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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN, AM AND AMARJIT SINGH, JM
./I.T.A. No.2483/Mum/2013
( / Assessment Year: 2009-10)
Dharma Productions Pvt.Ltd., / Asstt.Commissioner of Income
29, Jains Arcade, 2nd floor,
Vs. Tax Central Circle -31,
14th Road Khar (W), Ayakar Bhavan,
Mumbai-400037
M.K.Road,
Mumbai-400020
( /Appellant) .. ( / Respondent)
./ ./PAN. :AAACD3889K
/ Appellants by Shri Vijay Mehta
/Revenue by Shri Kailash Gaikwad
/ Date of Hearing
: 03.9.2015
/Date of Pronouncement: 9.9.2015
/ O R D E R
Per B R Baskaran, AM:
The appeal filed by the assessee is directed against the order dated
10-01-2013 passed by Ld CIT(A)-40, Mumbai and it relates to the
assessment year 2009-10. The assessee is aggrieved by the decision of Ld
CIT(A) in respect of following issues:-
(a) Disallowance of Advertisement expenses.
(b) Disallowance on ad-hoc basis from out of various expenses.
2. The assessee is engaged in the business of Hindi film production and
distribution of films. During the year under consideration, the assessee
produced a film named Dostana and sold the distribution rights to M/s
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Yashraj Films P Ltd. The assessee got the certificate from Censor Board
on 03-11-2008 and the film was released on 14.11.2008. The assessee
incurred advertisement expenditure of Rs.4,44,49,789/- and claimed the
same as deduction. The AO noticed that the assessee has incurred the
advertisement expenditure after the issue of certificate by the Censor
Board. The AO took the view that the assessee is not entitled to claim
advertisement expenditure as deduction in view of the provisions of Rule
9A and 9B of I.T Rules, since it has been incurred after issuing of
certificate by Censor Board. Accordingly he disallowed the claim of
advertisement expenses and the same was also confirmed by Ld CIT(A).
3. We heard the parties on this issue. Since, the dispute revolves
around the provisions of Rule 9A and Rule 9B, we feel it pertinent to
extract the relevant provisions below:-
"9A. [(1) In computing the profits and gains of the business of
production of feature films carried on by a person (the person carrying on
such business hereafter in this rule referred to as film producer), the
deduction in respect of the cost of production of a feature film certified
for release by the Board of Film Censors in a previous year shall be
allowed in accordance with the provisions of sub-rule (2) to sub-rule (4).
Explanation : In this rule,--
(i) Board of Film Censors means the Board of Film
Censors constituted under the Cinematograph
Act, 1952 (37 of 1952);
(ii) cost of production, in relation to a feature film,
means the expenditure incurred on the
production of the film, not being--
(a) the expenditure incurred for the preparation of
the positive prints of the film; and
(b) the expenditure incurred in connection with the
advertisement of the film after it is certified for
release by the Board of Film Censors:]
[Provided that the cost of production of a feature film, shall be
reduced by the subsidy received by the film producer under any
scheme framed by the Government, where such amount of subsidy
has not been included in computing the total income of the
assessee for any assessment year.]
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(2) Where a [***] feature film is certified for release by the Board of
Film Censors in any previous year and in such previous year,--
(a) the film producer sells all rights of exhibition of
the film, the entire cost of production of the film
shall be allowed as a deduction in computing the
profits and gains of such previous year; or
(b) the film producer--
(i) himself exhibits the film on a commercial basis
in all or some of the areas; or
(ii) sells the rights of exhibition of the film in
respect of some of the areas; or
(iii) himself exhibits the film on a commercial basis
in certain areas and sells the rights of
exhibition of the film in respect of all or some
of the remaining areas,
and the film is released for exhibition on a commercial basis at
least [ninety] days before the end of such previous year, the entire
cost of production of the film shall be allowed as a deduction in
computing the profits and gains of such previous year.
(3) Where a [***] feature film is certified for release by the Board
of Film Censors in any previous year and in such previous year, the
film producer--
(a) himself exhibits the film on a commercial basis in
all or some of the areas; or
(b) sells the rights of exhibition of the film in respect
of some of the areas; or
(c) himself exhibits the film on a commercial basis in
certain areas and sells the rights of exhibition of
the film in respect of all or some of the remaining
areas,
and the film is not released for exhibition on a commercial basis at least
[ninety] days before the end of such previous year, the cost of production
of the film in so far as it does not exceed the amount realised by the film
producer by exhibiting the film on a commercial basis or the amount for
which the rights of exhibition are sold or, as the case may be, the
aggregate of the amounts realised by the film producer by exhibiting the
film and by the sale of the rights of exhibition, shall be allowed as a
deduction in computing the profits and gains of such previous year; and
the balance, if any, shall be carried forward to the next following previous
year and allowed as a deduction in that year.
(4) Where, during the previous year in which a [***] feature film is
certified for release by the Board of Film Censors, the film producer does
not himself exhibit the film on a commercial basis or does not sell the
rights of exhibition of the film, no deduction shall be allowed in respect of
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the cost of production of the film in computing the profits and gains of
such previous year; and the entire cost of production of the film shall be
carried forward to the next following previous year and allowed as a
deduction in that year.
[(5)] Notwithstanding anything contained in the foregoing provisions of
this rule, the deduction under this rule shall not be allowed unless,--
(a) in a case where the film producer--
(i) has himself exhibited the feature film on
a commercial basis; or
(ii) has sold the rights of exhibition of the
feature film; or
[(iii) has himself exhibited the feature film on
a commercial basis in some areas and
has sold the rights of exhibition of the
feature film in respect of all or some of
the remaining areas,]
the amount realised by exhibiting the film, or the
amount for which the rights of exhibition have
been sold or, as the case may be, the aggregate
of such amounts, is credited in the books of
account maintained by him in respect of the year
in which the deduction is admissible;
(b) in a case where the film producer has transferred
the rights of exhibition of the feature film on a
minimum guarantee basis, the minimum amount
guaranteed and the amount, if any, received or
due in excess of the guaranteed amount or
where the film producer follows cash system of
accounting, the amount received towards the
minimum guarantee and the amount, if any,
received in excess of the guaranteed amount, are
credited in the books of account maintained by
him in respect of the year in which the deduction
is admissible.
[(6)] Where the [Assessing Officer] is of opinion that--
[(a)] the rights of exhibition of the feature film have
been transferred by the film producer by a
mode not covered by the provisions of this rule;
or
[(b)] having regard to the facts and circumstances of
any case, it is not practicable to apply the
provisions of this rule to such case,
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deduction in respect of the cost of production of the film may be
allowed by the [Assessing Officer] in such other manner as he
may deem suitable.
[(7)] For the purposes of this rule,--
(i) the sale of the rights of exhibition of a feature film
includes the lease of such rights or their transfer on a
minimum guarantee basis;
(ii) the rights of exhibition of a feature film shall be deemed
to have been sold only on the date when the positive
prints of the film are delivered by the film producer to
the purchaser of such rights or where in terms of the
agreement between the film producer and the film
distributor as defined in rule 9B, the positive prints are
to be made by the film distributor, the date on which
the negative of the film is delivered by the film producer
to the film distributor.
[(8)] [Nothing contained in this rule shall apply in relation to any
assessment year commencing before the 1st day of April, 1987.]
[***]
9B. (1) In computing the profits and gains of the business of
distribution of feature films carried on by a person (the person
carrying on such business hereafter in this rule referred to as film
distributor), the deduction in respect of the cost of acquisition of a
feature film shall be allowed in accordance with sub-rule (2) to sub-
rule (4).
Explanation : For the purposes of this rule, cost of acquisition, in
relation to a feature film, means the amount paid [by the film
distributor to the film producer or to another distributor under an
agreement entered into by the film distributor with such film
producer or such other distributor, as the case may be] for
acquiring the rights of exhibition and, where the rights of exhibition
have been acquired on a minimum guarantee basis, the minimum
amount guaranteed, not being--
(i) the amount of expenditure incurred by the film distributor for
the preparation of the positive prints of the film; and
(ii) the expenditure incurred by him in connection with the
advertisement of the film.
(2) Where a feature film is acquired by the film distributor in any
previous year and in such previous year--
(a) the film distributor sells all rights of exhibition of the film, the
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entire cost of acquisition of the film shall be allowed as a
deduction in computing the profits and gains of such previous
year; or
(b) the film distributor,--
(i) himself exhibits the film on a commercial basis in all or
some of the areas; or
(ii) sells the rights of exhibition of the film in respect of some
of the areas; or
(iii) himself exhibits the film on a commercial basis in certain
areas and sells the rights of exhibition of the film in respect
of all or some of the remaining areas,
and the film is released for exhibition on a commercial basis at
least [ninety] days before the end of such previous year, the entire
cost of acquisition of the film shall be allowed as a deduction in
computing the profits and gains of such previous year.
(3) Where a feature film is acquired by the film distributor in any
previous year and in such previous year the film distributor--
(a) himself exhibits the film on a commercial basis in all or some of
the areas; or
(b) sells the rights of exhibition of the film in respect of some of
the areas; or
(c) himself exhibits the film on a commercial basis in certain areas
and sells the rights of exhibition of the film in respect of all or
some of the remaining areas,
and the film is not released for exhibition on a commercial basis at
least [ninety] days before the end of such previous year, the cost
of acquisition of the film in so far as it does not exceed the amount
realised by the film distributor by exhibiting the film on a
commercial basis or the amount for which the rights of exhibition
have been sold or, as the case may be, the aggregate of the
amounts realised by the film distributor by exhibiting the film and
by the sale of the rights of exhibition, shall be allowed as a
deduction in computing the profits and gains of such previous year;
and the balance, if any, shall be carried forward to the next
following previous year and allowed as a deduction in that year.
(4) Where during the previous year in which a feature film is
acquired by the film distributor, he does not himself exhibit the film
on a commercial basis or does not sell the rights of exhibition of the
film, no deduction shall be allowed in respect of the cost of
acquisition of the film in computing the profits and gains of such
previous year; and the entire cost of acquisition shall be carried
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forward to the next following previous year and allowed as a
deduction in that year.
(5) Notwithstanding anything contained in the foregoing provisions
of this rule, the deduction under this rule shall not be allowed
unless--
(a) in a case where the film distributor,--
(i) has himself exhibited the feature film on a commercial
basis; or
(ii) has sold the rights of exhibition of the feature film; or
(iii) has himself exhibited the feature film on a commercial
basis in some areas and has sold the rights of exhibition of
the feature film in respect of all or some of the remaining
areas,
the amount realised by exhibiting the film, or the amount for
which the rights of exhibition have been sold, or, as the case
may be, the aggregate of such amounts, is credited in the
books of account maintained by him in respect of the year in
which the deduction is admissible ;
(b) in a case where the film distributor has transferred the rights of
exhibition of the feature film on a minimum guarantee basis,
the minimum amount guaranteed and the amount, if any,
received or due in excess of the guaranteed amount, or where
the film distributor follows cash system of accounting, the
amount received towards the minimum guarantee and the
amount, if any, received in excess of the guaranteed amount,
are credited in the books of account maintained by him in
respect of the year in which the deduction is admissible.
(6) For the purposes of this rule,--
(i) the sale of the rights of exhibition of a feature film includes
the lease of such rights or their transfer on a minimum
guarantee basis ;
(ii) the rights of exhibition of a feature film shall be deemed to have
been sold only on the date when the positive prints of the film are
delivered by the film distributor to the purchaser of such rights ;
[(iii) distributor shall include a sub-distributor.]
[(7) Nothing contained in this rule shall apply in relation to any
assessment year commencing before the 1st day of April, 1987.]
[Conditions for carrying forward or set-off of accumulated loss
and unabsorbed depreciation allowance in case of
amalgamation"
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The revenue's view is that the above said rules prohibit claiming
expenditure incurred after the issuing of certificate by the Censor Board.
4. At the time of hearing, the Ld A.R submitted that an identical issue
was considered by the co-ordinate bench of Tribunal in the assessee's own
case in ITA No.2480 & 4791/Mum/2013 dated 18th September, 2013
relating to AY 2006-07 and it has been decided in favour of the assessee
by following the decision rendered by Hon'ble Madras High Court in the
case of CIT Vs. Prasad Productions Pvt Ltd (179 ITR 147) and also the
decision rendered by the Mumbai bench of Tribunal in the case of Mukta
Arts Pvt Ltd Vs. ACIT (292 ITR (AT) 16). For the sake of convenience, we
extract below the operative portion of the order passed by the Tribunal in
the assessee's own case:-
26. We have considered the rival submissions as well as
relevant material on record. There is no dispute about the date
of release of the film in question on 29.4.2005. We further note
that the Censor Board of Films issued the certification of the
film on 21.4.2005 therefore, the film was 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
Rs.41,43,240/- on account of positive films and a sum of
Rs.2,26,30,328/- on account of advertisement and publicity.
The reason for disallowance by the CIT(A) is that the
advertisement/publicity expenditure is not part of the cost of
production therefore, is not allowable as per Rule 9A. The
decision relied upon by the CIT(A) are only in respect of the
disallowance of expenditure under Rule 9A or 98 whereas the
expenditure which do not form part of the cost of production
cannot be disallowed by invoking Rule 9A and therefore, the
same is allowable u/s 37 of the Income Tax Act as held by the
Hon'ble Madras High Court in case of CIT Vs Prasad Production
Pvt. Ltd.(supra) at page no. 156 and 157 as under:
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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), the expenditure
incurred for the preparation of the positive prints of the film
could not be included within the expression 'cost of
production'. It is for this reason that such expenditure is
characterised as post-production expenditure. Ordinarily, all
expenditure incurred on the production of a film would be its
cost of production, but that would exclude the expenditure
incurred for the preparation of the positive prints of the film
so produced. The purpose of obtaining positive prints is to
exhibit the film produced, which is a stage after the
completion of the production. In any given case a person
carrying on business in the production of feature film may
produce a film, but for 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 business of
production of feature films may either keep them without
exhibition or even part with it without making arrangements
for their exhibition. It cannot, therefore, be assumed that in
all cases of production of a film, the producer must
necessarily obtain the positive prints of the film as well. In
other words, if a person carries on business of production of
films, he may not only produce the film and also prepare the
positive prints for the purpose of exhibition or he may not
take steps for the exhibition of the film having produced it.
The production and exhibition of a feature film constitute two
distinct and separate stages and while the former would take
in all activities which culminate in the production of a feature
film, the latter contemplates a stage subsequent to the
completion of the production of the film, viz., exhibition of the
film produced. Viewed thus, any expenditure incurred in
connection with the preparation of the positive prints for
purposes of exhibition would really be post-production
expenses and also an item of expenditure in relation to the
business of production and exhibition of feature films and
would, therefore, qualify for deduction as expenditure laid out
or expended wholly and exclusively for the purpose of the
business. We have not been referred to any provision in the
Act or the Rules disallowing such expenditure as an item of
business expenditure for the purpose of section 37 of the
Act. Though the learned counsel for the revenue placed
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considerable reliance upon the decision in CIT V/s
Carborundum Universal Ltd. (1977) 110 ITR 621 (Mad), we
are of the view that that decision does not in any manner
assist the revenue In that case, the assessee claimed
deduction of a certain amount in the computation of its profits
and gains of the business by way of contribution to the
superannuation 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)(ii) of the Act as the
contribution was not to a recognized provident fund or to an
approved superannuation fund nor could be allowed under
section 37 of the Act, the payment was allowable under
section 28 of the Act. On a reference, it was held that the
nature of payment being one described in section 36(1)(iv) of
the Act and as it could not be deducted under that section, it
cannot be held to be deductible under section 28 on general
principles in arriving at the true profits and gains of the
business in a commercial sense. In the view we have taken
that the expenditure incurred in connection with the obtaining
of positive prints is really in the nature of post-production
expenditure and that there is no provision in the Act or the
Rules obliging the authorities to disallow such expenditure,
the claim of the assessee that such expenditure would fall
under section 37 of the Act is, in our view, well-founded. 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 Co-ordinate Bench of this Tribunal in case of Mukta Arts Pvt Ltd
(supra) has held in para 13 and 21 as under :
13. As noted, rule 9A also defines "cost of production" to
mean, the entire expenditure incurred on the production of
film. However, advertisement expenditure incurred after the
Censor Board certification is obtained and also the cost of
positive prints of the film are not to be included as part of
the cost of production. The effect of the exclusion of these
two items normally means that they could be allowed in the
year in which these expenses are incurred regardless of
whether film is released in that year or not as held by the
hon'ble Madras High Court in the case of CIT V/s Prasad
Productions P. Ltd. as reported in [1989J 179 ITR 147 the
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cost of making positive prints is allowable under section 37
of the Act. Further in the case of B.Nagi Reddy v. CIT as
reported in [1993J 199 ITR 451, the hon'ble Madras High
Court held that any loss arising on account of feature film
being abandoned midway without completing it then, the
expenditure incurred till that date including the payments
made to artists, writers etc. would be allowable as a business
loss on the principle of commercial expediency. All the above
instances make it clear that in case of film producer, the
expenses which do not form part of cost of production as per
rule 9A are allowable as per the normal provisions of the Act.
It, therefore, follows that rule 9A does not cover all these
situations and all types of expenses, hence the proposition
that it overrides the provisions of the Act on the face of it, is
not valid.
21. Rule 9A is an outcome of exercise of power given 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 statute itself nor confer any special
benefits, rights or privileges beyond the provisions of the Act
or in contradiction to the provisions of the legislative
enactment because the object subordinate legislation is to
carry out the statutory provisions effectively and not to
neutralize or contradict them. If delegated legislation results
into any such situations that would amount to legislation itself
and which cannot be abdicated by the Legislature. In this
view of the matter, it is not within the 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 been
enacted with the object of restricting the deduction of
expenditure which is otherwise allowable under section 37. It
is a fact that expenditure incurred after the issue of
certification by the Censor Board on account of advertisement
and publicity and cost of positive prints are allowable under
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section 37(1) and, therefore, such expenses come within the
purview of section 37(3) of the Act expenditure on and cost
of positive prints has to satisfy the conditions of section 37
for allowance. Thus, 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 not framing the said rule as
Notwithstanding anything contained in any provisions of the
Act and/or any other rule of the Income tax Rules, 1962,
Further , there is also no commercial/business necessity,
attached to film production which may justify the exemption to
film producers from the applicability of the provisions of section
37(2A) and /or or section 37(3) in respect of expenditure
forming part of cost of production as per rule 9A
28. In view of the above discussion and following the decision of
Hon'ble Madras High Court in case of Prasad Productions Pvt.Ltd as
well as decision of the Co-ordinate Bench of this Tribunal in case of
Mukta Arts Pvt Ltd. We hold that the expenditure incurred in respect
of preparation of positive prints as well as advertisement and publicity
are allowable. Accordingly the addition enhance by the CIT(A) is
deleted
The Ld D.R, on the contrary, strongly supported the order passed by Ld
CIT(A) on this issue. Since the co-ordinate bench of Tribunal has already
taken the view on this issue in favour of the assessee, consistent with the
view taken by the co-ordinate bench we hold that the assessee is eligible
to claim deduction of advertisement expenses. Accordingly, we set aside
the order of Ld CIT(A) on this issue and direct the AO to delete the
disallowance of advertisement expenses.
5. The next issue relates to adhoc disallowance made out of various
expenses. The assessing officer disallowed 25% of the expenses claimed
by the assessee under the following heads on the reasoning that the
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assessee has failed to produce primary evidences relating to these
expenses:-
(a) Payment made to Junior artistes
(b) Costumes & Dresses
(c) Make up & hair dressers
(d) Dubbing, song recording & mixing expenses
(e) Dancers expenses & co-ordination charges
(f) Setting expenses
The Ld CIT(A) also confirmed the same.
6. The Ld A.R submitted identical issues were considered by the Co-
ordinate bench of Tribunal in the assessee's own case relating to AY 2006 -
07 (supra), wherein the Tribunal deleted the disallowance pertaining to
Payment made to Junior Artistes and restricted the disallowances made
from other items of expenses at 5%. The Ld A.R submitted that the
assessee has been maintaining all the vouchers with proper details and
hence disallowances are not called for. He submitted that the assessee is
required to prepare continuity report by director, Log book w.r.t. hiring of
employees, Film Editors report, copies of call sheets and rehearsal book for
planning the shooting. He submitted that the assessee destroys all these
documents after completion of the shooting, as they are no longer
required thereafter and also due to space constraints. The Ld A.R
submitted that the assessing officer has made impugned disallowances for
the reason that the assessee did not produce those technical documents,
as according to him they are primary documents. The Ld A.R submitted
that the required details relating to the expenses are available in the
vouchers prepared by the assessee and they are duly supported by the
relevant bills and payment details. Accordingly Ld A.R submitted that the
genuineness of expenses could be ascertained from the records
maintained in the accounts department and hence the AO was not justified
in insisting upon the production of technical documents relating to
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production programs. He further submitted that the assessing officer did
not consider the expenses as bogus and hence he has restricted the
disallowances to 25%. He submitted that the co-ordinate bench of
Tribunal has also accepted this fact in AY 2006-07 and has also observed
that these expenses are essential in the production of film. However, the
Tribunal chose to restrict the disallowance to 5% of expenses by following
the decision rendered in the case of Yas Raj films Pvt Ltd (ITA
No.6350/M/2010 dated 5.4.2013).
7. The Ld A.R submitted that identical issues were considered by
another co-ordinate bench of Tribunal in the case of Shri Karan Yash
Johar, proprietor of Dharma Productions, who also happens to be the
director of the assessee company in ITA No.2591/Mum/2013 &
2592/Mum/2013 relating to AY 2007-08 and 2009-10. He submitted that
the co-ordinate bench, vide its order dated 15.4.2015, after considering
the decision rendered by the Tribunal in the assessee's own case relating
to AY 2006-07, has taken the view that no disallowance was called for. He
submitted that latest decision of the Tribunal rendered in the case of Shri
Karan Yash Johar (supra) may also be followed in the instant case also.
8. On the contrary, the Ld D.R submitted that the assessing officer was
constrained to make ad-hoc disallowances, since the assessee could not
furnish the details that were called for by the AO. Accordingly he
submitted that the Ld CIT(A) was justified in confirming the ad-hoc
disallowances made by the AO.
9. We heard the parties on this issue and perused the record. We
notice that the assessing officer has made ad-hoc disallowances @ 25%
from some of the expenses in AY 2006-07 also. They were considered by
the co-ordinate bench of Tribunal and the Tribunal has deleted the
disallowance made out of payment made to Junior artistes and restricted
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the disallowances in respect of other items of expenses to 5% by following
the decision rendered by the Tribunal in the case of Yas Raj Films Pvt Ltd
(supra).
10. In the instant year, the AO has taken the assessee has failed in his
obligation to substantiate its claim for expenses. The AO has taken the
view that the following records are necessary to examine the claim made
by the assessee towards expenses:-
(a) Time Table relevant for checking correctness of Studio hire
expenses.
(b) Film Editor's Report relevant for ascertaining consumption of
raw film.
(c) Laboratory registers give details of footage of negatives,
positives and sound film processed for particular picture.
(d) Call Sheets containing details of artistes, junior artistes and
technicians engaged on any particular day for shooting.
(e) Rehearsal Book containing details of artistes participating in
rehearsals.
(f) Statement given by Controller of Production relating to
arrangements made for shooting.
However according to the assessee, these records are technical records
relating to planning for film shooting and these records would be
destroyed after completion of shooting as they are no longer required and
also due to space constraints.
11. The question that arises is whether these records are essential to
ascertain the genuineness of expenses. According to the assessee, the
expenses incurred under various heads are duly supported by the relevant
vouchers, bills etc and hence these technical reports are not required to
examine the genuineness of expenses. On the contrary, the stand of the
AO is that these technical reports would help to examine the expenses.
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12. We notice that identical issue was considered by the co-ordinate
bench of Tribunal in the case of Shri Karan Yash Johar (supra) and the
Tribunal has held as under:-
19. We have considered rival contentions and found that
expenses so claimed are required to be allowed as per
provisions of Rules 6F, which prescribes the list of books of
accounts required to be maintained by professionals. The
documents called for by the A.O. are not mentioned in the list
prescribed under rules 6F. The issue is covered by the decision
of ITAT in the case of M/s Dharma Productions Pvt. Ltd., ITA
No.2480&4791/Mum/2013, dated 18-9-2013, wherein assessee
is a Director and he is also into movie production business.
The Tribunal restricted the disallowance to the extent of 5% of
such expenses. The Tribunal observed at para 22, page 23 of
the order that the A.O. has not given a finding
that the bills and vouchers produced by the assessee, on the
basis of which expenditure has been recorded in books, are
bogus. Further, a clear finding has been given that the
documents called for by the A.O. are maintained for
the purpose of shooting and are not part of the accounts book.
That once the shooting of a film is over there is no purpose to
keep such a record which is otherwise not feasible. However,
subsequently, relying on the decision of ITAT
in the case of Yash Raj Films Pvt Ltd. v. ACIT bearing ITA No.
6350/M/2010, dated 05.04.2013, the disallowances were
restricted to 5%.
20. From the record we found that the assessee has provided
all the bills and vouchers in support of his claim of the
expenditures. The said fact has also been accepted by the A.O.
at page 1, para 2 of the assessment order stating that "the
books of accounts maintained by the assessee along with
bills vouchers were produced" and again at page 15 stating
that "during the course of assessment proceedings the
assessee has produced various details / vouchers/ bills etc. for
verification". It is not the case of the A.O. that the expenses
incurred, is bogus. Thus, the ratio of the finding in the case of
M/s Dharma Productions Pvt Ltd in respect of the documents
called for by the A.O., is also applicable in the given case, as
the facts of both the cases are identical. Since in the instant
case proper records have been maintained and also furnished
before the AO and it was only the case of non-production of
technical documents relating to production of films, the
disallowance was made by the AO. However, a clear finding
has been given by the Tribunal in the case of M/s Dharma
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Production Pvt. Ltd. that these technical documents are not
required to be maintained. Accordingly, we do not find any
merit for adhoc disallowance merely for the reasons that such
technical documents relating to production of films were not
produced by the assessee. Accordingly, we direct the AO to
delete the adhoc disallowance so m ade.
In the above said case, the Tribunal has taken note of the fact that the
assessing officer himself has observed that the assessee had produced
various details/vouchers/bills etc. for verification. The Tribunal has further
noticed that the AO has not held the expenses to be bogus. Further the
Tribunal has also observed that the keeping of technical documents
relating to production of film is not feasible. Accordingly, the Tribunal has
taken the view that the AO was not justified in making adhoc
disallowances for non furnishing of technical details.
13. A perusal of assessment order would show that the assessing
officer has made identical observations relating to production of books of
accounts, bills, vouchers etc. However, the AO has taken the view that the
technical documents would form the primary documents and hence he has
proposed to make ad-hoc disallowances. In our view, the AO has gone
wrong on this point. In our view, the primary documents are relevant
vouchers, bills, invoices etc., since the expenses incurred and payments
are made on the basis of these documents only. The technical documents
constitute the plans for the proposed film shooting and hence, the
technical documents, in our view, cannot be called as primary documents
and at the most, they may be called as secondary documents which may
be used to corroborate the expenses claimed through the primary
documents. Further, the technical documents normally shall not indicate
the amount to be spent, since the same would depend upon the market
expenses. For example, it may indicate about the number of junior artistes
required for shooting a particular scene, it may not specify the salary to be
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paid to those artistes. Hence, the quantum of expenditure can be
ascertained only through the primary documents. The necessity to refer to
the secondary documents, in our view, would arise only if the primary
documents are doubted with. In the instant case, we notice that the
assessing officer did not have any doubt with the primary documents. It is
also not the case of the assessing officer that the assessee has inflated the
expenses or booked bogus expenses. We notice that the assessing officer
has only made some bald observations that some of the items are under
self made vouchers/cash payments/cash memos/bills from unregistered
dealers without pointing out any specific instances. Hence, we are of the
view that the assessing officer did not make any strong case in support of
disallowance made by him. We have earlier noticed that the co-ordinate
bench in the assessee's own case as well in the case of Shri Karan Yash
Johar (supra) has taken the view that the technical documents are not
really required to ascertain the genuineness of the expenses and further
held that the maintenance of the same was not feasible for valid reasons.
Accordingly, in the case of Shri Karan Yash Johar (supra), the Tribunal has
taken the view the disallowances were not called merely for want of
technical documents.
14. Consistent with the view taken in the above said case, we also hold
that the impugned disallowances were not called for merely for want of
technical documents, when the assessing officer did not suspect the
primary documents maintained by the assessee. In view of the above, we
set aside the order of Ld CIT(A) in respect of all these disallowances and
direct the AO to delete the impugned disallowances.
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15. In the result, the appeal filed by the assessee is allowed.
Pronounced accordingly on 9th Sept, 2015.
9th Sept, 2015
Sd sd
(AMARJIT SINGH) ( B.R. BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai:9th Sept, 2015.
.../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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