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Red Chillies Entertainment Pvt. Ltd. Versus Asstt. Commissioner of Income Tax

Disallowance of expenses for obtaining ISO certificates - revenue or capital expenditure - Held that:- It is evident from the order of the Departmental Authorities that they have considered the expenditure to be capital in nature because the certificate is valid for three years. However, in our view, that cannot be a ground to treat the expenditure as capital in nature unless it creates an asset of enduring nature. Neither the Assessing Officer nor the learned Commissioner (Appeals) has establis .....

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with the same. As rightly pointed out by the learned Authorised Representative, there is no dispute that the expenditure was incurred during the relevant previous year. That being the case, assessee is eligible to claim the deduction

Disallowance on account of cost of production of feature film - whether provisions of section 194J is applicable to such payments made in kind - Held that:- Since the payment made by the assessee is in kind, the provisions of section 194J are not applica .....

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Therefore, expenditure incurred by the assessee being wholly and exclusively laid down for the purpose of assessee’s business is allowable as deduction under section 37 of the Act. Accordingly, allowing assessee’s claim of deduction, we delete the addition made by the Assessing Officer. See Dharma Productions Pvt. Ltd. v/s DCIT[2013 (11) TMI 319 - ITAT MUMBAI]

Disallowance of cost of Television serials and film projects abandoned during the year - Held that:- On a perusal of the orde .....

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ry fact that the assessee abandoned the projects goes to prove that the projects were not found to be viable or workable. Therefore, keeping in view the business interest, the assessee decided to abandon the projects. In fact, in the CBDT circular no.16 of 6th October 2015, the Board has clearly stated that cost incurred in abandoned projects should be allowed as revenue expenditure under section 37 of the Act

Disalllowance under section 14A r/w rule 8D - Held that:- On a perusal of t .....

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ear, assessee earns any exempt income no disallowance under section 14A r/w rule 8D can be made. Therefore, applying the ratio laid down by the Hon'ble Delhi High Court as aforesaid, we hold that no disallowance under section 14A r/w rule 8D can be made in case assessee had not earned any exempt income during the relevant previous year. Therefore, we direct the Assessing Officer to verify this aspect and if it is found that the assessee has not earned any exempt income during the relevant previo .....

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e Assessee : Shri Hiru Rai For the Revenue : Shri B.S. Bist ORDER Per Saktijit Dey, J. M. Instant appeals by the assessee are directed against separate orders passed by the learned Commissioner (Appeals)-40, Mumbai, for the assessment year 2009-10 and 2010-11. ITA No. 1577/Mum./2013 - A.Y. 2009-10 2. In grounds no.1 and 2, the assessee has challenged disallowance of certification expenses of ₹ 6,59,613 by treating it as capital in nature. 3. Brief facts are, the assessee a company engaged .....

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ted by the assessee that ISO 27001 and ISO 9001:2008 certification are valid for a period of three years but they are neither intangible fixed asset nor transferrable. Hence, the expenditure incurred for obtaining such certificate is revenue in nature as the certificates can be withdrawn if the assessee does not adhere to the requirement of the certificates. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, the fact that the assessee has made pay .....

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ed the addition. While doing so, the learned Commissioner (Appeals) further observed that as the certificates were issued on 28th April 2009, the deduction cannot be claimed in the impugned assessment year. 5. Learned Authorised Representative submitted, merely because the certificate was issued for three years, it cannot be considered to be of enduring nature. Learned Authorised Representative submitted, since the certificate do not create any asset either tangible or intangible and there is no .....

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ion that the expenditure incurred on certification is revenue in nature, the assessee relied upon the following decisions. i) CIT v/s Infosys Technologies Ltd. [2012 349 ITR 582 (Kar.); ii) CIT v/s Infosys Technologies Ltd. [2012] 349 ITR 606 (Kar.); iii) CIT v/s Upper India Steel Mfg. & Engg. Co. Ltd. [2014] 227 Taxman 173 (P&H); iv) CIT v/s Empire Jute Co. Ltd. [1980] 124 ITR 001 (SC); 6. Learned Departmental Representative relied upon the decisions of the learned Commissioner (Appeals .....

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sessing Officer nor the learned Commissioner (Appeals) has established on record that by obtaining the certificate, the assessee created any asset of enduring nature. On the other hand, the decisions relied upon by the learned Authorised Representative as referred to above have held that sum paid by the assessee for obtaining ISO certificates are revenue expenditure. Therefore, following the rulings of Hon'ble Karnataka High Court as referred to above, we allow assessee s claim of deduction. .....

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18, on account of cost of production of feature film. 9. Brief facts are, during the assessment proceedings, the Assessing Officer verifying the information / details available on record, found that the assessee has debited an amount of ₹ 52,58,118 towards expenditure on gift. On a query raised by the Assessing Officer it was explained by the assessee that it had given gift of certain items to its business associates who had worked for the film Billu Barber . Furnishing the details of gift .....

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the movie. He observed, the assessee company being the producer of the movie, the transaction between the assessee and the concerned persons cannot be considered as in the nature of gift as assessee being a company there is no love and affection between the assessee and the concerned persons to term the transaction as gift . He was of the view that the so called gift is nothing but revenue paid to the concerned persons towards their services rendered for the film. Therefore, assessee has to ded .....

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nfirmed the addition by holding that gift is nothing but professional fees paid to the concerned person, hence, attracts the provisions of section 194J. 10. Learned Authorised Representative reiterating the stand taken before the the Departmental Authorities submitted, instead of making payment in money the assessee has given gifts to the concerned persons towards their services rendered by them in making the films. Drawing a reference to the provisions of section 194J, learned Authorised Repres .....

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v/s Hindustan Lever Ltd. [2014] 361 ITR 001 (Kar.); iii) CIT v/s Chief Accounts Officer, Bruhat Bangalore Mahagar Palike, [2015] ITA no.94 of 2015 and 466 of 2015, dated 20th September 2015 (Kar.). 11. Without prejudice to the aforesaid contention learned Authorised Representative, submitted, as per second proviso to section 40(a)(ia), no disallowance can be made in case the payee in terms of proviso to section 201(1) has declared such payment as his income and paid tax. Learned Authorised Repre .....

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arwal v/s ACIT, [2014] 165 TTJ 228 (Agra); iv) DCIT v/s Ananda Marakala, [2014] 150 ITD 323; v) Brijgopal Madhusudan Bhattad v/s ITO, [2015] 155 ITD 90 (Nag. Trib.); and vi) Modi Builders v/s JCIT, [2015] 69 SOT 758 (Pune Trib.). 12. The learned Departmental Representative relied upon the reasoning of the learned Commissioner (Appeals) and the Assessing Officer. 13. We have considered the submissions of the parties and perused the material available on record and also gone through the decision r .....

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made in kind. On a reference to the provisions contained in section 194J, it is evident that any person not being a individual or HUF responsible for paying to a resident any sum by way of fees for professional services or technical services, etc., is required to deduct tax at source. The expression any sum used in section 194J, whether should mean payment made in money terms or also in kind requires to be examined. It is the contention of the assessee that any sum as referred to in section 194 .....

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ion of tax at source. Further, the Hon'ble Karnataka High Court in CIT v/s Chief Accounts Officer, Bruhat Bangalore Mahanagar Palika, ITA no.94 and 446 of 2015, held as under:- 12. The concept of tax deduction at source (TDS) and depositing the same with the Revenue is where payment is made by cash, cheque, demand draft or any other similar mode. When such payment in terms of money is made, the deduction is to be made by the person responsible to pay, and is to deposit the same with the Inco .....

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rinciples laid down in the decisions referred to above, we are of the view that since the payment made by the assessee is in kind, the provisions of section 194J are not applicable. Accordingly, allowing assessee s claim, we delete the addition made by the Assessing Officer. Ground no.3, is allowed. 15. In ground no.4, assessee has challenged the disallowance of ₹ 2,39,39,631, out of advertisement and publicity expenses. 16. Brief facts are, on verifying the details submitted by the assess .....

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or release on 30th January 2009. He further noticed that out of the total advertisement expenditure of ₹ 2,62,77,421 an amount of ₹ 2,39,39,631, was incurred by the assessee after the certification of film by the Board of Film Censors on 30th January 2009. He, therefore, in terms of rule 9A, disallowing the expenditure claimed added back to the income of the assessee. Being aggrieved with such addition, the assessee challenged the same in appeal preferred before the learned Commissio .....

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uthorised Representative submitted, even if the expenditure incurred towards cost of production may not be allowable under rule 9A, but certainly it has to be allowed under section 37. He submitted, though the expenditure incurred towards advertisement is part of cost of production but definitely it is for the purpose of business, hence, is allowable as business expenditure under section 37 of the Act. In support of such contention, learned Authorised Representative relied upon the following dec .....

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he ground that the assessee has incurred such expenditure after certification of film by the Board of Film Censors. The learned Commissioner (Appeals) has also confirmed the disallowance by agreeing with the conclusion drawn by the Assessing Officer. However, it is not disputed by the Department that the assessee has incurred the expenditure towards advertisement of the movie in the normal course of business. That being the case, even though it cannot be considered as part of cost of production .....

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bai Bench, in Mukta Arts Pvt. Ltd. v/s ACIT, [2015] 105 ITD 533 (Mum.), held that the advertisement expenditure incurred after certification by Board of Film Censors cannot be included as part of cost of production, hence, provisions of rule 9A, will not apply. It was held, the expenditure incurred in regular course of business has to be allowed under section 37. The ratio laid down by the co-ordinate bench of the Tribunal is squarely applicable to the facts of the present case. Therefore, expen .....

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ings, the Assessing Officer noticed that the assessee has debited an amount of ₹ 19,19,286 on account of cost of abandoned project. In response to the query raised by the Assessing Officer to justify its claim, it was submitted by the assessee that it has worked on various concept for making television program and films and incurred expenditure. However, some of the concepts cannot be completed as they are found to be non-workable at various stages of development. It was submitted, these c .....

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produced by the assessee under his direction but the company decided not to pursue the project. Assessee submitted, out of the total money paid, Shri S. Sankar, did not return ₹ 11,33,000 which was claimed as revenue expenditure. Assessing Officer after considering the submissions of the assessee, did not find merit in the same. He observed, assessee has not brought anything on record to substantiate that the television and film projects were not completed. Accordingly, he disallowed deduc .....

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tative referring to the CBDT circular dated 6th October 2015 submitted, the Board has also clarified that cost of production of an abandoned feature film has to be treated as revenue expenditure under section 37 of the Act. In support of his contention the learned Authorised Representative also relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Venus Records and Tapes Pvt. Ltd., ITA no.310 of 2013, judgment dated 28th January 2015 and the decision of the Hon'ble .....

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ct that the assessee has incurred the expenditure. It is also not disputed that the television and film projects have been abandoned. The expenditure has been disallowed only on the ground that the assessee has not been able to prove that by abandoning the projects, the assessee has benefited. In our view, the reasoning of the Departmental Authorities for disallowing the expenditure is not valid. The very fact that the assessee abandoned the projects goes to prove that the projects were not foun .....

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section 14A r/w rule 8D. 29. Brief facts are, during the assessment proceedings, the Assessing Officer after verifying the balance sheet for the impugned assessment year noticed that the assessee had made investment in shares amounting to ₹ 12,50,57,300, as on 31st March 2009, and opening balance was ₹ 1,51,57,300. He further noticed that assessee has claimed interest expenditure on loan amounting to ₹ 2,92,80,083. He, therefore, called upon the assessee to explain why disallow .....

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rned Commissioner (Appeals). 30. Learned Authorised Representative submitted, during the relevant previous year, assessee has not earned any exempt income, hence, no disallowance under section 14A r/w rule 8D can be made. Further, it was submitted by him, entire investment of ₹ 11 crore in the shares of Knight Riders Sports Pvt. Ltd., was out of interest free funds borrowed from Shri Shah Rukh Khan and no interest bearing borrowed funds were utilised by the assessee. Therefore, as there is .....

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v/s Holcim India Pvt. Ltd., [2014] 272 CTR 282 (Del.); vi) CIT v/s Shivam Motors P. Ltd., [2014 272 CTR 277 (All.); vii) CIT v/s Lakhani Marketing Incl., [2014] 272 CTR 265 (P&H). 31. Learned Departmental Representative on the other hand relied upon the decision of the learned Commissioner (Appeals) and the Assessing Officer. 32. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the assess .....

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come no disallowance under section 14A r/w rule 8D can be made. Therefore, applying the ratio laid down by the Hon'ble Delhi High Court as aforesaid, we hold that no disallowance under section 14A r/w rule 8D can be made in case assessee had not earned any exempt income during the relevant previous year. Therefore, we direct the Assessing Officer to verify this aspect and if it is found that the assessee has not earned any exempt income during the relevant previous year, no disallowance unde .....

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