.08.2002 (erroneously stated as 12.08.2004 in the order of assessment). The block assessment under Section 158 BC read with Section 143(3) of the Act came to be completed on 31.08.2004 on the basis of various evidences found in the course of search to the effect that the appellant had understated the income relating to the block period. Admittedly, no books of accounts had been maintained by the assessee and no regular returns of income had been filed. Hence the question of completing regular assessments does not arise in the present case.

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The sole issue with which we are concerned in these appeals relates to

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certain expenditures that had been claimed by the assessee, which came to be disallowed in toto by the Assessing Officer on the ground that no books of

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Page 3 of 8

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https://www.mhc.tn.gov.in/judis

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TCA Nos 567 & 568 of 2010

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accounts had been maintained and applying the provisions of Rule 9B (3), (4) and (5) of the Income Tax Rules, 1962 (in short 'Rules').

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As against the same, the assessee moved the first appellate authority,

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who was of the view that the appellant was entitled to a set-off of the loss as against the theatre collections for that year, based on the evidences produced before the Commissioner of Income Tax (Appeals) (in short ‘CIT(A)’). Essentially, the CIT(A) has gone on the basis of the bank statements, concluding that such statements would suffice even in the absence of the books of accounts. The CIT(A) had arrived at the tabulation of the net loss in the following manner:

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Particulars	Amount	Amount
By theatre collections	1,28,730.00
to picture outright and leasepaid		7,25,000.00
topublicity expenses		14,275.00
To representative salaries		6,500.00
To printing and stationery		1,075.00
To traveling expenses		860.00
To telephone charges		375.00
To telephone charges	6,19,355.00
By net loss transferred to capital	7,48,085.00

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__________ Page 4 of 8

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https://www.mhc.tn.gov.in/judis

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TCA Nos 567 & 568 of 2010

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As against the aforesaid order of the CIT(A) dated 19.04.2006, cross

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appeals were filed by both the assessee and Revenue before the Tribunal, and the Revenue's appeal came to be allowed in full, restoring the order of the Assessing Authority. The discussion of the Tribunal is to the effect that Rule 9B, which requires maintenance of books of accounts, is mandatory.

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Learned counsel for the appellant would submit that in a case where other evidences were available to support the expenses incurred, particularly clinching evidence such as bank statements as in the present case, it was not necessary to go strictly by the provisions of Rule 9B and it would suffice that this evidence may be taken into account by the authorities.

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Per contra, Mr.Karthik Ranganathan, learned Senior Standing Counsel for the Department, would submit that Rule 9B casts a mandate upon the assessee to maintain books of accounts which cannot be disavowed. In the present case, it is admitted that the assessee had not maintained books of accounts and hence, there is absolutely no avenue to take a lenient view of the matter.

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Having heard both learned counsel, we are of the considered view that the Revenue must succeed. Rule 9B, particularly sub-Rule (5) is categoric to the effect that the computation of income in order to arrive at the income earned by a film distribution company, must be based on its books of accounts.

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Page 5 of 8

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https://www.mhc.tn.gov.in/judis

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TCA Nos 567 & 568 of 2010

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For ready reference, we extract below the provisions of Rule 9B, to

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the extent to which it is relevant for this matter:

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‘ Deduction in respect of expenditure on acquisition of distribution rights of feature films.

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9B. (1) In computing the profits and gains of the business of distribution of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film distributor), the deduction in respect of the cost of acquisition of a feature film shall be allowed in accordance with sub-rule (2) to sub-rule (4).

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(5) Notwithstanding anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless-

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(a) in a case where the film distributor,-

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(i) has himself exhibited the feature film on a

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commercial basis; or

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(ii) has sold the rights of exhibition of the feature film; or

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(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas,

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the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold, or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible;

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(b) in a case where the film distributor has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount, or where the film distributor follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account

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Page 6 of 8

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https://www.mhc.tn.gov.in/judis

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TCA Nos 567 & 568 of 2010

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maintained by him in respect of the year in which the deduction is admissible.’

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A reading of the above makes it clear that the computation of income of a film distribution company must be based on Rule 9B(5), where sub-clause

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(i), (ii) and (iii) of clause (a) are governed by the condition under clause (a) relating to the maintenance of books of accounts. Hence, in a case where the assessee has admittedly not maintained books of accounts, there is no question of proceeding on the basis of other evidences that might be available to assist in the computation of income. Such evidences can at best, supplement the computation of income but cannot substitute the book of account in full.

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