MAD ENTERTAINMENT LTD, MUMBAI V. ASST CIT RG 11(1), MUMBAI

ITA 2036/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0316 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: DHIRENDRA M SHAH LD
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A

Judgement Text

ITA NO 2036/MUM/2015 MAD ENTERTAINMENT LIMITED ASSESSMENT YEAR 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.2036/MUM/2015 ( / ASSESSMENT YEAR: 2010-11) MAD ENTERTAINMENT LIMITED C/O MANGALDAS D. SHAH & CO. 5 TH FLOOR, 506 LOTUS HOUSE 33-A, NEW MARINE LINES MUMBAI 400 020 / VS. ASSISTANT COMMISSIONER OF INCOME TAX RANGE 11(1) AAYKAR BHAVAN M.K.ROAD MUMBAI -400 020 ! ./ ./PAN/GIR NO. AABCM-2869-H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : DHIRENDRA M.SHAH, LD. AR REVENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 08/08/2017 / DATE OF PRONOUNCEMENT : 16 /08/2017 ITA NO 2036/MUM/2015 MAD ENTERTAINMENT LIMITED ASSESSMENT YEAR 2010-11 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2010-11 ASSAILS THE ORDER OF LD. COMMISSIONER OF IN COME TAX (APPEALS)-4 [CIT(A)], MUMBAI DATED 23/02/2015 ON F OLLOWING EFFECTIVE GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED ASSESSING OFFICER ERRED IN NOT ALLOWING DEDUCTION OF RS.4,00,000/- AND CIT(A) ERRED IN CONFIRMING THE ADDITION WHICH BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW THE ASSESSING OFFICER ERRED IN MAKING ADDITION OF RS. 25,29,605/- BEING THE BAD DEBTS WRITTEN OF WHICH BE ALLOWED IN FULL AND THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION SAYING THAT, ADDITION MADE CANNOT BE ALLOWED U/S.36(2)(I) OF THE ACT. THE APPE LLANT PRAYS THAT, THE ADDITION MADE BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED ASSESSING OFFICER ERRED IN MAKING ADDITION OF RS.20,98,735/- OUT OF CASH EXPEN SES WHICH ADDITION BE DELETED. WITHOUT PREJUDICE, THE ADDITION MADE BEING ON ADHOC BASIS, IT SHOULD BE REDUCED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED ASSESSING OFFICER ERRED IN MAKING ADDITION OF RS.31,837/- U/S.14AR.W.R 8D(2)(I II) WHICH ADDITION BE DELETED. 2.1 BRIEFLY STATED THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF PRODUCTION OF T.V. COMMERCIALS AND FILMS WAS ASSESSED U/S.143(3) FOR THE IMPUGNED AY AT RS.4 ,25,38,780/- AFTER CERTAIN DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.3,84,06,321/- FILED BY THE ASSESSEE ON 13/10/2010. THE ASSESSEE H AS SUFFERED FOUR ADDITIONS AGGREGATING TO RS.50,60,177/-, WHICH ARE THE SUBJECT MATTER OF THIS APPEAL. 2.2 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE WROTE-OFF CERTAIN ADVANCES AND DEBTS OUT OF WHICH ADVANCES O F RS.4.00 LACS GIVEN TO 3 PARTIES AND BAD DEBTS WRITTEN OFF F OR RS.25,29,605/- WITH RESPECT TO 21 PARTIES DID NOT FULFILL THE CONDITION S PRESCRIBED U/S 36(2)(I). ITA NO 2036/MUM/2015 MAD ENTERTAINMENT LIMITED ASSESSMENT YEAR 2010-11 3 2.3 IT WAS FURTHER NOTED THAT THE ASSESSEE CLAIMED CASH EXPENSES OF RS.1,04,93,675/- UNDER VARIOUS HEADS VIZ. MISCELLANEOUS EXPENSES, CAMERA CREW, CAR HIRE CHARGES, DIESEL CHARGES, CONV EYANCE, ARTIST PAYMENT ETC. WHICH WERE NOT FULLY SUPPORTED BY BILLS / VOU CHERS WHICH LED THE LD. AO TO MAKE ADHOC DISALLOWANCE AGAINST THE SAME @20%, WHICH AMOUNTED TO RS.20,98,735/-. 2.4 THE LAST ADDITION PERTAINS TO SECTION 14A DISAL LOWANCE U/R 8D(2)(III) FOR RS.31,837/- SINCE THE ASSESSEE EARNED TAX EXEMP T INCOME OF RS.60,550/-. 3. AGGRIEVED, THE ASSESSEE CONTESTED ALL THE ADDITI ONS WITHOUT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 23/02/2015 WHERE LD. CIT(A), AFTER CONSIDERING ASSESSEES SUBMISSION S / CONTENTIONS, CONCLUDED THE MATTER IN THE FOLLOWING MANNER:- 5.1 I HAVE CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, WRITTEN SUBMISSIONS OF THE APPELLANT AND ARGUMENTS MADE BY THE AR BEFORE THE UNDERSIGNED. VARIOUS GROUNDS OF APPEAL ARE DECIDED AS UNDER:- 5.2 GROUND OF APPEAL NO.1: 5.2.1 ADMITTEDLY, THE ADVANCES GIVEN TO MR. AKSHAY KUMAR, MR. KABIR LAL AND MS. NISHA WAGHELA WERE NOT IN THE NATURE OF DEBTS. SECONDLY, SUCH DEBTS OR PART THEREOF HAD NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A PPELLANT FOR THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF WAS WRITTEN OFF (A.Y 2010-11) OR FOR AN EARLIER PREVIOUS YEAR. THIRDLY, SUCH ADVANCES DO NOT REPRES ENT MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LENDING BECAUSE THE AP PELLANT IS NOT ENGAGED IN THE BUSINESS OF BANKING OR MONEY LENDING. FOURTHLY, THE APPELLAN T HAS FAILED TO PROVE THAT THESE ADVANCES WERE GIVEN IN THE PREVIOUS YEAR RELEVANT T O A.Y.2010-11. THE APPELLANT HAS FAILED TO FURNISH THE CERTIFIED TRUE COPIES OF ITS LEDGER ACCOUNT OF ADVANCES GIVEN IN THE EARLIER PREVIOUS YEARS OR IN THE PREVIOUS YEAR RELEVANT TO A.Y.2010-11. IN THE ABSENCE OF MATERIAL AND EVIDENCES SUCH ADVANCES OF RS.4,00,000/- CANNOT BE ALLOWED EVEN AS A TRADING LOSS BECAUSE THE APPELLANT HAS FAILED TO ESTABLISH THAT THESE ADVANCES WERE MADE BY THE APPELLANT IN THE PREVIOUS YEAR RELEVANT TO A.Y.2010 -11. 5.2.2 HAVING REGARD TO FACTS AND CIRCUMSTANCES OF T HE CASE AND IN VIEW OF PROVISIONS OF SEC.36(2)(I) OF THE ACT, THE DISALLOWANCE OF RS.4,0 0,000/- IS CONFIRMED. THEREFORE, GROUND OF APPEAL NO.1 IS NOT ALLOWED 5.3 GROUND OF APPEAL NO.2: 5.3.1 ADMITTEDLY, THE DEBTS OF RS.25,29,605/- WRITT EN OFF BY THE APPELLANT WERE NOT TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE APPELLA NT FOR THE PREVIOUS YEARS IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF WERE MADE OR FO R AN EARLIER PREVIOUS YEAR. SECONDLY, SUCH ADVANCES DO NOT REPRESENT MONEY LENT IN THE OR DINARY COURSE OF BUSINESS OF BANKING ITA NO 2036/MUM/2015 MAD ENTERTAINMENT LIMITED ASSESSMENT YEAR 2010-11 4 OR MONEY LENDING BECAUSE THE APPELLANT IS NOT ENGAG ED IN THE BUSINESS OF BANKING OR MONEY LENDING. THIRDLY, THE APPELLANT HAS FAILED TO PROVE THAT THESE BAD DEBTS WERE WRITTEN OFF AND TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE APPELLANT FOR THE PREVIOUS YEAR RELEVANT TO A.Y.2010-11 OR FOR AN EARLIER ASSESSMEN T YEAR. THEREFORE, SUCH BAD DEBTS OF RS. 25,29,605/- CANNOT BE ALLOWED U/S.36(2)(I) OF THE A CT IN THE PREVIOUS YEARS RELEVANT TO A.Y.2010-11 5.3.2 HAVING REGARD TO FACTS AND CIRCUMSTANCES OF T HE CASE AND IN VIEW OF PROVISIONS OF SEC.36(2)(I) OF THE ACT, THE DISALLOWANCE OF RS.25, 29,605/- IS CONFIRMED. THEREFORE, GROUND OF APPEAL NO.2 IS NOT ALLOWED. 5.4 GROUND OF APPEAL NO.3: 5.4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE A.O NOTICED THAT THE APPELLANT HAD INCURRED EXPENSE OF RS.1,04,93,675/- IN CASH IN THE F.Y.2009-10 RELEVANT TO A.Y.2010- 11. THE APPELLANT WAS ASKED TO PRODUCE ALL CASH VOU CHERS FOR VERIFICATION BUT THE APPELLANT PREFERRED TO FURNISH LEDGER ACCOUNT COPIES ONLY AND NOT THE CASH VOUCHERS. THESE CASH EXPENSES PERTAIN TO VARIOUS EXPENSES LIKE MISCELLAN EOUS EXPENSES, CAMERA CREW, CAR HIRE CHARGES, DIESEL CHARGES, CONVEYANCE, ARTIST PAYMENT ETC. THE APPELLANT FAILED TO EXPLAIN THE GENUINENESS AND NEED FOR SUCH CASH EXPENSES THE A.O . HAS GIVEN A FINDING OF FACT THAT A PART OF SUCH CASH EXPENSES WERE NOT GENUINE BECAUSE NO SUPPORTING BILLS OR EVIDENCES WERE FURNISHED IN SUPPORT OF SUCH NON GENUINE CASH EXPENSES. HAVING REGARD TO FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF VARIOUS CA SE LAWS RELIED UPON BY THE A.O, HE DISALLOWED 20% OF SUCH CASH EXPENSES CALCULATED AT RS.20,98,735/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE APPELLANT FOR THE REASONS D ISCUSSED IN PARAGRAPH NO.6 OF THE RELEVANT ASSESSMENT ORDER. 5.4.2 ON THE OTHER HAND LEARNED A.R. RELIED UPON TH E APPELLANT ORDER IN ITS OWN CASE PASSED BY HONBLE ITAT B BENCH VIDE ITA NO.5993/MUM /2011 (A.Y.2008-09) DATED 28.10.2014, WHEREIN HONBLE ITAT HAD CONFIRMED PART OF SUCH DISALLOWANCE OF CASH EXPENSES. 5.4.3 I HAVE CAREFULLY AND DISPASSIONATELY CONSIDER ED FACTS AND CIRCUMSTANCES OF THE CASE. HONBLE ITAT, MUMBAI BENCH HAS CONFIRMED RS.9 .18 LAKHS UNDER RULE 6DD AND FURTHER CONFIRMED 50% OF THE BALANCE DISALLOWANCE V IDE PARAGRAPH NO.6 OF THE RELEVANT ITAT ORDER DATED 28.10.2014. HAVING REGARD TO FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF UNVERIFIED CASH EXPENSES OF RS.20,9 8,735/-, BEING 20% OF TOTAL CASH EXPENSES, IS CONSIDERED REASONABLE AND THEREFORE CONFIRMED. SUCH CASH EXPENSES HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF APPELLANTS BUSINESS. THEREFORE, GROUND OF APPEAL NO.3 IS NOT ALLOWED. THE DISALLOWANCE U/S 14A WAS CONFIRMED BY LD.CIT(A) AFTER PLACING RELIANCE ON SEVERAL JUDICIAL PRONOUNCEMENTS. AGGRIE VED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4.1 THE LD. REPRESENTATIVE FOR ASSESSEE [AR] CONTES TED THE ADDITION OF RS.4.00 LACS AGAINST ADVANCES WRITTEN-OFF BY CONTENDING THAT THE SAME WERE GIVEN IN ORDINARY COURSE OF BUSINESS AND HENCE , THE LOSS OF THE SAME CONSTITUTE TRADING LOSS U/S 28(IV) AND THEREFORE, ALLOWABLE. ITA NO 2036/MUM/2015 MAD ENTERTAINMENT LIMITED ASSESSMENT YEAR 2010-11 5 SIMILARLY, THE LD. AR CONTENDED THAT THE ASSESSEE H AD FULFILLED THE CONDITION OF SECTION 36(2)(I) WITH RESPECT TO BAD DEBTS WRITTEN-OFF AND THEREFORE, THE SAME MAY BE ALLOWED TO THE ASSESSEE AFTER DUE VERIFICATION BY LD. AO. REGARDING ADHOC DISALLOWANCE OF 20% AGAINST VARIOUS EXPENSES, OUR ATTENTION HAS BEEN DRAWN TO T HE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 VIDE ITA NO. 6274/MUM/2012 ORDER DATED 03/05/2016, A COPY OF WHI CH HAS BEEN PLACED BEFORE US. THE ADDITION U/S 14A HAS BEEN CON TESTED ON THE PREMISES THAT NO EXPENSES WERE INCURRED BY THE ASSE SSEE TO EARN THE SAID EXEMPT INCOME. 4.2 PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE DREW ATTENTION TO T HE LEDGER EXTRACT OF VARIOUS DEBTORS PLACED IN THE PAPER BOOK AND CONTENDED THAT THERE WERE NO TRANSACTIONS IN THESE ACCOUNTS SINCE PAST MANY YEARS AND FURTHER, THE ASSESSEE HAS FAILED TO PROVE THE FULFILLMENT OF CONDITION PRESCRIBED U/S 36(2)(I). THE LD. DR DE FENDED THE OTHER ADDITIONS ON THE PREMISES THAT THE SAME WERE QUITE REASONABLE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. FIRST OF ALL, WE NOTE COMPUTATI ONAL ERROR IN LD. AOS ORDER SINCE THE RETURNED INCOME REFLECTED BY THE AS SESSEE WAS RS.3,84,06,321/- AND THE ASSESSEE SUFFERED ADDITION AGGREGATING RS.50,60,177/- AND THEREFORE THE DETERMINED INCOME SHOULD HAS BEEN RS.4,34,66,498/- WHEREAS THE SAME HAS BEEN TAKEN AS RS.4,25,38,780/- BY LD. AO AND THEREFORE, REQUIRE RECTIFICATION. 6. PROCEEDING FURTHER ON THE MERITS OF THE APPEAL, SO FAR AS THE ADDITION OF RS.4.00 AGAINST WRITE-OFF OF ADVANCES IS CONCERNED, WE ARE ITA NO 2036/MUM/2015 MAD ENTERTAINMENT LIMITED ASSESSMENT YEAR 2010-11 6 INCLINED TO CONFIRM THE SAME SINCE THE ASSESSEE COU LD NOT ADDUCE ANY MATERIAL TO SHOW THAT THE ADVANCES WERE GIVEN IN TH E ORDINARY COURSE OF ASSESSEES BUSINESS AND THE SAME CONSTITUTE TRADING LOSS FOR THE ASSESSEE. PER QUERY FROM THE BENCH, THE ASSESSEE CO ULD NOT PRODUCE ANY AGREEMENT / DOCUMENTARY EVIDENCES TO SUBSTANTIA TE THIS FACT AND THEREFORE, THIS ADDITION IS CONFIRMED AND THIS GROU ND OF ASSESSEES APPEAL STANDS DISMISSED. 7. REGARDING ADDITION OF RS.25,29,605/- ON ACCOUNT OF BAD DEBTS WRITTEN-OFF , AFTER PERUSAL OF LEDGER EXTRACT PLACED IN THE PAPER BOOK, WE CONCUR WITH THE STAND OF THE LD. DR THAT THE SAME R EVEALS NO MOVEMENT IN THE DEBTORS BALANCES SINCE PAST MANY YEARS AND DOES NOT SHOW FULFILLMENT OF CONDITION PRESCRIBED U/S 36(2)(I). H OWEVER, THE LD. AR HAS CONTENDED THAT THE INCOME FROM THESE DEBTORS WAS OF FERED TO TAX IN EARLIER YEARS AND THE ASSESSEE IS IN POSSESSION OF NECESSARY EVIDENCES TO SUBSTANTIATE THIS FACT AND THEREFORE, WE DEEM IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF LD. AO TO VERIFY THIS FACT AND DECIDE AS PER LAW AFTER AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE, WHO , IN TURN, IS ALSO DIRECTED TO SUBSTANTIATE THE SAME WITH EVIDENCES. R ESULTANTLY, THIS GROUND OF ASSESSEES APPEAL STANDS ALLOWED FOR STAT ISTICAL PURPOSES. 8. THE LD. AR HAS PLACED RELIANCE ON TRIBUNALS ORD ER FOR 2009-10 IN ASSESSEES OWN CASE TO CONTEND THAT ADHOC ADDITION OF EXPENSES WAS ON THE HIGHER SIDE. UPON PERUSAL OF THE CITED TRIBU NAL ORDER, WE FIND THAT THE BENCH HAS TAKEN A VIEW THAT DISALLOWANCE TO THE EXTENT OF 5% WOULD SUFFICE TO MEET THE END OF JUSTICE. THEREFORE, TAKI NG THE SAME STAND, WE RESTRICT THE ADHOC DISALLOWANCE TO 5% OF RS.1,04,93,675/- WHICH COMES ITA NO 2036/MUM/2015 MAD ENTERTAINMENT LIMITED ASSESSMENT YEAR 2010-11 7 TO RS.5,24,684/-. RESULTANTLY, THE ASSESSEES GROUN D OF APPEAL STANDS PARTLY ALLOWED. 9. REGARDING DISALLOWANCE U/S 14A, THE ASSESSEE SIM PLY ASSERTED THAT NO EXPENSES WERE INCURRED TO EARN THE EXEMPT I NCOME WITHOUT SUBSTANTIATING THE SAME. THEREFORE, THE ADDITION, T HEREOF @0.5% OF AVERAGE INVESTMENTS, IN TERMS OF RULE 8D(2)(III), R EQUIRES NO INTERFERENCE ON OUR PART. RESULTANTLY, THIS GROUND OF ASSESSEES APPEAL STANDS DISMISSED. 10. IN NUTSHELL, THE ASSESSEES APPEAL STANDS PARTL Y ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH AUGUST, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 16.08.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. $'. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI