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2015 (10) TMI 1083 - ITAT MUMBAI

2015 (10) TMI 1083 - ITAT MUMBAI - [2016] 45 ITR (Trib) 102 - Disallowance of Advertisement expenses - Held that:- Since the co-ordinate bench of Tribunal in the assessee’s own case [2013 (11) TMI 319 - ITAT MUMBAI ] has already taken the view on this issue in favour of the assessee concluding there is no dispute about the date of release of the film in question on 29.4.2005. We further note that the Censor Board of Films issued the certification of the film on 21.4.2005 therefore, the film was .....

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sallowance on ad-hoc basis from out of various expenses - disallowance for want of technical documents - Held 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 .....

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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 the order dated 10-01-2013 passed by Ld CIT(A)-40, Mumbai and it relates to the assessment year 2009-10. The assessee is aggrieved by the decision of Ld CIT(A) in respect of following issues:- (a) Disallowance of Advertisemen .....

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d the same as deduction. The AO noticed that the assessee has incurred the advertisement expenditure after the issue of certificate by the Censor Board. The AO took the view that the assessee is not entitled to claim advertisement expenditure as deduction in view of the provisions of Rule 9A and 9B of I.T Rules, since it has been incurred after issuing of certificate by Censor Board. Accordingly he disallowed the claim of advertisement expenses and the same was also confirmed by Ld CIT(A). 3. We .....

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a previous year shall be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4). Explanation : In this rule,- (i) Board of Film Censors means the Board of Film Censors constituted under the Cinematograph Act, 1952 (37 of 1952); (ii) cost of production , in relation to a feature film, means the expenditure incurred on the production of the film, not being- (a) the expenditure incurred for the preparation of the positive prints of the film; and (b) the expenditure incurred in c .....

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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 sell .....

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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 production of the film in so far .....

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lowed as a deduction in that year. (4) Where, during the previous year in which a [***] feature film is certified for release by the Board of Film Censors, the film producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year; and the entire cost of production of the film shall be carried forward to the .....

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ion of the feature film in respect of all or some of the remaining areas,] 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; (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 .....

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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. [(7)] For the purposes of this rule,- (i) the sale of the rights of exhibition of a feature film includes the lease of such r .....

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er to the film distributor. [(8)] [Nothing contained in this rule shall apply in relation to any assessment year commencing before the 1st day of April, 1987.] [***] 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 su .....

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the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film; and (ii) the expenditure incurred by him in connection with the advertisement of the film. (2) Where a feature film is acquired by the film distributor in any previous year and in such previous year- (a) the film distributor sells all rights of exhibition of the film, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of su .....

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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 .....

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nts realised by the film distributor by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year. (4) Where during the previous year in which a feature film is acquired by the film distributor, he does not himself exhibit the film on a commercial basis or does not sell the ri .....

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mself exhibited the feature film on a commercial basis; or (ii) has sold the rights of exhibition of the feature film; or (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, 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 .....

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teed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible. (6) For the purposes of this rule,- (i) the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum 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 .....

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.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 Pvt Ltd Vs. ACIT (292 ITR (AT) 1 .....

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ous year and as per Rule 9A of the Income Tax Rule the entire cost of production is allowable deduction. The CIT(A) has enhanced the disallowance by invoking Rule 9A in respect of the amount of ₹ 41,43,240/- on account of positive films and a sum of ₹ 2,26,30,328/- on account of advertisement and publicity. The reason for disallowance by the CIT(A) is that the advertisement/publicity expenditure is not part of the cost of production therefore, is not allowable as per Rule 9A. The dec .....

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nt Commissioner, the assessee exercised an option as per rule 9A of the Rules and under Explanation (ii )(a) to rule 9A(1), the expenditure incurred for the preparation of the positive prints of the film could not be included within the expression 'cost of production'. It is for this reason that such expenditure is characterised as post-production expenditure. Ordinarily, all expenditure incurred on the production of a film would be its cost of production, but that would exclude the expe .....

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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 .....

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expenses and also an item of expenditure in relation to the business of production and exhibition of feature films and would, therefore, qualify for deduction as expenditure laid out or expended wholly and exclusively for the purpose of the business. We have not been referred to any provision in the Act or the Rules disallowing such expenditure as an item of business expenditure for the purpose of section 37 of the Act. Though the learned counsel for the revenue placed considerable reliance upo .....

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under section 36(1)(ii) of the Act as the contribution was not to a recognized provident fund or to an approved superannuation fund nor could be allowed under section 37 of the Act, the payment was allowable under section 28 of the Act. On a reference, it was held that the nature of payment being one described in section 36(1)(iv) of the Act and as it could not be deducted under that section, it cannot be held to be deductible under section 28 on general principles in arriving at the true profi .....

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in the affirmative and against the revenue. 27. Following the above decision of Hon ble Madras High Court, the Co-ordinate Bench of this Tribunal in case of Mukta Arts Pvt Ltd (supra) has held in para 13 and 21 as under : 13. As noted, rule 9A also defines "cost of production" to mean, the entire expenditure incurred on the production of film. However, advertisement expenditure incurred after the Censor Board certification is obtained and also the cost of positive prints of the film ar .....

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T 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 allo .....

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down the law, the policy and the standard which Legislature wants to maintain in the application and enforcement of the legislative enactment and be consistent therewith. It, therefore, follows that an ancillary channel, at any rate, cannot neither abridge rights or privileges granted by the statute itself nor confer any special benefits, rights or privileges beyond the provisions of the Act or in contradiction to the provisions of the legislative enactment because the object subordinate legisla .....

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ve policy enacted in the form of section 37(2), 37(2A), 37(3) etc. of the Act and make rule 9A void. It is also a settled judicial principle that subordinate legislation in case of conflict must yield to plenary legislation. The negative covenant/restricted provisions like section 37(2A) have been enacted with the object of restricting the deduction of expenditure which is otherwise allowable under section 37. It is a fact that expenditure incurred after the issue of certification by the Censor .....

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whatsoever and allow the expenditure of the same nature incurred 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 .....

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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. Since the co-ordinate bench of Tribunal has already taken the view on this issue in favour of the assessee, consistent with the view taken by the co-ordinate bench we hold that the assessee is eligible to claim deduction of advertisement expenses. A .....

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hair dressers (d) Dubbing, song recording & mixing expenses (e) Dancers expenses & co-ordination charges (f) Setting expenses The Ld CIT(A) also confirmed the same. 6. The Ld A.R submitted identical issues were considered by the Co-ordinate bench of Tribunal in the assessee s own case relating to AY 2006-07 (supra), wherein the Tribunal deleted the disallowance pertaining to Payment made to Junior Artistes and restricted the disallowances made from other items of expenses at 5%. The Ld A .....

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e constraints. The Ld A.R submitted that the assessing officer has made impugned disallowances for the reason that the assessee did not produce those technical documents, as according to him they are primary documents. The Ld A.R submitted that the required details relating to the expenses are available in the vouchers prepared by the assessee and they are duly supported by the relevant bills and payment details. Accordingly Ld A.R submitted that the genuineness of expenses could be ascertained .....

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ever, 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 s .....

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ce the assessee could not furnish the details that were called for by the AO. Accordingly he submitted that the Ld CIT(A) was justified in confirming the ad-hoc disallowances made by the AO. 9. We heard the parties on this issue and perused the record. We notice that the assessing officer has made ad-hoc disallowances @ 25% from some of the expenses in AY 2006-07 also. They were considered by the co-ordinate bench of Tribunal and the Tribunal has deleted the disallowance made out of payment made .....

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udio hire expenses. (b) Film Editor s Report relevant for ascertaining consumption of raw film. (c) Laboratory registers give details of footage of negatives, positives and sound film processed for particular picture. (d) Call Sheets containing details of artistes, junior artistes and technicians engaged on any particular day for shooting. (e) Rehearsal Book containing details of artistes participating in rehearsals. (f) Statement given by Controller of Production relating to arrangements made f .....

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hese technical reports are not required to examine the genuineness of expenses. On the contrary, the stand of the AO is that these technical reports would help to examine the expenses. 12. We notice that identical 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 prescr .....

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a 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 no purpose to keep such a record which is otherwise not feasible. However, subsequently, relyi .....

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nd again at page 15 stating that "during the course of assessment proceedings the assessee has produced various details / vouchers/ bills etc. for verification". It is not the case of the A.O. that the expenses incurred, is bogus. Thus, the ratio of the finding in the case of M/s Dharma Productions Pvt Ltd in respect of the documents called for by the A.O., is also applicable in the given case, as the facts of both the cases are identical. Since in the instant case proper records have .....

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were not produced by the assessee. Accordingly, we direct the AO to delete the adhoc disallowance so made. In the above said case, the Tribunal has taken note of the fact that the assessing officer himself has observed that the assessee had produced various details/vouchers/bills etc. for verification. The Tribunal has further noticed that the AO has not held the expenses to be bogus. Further the Tribunal has also observed that the keeping of technical documents relating to production of film is .....

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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 do .....

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