CREST ANIMATION STUDIOS LTD, MUMBAI V. ASST CIT CIR 11(1), MUMBAI

ITA 2237/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2009 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 04-10-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 18-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHIDDARAMAPPA KAPPATTANAVARSR
• Keywords: Depreciation; Bad and doubtful debts; Notional interest; Commercial expediency

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI , ,, , , , , , , ,, , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND SAKTIJIT DEY,JUDICIAL MEMBER / ITA NO.2237/MUM/2011 : /ASSESSMENT YEAR-2004-05 M/S. CREST ANIMATION STUDIOS LTD. 501, RAHEJA PLAZA-1, LBS MARG GHATKOPAR (W),MUMBAI-400 086. PAN:AAACC 6134 C VS. ACIT-2(1)(1) CIRCLE-11(1), AAYAKAR BHAVAN MUMBAI-400 020. (APPELLANT) (RESPONDENT) / ITA NO.2746/MUM/2011 : /ASSESSMENT YEAR-2004-05 ACIT-2(1)(1) MUMBAI-400 020. VS. M/S. CREST ANIMATION STUDIOS LTD. MUMBAI-400 086. (APPELLANT) (RESPON DENT) REV ENUE BY: SHRI SHIDDARAMAPPA KAPPATTANAVAR-SR.AR ASS ESSEE BY: NONE / DATE OF HEARING: 04.10.2016 / DATE OF PRONOUNCEMENT: 16.11.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ! / PER RAJENDRA A.M. - CHALLENGING THE ORDERS DATED 27.10.2012 OF THE CIT( A)-3,MUMBAI,THE ASSESSEE AND THE ASSESSING OFFICER (A.O.) HAVE FILED PRESENT APPEALS FOR THE ABOVE MENTIONED ASSESSMENT YEAR (AY).ASSESSEE-COMPANY,ENGAGED IN THE PRODUCTION OF ADD FILMS, 2D ANIMATION AND COMPUTER GRAPHICS, SOFTWARE FOR TELEVISION SERIALS ETC.,FILE D ITS RETURN OF INCOME ON 28/10/2004, DECLARING TOTAL LOSS AT RS.9,56,10,090/-.THE ASSESS ING OFFICER(AO)COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 13.12.2006, DETERMINING IT S INCOME AT (-) RS.5,26,61,000/-. ITA/2237/MUM/2011 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWING THE CLA IM OF DEPRECIATION OF RS. 45.76 LAKHS,BEING DEPRECIATION ON THE CAPITALISE WDV OF R S.1.83 CRORES ON ACCOUNT OF UNPAID CUSTOMS DUTY.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CAPITALISED AN AMOUNT OF RS.2.09 CRORES, BEING CUST OM DUTY PAYABLE ON PLANT AND MACHINERY AND HAD CLAIMED DEPRECIATION ON IT. FOLLOWING THE O RDER FOR THE AY.2003-04,HE DISALLOWED THE CLAIM OF DEPRECIATION HOLDING THAT DEPRECIATION WAS NOT ALLOWABLE FOR THE YEAR UNDER CONSIDERATION ALSO. HE FOUND THAT THE RETURNED VALU E OF THE PLANT AND MACHINERY FOR THE YEAR UNDER CONSIDERATION WAS RS.1.83 CRORES AND THE ASSE SSEE HAD CLAIMED DEPRECIATION AT THE RATE OF 25%, AMOUNTING TO RS.45.76 LAKHS. AS STATED EARL IER,FOLLOWING THE ORDER FOR THE PREVIOUS YEAR,THE AO MADE A DISALLOWANCE OF RS.45,76,888/-. 2237& 2746/M/11-CREST ANIMATION 2 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,THE ASSESSEE M ADE ELABORATE SUBMISSIONS. FOLLOWING THE ORDER OF HIS PREDECESSOR FOR THE AY. 2003-04,TH E FAA UPHELD THE ORDER OF THE AO. 4. NONE APPEARED BEFORE US, AS MENTIONED EARLIER. THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE FIND THAT THE FAA HAD FOLLOWED THE ORDER OF HIS PREDECESSOR FOR THE EARLIER YEAR AND UPHELD THE ADDITION.NOTHING HAS BEEN BROUGHT ON REC ORD TO CHALLENGE THE FINDINGS GIVEN BY THE AO AND THE FAA ABOUT THE DISALLOWANCE.THEREFORE , CONFIRMING THE ORDER OF THE FAA, WE DECIDE THE FIRST GROUND AGAINST THE ASSESSEE 6. SECOND GROUND IS ABOUT MAKING ADDITION OF RS.2.29 L AKHS ON ACCOUNT OF NOTIONAL INTEREST AT THE RATE OF 8% ON THE SUMS ADVANCED TO SUBSIDIARY, NAMELY,M/S. RICH CREST ANIMATION INC.(RCA).DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD ADVANCED A LOAN OF RS.28.68 LAKHS TO RCA ON WHICH NO INTERES T WAS CHARGED, THAT IT HAD CHARGED INTEREST AT THE RATE OF 8% ON ADVANCES MADE TO OTHE R SUBSIDIARIES. FOLLOWING THE ORDER FOR THE AY.2003-04,THE AO ADDED AND AMOUNT OF RS.2,29,475/- TO THE TOTAL INCOME OF THE ASSESSEE (INTEREST AT THE RATE OF 8%). 7. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA,THE ASSESSEE MADE SUBMISSIONS. AFTER CONSIDERING THE SAME AND FOLLOWING THE ORDER OF HIS PREDECESSOR FOR THE EARLIER AY.,HE HELD THAT NONE OF THE REASONS GIVEN BY THE ASSESSEE FOR NOT CHARGING INTEREST ON ADVANCES HAD BEEN ESTABLISHED, THAT ASSESSEE HAD NOT FURNISHED ANY EV IDENCE,THAT THE REASONS OF THE ASSESSEE WERE UNSATISFACTORY, THAT THE ASSESSEE HAD NOT ESTABLISH ED THAT THE AMOUNT WERE GIVEN OUT OF ITS NON- INTEREST-BEARING FUNDS, THAT IT HAD MADE A SIMPLE S TATEMENT THAT IT HAD BEEN DONE IN COMMERCIAL EXPEDIENCY OR FOR BUSINESS PURPOSES,THAT SUCH AN EXPLANATION COULD NOT BE ACCEPTED,THAT THE ASSESSEE HAD NOT EXPLAIN AS TO WH Y IT WAS CHARGING INTEREST FROM OTHER SUBSIDIARIES AND NOT FROM RCA. FINALLY, HE UPHELD T HE ADDITION MADE BY THE AO. 8. BEFORE US, THE DR SUPPORTED THE ORDER OF THE FAA. W E FIND THAT THE ASSESSEE HAD NOT ESTABLISHED THE BASIC FACT OF NOT CHARGING THE INTE REST FROM RCA AND CHARGING INTEREST FROM THE OTHER SUBSIDIARIES. IT HAS TO EXPLAIN AS TO WHY DIFFERENT TREATMENT WAS GIVEN WITH REGARDING CHARGING OF INTEREST.IN OUR OPINION, THE FAA WAS JU STIFY IN HOLDING THAT MAKING A BALD 2237& 2746/M/11-CREST ANIMATION 3 STATEMENT OF COMMERCIAL EXPEDIENCY FOR AN EXPENDITU RE IS NOT ENOUGH, THAT THE ASSESSEE HAS TO ESTABLISH THE FACT. IN THE CASE UNDER CONSIDERATION , THE ASSESSEE HAD NOT PROVED THE SAID BASIC FACT.THEREFORE, WE HOLD THAT THERE IS NO NEED TO IN TERFERE WITH THE ORDER OF THE FAA. CONFIRMING HIS ORDER, WE DECIDE THE SECOND GROUND A GAINST THE ASSESSEE. 9. LAST GROUND OF APPEAL PERTAINS TO DISALLOWING THE P ROFESSIONAL FEES PAID TO SHRI JAVED AKHTAR (JA), AMOUNTING TO RS.50 LAKHS. DURING THE A SSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD PAID RS.50 LAKHS AS PROFESSIONAL FEES TO JA.HE DIRECTED THE ASSESSEE TO FILE EXPLANATION IN THAT REGARD. THE ASSESSEE CONTENDED THAT JA HAD WRITTEN A SCRIPT FOR A FILM, THAT THE SCRIPT WAS NOT IN THE STORYLINE CONCEPTUALISED BY THE PARTIES INVOLVED IN THE FILMMAKING, THAT THE PROJECT WAS SHELVED, THAT AS PER THE AGREE MENT JA WAS TO REFUND THE MONEY IN CASE OF NON-ACCEPTANCE OF SCRIPT, THAT JA DID NOT REFUND TH E MONEY, THAT ASSESSEE INITIATED ARBITRATION PROCEEDINGS,THAT THE PROJECT WAS SCRAPPED AND THE A SSESSEE MADE NECESSARY ENTRIES ABOUT PAYMENT MADE TO JA AS PROVISION EXPENDITURE. THE AO HELD THAT PROCEDURE ADOPTED BY THE ASSESSEE IN CLAIMING THE EXPENDITURE WAS NOT AS PER THE PROVISIONS OF THE ACT, THAT THE EXPENDITURE SHOULD NOT HAVE BEEN DEBITED TO THE AY. UNDER REFERENCE,THAT IT DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION, THAT PROPER AND TRANS PARENT METHOD OF CLAIMING THE EXPENDITURE SHOULD HAVE ADOPTED,THAT AS PER THE SCHEDULE O TO T HE BALANCE SHEET THE AMOUNT IN QUESTION WAS APPEARING AS CURRENT ASSETS UNDER THE NAME LOAN S AND ADVANCES, THAT THE SCHEDULE INDICATED THAT ASSESSEES CLAIM SURVIVE AND RIGHTLY SO AS ARBITRATION PROCEEDINGS WERE ENDING, THAT THE CLAIM OF THE ASSESSEE IN THAT REGARD WAS P REMATURE, THAT IT HAD NOT WRITTEN OF THE AMOUNT IN ITS BOOKS OF ACCOUNTS, THAT THE ASSESSEE WAS TRYING TO TAKE BENEFIT OF THE CLAIM THAT WAS NOT PROVED. FINALLY, HE MADE AN ADDITION OF RS. 50 LAKHS TO THE INCOME OF THE ASSESSEE. 10. BEFORE THE FAA,THE ASSESSEE ARGUED THAT COMPLETE DE TAILS OF AGREEMENT,SCRAPPING OF THE PROJECT AND ARBITRATION PROCEEDINGS WERE FILED BEFO RE THE AO,THAT IN THE BOOKS OF ACCOUNTS THE AMOUNT WAS SHOWN AS ADVANCE GIVEN TO JA FOR SERVICE S TO BE RENDERED, THAT THE PROJECT WAS 2237& 2746/M/11-CREST ANIMATION 4 SHELVED, THE AMOUNT PAID TO JA WAS RETURN OF TWO PR OFIT AND LOSS ACCOUNT UNDER THE HEAD PROFESSIONAL FEES AND A LIABILITY TO THAT EXTENT WA S CREATED IN THE BOOKS OF ACCOUNTS, THAT THE AO ERRED IN NOT APPRECIATING THE FACT THAT THE AMOU NT IN QUESTION COULD NOT BE ADJUSTED AGAINST THE ADVANCE GIVEN TO JA AS THE ARBITRATION PROCEEDINGS WERE GOING ON. 11. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D ASSESSMENT ORDER, THE FAA HELD THAT THE PAYMENT WAS MADE TOWARDS PROFESSIONAL FEES FOR SERVICES TO BE RENDERED BY JA,THAT TAX WAS DEDUCTED AT SOURCE AS PER THE PROVISIONS OF SEC TION 194J OF THE ACT, THAT TO CLAIM OF WRITE OFF HAD TO BE SUBSTANTIATED BY ACTUAL WRITING OFF O F THE CLAIM IN THE REGULAR BOOKS OF ACCOUNTS, THAT THE ASSESSEE HAD INCLUDED THE DISPUTED AMOUNT IS ASSET UNDER THE HEAD LOANS AND ADVANCES, THAT ARBITRATION PROCEEDINGS WERE GOING O N, THAT THE CLAIM OF THE ASSESSEE WAS PREMATURE AND DID NOT PERTAIN TO THE AY. UNDER CONS IDERATION. FINALLY, HE UPHELD THE ORDER OF THE AO. 12. WE FIND THAT THE ASSESSEE HAD PAID AND AMOUNT OF TH E 50 LAKHS TO JA, THAT IT HAD DETECTED TAX AT SOURCE AS PER THE PROVISIONS OF THE ACT, IT HAD CLAIMED THAT PROJECT WAS ABANDONED, THAT JA DID NOT RETURN THE MONEY, THAT ARBITRATION PROCE EDINGS WERE GOING ON AT THE TIME OF ASSESSMENT PROCEEDINGS, THAT IT HAD SHOWN THE AMOUN T IN QUESTION IN THE BALANCE SHEET UNDER THE HEAD LOANS AND ADVANCES. IN OUR OPINION, THE FA A WAS JUSTIFIED IN HOLDING THAT CLAIM MADE BY THE ASSESSEE WAS PREMATURE AND DID NOT PERT AIN TO THE AY.UNDER APPEAL. AS THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY ,SO,CONFIRMING THE SAME WE DECIDE THE THIRD GROUND AGAINST THE ASSESSEE. ITA/2746/MUM/2011: 13. THE FIRST GROUND OF APPEAL,RAISED BY THE AO,IS ABOU T DELETING THE ADDITION OF RS. 1.50 CRORES,MADE ON ACCOUNT OF REVERSAL OF PROVISION DOU BTFUL DEBTS AND BAD DEBTS. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD CLAIMED DEDUCTION OF RS.1.50 2237& 2746/M/11-CREST ANIMATION 5 CRORES ON ACCOUNT OF REVERSAL OF PROVISION FOR DOUB TFUL DEBTS.HE DIRECTED THE ASSESSEE TO EXPLAIN AND JUSTIFY THE CLAIM. THE ASSESSEE CONTEND ED THAT PROVISIONS FOR DOUBTFUL DEBTS WERE ADDED BACK IN RESPECT OF YEAR AS UNDER: AY. AMO UNT IN RUPEES 2003-04 RS. 90 LAKHS 2002-03 RS. 30 LAKHS 2001-02 RS. 24.40 LAKHS 2000-01 RS. 3 LAKHS 1999-00 RS. 2.60 LAKHS 14. IT WAS FURTHER ARGUED THAT THE AMOUNTS HAD ALREADY BEEN ADDED TO THE TOTAL INCOME OF THE RESPECTIVE YEARS IN THE AY.2003-04,THAT THE PROVISI ONS WERE REVERSED,THAT THE PROVISIONS MADE IN EARLIER YEARS AND ADDED BACK IN THE RESPEC TIVE YEARS WOULD NOT ALTER THE CLAIM, THAT DURING THE ASSESSMENT PROCEEDINGS DETAILS OF BAD DE BTS WRITTEN OFF WERE FILED BEFORE AO VIDE LETTER DT.13/12/06. 15. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT PROVISION OF DOUBTFUL DEBTS WERE ADDED BACK TO TOTAL INCOME IN THE EARLIER YEARS, THAT SAME WERE WRITTEN OFF AND CLAIMED BY THE ASSESSEE I N THE IMPUGNED YEARS, THE AMOUNTS IN QUESTION WERE WRITTEN OFF AS BAD DEBTS WHICH WERE E ARLIER CONSIDERED AS DOUBTFUL DEBTS, THAT THE ENTIRE BREAK-UP OF THE WRITTEN OFF AMOUNT WAS S UBMITTED, THAT SCHEDULE-F OF THE BALANCE SHEET GAVE THE DETAILS OF THE DISPUTED AMOUNT, THAT INSTEAD OF CUMULATIVE PROVISION FOR DOUBTFUL DEBTS FROM THE EARLIER YEARS THE ASSESSEE HAD ONLY SHOWN THE PROVISION FOR THE CURRENT YEARS DOUBTFUL DEBTS, THE SUM OF RS.150 CRO RES (RS.363 CRORES RS.211CRORES) HAD BEEN NETTED OFF AND WAS CLAIMED AS BAD DEBTS WRITTE N OFF, THAT SAME WAS APPEARING IN THE SCHEDULE-M TO P&L ACCOUNT.FINALLY, THE FAA DELETED THE ADDITION MADE BY THE AO. 16. BEFORE US THE DR SUPPORTED THE ORDER OF THE AO. WE FIND THAT THE FAA HAS CLEARLY GIVEN A FINDING OF FACTS THAT THE ASSESSEE HAS FILED THE DE TAILS OF AMOUNTS WRITTEN OFF BY IT AND SAME CONSTITUTED THE PART OF THE AUDITED ACCOUNTS.IN OUR OPINION, ONCE THE AMOUNTS HAVE BEEN WRITTEN AND NOT HAVE BEEN SHOWN AS PROVISIONS, SAME HAVE TO BE ALLOWED.CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.SO CONFI RMING HER ORDER WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE REVENUE. 2237& 2746/M/11-CREST ANIMATION 6 AS A RESULT APPEALS FILED BY THE ASS ESSEE AND THE AO STAND DISMISSED. ORDER PRONOUNCED IN THE OPE N COURT ON 16 TH NOVEMBER, 2016. SD/- SD/- ( / SAKTIJIT DEY ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 16 . 11.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.