Asian Theatres Private Limited, Hyderabad V. Asst.Commissioner of Income Tax, Circle-13(1), Hyderabad

ITA 1505/Hyd/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1049 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 05-03-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 24-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Additional evidence; Cost of acquisition; Bad and doubtful debts; Set aside
• Section: 143(3); 143(1); 192; 44AB; 37; 28

Judgement Text

ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1505/HYD/2017 ASSESSMENT YEAR: 2012-13 M/S. ASIAN THEATRES PRIVATE LIMITED, HYDERABAD PAN:AAFCA0643P VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 13(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI P. MURALI MOHAN RAO REVENUE BY : SRI SOLGY JOSE T. KOTTARAM, DR DATE OF HEARING: 05/03/2020 DATE OF PRONOUNCEMENT: 02/06/2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ORDER OF THE CIT (A)- 1, GUNTUR, DATED 20-04-20 17. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WHICH IS INTO THE BUSINESS OF DISTRIBUTION AND EXHI BITION OF FILMS, FILED ITS RETURN OF INCOME FOR THE A.Y 2012-13 ON 2 6.09.2012 ADMITTING A TOTAL INCOME OF RS.3,63,09,060/-. THE S AID RETURN WAS INITIALLY PROCESSED U/S 143(1) AND SUBSEQUENTLY WAS SELECTED FOR SCRUTINY UNDER CASS. DURING THE ASSESSMENT PROCEEDI NGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSE E HAS CLAIMED ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 2 OF 12 LOSS ON PICTURES OF A TOTAL AMOUNT OF RS.19,16.08 2/-. THE ASSESSEE HAD CLAIMED LOSS ON THE FOLLOWING MOVIES: SL. NO. MOVIE NAME AMOUNT OF LOSS CLAIMED (RS) DATE OF RELEASE 1 MICHEAL MADANA KAMARAJU 2,00,000 18.04.2008 2 MITHRUDU 6,00,000 01.05.2009 3 SNEHITHUDU 2,19,000 27.01.2012 4 YAMADONGA 8,97,082 15.08.2007 THE AO OBSERVED THAT RULE 9B OF I.T. RULES, 1962 S PECIFIES THE DEDUCTION IN RESPECT OF EXPENDITURE ON ACQUISITION OF DISTRIBUTION RIGHTS OF FEATURE FILMS AND SPECIFIES THE FOLLOWING TWO CONDITIONS: (I) IF THE FILM IS EXHIBITED FOR MORE THAN 90 DAYS BEFO RE THE END OF SUCH PREVIOUS YEAR, THE ENTIRE COST OF ACQUISITI ON OF FILM SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE PROF ITS AND GAINS OF SUCH PREVIOUS YEAR. (II) IF THE FILM IS NOT RELEASED FOR EXHIBITION ATLEAST 90 DAYS BEFORE THE END OF SUCH PREVIOUS YEAR, BALANCE COST OF ACQUISITION OF THE FILM OVER AND ABOVE THE AMOUNT R EALIZED BY THE DISTRIBUTOR, SHALL BE CARRIED FORWARD TO THE NEXT FOLLOWING PREVIOUS YEAR AND THE SAME SHALL BE ALLOW ED AS DEDUCTION IN THAT YEAR. HE OBSERVED THAT IN THE CASE OF THE ASSESSEE, THREE MOVIES ON WHICH THE ASSESSEE HAS CLAIMED LOSS, WERE RELEASED AND EX HIBITED ON COMMERCIAL BASIS FOR MORE THAN 90 DAYS IN THE RELEV ANT PREVIOUS YEARS I.E. 2008-09, 2009-10 AND 2007-08 RESPECTIVEL Y. THEREFORE, ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 3 OF 12 ACCORDING TO HIM, UNDER RULE 9B, THE SAME NEEDS TO BE ALLOWED IN THE CORRESPONDING ASSESSMENT YEARS AND NOT IN THE A .Y 2012-13. 3. WITH REGARD TO THE FOURTH MOVIE SNEHITHUDU REL EASED ON 27.01.2012, HE OBSERVED THAT SINCE IT WAS EXHIBI TED FOR LESS THAN 90 DAYS BEFORE THE END OF THE PREVIOUS YEAR, THE BA LANCE AMOUNT SHALL BE CARRIED FORWARD TO THE NEXT FOLLOWING PREV IOUS YEAR I.E. 2012-13 (A.Y 2013-14) AND SHALL BE ALLOWED AS A DED UCTION IN THAT YEAR. HE THEREFORE, CALLED FOR ASSESSEES EXPLANATI ON. THE ASSESSEE CLAIMED THAT THESE AMOUNTS WERE WRITTE N OFF AS BAD DEBTS U/S 36 & 37 OF THE I.T. ACT DURING THE RELEVANT PREVIOUS YEAR. BUT ON PERUSAL OF LEDGER COPIES OF T HESE ACCOUNTS FILED BY THE ASSESSEE, THE AO NOTICED THAT COMPLETE LEDGER COPIES OF THESE ACCOUNTS WERE CALLE D FOR DURING THE SCRUTINY ASSESSMENTS. IN THE LEDGER COPIES, TH E AMOUNTS CORRESPONDING EACH MOVIE WERE SIMPLY TRANSFERRED TO P&L ACCOUNT ON 31.03.2011. THE ASSESSEE NEITHER CLAIME D THESE AMOUNTS AS BAD DEBTS NOR ENTERED INTO HIS BOOKS OF ACCOUNTS AS BAD DEBTS. AS THE ASSESSEE DID NOT DECLARE THES E AMOUNTS AS BAD DEBTS, THE SAME CANNOT BE WRITTEN OFF AS BAD DEBTS AS PER THE PROVISIONS OF SEC.36. FURTHER, RULE-9B IS A SPECIFIC SECTION TO ALLOW DED UCTION IN RESPECT OF EXPENDITURE ON ACQUISITION OF DISTRIBUTI ON RIGHTS. WHEN THERE IS SPECIFIC SECTION FOR AN EXPENDITURE, GENERAL SECTION CANNOT BE APPLIED. IN VIEW OF THESE FACTS, THE ASSESSEES OBJECTIONS WERE NOT ACCEPTABLE AND THESE AMOUNTS WERE DISALLOWED AND ADDED BACK TO THE RETURNED INCO ME. HE THEREFORE, DISALLOWED THE CLAIM OF EXPENDITURE A ND BROUGHT ENTIRE SUM OF RS.19,16,082/- TO TAX. ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 4 OF 12 4. FURTHER, THE AO ALSO DIRECTED THE ASSESSEE TO FU RNISH THE BILLS/VOUCHERS FOR THE EXPENDITURE OF RS.26,53, 736/- CLAIMED IN THE P&L A/C. SINCE THE ASSESSEE SUBMITTED THE VO UCHERS WHICH WERE SELF-MADE, THE AO HELD THAT THE SAID VOUCHERS COULD NOT BE VERIFIED WITH THE EXPENDITURE INCURRED. HE THEREFOR E, DISALLOWED 1/5 TH OF THE EXPENDITURE I.E., RS.5,30,747/- AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DIS MISSING THE APPEAL. 2) THE LD.CIT(A) OUGHT TO HAVE ALLOWED THE EXPENDIT URE OF RS. 19,16,082/DEBITED TO PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'LOSS ON PICTURES' AS PER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. 3) THE LD. CIT(A) ERRED IN NOT ALLOWING THE EXPENDI TURE CLAIMED OF RS. 19,16,082/- BY REFERRING TO THE PROV ISIONS OF RULE 9B OF THE I.T RULES, 1962. 4) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E ALLOWANCE OF EXPENDITURE UNDER RULE 9B OF I.T. RULE S, 1962 IS NOT TO BE MISINTERPRETED AND USED AGAINST THE IN TERESTS OF THE APPELLANT. 5) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E LOSS OF RS. 19,16,082/ - REPRESENTS THE REFUNDABLE ADVANCE PAID FOR PURCHASE OF PICTURE-RIGHTS WHICH HAD BECOME A BAD D EBT ALLOWABLE U/ S 36(1)(VII) OF THE ACT. 6) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT BO TH THE PROVISIONS OF RULE 9B OF THE I.T. RULES, 1962 AND T HE PROVISIONS OF SEC 36(1) (VII) OF THE I.T. ACT, 1961 ARE SET OUT FOR GIVING RELIEF TO THE ASSESSEE AND THAT THEY ARE NOT TO BE INTERPRETED IN SUCH A WAY THAT THEY ARE OPPOSITE TO EACH OTHER. 7) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E SPECIFIC RULE 9 B OF I.T. RULES, 1962 WHICH IS APPLICABLE TO CASES OF EXHIBITION OF MOVIES, IS NOT TO BE USED AGAINST THE GENERAL PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 5 OF 12 8) THE LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLO WANCE MADE ON AN ADHOC BASIS FOR RS.5,30,747/-. 9) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT ME RELY BECAUSE THE EXPENDITURE CLAMED IS NOT SUPPORTED BY PUCCA BILLS AND IS SUPPORTED BY KUCHA VOUCHERS, THE DISAL LOWANCE OF THE SAME AT A VERY HIGH PERCENT OF THE ORDER OF 20 % IS UNREASONABLE AND IS NOT JUSTIFIED. 10) THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT, IF AT ALL ANY DISALLOWANCE IS WARRANTED IN THE APPELLANT'S CA SE FOR THE YEAR UNDER CONSIDERATION ON ACCOUNT OF NON-MAINTENA NCE OF PUCCA BILLS FOR THE EXPENDITURE CLAIMED, THE REASON ABLE DISALLOWANCE IS NOT TO EXCEED 1 % OR 2%. 11) THE ASSESSEE MAY ADD, ALTER OR MODIFY, DELETE A LL ARE ANY OF THE GROUNDS AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE CASE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED T HE WRITTEN SUBMISSIONS AS UNDER: THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS ACTIVITY OF DISTRIBUTION AND EXHIBITION OF FILMS. F OR THE ASSESSMENT YEAR 2012-13, THE ASSESSEE FILED ITS RETURN OF INCOME ON 26.09.2012 ADMITTING TOTAL INCOME OF RS.3,63,09,060/-. IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT ON 08.07.2014, THE ASSESSING OFFICER DET ERMINED THE TOTAL INCOME AT RS.3,87,55,889/- BY MAKING THE FOLLOWING DISALLOWANCES: I) DISALLOWANCE OF LOSS CLAIMED ON PICTURES: RS.19,16, 082 II) DISALLOWANCE OF 1/5TH OF EXPENDITURE CLAIMED UNDER DIFFERENT HEADS: RS. 5,30,747 2. AGGRIEVED BY THE ASSESSMENT, THE ASSESSEE PREFER RED AN APPEAL AND IT WAS DISMISSED BY THE LD. CT(A). HENCE, THE PRESE NT APPEAL. 3. THE LOSS CLAIMED OF RS.19,16,082/- IS ALLOWABLE' AS BAD DEBTS U/S 36(1)(VII) OF THE ACT - [GROUND NOS.2 TO 7] : IT IS TO SUBMIT THAT THE ASSESSEE, FOR THE ASSESSME NT YEAR UNDER CONSIDERATION, HAS CLAIMED THE LOSS OF RS.19,16,082 /- THE DETAILS OF WHICH HAVE BEEN GIVEN AT PARA 3 OF THE ASSESSMENT ORDER. FOR THE REASONS GIVEN IN PARA NOS.3 TO 3.6 OF THE ASSESSMENT ORDER, THE A SSESSING OFFICER DISALLOWED THE SAME. THE LD. CIT(A) HAS DEALT WITH THIS ISSUE AT PAGE NOSA TO 10 OF HIS ORDER AND HAS DISMISSED THE GROUNDS BY HOLDING, AMONG OTHER THINGS, THAT WHEN SPECIFIC SECTIONS/RULES ARE SPECI FIED FOR VARIOUS TYPES OF BUSINESS, THEY WILL PREVAIL OVER THE GENERAL SECTIO NS/PROVISIONS. ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 6 OF 12 IN THIS CONNECTION, IT IS TO SUBMIT THAT THE ASSESS ING OFFICER AND THE LD. CIT(A) HAVE RELIED ON THE PROVISIONS OF RULE 9B OF THE INCOME TAX RULES, 1962 IN SUPPORT OF THEIR VIEW WITH REGAR D TO THE DIS-ALLOWABILITY OF THE IMPUGNED LOSS. BUT THE APPELLANT HEREIN, HAS CLAIMED THE IMPUGNED LOSS WHICH REPRESENTS ADVANCES PAID FOR THE IMPUGNE D PICTURES IN EARLIER YEARS. IT IS SUBMITTED THAT, THE ASSESSEE PURCHASES THE FILMS FROM THE PRODUCTION HOUSE BY PAYING CERTAIN AMOUNT. THE ACTU AL PRICE IS FIXED AT THE TIME OF RELEASE OF THE MOVIE. THE BALANCE AMOUNT, I F ANY, IS EITHER PAID TO THE PRODUCERS OR RECOVERED FROM THEM. IN THE APPELL ANT'S CASE, AN AMOUNT OF RS.57,52,000/- WAS PAID BY THE ASSESSEE IN FINAN CIAL YEAR 2009-10 TO M/S. VIJAY BHASKARA PRODUCTIONS AND AN AMOUNT OF RS .6,00,000/- WAS OUTSTANDING AS AT 31.03.2012. THE ASSESSEE ALSO PAI D RS.12,77,000/- IN FINANCIAL YEAR 2009-10 TO M/S. LAXMI NARASIMHA FILM S AND AN AMOUNT OF RS.2,19,000/- WAS OUTSTANDING AS AT 31.03.2012. SIMILARLY RS.5,10,00,000/- AND RS.1,07,00,000/- WER E PAID TO M/S.VISWAMITHRA CREATIONS AND M/S. SILVER SCREEN MO VIES RESPECTIVELY IN FINANCIAL YEAR 2011-12 AND RS.8,97,082/- AND RS.2,0 0,000/- RESPECTIVELY WERE OUTSTANDING AS AT 31.03.2012. THUS, THE AMOUNT S CLAIMED IN THE TABLE GIVEN IN PARA 3 OF THE ASSESSMENT ORDER, REPR ESENT THE ADVANCES RECEIVABLE IN EARLIER YEARS FOR THE ABOVE SAID PICT URES. OUT OF THE AMOUNTS PAID AS ADVANCES, THE IMPUGNED AMOUNTS HAVE NOT BEE N RECEIVED FOR A PERIOD OF MORE THAN 3 YEARS AND THE SAME ARE CLEARL Y REFLECTED IN THE LEDGER ACCOUNTS SUBMITTED AS ADDITIONAL EVIDENCE VIDE PAPE R BOOK FILED ON 04.01.2019. THESE ARE THE RECOVERABLE AMOUNTS. SINC E THE SAME HAVE NOT BEEN RECEIVED SO FAR, THEY HAVE BEEN TREATED AS 'BA D DEBTS' AND HAVE BEEN WRITTEN OFF IN P & L ACCOUNT AS 'LOSS ON PICTURES'. THIS TREATMENT IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII ) AND 37 OF THE ACT. IN THIS REGARD, THE ASSESSEE RELIES ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF M/S. MOHAN MEAKINS VS. CIT (348 ITR 109) (D ELHI). AS DETAILED ABOVE, THE IMPUGNED AMOUNTS REPRESENT UNRECOVERED A DVANCES WHICH DO NOT REPRESENT THE EXPENDITURE INCURRED FOR THE FILM S. THEREFORE, THE PROVISIONS OF RULE-9B OF INCOME TAX RULES 1962, ARE NOT APPLICABLE TO THE APPELLANT'S CASE. SINCE THESE ADVANCES HAVE NOT BEE N RECOVERED, THEY ARE TREATED AS 'BAD DEBTS' AND CLAIMED U/S 36(1)(VII) O F THE ACT. MERELY BECAUSE, THESE AMOUNTS ARE NOT EXHIBITED AS 'BAD DE BTS' IN P & L ACCOUNT OF THE YEAR UNDER CONSIDERATION, THEY CANNOT BE DIS ALLOWED. THE AMOUNT OF RS.19,16,082/- IS VERY MUCH QUALIFIED FOR THE CLAIM U/S 36(1)(VII) OF THE ACT. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS I NCURRED THE LOSS WHICH IS ASCERTAINED DURING THE FINANCIAL YEAR 2011-12 RELEV ANT TO THE ASSESSMENT YEAR 2012-13. THE FACT ALSO REMAINS THAT THE IMPUGN ED EXPENDITURE HAS NOT BEEN CLAIMED IN ANY EARLIER YEARS OF ACCOUNT. S INCE THE AMOUNTS ARE NOT ACTUALLY RECEIVED BY THE ASSESSEE, THEY ARE TRE ATED AS 'BAD DEBTS' AND CLAIMED AS 'LOSS ON PICTURES' AS PER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT WHICH IS REQUIRED TO BE ALLOWED. IN SUPPORT OF THIS VIEW, THE ASSESSEE RELIES ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF MIS. MOHAN MEAKINS VS. CIT, DELHI, (348 ITR 109) (DELHI) . IN THE INSTANT CASE, THE ASSESSING OFFICER AND THE LD. CIT(A) HAVE RELIED ON THE PROVISIONS OF RULE 98 WHEREAS TH E APPELLANT CLAIMS THE IMPUGNED LOSS UNDER SECTION 36(1)(VII) OF THE ACT. IT IS HUMBLY SUBMITTED ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 7 OF 12 THAT THE ALLOWANCE OF EXPENDITURE UNDER RULE 98 OF INCOME TAX RULES 1962 IS NOT TO BE MISINTERPRETED AND USED AGAINST THE IN TERESTS OF THE APPELLANT. THE LOSS OF RS.19,16,082/- REPRESENTS THE REFUNDABL E ADVANCE PAID FOR PURCHASE OF PICTURE WHICH HAS BECOME A BAD DEBT ALL OWABLE ULS 36(L)(VII) OF THE ACT. IT IS TO SUBMIT THAT BOTH THE PROVISION S OF RULE 98 OF THE INCOME TAX RULES 1962 AND THE PROVISIONS OF SECTION 36(1)( VII) OF THE ACT ARE SET OUT FOR GIVING RELIEF TO THE ASSESSEE AND THAT THEY ARE NOT TO BE INTERPRETED IN SUCH A WAY THAT THEY ARE OPPOSITE TO EACH OTHER. THE SPECIFIC RULE 98 OF INCOME TAX RULES 1962 WHICH IS APPLICABLE TO CASES OF EXHIBITION OF MOVIES, IS NOT TO BE USED AGAINST THE GENERAL PROVI SIONS OF SECTION 36(1)(VII) OF THE ACT. IN SUCH CASES, THE INTERPRETATION HAS T O BE CONSTRUED IN A MANNER BENEFICIAL TO THE ASSESSEE AS HELD BY THE APEX COUR T IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LIMITED [1973] 88 ITR 192 (SC). IN VIEW OF THE SUBMISSIONS IT IS PRAYED TO ALLOW TH E GROUNDS OF APPEAL AND TO DELETE THE DISALLOWANCE OF RS.19,16,082/-. 4. THE AD HOC DISALLOWANCE OF RS.5,30,747/- TOWARDS EXPENDITURE CLAIMED UNDER DIFFERENT HEADS IS NOT WARRANTED - [GROUND NO S.8, 9 & 10] : THE ASSESSING OFFICER VIDE PARA 4 OF THE ASSESSMENT ORDER DISALLOWED THE AMOUNT OF RS.5,30,747/- (1/5TH OF RS.26,53,736/-) U NDER DIFFERENT HEADS ON THE GROUND THAT THE RELEVANT VOUCHERS/BILLS WERE SELFMADE AND THAT SOME OF THE VOUCHERS WERE UNVERIFIABLE. THE LD. CIT (A) CONFIRMED THE DISALLOWANCE ON THE GROUND THAT THE EXPENDITURE WAS SUPPORTED BY KUCHA VOUCHERS BUT NOT BY PUCCA BILLS. IN THIS CONNECTION , IT IS SUBMITTED THAT THE ASSESSING OFFICER MADE THE ADHOC ADDITION ARBITRARI LY, UNREASONABLY AND WITHOUT IDENTIFYING AS TO WHAT AMOUNT WAS FOUND TO BE NOT GENUINE. IT MAY BE SUBMITTED THAT THE ENTIRE EXPENDITURE IS VERIFIA BLE, BUT ONLY SOME OF THE VOUCHERS ARE SELF-MADE. THIS IS BECAUSE, IN THE LIN E OF ASSESSEE'S BUSINESS, MAJORITY OF THE EXPENDITURE IS INCURRED ON MANUAL S ERVICES FROM UNORGANISED SECTORS AND INDIVIDUALS. NO PRINTED VOU CHERS COULD BE OBTAINED FROM THOSE PERSONS OR SERVICES, FOR THE PA YMENTS MADE. IN THAT CASE, THE STAMPED RECEIPTS ARE TAKEN ON THE ASSESSE E'S PRINTED RECEIPTS/SLIPS, SOME TIMES, ON A WHITE SHEET. THIS ITSELF CANNOT BE TAKEN AS THOUGH THE EXPENDITURE IS NOT GENUINE FOR MAKING TH E ADHOC AND UNREASONABLE DISALLOWANCE. IN THIS REGARD, IT IS AL SO SUBMITTED THAT THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT, W HICH ARE DULY AUDITED U/S 44AB OF THE ACT. THERE WAS NEITHER A CHANGE IN THE METHOD OF ACCOUNTS NOR WAS THERE ANY DEFECT NOTICED IN MAINTENANCE OF ACCOUNTS. THEREFORE, THERE IS NO REASON TO MAKE THE ESTIMATED DISALLOWAN CE. IN THIS REGARDS THE ASSESSEE RELIES ON THE FOLLOWING DECISIONS: I) CIT VS. VALLABHBHAI GONADHAI [2014] 221 TAXMANN 385 (GUJ.) II) TOURIST INDIA CONVENTION & HOTEL PVT. LTD., V. DCIT, CENTRAL CIRCLE-2 [ITA NO.1329/HYD/2017] (ITAT, HYDERABAD) WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, IT MAY BE SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE AD HOC DISALLOWANCE AT AN EXORBITANTLY HIGH RATE OF 20% WITHOUT TAKING THE AVERAGE EXPENDI TURE IN COMPARABLE ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 8 OF 12 CASES. IT WOULD HAVE BEEN REASONABLE, IF THE DISALL OWANCE IS MADE AT 1% OR 2%. AS SUCH, THE GROUNDS MAY BE ALLOWED AND THE DISALLO WANCE OF RS.5,30,747/- MAY BE DELETED.. 5. IN VIEW OF THE ABOVE SUBMISSIONS, IT IS PRAYED T O ALLOW THE APPEAL. HE HAS ALSO FILED ADDITIONAL EVIDENCE WHICH ARE COP IES OF THE LEDGER A/C OF ADVANCES RECEIVED AND WRITTEN OFF BY THE ASS ESSEE IN RESPECT OF THE FOUR MOVIES ON ACCOUNT OF WHICH THE ASSESSEE IS CLAIMING LOSS. THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORI TIES BELOW AND SUBMITTED THAT SINCE SECTIONS 36 & 37 OF THE I.T. A CT ARE GENERAL PROVISIONS UNDER WHICH THE ASSESSEE CAN CLAIM SET O FF OF LOSSES, IT IS TO BE ACCORDINGLY ALLOWED. HE SUBMITTED THAT THE PROVISIONS OF RULES 9A AND 9B ARE APPLICABLE TO COMPUTE THE COST OF ACQUISITION OF A MOVIE AND NOT WITH REGARD TO LOSS INCURRED BY AN ASSESSEE. THEREFORE, HE SUBMITTED THAT THE LOSS FROM ITS BUSI NESS SHOULD BE ALLOWED TO THE ASSESSEE. WITH REGARD TO THE DISALLO WANCE OF OTHER EXPENDITURE ON ESTIMATION BASIS, HE SUBMITTED THAT THE DISALLOWANCE OF 20% OF EXPENDITURE BY THE AO IS EXC ESSIVE AND PRAYED FOR RESTRICTING THE DISALLOWANCE TO 5% OF TH E EXPENDITURE. 6. THE LEARNED DR WAS ALSO HEARD, WHO RELIED ON THE PROVISIONS OF RULE 9B OF I.T.RULES AND SUBMITTED TH AT WHERE SPECIFIC PROVISION IS THERE, THE SAME HAS TO BE APPLIED AS R IGHTLY DONE BY THE AO AND THE CIT(A). ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 9 OF 12 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND RULE 9B OF THE I.T.RULES, WE FIND THAT THE ASSESSEE IS NOT CLA IMING THE EXPENDITURE INCURRED ON THE ACQUISITION OF MOVIES B UT THE ASSESSEE IS CLAIMING LOSS DUE TO NON-RECOVERY OF ADVANCES PA ID. RULE 9B ONLY PROVIDES A METHOD OF COMPUTING DEDUCTION AVAILABLE IN RESPECT OF EXPENDITURE ON ACQUISITION OF DISTRIBUTION RIGHTS O F FEATURE FILMS, BUT DOES NOT ADDRESS THE SEQUENCE IN WHICH DEDUCTIO NS ARE TO BE ALLOWED. THE HON'BLE DELHI HIGH COURT IN THE CASE O F HONEY ENTERPRISES VS. CIT IN ITA NO.163/2002, DT.08.12.20 15 HAS CONSIDERED THE PROVISIONS OF RULE 9B AND HAS HELD A S UNDER: 13. RULE 9B OF THE RULES HAS BEEN FRAMED UNDER SEC TION 295 OF THE ACT BY THE CENTRAL BOARD OF DIRECT TAXES (HEREAFTER 'CBDT') AN D PROVIDES FOR THE DEDUCTION IN RESPECT OF EXPENDITURE INCURRED ON ACQUISITION O F DISTRIBUTION RIGHTS OF FEATURE FILMS. RULE 9B(1) OF THE RULES PROVIDES THAT DEDUCT ION IN RESPECT OF COST OF ACQUISITION OF A FEATURE FILM SHALL BE ALLOWED IN A CCORDANCE WITH SUB-RULE (2) TO SUB-RULE (4) OF RULE 9B OF THE RULES. A PLAIN READI NG OF THE EXPLANATION TO RULE 9B(1) OF THE RULES INDICATES THAT WHERE THE RIGHTS OF EXHIBITION HAVE BEEN ACQUIRED ON A MINIMUM GUARANTEE BASIS, THE MINIMUM GUARANTEE AMOUNT, NOT BEING THE EXPENDITURE INCURRED BY THE DISTRIBUTOR F OR PREPARATION OF THE POSITIVE PRINTS OF THE FILM AND THE EXPENDITURE INCURRED BY HIM IN CONNECTION WITH THE ADVERTISEMENT OF THE FILM, WOULD BE TAKEN AS A COST OF ACQUISITION FOR THE PURPOSES OF RULE 9B OF THE RULES. THUS, IT HAS BEEN EXPRESSL Y INDICATED THAT THE COST OF ACQUISITION FOR THE PURPOSES OF RULE 9B WOULD NOT I NCLUDE ANY PUBLICITY EXPENDITURE IN CONNECTION WITH FILMS OR ANY EXPENDI TURE INCURRED FOR PREPARATION OF THE POSITIVE PRINTS OF FILMS. INDISPUTABLY, IN V IEW OF THE PLAIN LANGUAGE OF RULE 9B, THE EXPENDITURE INCURRED ON PREPARATION OF POSI TIVE PRINTS OF A FILM CANNOT BE CARRIED FORWARD FOR AMORTIZATION IN TERMS OF RULE 9 B OF THE RULES AS COST OF ACQUISITION OF DISTRIBUTION RIGHTS OF THAT FILM. 14. IN TERMS OF SUB-RULE (3) OF RULE 9B OF THE RULE S, IF A FILM IS NOT RELEASED FOR EXHIBITION ON A COMMERCIAL BASIS AT LEAST 180 DAYS (NOW AMENDED TO 90 DAYS W.E.F. 1ST APRIL, 1999) BEFORE THE END OF THE RELEV ANT PREVIOUS YEAR, THE COST OF ACQUISITION OF THE DISTRIBUTION RIGHTS OF THAT FILM INSOFAR AS IT DOES NOT EXCEED THE AMOUNT REALIZED BY THE FILM DISTRIBUTOR BY EXHIBITI NG THE FILM ON A COMMERCIAL BASIS, WOULD BE ALLOWED AS A DEDUCTION IN COMPUTING THE PROFITS AND GAINS FOR ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 10 OF 12 THE RELEVANT PREVIOUS YEAR. IN THE FACTS OF THE PRE SENT CASE, THE FOUR FILMS, NAMELY, 'FARISHTEY', 'SAUGANDH', 'PATTHAR KE PHOOL' AND 'PA TTHAR KE INSAAN' HAD NOT COMPLETED A COMMERCIAL RUN OF 180 DAYS DURING THE P RECEDING FINANCIAL YEAR, I.E., FINANCIAL YEAR 1990-91 RELEVANT TO THE AY 1991-92. THEREFORE, THE ASSESSEE WAS ENTITLED TO A DEDUCTION TO THE EXTENT THAT THE COST OF ACQUISITION OF THE FILMS DID NOT EXCEED THE AMOUNT REALIZED BY THE ASSESSEE FROM EXH IBITING THE FILM ON A COMMERCIAL BASIS AND/OR SALE OF RIGHTS OF EXHIBITIO N IN RESPECT OF SOME OF THE AREAS. THUS, RULE 9B DOES NOT PRECLUDE THE ASSESSEE FROM C LAIMING THE LOSS ON THE DISTRIBUTION OF FEATURE FILMS IN THE YE AR IN WHICH SUCH LOSS IS INCURRED BY THE ASSESSEE. WE HAVE GONE THRO UGH THE COPIES OF THE LEDGER A/C OF ADVANCES RECEIVED AND WRITTEN OFF WHICH ARE NOW FILED AS ADDITIONAL EVIDENCE AND FIND THAT THE ASSE SSEE HAS INCURRED LOSS ON THE DISTRIBUTION OF EACH OF THE FILMS WHICH WAS BEEN CLAIMED BY THE ASSESSEE DURING THE RELEVANT A.Y. THE LEARNE D COUNSEL FOR THE ASSESSEE HAD ALSO RELIED UPON THE FOLLOWING DEC ISIONS IN SUPPORT OF HIS CONTENTION THAT LOSS SHOULD BE ALLOWED TO HI M IN THIS YEAR: A) HON'BLE HIGH COURT OF DELHI IN THE CASE OF MOHAN ME AKINS VS. CIT, 348 ITR 109. B) ANDHRA PRADESH HIGH COURT IN THE CASE OF P. SATYANARAYANA VS. CIT, 116 ITR 803. C) ITAT HYDERABAD IN THE CASE OF USHODAYA ENTERPRIS ES IN ITA NO.1429/HYD/2008. D) ITAT HYDERABAD IN THE CASE OF DCIT VS. ECI ENGG. & CONSTRUCTION CO. IN ITA NO.111/HYD/2014. E) HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VEG ETABLE PRODUCTS LTD, 88 ITR 192. F) HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS . VALLABHBHAI GONADHAI, 221 TAXMANN.385 G) ITAT HYDERABAD IN THE CASE OF TOURIST INDIA CONV ENTION & HOTEL P LTD VS. DCIT IN ITA NO.1329/HYD/2017. 8. IN THE CASE OF P. SATYANARAYANA VS. CIT (SUPRA), THE HON'BLE HIGH COURT WAS CONSIDERING THE CASE OF A FI LM DISTRIBUTOR ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 11 OF 12 WHO HAD WRITTEN OFF OF THE BALANCE OUTSTANDING WITH THE PRODUCERS AND THE HON'BLE HIGH COURT HAS STATED THAT THE LOSS SUSTAINED WAS IN THE COURSE OF BUSINESS AND INCIDENTAL THERETO AN D THEREFORE, THE TRADING LOSS IS ALLOWABLE U/S 28 OF THE ACT. HOWEVE R, THIS DECISION IS RELEVANT TO THE A.Y 1969-70 WHEN RULE 9B HAD NOT COME INTO THE STATUTE BOOK. 9. IN THE CASE OF USHODAYA ENTERPRISES (SUPRA) FOR THE A.Y 2004-05, THE ISSUE WAS WITH REGARD TO WRITE OFF OF BAD DEBTS AND IS NOT STRICTLY APPLICABLE TO THE CASE ON HAND. 10. IN THE CASE OF ECI ENGG. & CONSTRUCTION CO. (SU PRA), IT IS THE CASE OF BAD DEBTS WRITTEN OFF BY THE ASSESSE E FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F TRF LTD., VS. CIT (323 ITR 397) AND IT WAS HELD THAT THE ASSESSEE DOES NOT HAVE TO ESTABLISH BEYOND DOUBT THAT THE DEBT HAD INDEED BECOME BAD. 11. FROM THE ABOVE DECISIONS, IT IS CLEAR THAT ANY DEBT WHICH HAS BECOME BAD, CAN BE WRITTEN OFF AS BAD DEBT WITH OUT HAVING TO ESTABLISH THAT IT HAS REALLY BECOME BAD. IN THE CA SE BEFORE US, THE ASSESSEE HAS CLAIMED TO INCURRED LOSS DUE TO NON-RE COVERY OF ADVANCES AND THEREFORE, CLAIMED IT AS LOSS WHICH IS NOT IMPERMISSIBLE UNDER THE LAW. HOWEVER, THE ADDITIONA L EVIDENCE FILED BY THE ASSESSEE NEEDS VERIFICATION. THEREFORE, THE ISSUE IS SET ASIDE TO THE FILE OF AO FOR DENOVO CONSIDERATION. THE ASSESSEES GROUNDS ITA NO 1505 OF 2017 ASIAN THEATRES P LTD HY DERABAD. PAGE 12 OF 12 OF APPEAL ON THIS ISSUE ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 12. AS REGARDS THE DISALLOWANCE OF EXPENDITURE DEBI TED TO P&L A/C ON THE GROUND THAT IT IS NOT SUPPORTED BY P UCCA BILLS, WE FIND THAT THE AO HAS DISALLOWED ONLY 5% OF THE EXPE NDITURE AND NOT 20% AS ALLEGED BY THE ASSESSEE IN ITS GROUNDS OF AP PEAL. EXCEPT RAISING THE ABOVE GROUNDS, THE ASSESSEE HAS NOT BE ABLE TO ESTABLISH AS TO WHY 5% DISALLOWANCE IS UNREASONABLE. THEREFO RE, THE GROUNDS AGAINST THIS DISALLOWANCE ARE REJECTED. 13. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE, 2020. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 2 ND JUNE, 2020. VINODAN/SPS COPY TO: 1 P. MURALI & CO. C.A, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500082 2 ACIT CIRCLE 13(1) HYDERABAD 3 CIT (A)-1 GUNTUR 4 PR. CIT IV HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER