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M/s. Yash Raj Films Pvt. Ltd. Versus ACIT-Central Circle-29, Mumbai and Vice-Versa

2017 (1) TMI 1340 - ITAT MUMBAI

Taxability of amount payable to Kaledoscope Entertainment (KE) - Held that:- Income had crystallized during the year and the assessee was supposed to pay taxes in that year only. We agree with the FAA that same income cannot be taxed twice. So, there should not be any addition of the impugned amount in any other year. - Decided against assessee. - Disallowance under Rule 9A of the Income tax Rule 1962(Rules) - expenses incurred under the head ‘advertisement and publicity’ of the movies in re .....

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e the enhancement - Enhancement has been made on the ground that such publicity expenses are not allowable as per Rule 9A and 9B of the Rules. It is the say of the Counsel that Rule 9A and 9B do not preclude the assessee to claim such genuine business expenses u/s. 37(1) of the Act. Since only ground for disallowing publicity expense is that such expenses are not allowable as per Rule 9A,9B, we find force in the submission of the Counsel that such expenses can be allowed u/s. 37(1) of the A .....

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the year under consideration. The assessee is directed to furnish necessary details to substantiate its claim of publicity expenses. - Decided in favour of assessee for statistical purposes. - Disallowance made under Rule 9A/9B of the Rules - expenditure incurred by the assessee for getting the prints of old movies - Held that:- We find that the addition was made with regard to the expenditure incurred by the assessee for getting the prints of old movies. The objection of the departmental .....

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w prints. If it is found that the income has already been taxed, there is no justification for not allowing the expenditure. Third ground stands allowed in favour of the assessee, in part. - Disallowance of publicity cost incurred on regional film - Held that:- We find that assessee had distributed a regional film, that after deducting publicity cost it paid the balance amount to the producer of the film, that it did not route the transaction through its books of accounts, that the payment w .....

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the ability of PC in rendering services to the assessee, that an independent agency has also certified that she was capable of handling the work related with movies, that she had shown the money received from the assessee in her individual return of income, that she had paid taxes at maximum marginal rate for the remuneration received by her. Considering these facts and the above referred order of the Tribunal, we are of the opinion that the AO/FAA was not justified in disallowing remuneration .....

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right of exhibiting the moves in each year which further means that the right only for 25% of the licence fee has accrued to the assessee in the first year. Therefore, the plea of the AO that the entire income has accrued to the assessee as soon as the agreements have been executed is not correct. The licence fee did not accrue to the assessee as per terms of the agreement. The taxability of the licence fee has to be decided on the provisions of the contract. As per the agreement the transferee .....

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. - Disallowance of 20% on junior artists/technicians/dress, costume, make-up, dubbing, sound recording, mixing, music recording, dance expenses etc. - Held that:- Respectfully, following the assessee's own case for earlier year we delete the addition made on account of payment made to junior artists and we restrict the disallowance to 5% for other expenses. Last Ground of appeal is decided in favour of the assessee, in part. - Transfer of funds from one division to another as profit of .....

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. The AO has nowhere proved that total revenue of these two films was ₹ 12.91 crores + ₹ 8.34 crores + ₹ 9.95 crores. No incriminating document was found or impounded during the survey operation that could lead to the conclusion that the total revenue of these films was more than the income shown by the assessee in its regular books of accounts. In our opinion, the FAA had rightly observed that the AO had wrongly interpreted the transfer of funds from one division to another as .....

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did not adversely comment about the authenticity of the evidences. The expenditure incurred by the assessee is a legitimate business expenditure and is allowable as per the provisions of the Act. As the assessee had failed, at the time of assessment, to fully support the claim made by it, so, the AO had rightly restricted the expenditure to ₹ 3.14crores. But, there was no justification in not allowing the remaining amount of ₹ 1.10 crores once the assessee had produced the necessary .....

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r had admitted to have received the disputed amount and had shown in his return of income. Considering these facts and discussion held in earlier paragraphs, we are of the opinion that the AO was not justified in treating the income as concealed income. - Depreciation on bungalow - Held that:- The FAA after considering the old records and the order of the Tribunal had given a finding of fact that the premises was being used as office premises in the year. Nothing adverse to the said fact was .....

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f these two vital facts there was no justification for making the addition of filing an appeal before us. Holding that the order of the FAA does not suffer from any infirmity. - Addition u/s 40(A)(3) - Held that:- We find that the AO had made the addition considering the consolidated figures appearing in the tally software with regard to expenses incurred by the assessee, that he did not verify the vouchers before invoking the provisions section 40A(3), that the assessee had claimed that no .....

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without understanding the system followed by the assessee had invoked the provisions of section 69C - Fluctuation of foreign currency loss - Held that:- We find that the FAA has given a categorical finding of fact that the foreign exchange fluctuation loss related to expired contracts. Nothing was brought over notice to prove otherwise. Therefore, we see no need to interfere with the order of the FAA because he has followed the provisions of rule 115 of the rules and the mandate of AS-11. C .....

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e has been decided in favour of the assessee by the order of the Tribunal for the earlier year. We also agree with the argument raised by the assessee that in case of a private Ltd company, there cannot be any personal expenses. Considering the above, we uphold the orders of the FAA - I.T.A./2597/Mum/2012, I.T.A./3345/Mum/2012 - Dated:- 20-1-2017 - Sh.Rajendra,Accountant Member and Amarjit Singh,Judicial Member For The Revenue : Ms. Vidisha Kalra -DR For The Assessee :Shri Porus Kaka-AR PER Raje .....

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thorised Representative(AR)stated that assessee did not want to press Grounds no.10and 12(considering the smallness of the tax effect)raised for that year. Hence, both the grounds stands dismissed, as not pressed. ITA/2597/Mum/2012,AY.2007-08,Brief Facts: 2. A survey action u/s.133A of the Act was carried out at the business premises of the assessee on 10/09/2009. During the course of survey operation certain documents and computer back up of books of account in respect of production division we .....

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/ 2007 i.e. relevant to AY.2007-08. The assessee by vide its letter dt. 30.10.2009 tried to reconcile the differences pointed out by the AO for all the three AY.s. After the perusal of the Explanation filed by the assessee, the AO observed that in the first statement the assessee had claimed that the unallocated income for the AY.2007-08 aggregated to ₹ 34.84 crores, that in the second submission the unallocated income for the AY.2007-08 was shown at ₹ 114.04 crores that there was va .....

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assessment proceedings the AO found that the assessee and M/s. Maya Movies Pvt. Ltd.(MMPL)entered into an agreement on 29.07.2003for commercial distribution and exhibition of movie Mangal Pandey-The Rising 1857, that as per the agreement the assessee was appointed exclusive agent for the exhibition of movie in consideration of minimum guarantee of ₹ 13.50 crores. In response to the query raised by him in that regard, the assesse stated that it did not receive any amount, that the amount i .....

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Authority(FAA). Before him, it was argued that the amount of ₹ 3.13 crores shown as liability as the business statements/accounts between both the parties could not be settled during the year, that the amount paid by KE towards publicity was due to it, that the minimum guarantee was also kept pending since the picture was a huge flop, that there was dispute between parties regarding certain issue that the amount was shown as liability receivable as on 31.3.2006 and 31.3.2007, that in the .....

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ate, that AO was not justified in holding that a fictitious liability was created to avoid tax payment, that it had vide letter dtd.07.12.2009, mentioned that the amount was credited by the distribution division on 31.3.2007 to HO division under the head unsecured loans, that vide letter dated 26.12.2009 it had informed that matter was under dispute and got settled in the AY.2008-09, that the amount of ₹ 3.14crores was shown as liability as the accounts were not finalised, that the income .....

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ount payable to KE pending account settlement, that the assessee itself had offered the same in the AY.2008-09 after making payment of ₹ 14 lakhs, that these facts did not clinch the issue regarding the year of crystallization of revenue, that a small sum remained payable by the assessee to KE, that out of total revenue of ₹ 3.14 crores ₹ 14 lakhs could not be material to the principle of revenue-recognition, that the amount had already been offered in the subsequent years befo .....

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ount in the year under consideration. 3.2. During the course of hearing before us, the Authorised Representative (AR) stated that accounts with KE could not be settled due to litigation, that in the next AY.settlement took place, that the assessee had voluntarily offered income in the subsequent year, that it was a liability and it could not be treated as cash credit. He referred to page no.143, 147 and 148 of the PB and relied upon the cases of Shah Construction Co. Ltd. (237 ITR814)and P. Mari .....

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idence before the AO/FAA about the dispute, that there was no justification for not showing the income during the year for consideration. Referring to page 147 of PB, he stated that it was a general entry and not the opening balance for the year. 3.3. We have heard the rival submissions and perused the material before us. We find that the assessee itself had admitted that there was error in the treatment given to the amount in question, that in the books of account especially in the balance shee .....

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crore, the assessee did not show the income during the year under consideration. 3.3.1. As per the provisions of section 5(1)(b) of the Act, when income accrues or arises or is deemed to accrue or arise to an assessee during the previous year, it is to be taxed in that year. The relevant yardstick is the time of accrual or arisal for the purpose of taxation, viz., in order to be chargeable, the income should accrue or arise to the assessee during the previous year. There must be a right to rece .....

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of certain event. But, these are exception and the exceptions lay down the rule that income accrued or arisen had to be taxed in year of accrual only. In the case under consideration accrual of income in not in doubt. So, it was the duty of the assessee to offer the same for the year under appeal. There was no justification of any kind to postpone it. We are not impressed by the arguments that rate of taxes in the subsequent year was same and that the assessee had paid taxes in that year. If thi .....

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duction house of movies and is assisted by professional. Therefore, we are unable to accept that due to error of some low level employee proper entries were not made in the books of accounts. 3.3.2. Here, we would also like to refer to the cases relied upon by the assessee. In the case of P. Mariappa Gounder (supra) the Hon ble Apex Court has dealt the issue of mense profits and crystallization of right to receive the money. In our opinion, facts of both the cases are totally different. In the m .....

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nt purposes, the assessee converted them into Indian rupees at the prevailing exchange rate. The AO brought such amount to tax in the hands of the assessee. On appeal, the FAA deleted the addition on the ground that the credit balance in the foreign exchange reserve account did not represent any profit or gain under Act. The Tribunal affirmed the order of the FAA. On a reference the Hon ble Court affirmed the order of the Tribunal. In our opinion, the case is of no help to the assessee. In the m .....

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Rule 1962(Rules). During the assessment proceeding, the AO noticed that following expenses were incurred under the head advertisement and publicity of the movies in respect of movies Fanna and Dhoom-2 SN. Movie Nature of expenses Amount (Rs.) 1. Fanna News Paper Ads 47,03,604/- 2. -do- Publicity Expenses 31,51,251/- 3. -do- Marketing Expenses by Home Entertainment 24,72,190/- 4. Dhoom-2 Publicity on News Paper 62,98,701/- 5. -do- Publicity Expenses 36,95,857/- 6. -do- Marketing Expenses by Home .....

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t include print cost or marketing cost, that it covered expenses incurred on dubbing background sound, censor certification expenses, that such expenses were nothing but cost of completing the movie, that the expenditure was allowable u/s.37 of the Act, that all the advertisement and publicity was done before censor certification date. A reference was made to the copies of the bill and copy of the censor certificate to claim that the expenditure to the tune of ₹ 1.28 crore was allowable as .....

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horised Representative stated that similar issue was decided by the Tribunal for the AY.2006-07(ITA/6350/Mum/2010/dtd.05.04.2013). The Departmental Representative left the issue to the discretion of the Bench. 4.3. We find that while adjudicating the appeal for earlier year, the Tribunal had held as under : 48. We have considered the rival submissions and perused the orders of the lower authorities and the material evidences brought on record. We find that the entire issue revolves around the ap .....

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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 page-542 of the paper book show that the assessee has shown aggregate income which is much higher than the cost of production of these movies. As the facts are in line with .....

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relates to addition of ₹ 137.57 lakhs being publicity expenses not allowable as per Rule 9A and Rule 9B. 51. A perusal of the order of the Ld. CIT(A) show that he has made the enhancement of ₹ 137.57 lakhs on the ground that such publicity expenses are not allowable as per Rule 9A and 9B of the Rules. It is the say of the Counsel that Rule 9A and 9B do not preclude the assessee to claim such genuine business expenses u/s. 37(1) of the Act. Since only ground for disallowing publicity .....

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the year under consideration. The AO should also verify how much publicity expenses have been recovered by the assessee and credited to its Profit and loss account for the year under consideration. The assessee is directed to furnish necessary details to substantiate its claim of publicity expenses. Ground No. 15 is allowed for statistical purposes. Considering the above, we decide second ground of appeal in favour of the assessee. 5. Third ground is about disallowance made under Rule 9A/9B of .....

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lier years, that it had reduced the movie receipts to that extent, that in respect of some movies it was producer and in some of the movies it was the distributor, that it was not eligible to claim cost of prints as per Rules 9A/9B of the Rules, that no recovery towards cost of prints had been credited to the receipt account against the movie, that it had reduced its profit by ₹ 69.83 lakhs. Finally, he disallowed the claim made by the assessee and added a sum of ₹ 69,83,077/- to its .....

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Krish the revenue for all the movies was offered for taxation in earlier year the small amount for taxation, under dispute was settled during the year under appeal, that it followed accrual system of accounting, that till the expenses were not crystallised same would not be accounted for. Assessee placed reliance on Goetze India Ltd. (112 TTJ 1) and Ciba Speciality Ltd.(7 SOT 510). After considering the submission of the assessee and the assessment order the FAA held that Adlab had confirmed th .....

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cation of payment was not subject matter of dispute, that the AO was justified in not allowing the prior period expenses. 5.2. The AR contended, before us, that the assessee was having a running account with Adlab , that bills from Adlab were regularly settled, that the amount in question was the additional cost paid for prints of the movies released in earlier years, that the amount was paid during the year and liability was finally settled, that the assessee had offered the income in earlier y .....

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he departmental authorities is that the expenditure was not for the movies released during the year. The assessee has claimed that income arising from movies had already been disclosed in earlier years. We find merit in the alternate argument advanced by the assessee that matter should be restored back to the file of the AO for fresh adjudication. He is directed to verify as to whether the assessee had offered the income of the movies in the earlier years and had incurred expenses during the yea .....

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s, most of expenses was incurred on publicity and print cost, that expense incurred on account of cost of printing and advertisement as per Rule 9B of the Rules, that other expenses incurred on account of payment of sub distributor/audit fee, depreciation and other general expenses could be allowed. Finally, out of the total expenditure of Rs,.6.93 crores, the AO made a disallowance of ₹ 4,55,60,396/-. 6.1. Before the FAA the assessee argued that the total expense of ₹ 6.93 crores wa .....

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le as revenue expenditure, that Rule 9A/9B would not over rule the general provisions of the Act, that said Rules did not deal with the allowability of expenditure After considering the submission of the assessee, the FAA held that the issue of applicability of Rule 9A/9B viz a viz cost of advertisement and publicity had been dealt in detail by his predecessor while deciding the appeal for 2006-07. Following the order of his predecessor, he decided the issue against the assessee. 6.3. We find th .....

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ed by the assessee during the period relevant to AY.2007-08, that the assessee had admitted that the amount of ₹ 9.40 lakhs was not reflected in the books of accounts. He added the amount in question to the total income of the assessee under the head concealed income. 7.1. Before the FAA, during the appellate proceedings, the assessee argued that receipts collected by it on behalf of the producer of the film Ab to Banja Sajanwa Hamar were paid to the party after deleting the publicity expe .....

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fit and loss account, that after deducting the publicity cost of ₹ 1.01 lakhs balance of ₹ 8.72 lakhs was paid to the producer, that the said fact was confirmed by the producer in his reply to the summons issued to him by the AO, that the AO had failed to appreciate that in the transaction there was no income, that assessee had undertaken the distribution of the film on experimental basis, that instead of showing the receipt on the credit side and expenses on the debit side the asses .....

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ecipient company had come from the receipt of the balance amount, that the fact of payment could not be denied, that the action of the AO treating the income as unaccounted receipts was unwarranted, that the payment of ₹ 8.72 lakhs to the producer of the film cannot be denied, that the remaining expenditure of ₹ 1.01 lakhs could not be allowed to the appellant in the absence of its claim in the regular books of accounts. 7.2. Before us, the AR contended that the assessee had not clai .....

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ugh banking channel, that the recipient producer had admitted to have received the disputed amount and had shown in his return of income. Considering these facts, we are of the opinion that FAA was not justified in partly upholding the disallowance made by the AO. When the assessee had not claimed any deduction, there was no justification for making any disallowance. Ground no.5 is decided in favour of the assessee. 8. Next Ground(GOA6-8)is about remuneration paid to the directors amounting to & .....

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vised the overall work of the assessee carried out during the period relevant to AY. 2007-08, that professional fee of ₹ 9.50 crores had been debited to the cost of production in respect of movie Fanna and Dhoom- 2 which were released during the year, that by debiting the professional fee it had reduced the profit earned against the movie and for the AY, under consideration, that it had released three movies and eleven other movies were under production that were shown as work in progress, .....

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essional fees in the cost of production of unreleased movies. He dealt with the professional fee paid to Pamela Chopra(Rs.50 lakhs) separately. Out of the remaining professional fee of ₹ 9crores paid to other directors he made proportionate allocation among the 14 movies(11 movies under production + 3 movies released during the year). He treated ₹ 64.28 lakhs as cost of production of movie. Finally, he allowed an expenditure of ₹ 1.92 crores (Rs. 64. 28 lakhs x 3) and capitalis .....

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sion, that he had merely held that when the services of directorship of films were being rendered in respect of 11 films during the year, then the remuneration received for such professionals during the year should be distributed among the 11 films rather than among three films completed and released during the year, that the AO had also not disputed the work of directorship qualifying as a professional, that the arguments of the assessee did not address the issue raised by the AO, there was no .....

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out allowing the proportionate disallowance on account of directors fees disallowed in last year for the films released during the current year. 8.3. In ground number eight the assessee has raised the issue of disallowance of ₹ 50 lakhs paid to one of the directors,Pamela Chopra (PC). During the assessment proceedings, the AO observed that the assessee had failed to produce any documentary evidence which could show that PC had ever attended the office of the assessee, that it was not able .....

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argued that PC would attend office regularly and would help in coordinating with various artists, finalising the lyrics/songs, that she had immense acumen in the film industry, that an independent website had collected the information about her contribution made to films during last two decades, that the assessee was paying her remuneration for last so many years, that never in the past such expenses were disallowed as un-reasonable, that the company was the best person to judge is what needs t .....

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hat the AO could not decide as to what was reasonable and what was not, that she had acted in capacity as a director as per her calibre, knowledge and experience. The assessee produced various documents, before the FAA, to prove that PC had rendered services to the company. The assessee relied upon the cases of Indo Saudi Services (Travel) (P.) Ltd. (219 CTR 562). After considering the available material, the FAA held that the AO could not substitute himself in the shoes of head of HRD division .....

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e have heard the rival submissions. We find that the Tribunal has dealt the issue of remuneration of Directors, while adjudicating the appeal for the AY.2006-07(supra). We would like to reproduce the relevant portion of the order of the Tribunal and it reads as under: 17. Ground No. 3 relates to the disallowance of Director s remuneration to the tune of ₹ 2.30 crores. The assessee has further agitated the action of the Ld. CIT(A) who enhanced the disallowance without giving the notice u/s. .....

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aid 2 crores as producers fees for all the three movies and Mrs. Payal Chopra was paid ₹ 30 lakhs as managerial remuneration for three movies. It was explained by the assessee that the amount is paid to the Directors for the overall input made by them throughout the year for the work done by them. The AO was of the opinion that in addition to three movies two more movies were also under production during the year. Therefore, there is no justification for debiting the entire remuneration un .....

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ing the Completion method of accounting, therefore, the remuneration should have been proportionately added to the cost of production of the movies under production. On being asked to elaborate the services for which the remuneration was paid, it was pointed out that remuneration paid to Shri Aditya Chopra was for the three movies released in the year for production, post production, editing of films, ensuring the film gets adequate publicity and distribution of the films in various locations. R .....

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not render any specialized or specific service in the production of the three films. In the opinion of the Ld. CIT(A) the assessee was not able to specify what particular skilled services were rendered by the directors for the production of the three movies. Whatever services put by the Directors mentioned by the assessee, the Ld. CIT(A) was of the opinion that there are specialists in the film making who look after those services and are suitably paid for the services. Therefore, the assessee .....

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ould not establish the nexus between the specific services rendered by the directors and the production of the three movies and went on to disallow the entire directors remuneration to the tune of ₹ 2.30 crores in place of the disallowance of ₹ 92 lakhs made by the AO. 22. We have considered the rival submissions and perused the orders of the lower authorities and the material evidence brought on record. It is not in dispute that the Ld. CIT(A) has made enhancement to the disallowanc .....

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owever, at the end of the day, it is for the producers of the film to see that their film gets very high publicity, it is only after the completion of the movie , the producer s extra role comes into play to safeguard their heavy investments towards cost of production. The producer s has to see that the movie gets good preview from print and electronic media for which extra efforts have to be done as a PRO. Further , to see that the movies get good cinema halls, the producers have to bargain wit .....

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line of business, in our considerate view, the remuneration paid to the Directors was reasonable and commensurate with the services provided by them. Accordingly, we direct the AO to delete the addition made by him and also delete the enhancement done by the Ld. CIT(A). Ground No. 3 is accordingly allowed. 8.4.a. We would also like to discuss the remuneration paid to PC. It is found that the AO or the FAA have not doubted the ability of PC in rendering services to the assessee, that an independe .....

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see and ground no.7 is allowed for statistical purposes. 9. Ground 11 is about addition about the satellite income. During the assessment proceedings, the AO found that an agreement between the assessee and Set Satellite Singapore was executed on 06/12/206 to award telecast rights of the movies on television in respect of the movies Dhoom-2 and Kabul Express for a total consideration of ₹ 18 crores, that according to the terms and conditions of the agreement the assessee was to receive  .....

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the explanation, he made an addition of ₹ 18 crores to the income of the assessee for the year under appeal. 9.1. Before the FAA, the assessee argued that the AO did not consider that the rights were for four years and the total receipts could not be considered as receipt of the current year, that the AO erred in not allowing the deduction of ₹ 9 crores that was disallowed in earlier year, that the effective period of telecast right, as per the agreement, was four years commencing on .....

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eriod of licence did not accrue in the first year of signing of satellite income agreement, that the revenue would crystallise year after year, that the license could be terminated in the middle of tenure without completing the total turnover of agreement, that the rates of taxes on both the years were same and the amount was offered not on cash basis but on accrual basis. The assessee relied upon certain case laws. After considering the available material, the FAA held that the issue of accrual .....

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o the extent of ₹ 9.40 crores. He further observed that if the assessee would get relief at higher form of appeal regarding the non-taxability of ₹ 9.40crores in the AY.2006-07, the disputed amount would be treated as income for the year under consideration. 9.2. We find that, while deciding the appeal for the AY.2006-07(ITA/3345/Mum/2012, dtd,05.04. 2013)the Tribunal has dealt the identical issue as under: 3. In ground No.1 the assessee has challenged the addition of ₹ 9,40,00 .....

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8377; 50 crores, the assessee has shown only ₹ 40,59,99,713/- as SET satellite income receipt during the year. The AO sought explanation from the assessee why it has not included ₹ 9,40,00,287/- in its total income. The assessee filed a detailed reply vide letter dt. 24.12.2008. The assessee submitted that all the agreements made for satellite rights are for 4 to 5 years and in support of its claim, the assessee filed copies of each agreement. The amount offered movie wise is exhibit .....

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ee is following mercantile system of accounting and since the assessee has acquired a right to receive the income, the income can be said to have accrued to him though it may be received later. According to the AO, the sale is completed at the moment the agreement is executed and payments are received as per the mercantile system of accounting and AS-9. Thereafter, the AO relied upon 3 decisions of the Hon ble Supreme Court and went on to make an addition of ₹ 9,40,00,287/-. 4. The assesse .....

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has absolute and unlimited rights over the telecast of the movie. The Ld. CIT(A) also rubbished the contention of the assessee that similar method has been accepted for the assessment year 2005-06 on the ground that the principles of res judicata do not apply to income tax proceedings. The Ld. CIT(A) finally concluded that the method of recognition of revenue from satellite rights adopted by the assessee leads to following hybrid system of accounting which is not in sync with Sec. 145 of the Act .....

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tellite could exhibit the movies not more than six times in each year which means that the transferee has 25% right of exhibiting the moves in each year which further means that the right only for 25% of the licence fee has accrued to the assessee in the first year. Therefore, the plea of the AO that the entire income has accrued to the assessee as soon as the agreements have been executed is not correct. The licence fee did not accrue to the assessee as per terms of the agreement. The taxabilit .....

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acts in the light of the SET Satellite agreement, in our considerate view, the addition of ₹ 9,40,00,287/- deserves to be deleted. The AO is directed to delete the addition. Ground No.1 is accordingly allowed. Respectfully following the above, we decide the issue in favour of the assessee. 10. Next ground is about disallowance on marketing cost and other cost under rule 9B of the Rules for movies Krish and KANK. Vide his letter, dtd. 24/11/2009, the AO required the assessee to explain the .....

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2009 and 16/12/2009. After considering its reply, the AO observed that the assessee could not reconcile the expenses amounting to ₹ 6.80 crores by producing necessary evidence, that it had failed to bring on record any evidence with regard to payment of ₹ 4.90 crores to the producer, that in its letter dated 22/12/2009, the assessee itself had admitted to have paid minimum guarantee of ₹ 3 crores towards the movie Krish to the producer. The AO tabulated the receipts, expenses i .....

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an expenditure of ₹ 6.80 crores was actually incurred for producing the movies, that it had not produced any evidence such as confirmation from the respective parties, that it had not given any specific detail is too under which had the above amount of ₹ 6.80 crores was incurred, that the disputed amount did not relate to the receipts credited to the dissolution division, that same had to be disallowed under the head unexplained expenditure as per the provisions of section 69C of th .....

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production dividend had worked as a producer, that the distribution division would work only as distributor and that too for Bombay territory, that the production division worked for all territories except Bombay territory, that the measure payments were to both the producers for acquiring the film rights, that question of disallowance under rule 9B would not arise, that out of the total expenditure of ₹ 6.80 crores ₹ 4.90 crores was payment to the producers, that the AO had erred i .....

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tory other than Bombay. The FAA, after considering the available material, held that the whole confusion had arisen because the amount paid of ₹ 3 crores and ₹ 4.9 crores were considered as overlapping, that an amount of ₹ 4.9 crores was paid to the producer, that the said payment i.e. ₹ 4.9 crores had to be considered as a deductible expense under Rule 9B of the Rules. Accordingly, he partly allowed the appeal filed by the assessee to the extent of ₹ 4.90 crores. H .....

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2006-07(supra), the Tribunal had dealt with the issue and had held that publicity expenses were allowable u/s.37 of the Act and that for such expenses Rule 9 of the Rules had no application. We are again reproducing paragraphs 50- 51 of the said order and it reads as follow: 50. Ground No. 15 relates to addition of ₹ 137.57 lakhs being publicity expenses not allowable as per Rule 9A and Rule 9B. 51. A perusal of the order of the Ld. CIT(A) show that he has made the enhancement of ₹ 1 .....

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dered this aspect as the additions have been made by the Ld. CIT(A) during the appellate proceedings, in the interest of justice and fair play, we restore this issue back to the files of the AO. The AO is directed to verify the claim of publicity expenses vis-avis business of the assessee for the year under consideration. The AO should also verify how much publicity expenses have been recovered by the assessee and credited to its Profit and loss account for the year under consideration. The asse .....

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rd of Films issued the certification of the film on 21.4.2005 therefore, the film was released for exhibition on commercial basis at the beginning of the previous 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 disa .....

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of Prasad Production (P.) Ltd. (supra) at page nos. 156 and 157 as under: "Only during the course of the pendency of the appeal before the Appellate Assistant Commissioner, the assessee exercised an option as per rule 9A of the Rules and under Explanation (ii)(a) to rule 9A(1) of the Rules, 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 .....

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r a variety of reasons, he may not be in a position to exhibit it by obtaining positive prints. Having produced a film, the person carrying on the business of production of feature films may either keep them without exhibition or even part with them 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 the bus .....

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xhibition 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 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 r .....

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annuation fund of its foreign collaborators and that claim was disallowed by the authorities below. However, the Tribunal held that though that amount was not an allowable deduction under section 36(1)(iv) of the Act as the contribution was not to a recognised 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 sec .....

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uch expenditure, the claim of the assessee that such expenditure would fall under section 37 of the Act is, in our view, wellfounded. We, therefore, answer the second question referred to us in the affirmative and against the Revenue." 27. Following the above decision of Hon'ble Madras High Court, the Coordinate Bench of this Tribunal in case Mukta Arts (P.) Ltd. (supra) has held in para 13 and 21 as under: "13. As noted, rule 9A also defines "cost of production" to mean, .....

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t in the case of CIT v. Prasad Productions P. Ltd. as reported in [1989] 179 ITR 147the 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 [1993] 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 bus .....

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n to the Central Board of Direct Taxes under section 295(1) of the Income-tax Act, 1961. Thus it is a piece of delegated legislation and must function within the parameters fixed by Legislature by laying 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 sta .....

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power of the Central Board of Direct Taxes to create a legal fiction like rule 9A in the fashion as contended by learned counsel for the assessee because this interpretation would go beyond the legislative 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 be .....

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us, there appears no reasonable basis to allow the same expenditure incurred before happening of an event i.e., up to the date of issue of certificate by the Censor Board in total without any restriction 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 .....

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llowing the decision of Hon'ble Madras High Court in case of Prasad Productions Pvt. Ltd. as well as decision of the Coordinate Bench of this Tribunal in case of Mukta Arts (P.) 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 enhanced by the CIT(A) is deleted. Respectfully, following the above two orders of the Tribunal, we decide ground no.13 if favour of the assessee. 11. .....

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etting expenses and editing music recording and dance expenses. 24. During the course of the assessment proceedings, the AO observed that the assessee has not maintained proper records in respect of call sheet and continuity report and rehearsal book, therefore expenses incurred under the aforementioned heads could not be fully allowed merely on the basis of internal vouchers. The AO went on to disallow 20% of the expenses claimed under the aforementioned heads as under: 1. Expenses in respect o .....

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the matter before the Ld. CIT(A) and explained that so far as expenses for Junior Artist is concerned, the junior artists were supplied by M/s. Pappu & Co.. Information u/s. 133(6) of the Act was called from M/s. Pappu & Co., and further statement of Shri Rajendra A. Nandu, Proprietor of Pappu & Co was recorded u/s. 131 of the Act. Mr. Rajendra Nandu though confirmed that he has supplied the manpower/junior artists to the assessee but could not produce any evidence regarding the requ .....

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sallowances, the Ld. CIT(A) took a similar view. XXXXXXXXX 28. We have considered the rival submissions, perused the orders of the lower authorities and the material evidence brought on record which is placed in the paper book. It is not in dispute that many junior artists are engaged in the making of a movie. The main artists in a movie are hardly 15 to 25 in numbers whereas the entire movie moves ahead on junior artists. It is also not in dispute that the supplier M/s. Pappu & Co., has con .....

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the contrary, it should support the case of the assessee that it has made payments to M/s. Pappu & Co., which in its turn has not shown its return of income as the entire payment to Junior artists is through Junior Artists Association as formed by M/s. Pappu & Co. In our humble opinion, no disallowance can be made on this account. We accordingly direct the AO to delete the additions made on account of payment to junior artists. 29. So far as other adhoc disallowances mare concerned, in .....

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we delete the addition made on account of payment made to junior artists and we restrict the disallowance to 5% for other expenses. Last Ground of appeal is decided in favour of the assessee, in part. ITA/3345/Mum/2012-AY.2007-08: 12. First ground of appeal, filed by the AO, is about deleting the addition of ₹ 9.95 Crores. During the assessment proceedings, the AO found that receipts in respect of movies Krish (Rs.5.95 crores) and KANK(Rs.4 crores) had been credited in the main account of .....

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ovie KANK Receipts 2,00,00,000/-do- 3. 11/08/2006 -do- Movie KANK Receipts 2,00,00,000/-do- 4. 29/08/2006 -do- Movie KRISH Receipts 1,50,00,000/-do- 5. 25/09/2006 -do- Movie KRISH Receipts 3,00,00,000/-do- 6. 14/10/2006 -do- Receipts 15,00,000/-do- 9,95,00,000/- He further observed that the assessee itself had treated the transfer of above amount from the film account to main account was profit, that the aggregate receipt of ₹ 9.95 crores was over and above the receipt shown by the assesse .....

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fore the FAA. Before him, it was argued that the amount in question was merely a receipt transfer between two divisions, that it was collected by distribution office and was partly transfer to the HO, that whenever the DD would receive money from the customer it would book the whole receipt and work out the night income in its books, that based on the gross collection it would transfer and appropriate amount to the HO, that the HO would show the amount in the particular movies account for the ti .....

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Ledger A/c.of the DD and the HO along with the bank statements. He held that the payments were made for minimum guarantee from the HO, that the funds were realised by the DD, that the amount shown in the DD s books represented the collection of revenue from various theatres, that after collection of the revenue the DD would transfer the same to HO, that the AO had misunderstood the cash flow with the revenue of the company, that the sum of ₹ 9.95 crores transfer was not profit of the comp .....

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ion of the AO in interpreting the same as un-accounted sales and making the addition was unwarranted, that the assessee itself had offered the income after paying the producers share for which there was no dispute. Finally, he deleted the addition made by the AO. 12.3. During the course of hearing before us, the DR supported the order of the AO. The AR stated that the amount in dispute was basically a transfer entry from one division to another, that there was no element of profit in it. 12.4. W .....

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regular system maintained by other assessees. The AO has nowhere proved that total revenue of these two films was ₹ 12.91 crores + ₹ 8.34 crores + ₹ 9.95 crores. No incriminating document was found or impounded during the survey operation that could lead to the conclusion that the total revenue of these films was more than the income shown by the assessee in its regular books of accounts. In our opinion, the FAA had rightly observed that the AO had wrongly interpreted the tran .....

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ct of movie Dhoom-2 was shown at ₹ 4.28 crores against the expenses of ₹ 4.24 crores, that as per the details filed by the assessee it had credited the aggregate amount of ₹ 3.14 crores as the cost of print recovered, that the difference between the two amounts i.e. ₹ 1.10 crores (Rs. 4.24 crores (-) ₹ 3.14 crores) had to be added to the income of the assessee. 13.1. During the appellate proceedings before the FAA, the assessee argued that the AO had made the additi .....

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ack of time, that the balance confirmation were to be received from other parties, that the remaining confirmation were available with the assessee, that the assessee had submitted the full statement of recovery print cost from the distributors, that the AO disallowed the difference on account of confirmation not having been received from Bombay and Delhi/ UP, that while submitting the reply on 29/10/2009 the assessee had omitted the word prints besides the amount received from Yash Raj films di .....

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account of print cost for the movie Fanna, that at the time of assessment the assessee could produce confirmation of ₹ 3.14 crores only, that the AO had allowed the deduction to that extent, that the parties who had received the amounts had confirmed the transactions towards the print cost, that in the remand report the AO had not given any adverse finding in respect of the confirmations. He deleted the addition made by the AO. 13.3. During the course of hearing before us, the DR and the A .....

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timate business expenditure and is allowable as per the provisions of the Act. As the assessee had failed, at the time of assessment, to fully support the claim made by it, so, the AO had rightly restricted the expenditure to ₹ 3.14crores. But, there was no justification in not allowing the remaining amount of ₹ 1.10 crores once the assessee had produced the necessary evidences. We are of the opinion that there is no infirmity in the order of the FAA. So, upholding his order, we dism .....

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through its books of accounts, that the payment was made through banking channel, that the recipient producer had admitted to have received the disputed amount and had shown in his return of income. Considering these facts and discussion held in earlier paragraphs, we are of the opinion that the AO was not justified in treating the income as concealed income. Ground no. 4 is decided against him. 15. Next ground pertains to payment of Directors Remuneration. It was brought to our notice that the .....

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was not used for purpose of business that the assessee did not produce any evidence which could show that it had carried out any business activity from the said Bunglow during the year relevant for the AY. 2007-08, that the company had admitted that the said bungalow was under repair, that at the time of conducting survey operation it was noticed that business activities were not being carried out from the said place since long, that as per the return of income for the AY.2007-08 the assessee w .....

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ffice was under repair and hence there was no activity at the time of visit of survey team, that from the AY. 2010-11 the place was used partly as office and partly as residence. The FAA verified old records and earlier assessment and held that assessee was using the bungalow as a registered office of the company, that the Tribunal in its order for the block period 1991- 2001(ITA. SS/685/Mum/2002) had confirmed the fact that bungalow was used for purpose of business, that for the period under co .....

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l submissions and perused the material before us. We find that the survey was carried out during the AY.2010-11, that the assessee had claimed depreciation for the AY.under appeal, that on the basis of renovation work carried out in the year 2010 the issue of allowability of depreciation for earlier year should not have been decided. The AO had to consider the facts of the year under consideration. The FAA after considering the old records and the order of the Tribunal had given a finding of fac .....

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n 26/06/2006. He held that the expenses incurred by it were not incidental to the business carried out by it, that the impugned expenditure did not relate to any movie, that the assessee had not filed any confirmation from the concerned person regarding receiving the above amount. He made an addition of ₹ 70,104/-to the total income of the assessee. 17.1. During the appellate proceedings, the assessee argued that it was not able to find out as to wherefrom the AO had obtained the entries a .....

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yments, that the disallowance made could not be related to any particular item of claim, that it was not possible to sustain the disallowance in the face of the claim made by the assessee, that no discrepancy was noticed in the books of accounts produced by the assessee. He directed the AO to deleted the disallowance. 17.2. Before us, the DR stated that matter could be decided on merits. The AR supported the order of the FAA. 17.3. We find that in the remand report submitted to the FAA, the AO h .....

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3 lakhs, being 20% of ₹ 46.16 lakhs. During the assessment proceedings, the AO held that assessee had made certain cash payments in excess of ₹ 20,000/- on particular dates. After considering the submission of the assessee, the AO disallowed 1/5th of the total expenditure i.e. ₹ 46,16,540/- and made an addition of ₹ 9,23,308/-to its total income. 18.1. Before the FAA, the assessee stated that addition was made under a wrong impression by the AO that each item referred to .....

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ed in the accounting software, that the amount reflected in tally was for more than ₹ 20,000/-, that each voucher was less than ₹ 20, 000/-. 18.2. The FAA verified the vouchers and cashbook produced by the assessee he held that the crucial evidence whether the cash payment was less than ₹ 20,000/-or not was the voucher, that the AO had not retained any such voucher even by way of sample, that the claim of the assessee that each item of cash expenses was less than ₹ 20,000 .....

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he prescribed limit, that the FAA had verified the vouchers and books of accounts, that nothing was brought before us to negate the finding of fact given by him about non -contravention of the section 40A(3) of the Act. Therefore, we decide the issue against the AO and confirm the order of the FAA. 19. GOA 9 pertains to addition made u/s.69C of the Act. During the assessment proceedings, the AO found that the assessee had transferred and amount of ₹ 7.35 lakhs from movie account Fanna to t .....

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he assessee argued that ₹ 7.35 lakhs in cash was transferred from account Fanna to YRF Pvt. Ltd.account to nullify the cash balance in the Fanna account that the cash withdrawal from the said account and expenses of that account were already accounted for in the books of accounts for the AY.2006-07 in Yash Raj Private Ltd, that the amount in question was the net of cash withdrawal and cash expenses of Fanna, that cash withdrawn from on account in the AY.2006-07 was ₹ 22.46 lakhs is r .....

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ovie was released for the year was completed, that the addition was result of strong understanding of the book entries. He deleted the addition made by the AO. 19.2. The DR left the issue to the discretion of the Bench. The AR supported the order of the FAA. We find that the assessee was maintaining its books of accounts regularly and was following a peculiar system, that after completion of the movie the account of each movie was merged in the main account. The AO without understanding the syst .....

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gainst which the loss had been claimed were underproduction and no receipts against them were credited to profit and loss account, that the expenses incurred against such movies should have been capitalised against the cost of production of the movies instead of claiming the same as revenue expenditure, that AS-11 was not applicable to the facts of the case under consideration, that the assessee was following project completion method. He made an addition of ₹ 17.04 lakhs to the total inco .....

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basis, that foreign exchange fluctuation cost was nothing but the period cost. The FAA held that as per Rule 115 of the rules foreign exchange fluctuation arising on contract which had expired needed to be charged to the profit and loss account, that the unexpired contract were to be correct to the year of expiry of the contract, that the assessee had brought on record that amount charged as fluctuation loss had arisen due to fluctuation in the currency and that all the contracts had been compl .....

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arties, that AS-11 was not applicable, that the assessee had not shown the receipt, that as per the accounting principles there was no logic to allow the loss claimed by the assessee . The AR contended that loss on account of fluctuation was allowable, that the cost pertained to the year under consideration, even if it was work in progress it could not be treated as a capital expenditure. 20.3. We have heard the rival submissions and perused the material. We find that the FAA has given a categor .....

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s without deducting tax at source. He directed the assessee to file explanation about such payments. He held that impounded books of accounts revealed that expenses were incurred towards the processing and printing charges, that the provisions of section 194C were applicable with regard to the assessing charges/print processing charges, that the assessee did not produce the purchase bills in support of its claim that above-mentioned payments involved the cost of raw film rolls, that it had claim .....

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e as per the provisions of section 194-I of the Act, that the payments made to Vigilant Security Services were in nature of contracts and the provisions of section 194C were attracted. In view of the discretion, the AO disallowed and amount of ₹ 93.71 lakhs u/s.40 (a) (ia) of the Act. 21.1. During the appellate proceedings, the assessee argued that there was no rent was paid to YRF studio, that it was only a payment for utility charges like payment of electricity water security and houseke .....

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d supplied raw material, that no tax was to be deducted at source for purchase of raw material. After considering the submission of the assessee, the FAA held that the assessee had not detected tax in respect of payment of rupees threes lakhs made to Neelam Sagar under the head professional fees, disallowance for the said payment had to be confirmed, that assessee had produced evidences about payments along with the bill/vouchers, that tax was directed at rates applicable to particular payments .....

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. 21.3. We find that the FAA had partly allowed the appeal of the assessee, that it had directed the AO to make verification about the rates of deducting tax at source and to allow the expenses only after verification. In our opinion, the order of the FAA does not suffer from any infirmity. Confirming the same, we dismiss the ground raised by the AO. 22. Last ground deals with disallowance of expenses on credit cards. During the assessment proceedings, the AO found that assessee had made payment .....

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