TMI Blog2015 (10) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that:- We notice that the assessing officer has only made some bald observations that some of the items are under self made vouchers/cash payments/cash memos/bills from unregistered dealers without pointing out any specific instances. Hence, we are of the view that the assessing officer did not make any strong case in support of disallowance made by him. We have earlier noticed that the co-ordinate bench in the assessee’s own case as well in the case of Shri Karan Yash Johar (supra) has taken the view that the technical documents are not really required to ascertain the genuineness of the expenses and further held that the maintenance of the same was not feasible for valid reasons. Accordingly, in the case of Shri Karan Yash Johar (2015 (5) TMI 539 - ITAT MUMBAI), the Tribunal has taken the view the disallowances were not called merely for want of technical documents. - Decided in favour of assessee. - I.T.A. No.2483/Mum/2013 - - - Dated:- 9-9-2015 - SHRI B.R.BASKARAN, AM AND AMARJIT SINGH, JM For The Appellant : Shri Vijay Mehta For The Respondent : Shri Kailash Gaikwad ORDER Per B R Baskaran, AM: The appeal filed by the assessee is directed against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a feature film, shall be reduced by the subsidy received by the film producer under any scheme framed by the Government, where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year.] (2) Where a [***] feature film is certified for release by the Board of Film Censors in any previous year and in such previous year,- (a) the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or (b) the film producer- (i) himself exhibits the film on a commercial basis in all or some of the areas; or (ii) sells the rights of exhibition of the film in respect of some of the areas; or (iii) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is released for exhibition on a commercial basis at least [ninety] days before the end of such previous year, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (b) in a case where the film producer 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 producer 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 maintained by him in respect of the year in which the deduction is admissible. [(6)] Where the [Assessing Officer] is of opinion that- [(a)] the rights of exhibition of the feature film have been transferred by the film producer by a mode not covered by the provisions of this rule; or [(b)] having regard to the facts and circumstances of any case, it is not practicable to apply the provisions of this rule to such case, deduction in respect of the cost of production of the film may be allowed by the [Assessing Officer] in such other manner as he may deem suitable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is released for exhibition on a commercial basis at least [ninety] days before the end of such previous year, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of such previous year. (3) Where a feature film is acquired by the film distributor in any previous year and in such previous year the film distributor- (a) himself exhibits the film on a commercial basis in all or some of the areas; or (b) sells the rights of exhibition of the film in respect of some of the areas; or (c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is not released for exhibition on a commercial basis at least [ninety] days before the end of such previous year, the cost of acquisition of the film in so far as it does not exceed the amount realised by the film distributor by exhibiting the film on a commercial basis or the amount for which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mum guarantee basis ; (ii) the rights of exhibition of a feature film shall be deemed to have been sold only on the date when the positive prints of the film are delivered by the film distributor to the purchaser of such rights ; [(iii) distributor shall include a sub-distributor.] [(7) Nothing contained in this rule shall apply in relation to any assessment year commencing before the 1st day of April, 1987.] [Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation The revenue s view is that the above said rules prohibit claiming expenditure incurred after the issuing of certificate by the Censor Board. 4. At the time of hearing, the Ld A.R submitted that an identical issue was considered by the co-ordinate bench of Tribunal in the assessee s own case in ITA No.2480 4791/Mum/2013 dated 18th September, 2013 relating to AY 2006-07 and it has been decided in favour of the assessee by following the decision rendered by Hon ble Madras High Court in the case of CIT Vs. Prasad Productions Pvt Ltd (179 ITR 147) and also the decision rendered by the Mumbai bench of Tribunal in the case of Mukta Arts Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a position to exhibit it by obtaining positive prints. Having produced a film, the person carrying on business of production of feature films may either keep them without exhibition or even part with it without making arrangements for their exhibition. It cannot, therefore, be assumed that in all cases of production of a film, the producer must necessarily obtain the positive prints of the film as well. In other words, if a person carries on business of production of films, he may not only produce the film and also prepare the positive prints for the purpose of exhibition or he may not take steps for the exhibition of the film having produced it. The production and exhibition of a feature film constitute two distinct and separate stages and while the former would take in all activities which culminate in the production of a feature film, the latter contemplates a stage subsequent to the completion of the production of the film, viz., exhibition of the film produced. Viewed thus, any expenditure incurred in connection with the preparation of the positive prints for purposes of exhibition would really be post-production expenses and also an item of expenditure in relation to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of positive prints of the film are not to be included as part of the cost of production. The effect of the exclusion of these two items normally means that they could be allowed in the year in which these expenses are incurred regardless of whether film is released in that year or not as held by the hon'ble Madras High Court in the case of CIT V/s Prasad Productions P. Ltd. as reported in [1989J 179 ITR 147 the cost of making positive prints is allowable under section 37 of the Act. Further in the case of B.Nagi Reddy v. CIT as reported in [1993J 199 ITR 451, the hon'ble Madras High Court held that any loss arising on account of feature film being abandoned midway without completing it then, the expenditure incurred till that date including the payments made to artists, writers etc. would be allowable as a business loss on the principle of commercial expediency. All the above instances make it clear that in case of film producer, the expenses which do not form part of cost of production as per rule 9A are allowable as per the normal provisions of the Act. It, therefore, follows that rule 9A does not cover all these situations and all types of expenses, hence the propositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed after the issuance of certificate by the Censor Board subject to restrictive provisions of section 37 of the Act. This view can further be substantiated by the fact that the Legislature has not given overriding effect to rule 9A by not framing the said rule as Notwithstanding anything contained in any provisions of the Act and/or any other rule of the Income tax Rules, 1962, Further , there is also no commercial/business necessity, attached to film production which may justify the exemption to film producers from the applicability of the provisions of section 37(2A) and /or or section 37(3) in respect of expenditure forming part of cost of production as per rule 9A 28. In view of the above discussion and following the decision of Hon ble Madras High Court in case of Prasad Productions Pvt.Ltd as well as decision of the Co-ordinate Bench of this Tribunal in case of Mukta Arts Pvt Ltd. We hold that the expenditure incurred in respect of preparation of positive prints as well as advertisement and publicity are allowable. Accordingly the addition enhance by the CIT(A) is deleted The Ld D.R, on the contrary, strongly supported the order passed by Ld CIT(A) on this issue. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts relating to production programs. He further submitted that the assessing officer did not consider the expenses as bogus and hence he has restricted the disallowances to 25%. He submitted that the co-ordinate bench of Tribunal has also accepted this fact in AY 2006-07 and has also observed that these expenses are essential in the production of film. However, the Tribunal chose to restrict the disallowance to 5% of expenses by following the decision rendered in the case of Yas Raj films Pvt Ltd (ITA No.6350/M/2010 dated 5.4.2013). 7. The Ld A.R submitted that identical issues were considered by another co-ordinate bench of Tribunal in the case of Shri Karan Yash Johar, proprietor of Dharma Productions, who also happens to be the director of the assessee company in ITA No.2591/Mum/2013 2592/Mum/2013 relating to AY 2007-08 and 2009-10. He submitted that the co-ordinate bench, vide its order dated 15.4.2015, after considering the decision rendered by the Tribunal in the assessee s own case relating to AY 2006-07, has taken the view that no disallowance was called for. He submitted that latest decision of the Tribunal rendered in the case of Shri Karan Yash Johar (supra) may als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical issue was considered by the co-ordinate bench of Tribunal in the case of Shri Karan Yash Johar (supra) and the Tribunal has held as under:- 19. We have considered rival contentions and found that expenses so claimed are required to be allowed as per provisions of Rules 6F, which prescribes the list of books of accounts required to be maintained by professionals. The documents called for by the A.O. are not mentioned in the list prescribed under rules 6F. The issue is covered by the decision of ITAT in the case of M/s Dharma Productions Pvt. Ltd., ITA No.2480 4791/Mum/2013, dated 18-9-2013, wherein assessee is a Director and he is also into movie production business. The Tribunal restricted the disallowance to the extent of 5% of such expenses. The Tribunal observed at para 22, page 23 of the order that the A.O. has not given a finding that the bills and vouchers produced by the assessee, on the basis of which expenditure has been recorded in books, are bogus. Further, a clear finding has been given that the documents called for by the A.O. are maintained for the purpose of shooting and are not part of the accounts book. That once the shooting of a film is over there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vouchers etc. However, the AO has taken the view that the technical documents would form the primary documents and hence he has proposed to make ad-hoc disallowances. In our view, the AO has gone wrong on this point. In our view, the primary documents are relevant vouchers, bills, invoices etc., since the expenses incurred and payments are made on the basis of these documents only. The technical documents constitute the plans for the proposed film shooting and hence, the technical documents, in our view, cannot be called as primary documents and at the most, they may be called as secondary documents which may be used to corroborate the expenses claimed through the primary documents. Further, the technical documents normally shall not indicate the amount to be spent, since the same would depend upon the market expenses. For example, it may indicate about the number of junior artistes required for shooting a particular scene, it may not specify the salary to be paid to those artistes. Hence, the quantum of expenditure can be ascertained only through the primary documents. The necessity to refer to the secondary documents, in our view, would arise only if the primary documents are dou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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