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2017 (1) TMI 1337 - ITAT MUMBAI

2017 (1) TMI 1337 - ITAT MUMBAI - TMI - Disallowance of cost of production - Held that:- AO had added the said sum treating it as bogus expenditure,that he had not given any reason as to how and why the expenses were not genuine. To make any disallowance or to make any addition, the AO is supposed to pass a reasoned and speaking order specially when the assessee produces documentary evidences. Mere stating that expenditure incurred by an assessee is not sufficient to fasten tax liability to that .....

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ls of expenditure that was covered by section 40A(3), that the FAA had verified the cash book and had observed that most of the expenditure were less than ₹ 20,000/-. So, in our opinion he was justified in restricting the disallowance at ₹ 10 lakhs considering the fact that there were certain expenses that were more than ₹ 20,000/-. - Addition u/s.68 - Held that:- No difference with regard to miscellaneous receipts as appearing in the impounded books and regular books. The .....

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d definitely amount to double addition of the same expense. Further, we find that the AO disallowed the expenses being of personal in nature. The assessee is a private limited company, therefore, there cannot be any personal expense so far as a legal person is concerned, therefore, we do not find any reason in sustaining an addition. - Addition on account of remuneration paid to the directors - Held that:- Considering the entire facts involved in this line of business, in our considerate vie .....

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ed towards payments made to junior artists. Payment made to junior artists has to be allowed fully. Thus Ground is decided in favour of the AO in part. - Addition on account of proportionate cost of production by applying Rule 9A (5) of the Rules - Held that:- In the instant case, we find that all the three movies were released before 90 days from the end of the previous year. A perusal of the chart exhibited on page-542 of the paper book show that the assessee has shown aggregate income whi .....

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t, that while determining the income of the assessee he had clubbed the incomes of all the divisions, that he did not allow clubbing the expenses of the same divisions, that he has not brought on record any proof that disputed amount was part of the inflated expenses,that during the original assessment proceedings he had considered the issue of cost of production and had not made any addition. Therefore, we are of the opinion that the order of the FAA does not suffer from any legal or factual in .....

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ed finality, so, in our opinion the order of the FAA does not need any interference from our side. - I.T.A./3238/Mum/2014, I.T.A./5596/Mum/2014, I.T.A./14/Mum/2014 - Dated:- 25-1-2017 - Sh.Rajendra,Accountant Member and Amarjit Singh,Judicial Member For The Revenue : Ms. Sunita Billa-CIT-DR For The Assessee : Shri Rajesh P. Shah-AR PER Rajendra A.M.- Challenging the orders of the CIT (A)-40,Mumbai the Assessing Officer (AO)and the assessee have filed cross appeals for the AY 2008-09.The AO has f .....

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120/- 29/10/2013 ITA/3238/Mum/2014,AY.2005-06: 2.First Ground of appeal(GOA)is about deleting the addition of ₹ 1.38 crores made on account of disallowance of cost of production.During the assessment proceedings,the AO observed that there were discrepancies in the impounded books of accounts and regular books maintained by the assessee,that the production expenses were shown at ₹ 57.35 crores, that under the head other production expenses the assessee had shown an amount of ₹ 5 .....

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sment proceedings vide its letter dated 09.11.2011, that the AO had not denied the filing of details.After considering the submission of the assessee and the assessment order the FAA held that the AO had not pointed out any discrepancy in the details filed by the assessee, that he had not proved that expenses claimed by assessee were bogus.He finally deleted the addition made by AO. 2.2.Before us, the DR supported the order of the AO.The AR relied upon the order of the FAA. 2.3.We find that as p .....

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assessee.In the case under consideration, the AO had not explained as to how the expenditure claimed under the head other production expenses was non-genuine.Therefore,we are of the opinion that order,passed by the FAA, needs no interference from our side.Upholding his order,we decide the first Ground of appeal against the AO. 3.Second Ground of appeal (GOA) is about disallowance made u/s.40A(3) of the Act.During the assessment proceedings the AO found that the assessee had made cash payments of .....

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at cash books of all the movies were merged with the main cash book,that the entries appearing on the 31st March of each year did not indicate that expenses were incurred on last day of the year or that the same were more than ₹ 20,000/-, that each individual voucher was less than ₹ 20,000/-, that it had furnished documentary evidences in that regard during assessment proceedings. The FAA directed the assessee to produce the cash book during the appellate proceedings. After going thr .....

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that was covered by section 40A(3), that the FAA had verified the cash book and had observed that most of the expenditure were less than ₹ 20,000/-.So, in our opinion he was justified in restricting the disallowance at ₹ 10 lakhs considering the fact that there were certain expenses that were more than ₹ 20,000/-. His order does not suffer from any infirmity.Ground No.2 is dismissed. 4.Next Ground deals with deleting the addition of ₹ 96.50 lakhs.The AO,during the assessm .....

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.68 of the Act. 4.1.In the appellate proceedings,before the FAA,the assessee made detailed submission and objected to invocation of provisions of section 68.After considering the submission of the assessee and the assessment order he reproduced the reconciliation statement as under: Miscellaneous income as per impounded books of accounts 1,31,89,800 Less: DVD income received from Yashraj Films USA was wrongly credited to Misc. Income. Now rectified and credited to Yashraj Films (USA) DVD Income .....

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anation, that he did not make any effort to revert the reconciliation, that the difference between impounded books and regular books was only because of presentation, that the entire miscellaneous report of ₹ 1,31,89,800/- was offered for taxation.Finally,he deleted the addition. 4.2.Before us,the DR stated that matter could be decided on merits. The AR relied upon the order of the FAA. 4.3.We find that there was no difference with regard to miscellaneous receipts as appearing in the impou .....

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at business expenditure to the tune of ₹ 29,26,512/- incurred via credit cards was of personal nature and hence disallowable. 5.1.Before the FAA the assessee explained that the expenditure in question was not personal, that these were business expenses, that in the case of a company there could not be any expenditure of personal nature.The FAA referred to the order of the CIT(A) -40, Mumbai for the AY.2007-08,where he had allowed the appeal filed by the assessee, following the order of the .....

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being of personal in nature. The assessee is a private limited company, therefore, there cannot be any personal expense so far as a legal person is concerned, therefore, we do not find any reason in sustaining an addition of ₹ 6,05,545/-.The AO is accordingly directed to delete this addition.Ground No.11 is accordingly allowed. Considering the above,Ground No.4 is decided against the AO. 6.Next Ground pertains to deleting the addition of ₹ 5.15 crores on account of remuneration paid .....

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Payal Chopra was paid ₹ 50 lakhs for costume designing of one film,that Pamela Chopra was paid ₹ 50 lakhs,that she had not rendered any skilled services to the company.He disallowed ₹ 2 crores,Rs.2.40 crores, ₹ 25 lakhs, ₹ 50 lakhs from the remuneration paid to above mentioned four directors. 6.1.During the appellate proceedings the assessee filed detailed explanation with regard to remuneration paid to the directors.The FAA referring to the order of the Tribunal f .....

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any opportunity to the assessee. We may cancel the addition at this stage only. However on merits, we find that the Revenue authorities have not appreciated the facts and the circumstances involved in making of movie. It is the say of the Revenue authorities that the assessee could not bring any evidence to show what extra services have been put by them to justify their remuneration. No doubt, in the movie making specialists are involved for every department.However, at the end of the day, it i .....

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res regarding profit sharing. Therefore, it cannot be said that the producers have no role to play after the movie is completed. Further considering the magnitude of the production house of the assessee, it cannot be said that Shri Aditya Chopra and Mrs. Payal Chopra have not put any extra effort.All these facts have not been appreciated by the Revenue authorities who have gone by general observations, therefore, considering the entire facts involved in this line of business, in our considerate .....

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sts and expenses related with dress/make up/ costumes/dubbing and mixing etc. 7.1.We find that identical issue was decided by the Tribunal for the AY.2006-07(supra).Vide para 28-29 of the order at pg-21 and 22,it had allowed 100% deduction for payment made to junior artistes and restricted the disallowance to 5% on other payments.Respectfully following the order of the Tribunal we direct the AO to restrict the disallowance to 5% of all expenses other than expenses incurred towards payments made .....

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atellite fee payable to it.He was of the opinion that as per the provisions of Rule 9A(5) of the Rules proportionate expenses were to be disallowed. Accordingly, he worked out disallowance,after taking into consideration production cost of three movies. 8.1. During the appellate proceedings,the FAA observed that similar issue was dealt by the Tribunal in assessee s own case in the AY.2006-07.Following the same,he allowed the appeal filed by the assessee. 8.2. We would like to reproduce the relev .....

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of the firm belief that Rule 9A(5) bars deduction allowable under Rule 9A in the event of non-crediting of amount realized by the film producer from exhibition of feature films or selling of the rights of exhibition of the feature films in the books of account.The Ld. CIT(A) further observed that the assessee was due to receive ₹ 1.5 crores out of the total consideration of ₹ 18 crores within 7 days from the date of the execution of the agreement. As the Ld.CIT(A) proposed to enhanc .....

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movie towards various stream of revenue. The assessee further explained that Rule 9A(5) only refers to Revenue of a film to be credited to the profit & loss account related to the current year and not of the further 4 to 5 years. As regards applicability of Rule 9A(6), the assessee submitted that the Rule is applicable only when the rights of exhibition of the feature films have been transferred by a mode not covered by the provision of Rule 9A. Therefore, Rule 9A(6) cannot be applied. 45.1 .....

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e year in which the deduction has been claimed. Thereafter, the Ld. CIT(A) went on to discuss the provisions of Rule 9A(5) and was of the opinion that all revenues from films produced and released during the current year have to be necessarily accounted for during the current year only. The Ld. CIT(A) further observed that the assessee has recognized revenue from three movies, it would be only just and fair to restrict the disallowance proportionate to the receipts not credited to the books of a .....

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xhibits the cost of production of income for the film released during the year under consideration. The Ld. Counsel further submitted that there is no such bar in Rule 9A which prevents the apportionment of cost of production to distribution vis-à-vis Satellite right.The Ld. Counsel vehemently submitted that assessee s claim is covered by Rule 9A(2) therefore, no disallowance made on this account could be justifiable. 47.The Ld. Departmental Representative strongly supported the findings .....

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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 certa .....

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revious year, the entire cost of production of the film shall be allowed as deduction in computing the profits and gains of such previous year. It is only when the film is not released atleast 90 days before the end of such previous year , It is provided that the cost of production is restricted to the amount realized by the film producer. In the instant case, we find that all the three movies were released before 90 days from the end of the previous year. A perusal of the chart exhibited on pag .....

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nd No. 1 of this appeal. As we have allowed ground No. 1, the same will hold good for this ground of appeal also. Ground No. 13 is accordingly allowed. We have dealt the issue in detail while adjudicating the appeal for the AY.2007-08 (ITA/ 2597/Mum/2012,dtd.21.01.2017).Considering the above,we dismiss ground No.7,raised by the AO. ITA/5596/Mum/2014-AY. 2006-07: 9.Solitary ground of appeal raised by the AO deals with deleting the addition of ₹ 1.11 Crores on account of production cost. Dur .....

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ssee contended that the books of accounts impounded from the business premises were only for production division,that if the cost of production,paid by the distribution division,amounting ₹ 1.11 crores,was added to cost of production division there would not be any discrepancy. However, the AO did not agree with the assessee and held that production expenses/other production expenses represented cash payments, that these payments were adjustment entries made by the assessee to reduce the p .....

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nment division formed part of the final balance sheet, that in the earlier years the then FAA had accepted the contention of the assessee in that regard,that the FAA had admitted that it was a question of mere transfer from one division to another division, that he had upheld the method of accounting followed by the assessee and had deleted the addition made by the AO,that the AO did not object to clubbing of distribution divisions income with the production division income,that he objected the .....

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ely production entertainment and distribution were to be merged to see the final picture, that during the assessment proceedings,the assessee had furnished details of production expenses along with the reconciliation statement, that the AO was not able to show as to how service charges expenditure of ₹ 1.1 crores paid from distri -bution division were not allowable.Finally,he deleted the addition. 9.2.During the course of hearing before us,the DR relied upon the order of the AO.The AR stat .....

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he has not brought on record any proof that disputed amount was part of the inflated expenses,that during the original assessment proceedings he had considered the issue of cost of production and had not made any addition.Therefore,we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. Confirming his order,we decide the effective ground of appeal against the AO. ITA/14/Mum/2014-AY.2008-09: 10. First ground of appeal, is about deleting the disallowanc .....

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