DHARMA PRODUCTIONS P.LTD, MUMBAI V. DCIT CEN CIR 31, MUMBAI

ITA 2480/MUM/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71162 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 02-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIPAK RIPOTE
• Keywords: Business expenditure; Wrong claim; Corroborative evidences; Commercial expediency
• Section: 143(3); 133(6); 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL D DD D BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . , . , ! ! ! ! '# '# '# '# BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO, AM , AM , AM , AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 2480 & 4791/MUM/2013 2480 & 4791/MUM/2013 2480 & 4791/MUM/2013 2480 & 4791/MUM/2013 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2006-07) M/S DHARMA PRODUCTIONS PVT. LTD., 29, JAINS ARCADE, 2 ND FLOOR, 14 TH ROAD, KHAR (W), MUMBAI-400052 % % % % / VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-31, AAYKAR BHAVAN, MUMBAI #' ! ./ ( ./ PAN/GIR NO. : AAACD3889K ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ') ') ') ') , , , , / APPELLANT BY : SHRI VIJAY MEHTA & SHRI ANUJ KISNADWALA *+') *+') *+') *+') - -- - , , , , /RESPONDENT BY : SHRI DIPAK RIPOTE % % % % - -- - .! .! .! .! / DATE OF HEARING : 22 ND AUGUST 2013 /0& /0& /0& /0& - -- -.! .! .! .! /DATE OF PRONOUNCEMENT: 18 TH SEPTEMBER 2013 ' 1 / O R D E R PER : , . . / VIJAY PAL RAO, JM THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST TWO SEPARATE ORDERS OF COMMISSIONER OF INCOME TAX(APPEA LS) ONE ARISING FROM THE ASSESSMENT ORDER PASSED U/S 143(3) AND ANOTHER ARISING FROM THE PENALTY ORDER PASSED U/S 271(1)(C) FOR THE ASSESSME NT YEAR 2006-07. 2. IN THE QUANTUM APPEAL THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS: GROUND NO. GROUND NO. GROUND NO. GROUND NO. 1 11 1: :: : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT (A) ERRED IN CONFIRMING THE DISALLO WANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 1,51,80,116/- AS C ONTRACTUAL LIABILITY PAID TO M/S. RED CHILLIES ENTERTAINMENT P VT. LTD. FOR THE ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 2 SERVICES RENDERED. THE APPELLANT PRAYS THAT THE SAI D DISALLOWANCE IS UNJUSTIFIED AND MAY PLEASE BE DELET ED. GROUND NO. 2: GROUND NO. 2: GROUND NO. 2: GROUND NO. 2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN CONFIRMING THE ADD ITION MADE BY THE LD. ASSESSING OFFICER AT RS. 9,64,250/- ON ACCO UNT OF WASTAGE OF 13,300 METRES OF NEGATIVE FILMS (RAW); COMPLETEL Y IGNORING THE REASONS FOR SUCH WASTAGE. THE APPELLANT PRAYS THAT THE SAID ADDITION IS UNJUSTIFIED AND MAY PLEASE BE DELETED. GROUND NO. 3: GROUND NO. 3: GROUND NO. 3: GROUND NO. 3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 3,53,000/- ON AD-HOC BASIS @ 25% OUT OF RS. 14,12,000/- PAID TO JUNIOR A RTISTS. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCE IS UNJUS TIFIED AND MAY PLEASE BE DELETED. GROUND NO.4: GROUND NO.4: GROUND NO.4: GROUND NO.4: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 8,42,346/- @ 25% ON AD-HOC BASIS OUT OF EXPENDITURE OF RS. 33,69,382/- INCURRED IN RESPECT OF COSTUMES & DRESSES. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCE IS UNJUSTIFIED AND MAY PLEASE BE DELET ED. GROUND NO. 5 GROUND NO. 5 GROUND NO. 5 GROUND NO. 5: :: : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 1,62,686/- ON AD-HOC BASIS @ 25% OF THE EXPENDITURE OF ES. 6,50,745 INCU RRED IN RESPECT OF MAKEUP AND HAIRDRESSERS. THE APPELLANT P RAYS THAT THE SAID DISALLOWANCE IS UNJUSTIFIED AND MAY PLEASE BE DELETED. GROUND NO. 6: GROUND NO. 6: GROUND NO. 6: GROUND NO. 6: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 2,40,703 O N AD-HOC BASIS @ 25% OUT OF EXPENDITURE OF RS. 9,62,811/- IN CURRED ON ACCOUNT OF DUBBING, SONG RECORDING & MIXING EXPENSE S. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCE IS UNJUS TIFIED AND MAY PLEASE BE DELETED. GROUND NO. 7: GROUND NO. 7: GROUND NO. 7: GROUND NO. 7: ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 3,25,399/- @ 25% ON AD-HOC BASIS OUT OF THE EXPENDITURE OF RS. 13,01,59 4/- IN RESPECT OF DANCERS EXPENSES & CO-ORDINATION CHARGES. THE AP PELLANT PRAYS THAT THE SAID DISALLOWANCE IS UNJUSTIFIED AND MAY PLEASE BE DELETED. GROUND NO. 8: GROUND NO. 8: GROUND NO. 8: GROUND NO. 8: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 15,86,176/ - @ 25% ON AD-HOC BASIS OUT OF EXPENDITURE OF RS.63,44,705/- I NCURRED AS SETTING EXPENSES. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCE IS UNJUSTIFIED AND MAY PLEASE BE DELETED. GROUND NO.9: GROUND NO.9: GROUND NO.9: GROUND NO.9: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT (A) GROSSLY ERRED IN ENHANCING A SUM OF RS. 2,26,30,328/- (CORRECT AMOUNT ` 2,67,73,568/-) UNDE R RULE 9A, ON ACCOUNT OF THE EXPENSES INCURRED FOR PREPARATION OF POSITIVE PRINTS FOR THE EXHIBITION OF THE FILM KAAL AND AD VERTISEMENT & PUBLICITY EXPENSES INCURRED AFTER THE DATE OF CERTI FICATION OF RELEASE OF FILM BY CENSOR BOARD. THE APPELLANT PRAY S THAT THE SAID DISALLOWANCE IS UNJUSTIFIED AND MAY PLEASE BE DELETED. 3. GROUND NO. 1 REGARDING DISALLOWANCE OF CONTRACTU AL LIABILITY. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PR ODUCTION AND DISTRIBUTION OF HINDI FEATURE FILM. IT DERIVES INCO ME FROM EXHIBITION OF FILM, SALE OF SATELLITE AND OTHER DISTRIBUTION RIGHTS OF HINDI FEATURE FILM. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS EXHIB ITED A HINDI FILM KAAL WHICH RECEIVED CENSOR CERTIFICATE DATED 21.4 .2005. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAS ISSUED A SHOW-CAU SE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY THE PAYMENT OF ` 1,51 ,80,116/- TO M/S RED CHILLIES ENTERTAINMENT PVT. LTD. (IN SHORT RCEPL) S HOULD NOT BE BROUGHT TO TAX. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THER E IS AN AGREEMENT BETWEEN THE ASSESSEE AND RCEPL DATED 9.8.2004 FOR S HARING REVENUE @ ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 4 50% WITH RESPECT TO FILM KAAL. IT WAS SUBMITTED B Y THE ASSESSEE THAT RCEPL IS UNDER OBLIGATION TO PROVIDE CERTAIN SERVIC ES TO THE ASSESSEE AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. THUS , THE ASSESSEE CLAIMED THAT THE PAYMENT MADE TO RCEPL IS A CONTRAC TUAL LIABILITY AND AN ALLOWABLE DEDUCTION. THE AO DID NOT ACCEPT THE EXPL ANATION AND CONTENTION OF THE ASSESSEE AND HELD THAT THE ASSESS EE FAILED TO PROVE WITH TANGIBLE EVIDENCES THAT ANY SERVICE WAS PROVIDED BY RCEPL. FURTHER THE AO WAS OF THE VIEW THAT THE PAYMENT IS APPLICATION OF INCOME WHICH IS NOT ALLOWABLE. ACCORDINGLY, THE AO DISALLOWED THE PAYME NT IN QUESTION. ON APPEAL, THE CIT(A) DOUBTED THE USE OF CINEMATOGRAPH IC EQUIPMENT SUPPLIED BY RCEPL FOR THE PRODUCTION OF FILM KAAL . THE CIT(A) HAS NOT ACCEPTED THE CONFIRMATION OF RCEPL AS WELL AS THE E XPLANATION OF THE ASSESSEE THAT THE HIRE CHARGES IN RESPECT OF FILM KAAL ARE LOWER IN COMPARISON TO THE OTHER FILMS. THE CIT(A) HAS GIVEN THE REASON THAT EQUIPMENT CHARGES ARE NOT PAID ON HOURLY BASIS THER EFORE, THE EXPLANATION CANNOT BE ACCEPTED. ACCORDINGLY, THE CIT(A) AGREED WITH THE AO THAT THE PAYMENT IS NOT ALLOWABLE U/S 37(1) AS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 4. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT THERE IS AN AGREEMENT FOR JOINT PRODUCTION OF FILM BETWEEN THE ASSESSEE AND RCEPL. THE PARTIES HAVE AGREED TO SHARE EQUALLY THE NET RE VENUE FROM THE FILM KAAL. HE HAS FURTHER CONTENDED THAT AS PER THE AG REEMENT THE RCEPL WAS UNDER OBLIGATION TO PROVIDE CERTAIN SERVICES AN D EQUIPMENTS AND IN CONSIDERATION IT HAS TO SHARE THE PROFIT OF FILM K AAL. THE LD. COUNSEL HAS ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 5 FURTHER SUBMITTED THAT THE LOGO OF RCEPL IS APPEARI NG IN THE TITLE OF FILM. IT HAS BEEN SUBMITTED THAT SHRI SHAHRUKH KHAN IS DIREC TOR OF RCEPL AND SHRI KARAN JOHAR IS DIRECTOR OF ASSESSEE COMPANY. THE FI LM HAS BEEN SHOWN AS PRESENTED BY SHRI SHAHRUKH KHAN AND SHRI KARAN JOHA R. THEREFORE, IT IS EVIDENT AND REPRESENTED TO THE PUBLIC THAT RCEPL AN D ASSESSEE COMPANY JOINTLY PRODUCED THE FILM. AS PER THE TERMS OF AGRE EMENT THE ASSESSEE WAS UNDER LEGAL OBLIGATION TO PAY RCEPL 50% OF NET PROF IT EARNED FROM THE FILM KAAL. THE LD. AR HAS REFERRED RELEVANT CLAUSE 2 T O 5 OF THE AGREEMENT AND SUBMITTED THAT UNDER THE TERMS OF THE CONTRACT THE ASSESSEE WAS ALLOWED TO UNLIMITED USE OF ALL THE CINEMATOGRAPHIC EQUIPMENT OWNED BY RCEPL OR ACQUIRES IN FUTURE FOR THE PURPOSE OF THE FILMS FREE OF COST. THE RCEPL WAS ALSO UNDER OBLIGATION TO GIVE CREATIVE, T ECHNICAL AND MARKETING INPUT AS WELL AS ALL CREATIVE WORK IN CONCEPT, CHAR ACTERISATION, DIALOGUE, MUSIC, THEME SONG, TITLE MONTAGE AND ALL VISUALS ET C. BOTH THE PARTIES WERE UNDER OBLIGATION TO PERIODICALLY REVIEW THE PR ODUCTION OF THE PICTURES. BOTH PARTIES HAD TO JOINTLY AND SEVERELY EXPLORE MARKETING OPPORTUNITY OF ENDORSEMENT OF PRODUCT AND SERVICES FROM ANY POTENTIAL ADVERTISERS FOR THE PICTURES. ALL THE NEEDFUL WAS T O BE DONE BY THE MUTUAL CONSENT OF THE PARTIES. THUS, THE LD. COUNSEL HAS S UBMITTED THAT BOTH THE PARTIES WERE UNDER OBLIGATION TO JOINTLY PRODUCE TH E FILM AND ACCORDINGLY THE FILM IN QUESTION WAS PRODUCED WITH THE PARTICIP ATION OF BOTH THE PARTIES. HE HAS FURTHER SUBMITTED THAT THE CLAUSE 5 (B) OF THE AGREEMENT WAS AMENDED VIDE SUPPLEMENTARY DOCUMENT DATED 19.8. 2004. THE LD. AR HAS POINTED OUT THAT THE CIT(A) HAS RAISED DOUBT AB OUT THE USE OF EQUIPMENTS TO BE SUPPLIED BY RCEPL ON THE GROUND TH AT THE ASSESSEE ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 6 FAILED TO PROVE THE TRANSPORTATION OF THE EQUIPMENT S TO THE SITE OF SHOOTING WHEREAS THE ASSESSEE HAS PRODUCED THE SAMPLE BILLS OF TRANSPORTATION CHARGES FOR THE EQUIPMENTS. HE HAS REFERRED PAGE NO . 36 AND 37 OF THE PAPER BOOK WHERE THE SAMPLE BILLS FOR TRANSPORTATIO N OF EQUIPMENTS ARE PLACED. THE LD. AR HAS FORCEFULLY CONTENDED THAT TH E ASSESSEE HAS PRODUCED THE COMPARATIVE CHART OF THE EXPENSES INCU RRED ON ACCOUNT OF EQUIPMENT CHARGES FOR VARIOUS FILMS RELEASED UNDER THIS BANNER. IT HAS BEEN EXPLAINED THAT THE EQUIPMENT HIRE CHARGES FOR THIS MOVIE ARE LESSER AS COMPARE TO THE OTHER FILMS. THEREFORE, IT PROVES THE CLAIM OF THE ASSESSEE THAT EQUIPMENTS HAVE BEEN SUPPLIED BY THE RCEPL WITHOUT ANY COST AND NO COST HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE LD. AR HAS FURTHER SUBMITTED THAT IN THE REMAND REPORT THE ASSESSING OFFICER ACCEPTED THE FACT THAT SHRI SHAHRUKH KHAN PERFORM I N THE TITLE SONG OF THE FILM AND THAT IT WAS PRODUCE JOINTLY BY SHRI SHAHRU KH KHAN AND SHRI KARAN JOHAR. HE HAS CONTENDED THAT THE ONLY OBJECTION OF THE ASSESSING OFFICER IS THAT SHRI SHAHRUKH KHAN HAS PERFORMED IN HIS INDIVI DUAL CAPACITY AND IT CANNOT BE SAID THAT THE SERVICES WERE RENDERED BY R CEPL. THE AO SAID THAT THERE IS NO CONTRIBUTION OF RCEPL AND AS A RES ULT PAYMENT MADE TO THEM IS NOT JUSTIFIED. THE LD. COUNSEL HAS SUBMITTE D THAT THE AO HAS MIS- UNDERSTOOD THE FACT THAT A COMPANY PROVIDES SERVICE S THROUGH ITS EMPLOYEES DIRECTORS ETC. AND IN THIS CASE THE DIRE CTOR OF THE RCEPL HIMSELF HAS WORKED FOR THE COMPANY. FURTHER WHEN NO SEPARATE PAYMENT HAS BEEN MADE TO SHRI SHAHRUKH KHAN IN HIS INDIVIDU AL CAPACITY THEN IT CANNOT BE SAID THAT THE PERFORMANCE OF SHRI SHAHRUK H KHAN IS IN HIS INDIVIDUAL CAPACITY AND NOT ON BEHALF OF RCEPL. THE LD. AR HAS FURTHER ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 7 CONTENDED THAT THE RCEPL AND THE ASSESSEE ARE NOT R ELATED BUT ARE INDEPENDENT PARTIES THEREFORE, THERE IS NO REASON T O DISBELIEVE THE CONFIRMATION OF RCEPL IN RESPECT OF PROVIDING SERVI CES AND SUPPLY OF EQUIPMENTS. IT HAS BEEN ARGUED THAT THE PAYMENTS TO RCEPL IS MADE UNDER CONTRACTUAL OBLIGATION AND AS PER THE PRINCIP LE OF COMMERCIAL EXPEDIENCY. THE PRODUCTION OF FILM IS UNDER THE JOI NT BANNER OF SHRI SHAHRUKH KHAN AND SHRI KARAN JOHAR WHICH ITSELF IS SUFFICIENT TO PROVE THE SERVICES RENDERED BY RCEPL. THE LD. AR HAS POINTED OUT THAT THE PAYMENT IN QUESTION HAS BEEN SHOWN BY THE RCEPL AS INCOME F ROM FILM KAAL THEREFORE, THIS PAYMENT IS REVENUE NEUTRAL. THE INC OME TAX AUTHORITY CANNOT IGNORE THE ORDINARY PRINCIPLES OF COMMERCIAL EXPEDIENCY AS THEY CANNOT STEP IN THE SHOE OF THE ASSESSEE TO TAKE BUS INESS DECISION. IN SUPPORT OF HIS CONTENTION HE PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTION HIGH COURT IN CASE OF ARUNA MILLS VS C IT 31 ITR 153. HE HAS SUBMITTED THAT WHEN THE RCEPL HAS PAID TAX AT THE H IGHEST TAX RATE THEN THERE IS NO REASON TO DISBELIEVE THE GENUINENESS OF THE TRANSACTION. ON THE POINT OF OBJECTION OF CIT(A) THAT RCEPL HAS NOT CON TRIBUTED TO CAPITAL THE LD. AR HAS SUBMITTED THAT BOTH THE PARTIES SHARES P ROFIT AND LOSSES EQUALLY AND IN CASE OF LOSS THE RCEPL CONTRIBUTE TO THE CAP ITAL INDIRECTLY. MOREOVER, THIS IS NOT AN INDUSTRY WITH LONG GESTATI ON PERIOD AND CAPITAL CONTRIBUTION CANNOT BE A FACTOR TO DECIDE THE SHARE OF PROFIT WHEN THE RCEPL HAS CONTRIBUTED IN THE FIELD OF CONCEPT CHARA CTERISATION, DIALOGUE, MUSIC, THEMES ETC. WHICH ARE VERY IMPORTANT FOR A S UCCESSFUL FILM APART FROM THE EQUIPMENTS SUPPLIED BY THE RCEPL. THEREFOR E, THE RCEPL HAS ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 8 RENDERED VARIOUS CREATIVE SERVICES AS WELL AS SUPPL IED THE EQUIPMENT FOR WHICH THE PAYMENT IN QUESTION IS FULLY JUSTIFIED. 5. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE AGREEMENT IN QUESTION IS SELF SERVING AS THE SAME IS NOT REGISTE RED. THE ASSESSEE HAS USED THE AGREEMENT AS A DEVICE TO AVOID TAX. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS NO EVIDENCE OF PROVIDING SERVICE BY THE RCEPL TO THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENC E OF TRANSPORTATION OF EQUIPMENT TO THE PRODUCTION/SHOOTING SITE. THE LD. DR HAS POINTED OUT THAT THE BILLS/INVOICES FILED BY THE ASSESSEE TO SH OW THE TRANSPORTATION OF EQUIPMENT ARE NOT IN PROPER ORDER OF SERIAL NUMBER BECAUSE THE SERIAL NUMBER AND DATES OF THE BILL DO NOT MATCH. AS REGAR DS THE CONFIRMATION BY THE RCEPL THE LD. DR HAS SUBMITTED THE CERTIFICATE IS SELF-SERVING DOCUMENT AND IN THE ABSENCE OF INDEPENDENT EVIDENCE IT CANNOT BE ACCEPTED. THE ASSESSEE FAILED TO PROVE THAT THE EXP ENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE ENTERED INTO AN AG REEMENT DATED 9.8.2004 WITH RCEPL. CLAUSE 5(B) OF THE AGREEMENT W AS SUBSEQUENTLY AMENDED ON 9.8.2004. THIS AGREEMENT IS FOR JOINT PR ODUCTION OF FILM AND SHARING OF NET PROFIT FROM FILM KAAL IN THE RATIO OF 50:50. THE OBLIGATION OF THE PARTIES UNDER THE AGREEMENT IS PROVIDED IN C LAUSE 2 AND 3 AS UNDER: 2. OBLIGATIONS OF RCEPL OBLIGATIONS OF RCEPL OBLIGATIONS OF RCEPL OBLIGATIONS OF RCEPL IT SHOULD BE THE SOLE AND EXCLUSIVE RESPONSIBILITY OF RCEPL. ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 9 A. TO ALLOW DPPL UNLIMITED USE OF ALL THE CINEMATOG RAPHIC EQUIPMENTS WHICH RCEPL OWNS OR ACQUIRES IN THE FUTU RE FOR THE PURPOSE OF THE PICTURES FREE OF COST. B. TO GIVE CREATIVE, TECHNICAL AND MARKETING INPUT. C. TO ENSURE THAT ALL THE CREATIVE WORK IN CONCEPT, CHARACTERIZATION, DIALOGUE, MUSIC, THEME SONG, TITL E MONTAGE AND ALL VISUALS ETC. ARE ORIGINAL WORK AT ALL TIMES AND THAT NO CREATIVE OR OTHER COPYRIGHT OF ANYONE IN PART OR WH OLE IS CONTRAVENED UNDER ANY CIRCUMSTANCES AND TO ENSURE T HE AUTHENTICITY OF ANY DATA/FACTUAL INFORMATION REPRES ENTED IN THE PICTURES. D. TO REFRAIN FROM RAISING, INCURRING ANY DEBT OF A NY NATURE WHATSOEVER, OR CREATING ANY LIEN, OR MORTGAGE ON AN Y PART OR WHOLE OF THE PICTURES, AT ALL TIMES AND SPECIFICA LLY SINCE THE ENTIRE FUNDING, IS BEING PROVIDED BY DPPL 3. OBLIGATIONS OF DPPL OBLIGATIONS OF DPPL OBLIGATIONS OF DPPL OBLIGATIONS OF DPPL A. TO BE RESPONSIBLE FOR ALL CREATIVE AND TECHNICAL ASPECTS, OF THE EXECUTION OF THE THE PICTURES FROM EXECUTION TO FINAL DELIVERY, INCLUDING CASTING B. TO PRODUCE THE PICTURES IN ALL RESPECTS. IT SH ALL BE THE SOLE AND EXCLUSIVE RESPONSIBILITY OF DPPL TO FINANC E THE ENTIRE PRODUCTION COST INCLUDING COST OF PUBLICITY OF THE PICTURES AND RCEPL SHALL NOT BE LIABLE OR RESPONSIBLE IN ANY MANNER, FOR THE PAYMENT OF SETTLEMENT OF SUCH COSTS WITH RE SPECT TO ANY PARTY AND DPPL HEREBY INDEMNIFIES RCEPL FROM AN Y CLAIMS ARISING OR BROUGHT AGAINST RCEPL FOR THE SAM E. C. TO ALLOW ACCESS TO RCEPLS REPRESENTATIVE TO ALL LOCATIONS OF SHOOT, MUSIC AND SOUND RECORDING OR POST PRODUCTION . D. TO GIVE REASONABLE NOTICE FOR BOOKING OF CINEMAT OGRAPHIC EQUIPMENTS OWNED BY RCEPL. 7. THE OTHER RELEVANT CLAUSES OF THE AGREEMENT ARE AS UNDER: 4. BOT BOT BOT BOTH THE PARTIES AGREE: H THE PARTIES AGREE: H THE PARTIES AGREE: H THE PARTIES AGREE: A. THAT THEY SHALL PERIODICALLY REVIEW THE PROGRESS AND PRODUCTION OF THE PICTURES. ANY KEY DEVIATIONS TO ARTISTS OR PRODUCTION SCHEDULE WOULD NEED TO BE INTIMATED BY D PPL TO RCEPL, AS SOON AS DPPL BECOMES AWARE OF THE SAME. B OTH PARTIES SHALL CONSULT EACH OTHER AND TAKE IMMEDIATE AND APPROPRIATE CORRECTIVE MEASURES. ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 10 B. THE ANNEXURES AS CONTAINED HEREIN BELOW SHALL FO RM AN INTEGRAL PART OF THIS AGREEMENT. C. DPPL WILL SUBMIT TO RCEPL, A FULL STATEMENT OF A CCOUNTS OF THE ENTIRE COST OF PRODUCTION, WITHIN BUT NOT LATER THAN 90 DAYS, FROM THE DATE OF COMPLETION OF THE PICTURES . D. RCEPL AND DPPL MAY JOINTLY OR SEVERALLY EXPLORE MARKETING OPPORTUNITIES FOR ENDORSEMENT OF PRODUCTS OR SERVICES FROM ANY POTENTIAL ADVERTISERS, FOR THE P ICTURES. THE SOLE DISCRETION ON THE ACCEPTABILITY AND THE PR ESENTATION OF SUCH PRODUCTS OR SERVICE ENDORSEMENT SHALL BE OF THE DPPL. ALL SUCH REVENUES ARISING FROM SUCH ENDORSEME NTS SHALL BE TREATED AS OVER ALL REVENUES OF THE PICTU RES WHICH WILL GO TORDS RECOVERING OF COST OF PRODUCTION AND PROFIT SHARING AS ENUMERATED LATER ON IN THE AGREEMENT. E. DPPL, SHALL, IN CONSULTATION WITH RCEPL, BE ENTI TLED TO SELL OR TO CONCLUDE OR TO ENTER INTO AL CONTRACTS IN RES PECT OF THE SALE DISTRIBUTION, EXHIBITION, AND EXPLOITATION OF THE PICTURES. F. NO HIRE CHARGES WILL BE CHARGED BY RCEPL ON CINEMATOGRAPHIC EQUIPMENTS HIRED BY DPPL. G. THIS AGREEMENT SHALL NOT CONSTITUTE A PARTNERSHI P OR JOINT VENTURE, OR ASSOCIATION OF PERSONS BETWEEN THE PART IES HERETO. 6. CREDITS CREDITS CREDITS CREDITS A. ADVERTISING, PROMOTION & PUBLICITY : IN ALL ADVE RTISING, PROMOTION, PUBLICITY, BROCHURES, PRESS RELEASE OR M ATERIAL THE CREDITS OF THE TWO COMPANIES WILL APPEAR IN EQU AL PROMINENCE AND STATING SHAH RUKH KHAN AND KARAN JOH AR PRESENTS DPPL/RCEPLS____________ B. IN FILM: (I) THE MOVING LOGOS OF DPPL AND RCEPL WILL APPEAR IN THE BEGINNING. 8. THE EXISTENCE OF THE AGREEMENT BETWEEN THE PARIT IES HAS NOT DISPUTED BY THE AUTHORITIES BELOW BUT THE PAYMENT I N QUESTION HAS BEEN DISALLOWED ON THE GROUND THAT NO SERVICE WAS RENDER ED BY RCEPL AND CONSEQUENTLY IT WAS HELD THAT THE EXPENDITURE WAS N OT FOR THE PURPOSE OF BUSINESS. ANOTHER REASON GIVEN BY THE AO FOR DISALL OWING THE PAYMENT IS ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 11 THAT IT IS AN APPLICATION OF INCOME. IT IS WORTH NO TING THAT THE ASSESSEE COMPANY IS OWNED BY SHRI KARAN JOHAR AND RCEPL IS O WNED BY SHRI SHAHRUKH KHAN. BOTH SHRI KARAN JOHAR AND SHAHRUKH K HAN ARE KNOWN PERSONALITIES OF INDIAN FILM INDUSTRY. THE AUTHORIT IES BELOW HAVE NOT DISPUTED THE FACT OF PROVIDING SERVICES BY SHRI SHA HRUKH KHAN IN THE PRODUCTION AND MARKETING OF THE FILM KAAL. THE FI LM WAS RELEASED UNDER THE JOINT BANNER OF KARAN JOHAR AND SHAHRUKH KHAN W HICH ITSELF IS A SIGNIFICANT ASPECT OF MARKETING AND PUBLICITY OF TH E FILM. UNDISPUTEDLY MR. SHAHRUKH KHAN HAS PERFORMED THE TITLE SONG IN THE F ILM AND FOR WHICH NO SEPARATE PAYMENT HAS BEEN MADE BY THE ASSESSEE. FUR THER IT IS EVIDENT FROM THE TERMS AND CONDITIONS OF THE AGREEMENT THAT RCEPL SHALL PROVIDE NECESSARY CONTRIBUTION IN THE FIELD OF CONCEPT, CHA RACTERISATION, DIALOGUE, MUSIC, THEME ETC. IN THE PRODUCTION OF THE FILM. TH US, FUNCTIONS ARE CREATIVE IN NATURE AND REQUIRE PERSONAL PROFESSIONA L EXPERTISE AND THEREFORE, THE CONFIRMATION OF THE PARTY REGARDING RENDERING OF THESE SERVICES ITSELF IS A MATERIAL EVIDENCE. IF THE PART IES TO THE AGREEMENT ADMITTED THE ROLE AND FUNCTION OF CREATIVE WORK IN THE FILM THEN IN THE ABSENCE OF ANY CONTRARY FACT OR MATERIAL, THE CONFI RMATION CANNOT BE DOUBTED. THE AO AND CIT(A) HAVE PLACED MUCH RELIANC E ON THE FACT THAT THE SERVICES ARE RENDERED BY MR. SHAHRUKH KHAN AND NOT BY RCEPL. WE DO NOT AGREE WITH SUCH A VIEW WHEN THE SERVICES ARE CR EATIVE IN NATURE AND DEMAND PERSONAL EXPERTISE AND TALENT WHICH COULD BE RENDERED BY SOMEBODY ON BEHALF OF THE COMPANY. THEREFORE, WHEN NO SEPARATE PAYMENT WAS MADE OR ALLEGED TO HAVE BEEN MADE TO MR . SHAHRUKH KHAN FOR THE SERVICES RENDERED AND THE PARTIES HAVE CONF IRMED THAT ALL THE ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 12 SERVICES ARE RENDERED UNDER THE AGREEMENT THEN ONLY INFERENCE CAN BE DRAWN FROM THE GIVEN FACTS AND CIRCUMSTANCES IS THA T THE SERVICES RENDERED BY MR. SHAHRUKH KHAN ARE ON BEHALF OF RCEP L AND UNDER THE CONTRACTUAL OBLIGATION. 9. APART FROM THE SERVICES OF CREATIVITY THE ASSESS EE ALSO CLAIMED THAT RCEPL PROVIDED THE CINEMATOGRAPHIC EQUIPMENT FOR TH E PRODUCTION OF THE FILM. THE ASSESSING OFFICER AND CIT(A) REJECTED THE CLAIM ON THE GROUND THAT NO EVIDENCE WAS PRODUCED REGARDING TRANSPORTAT ION OF THE EQUIPMENT TO THE PRODUCTION OR/SHOOTING SITE. IT IS TO BE NOT ED THAT THESE EQUIPMENTS ARE ESSENTIAL AND INEVITABLE FOR PRODUCTION OF THE FILM. THERE CANNOT BE A CASE THAT THE ASSESSEE HAS NOT USED THE EQUIPMENT I N PRODUCTION OF THE FILM. ONE IMPORTANT ASPECT OF THE MATTER IS THAT TH E ASSESSEE HAS NOT BOOKED ANY EXPENDITURE IN RESPECT OF HIRE CHARGES O F THESE VERY EQUIPMENTS. THEREFORE, THE CLAIM CANNOT BE TERM AS BOGUS CLAIM. FURTHER THE ASSESSEE HAS GIVEN THE COMPARATIVE CHART OF THE EQUIPMENT HIRE CHARGES OF VARIOUS FILMS AND CONTENDED THAT THE HIR E CHARGES ARE VERY LESS IN COMPARISON TO THE OTHER FILM. THE CIT(A) HAS GIV EN THE TABLE OF COMPARATIVE HIRE CHARGES AT PAGE 12 OF THE IMPUGNED ORDER AS UNDER: SL. NO. FILM RELEASE DATE EQUIPMENT HIRE CHARGE (`) PROPERTY HIRE CHARGES (`) TOTAL (`) 1. KUCH KUCH HOTA HAI 16.10.1998 3006214 3006214 2. KABHIE KHUSHI KABHIE GAM 14.12.2001 7078219 7078219 3. KAL HO NAA HO 27.11.2003 8562198 8562198 4. KAAL 29.4.2005 4106788 1421698 5528486 5. KABHI ALVIDA NA KEHNA 11.8.2006 6608593 6608593 ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 13 10. IT IS CLEAR FROM THE ABOVE CHART THAT THE HIRE CHARGES OF EQUIPMENTS FOR THE FILM KAAL IS VERY LESS IN COMPARISON TO T HE OTHER CONTEMPORARIOUS FILMS. THIS FACT HAS NOT BEEN DISPU TED BY THE REVENUE. THE AUTHORITIES HAVE REJECTED THE CLAIM OF THE ASSE SSEE ON THE GROUND THAT THE OTHER FILMS ARE HIGH BUDGET FILM IN COMPARISON TO THE FILM KAAL AND THE PAYMENT OF HIRE CHARGES IS NOT ON HOURLY BASIS THEREFORE, THEY CANNOT BE COMPARED. WE DO NOT AGREE WITH THE VIEW OF THE A UTHORITIES BELOW BECAUSE OF THE REASON THAT THE PRODUCTION EQUIPMENT S ARE BASIC REQUIREMENT OF ANY FILM AND UTILITY/USE OF THE EQUI PMENTS GENERALLY DOES NOT VARY DUE TO HIGH OR LOW BUDGET OF THE FILM. THE BUDGET OF THE FILM MAINLY DEPENDS ON OTHER FACTORS LIKE ARTIST WHO PER FORM IN THE FILM, SHOOTING SITE AND SUBJECT/THEME OF THE FILM ETC. TH E AUTHORITIES BELOW HAVE NOT BROUGHT ON RECORD AS HOW THE USE OF EQUIPM ENTS IN PRODUCTION OF FILM IS DIFFERENT IN HIGHER BUDGET OR LOW BUDGET MO VIES SO AS TO RESULT A SIGNIFICANT VARIATION IN THE HIRE CHARGES EXPENSES. FURTHER THE DURATION OF THE FILM REMAINS ALMOST SAME I.E. 2:30 TO 3:00 AND WHEN THE EQUIPMENTS ARE HIRED FOR THE PRODUCTION OF THE FILM THEN THE R EASON GIVEN BY AUTHORITIES BELOW IS FLIMSY AND UNCOGENT. THE ASSES SEE PRODUCED THE CONFIRMATION OF RCEPL IN THIS RESPECT AND NO FINDIN G HAS BEEN GIVEN THAT THE CONFIRMATION IS FALSE. ONE MORE REASON OF DISAL LOWANCE IS WANT OF SUPPORTING EVIDENCE FOR TRANSPORTATION OF THE EQUIP MENTS. THE ASSESSEE FILED THE BILLS OF TRANSPORTATION OF EQUIPMENT ISSU ED IN THE NAME OF RCEPL. THE GENUINENESS OF THE BILLS IS SUBJECT MATTER OF T HE ASSESSMENT PROCEEDINGS OF RCEPL. EVEN OTHERWISE THE AO HAS NOT GIVEN THE FINDING THAT THESE BILLS ARE BOGUS. MOREOVER, THERE IS NO D ISPUTE THAT RCEPL HAS ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 14 SHOWN THIS AMOUNT AS INCOME WHICH IS SUBJECTED TO M AXIMUM RATE OF TAX. THE LD. DR HAS RAISED OBJECTION OF NON-REGISTRATION OF AGREEMENT IN QUESTION AND REFERRED SECTION 25(1) OF THE CONTRACT ACT. IT IS TO BE NOTED THAT THE REQUIREMENT OF REGISTRATION OF AN AGREEMEN T IS ONLY IN A CASE WHETHER THERE IS NO CONSIDERATION. THEREFORE, THE V ALIDITY OF THE AGREEMENT CANNOT BE QUESTIONED MERELY ON THE GROUND THAT IT IS NOT REGISTERED EXCEPT IT IS OTHERWISE REQUIRED TO BE RE GISTERED AS PER THE LAW INFORCE. THEREFORE, WE DO NOT FIND ANY MERITS IN TH IS OBJECTION OF LD. DR. THIS PAYMENT IS MADE AGAINST THE SERVICES PROVIDED BY RCEPL IN CONNECTION WITH THE PRODUCTION OF THE FILM KAAL A ND UNDER THE TERMS OF THE AGREEMENT THEREFORE, IT IS AN EXPENDITURE LAID OUT FOR THE PURPOSE OF BUSINESS. IN VIEW OF THE ABOVE DISCUSSION WE HOLD T HAT THE ASSESSEE HAS ESTABLISHED THAT THE PAYMENT HAS BEEN MADE AS PER T HE AGREEMENT BETWEEN THE PARTIES AND AGAINST THE SERVICES PROVID ED BY RCEPL AND THEREFORE, IS ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT. 11. GROUND NO. 2 REGARDING DISALLOWANCE OF ` 9,64,2 50/- CONFIRMED BY CIT(A) ON ACCOUNT OF WASTAGE OF NEGATIVE FILMS (RAW ). DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESS EE HAS PURCHASED RAW FILM HAVING TOTAL LENGTH OF 15,04,896 METRES AN D AFTER PROCESSING THE FILM FINAL LENGTH WAS 3458.13 METRES. ASSUMING THAT THE RAW FILM EXPOSED WAS 100 TIMES OF THE FINAL LENGTH OF THE FILM WHICH WORKS OUT TO 345813 METRES, THE AO ESTIMATED THE SURPLUS OF 11,59,083 M ETRES OF FILM WHICH REMAINED UNEXPLAINED. THE VALUE OF SURPLUS RAW FILM WAS WORKED OUT BY THE AO @ 6.51 PER METRE AMOUNTING TO ` 75,45,630/-. GIVING THE BENEFIT OF ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 15 DOUBT TO THE ASSESSEE THE AO MADE AN ADDITION OF ` 60,00,000/- ON ACCOUNT OF UNEXPLAINED RAW FILM. ON APPEAL, THE ASS ESSEE CLARIFIED BEFORE THE CIT(A) THAT THERE ARE TWO TYPES OF STOCK OF RAW MATERIAL FILM I.E. NEGATIVE AND POSITIVE AND THE RATE OF RAW NEGATIVE IS ` 71 PER METRE NOT ` 6.51 AS TAKEN BY THE AO. THE CIT(A) ORDERED FOR REM AND REPORT FROM THE AO. IN THE REMAND PROCEEDINGS THE ASSESSING OFFICER AFTER VERIFICATION FROM M/S ADLABS PVT. LTD. ACCEPTED THE WASTAGE OF 1 3,300 METRES ONLY. ACCORDINGLY THE CIT(A) HAS RESTRICTED THE ADDITION TO ` 9,64,250/-. 12. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE PURCHASED RAW NEGATIVE FILM FROM M/S KODAK . HE HAS REFERRED THE DETAILS OF THE PURCHASES OF RAW NEGATIVE FILMS AT PAGE 47 OF THE PAPER BOOK. THE LD. AR OF THE ASSESSEE HAS POINTED OUT TH E LENGTH OF EACH FILM ROLE PURCHASED IS 400 SQ. FT. (122 METRES APPROXIMA TE) WHICH IS PUT IN THE CAMERA AT ONE TIME. HE HAS EXPLAINED THAT IN THE PR OCESS OF SHOOTING A HUGE AMOUNT OF FILM GETS WASTE AS IT IS EVIDENT FRO M RAW FILM (NEGATIVE) PROCESSED BY M/S ADLABS PVT. LTD. IS MUCH LESS THAN 122 METRES. HE HAS REFERRED THE DETAIL OF PROCESS NEGATIVE FILM AT PAG E 51 OF THE PAPER BOOK. THE LD. AR HAS SUBMITTED THAT THE MAJOR PART OF THE SHOOTING OF THE MOVIE KAAL TOOK PLACE IN FOREST AREA OF BANGKOK AS WELL AS INDIA THEREFORE, THE WASTAGE OF THE FILM IS MUCH MORE THAN IN NORMAL COU RSE BECAUSE DURING THE SHOOTING A HUGE STOCK OF RAW MATERIAL HAS TO BE MAINTAINED AS THESE ARE ISOLATED AREA. FURTHER IN FOREST AREA DUE TO TH E WEATHER CONDITIONS THE RAW FILM GETS DAMAGED BECAUSE THE RAW STOCK OF NEGA TIVE FILMS NEEDS TO BE KEPT UNDER SPECIFIC TEMPERATURE. HE HAS EXPLAINE D THAT IF THE RAW FILM ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 16 LEFT IN CAMERA IS LESS THAN 100 FEET THAN THE SAME IS REMOVED FROM THE CAMERA BECAUSE THE NEXT SHOT CANNOT BE ACCOMMODATED IN SUCH SHORT LENGTH OF FILM. THE LD. AR OF THE ASSESSEE HAS CONT ENDED THAT DUE TO THE PECULIAR FACTS AND CIRCUMSTANCES AND THE PLACE OF S HOOTING BEING FOREST HAS RESULTED MORE THAN NORMAL WASTAGE OF RAW FILM. THEREFORE, THE WASTAGE WHICH IS 16.68% OF THE TOTAL PURCHASE OF RA W NEGATIVE FILM IS JUSTIFIED IN THIS CASE. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDER OF THE CIT(A). 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE AO MADE AN ADDITION ON ACCO UNT OF UNEXPLAINED RAW FILM WHILE PASSING THE ASSESSMENT ORDER BY TAKI NG THE INCORRECT QUANTITY OF RAW NEGATIVE FILM PURCHASE BY THE ASSES SEE. IN FACT THE AO TOOK THE TOTAL QUANTITY STOCK PURCHASE FOR SHOOTING PURPOSE AS WELL AS FOR THE PURPOSE OF GIVING PRINT TO THE DISTRIBUTORS. TH E SAID MISTAKE WAS RECTIFIED IN THE REMAND PROCEEDINGS AND CONSEQUENTL Y THE AO ACCEPTED THE WASTAGE OF 13,300 METRES INSTEAD OF 11,59,083 M ETRES TOOK IN THE ASSESSMENT ORDER. WE NOTE THAT IN REMAND REPORT THE AO CONSIDERED THE REPORT OF THE M/S ADLABS PVT. LTD. AND ACCEPTED THE QUANTITY OF WASTAGE AS PER THE REPORT OF THE LAB. THE CIT(A) HAS REPRODUCE D THE RELEVANT PART OF THE REMAND REPORT AT PAGE 36 AND 37 OF THE IMPUGNED ORDER AS UNDER: KIND REFERENCE IS INVITED TO YOUR REFERRED LETTER DATED 31.05.201 ON THE CAPTIONED SUBJECT. AS DIRECTED, INFORMATION U/S 133(6) OF THE ACT WAS OBTAINED FROM M/S ADLABS P LTD. (NOW KNOWN AS RELIANCE MEDIAWORKS LTD.) REGARDING THE CONSUMPTION OF RAW FILM BY THE ASSESS EE IN RESPECT OF MOVIE KAAL. AS PER INFORMATION RECEIVED FROM M /S RELIANCE MEDIAWORKS LTD, THEY HAVE PROCESSED THREE TYPES OF STOCK FOR THE ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 17 ASSESSEE VIZ SOUND NEGATIVE, INTERMEDIATE STOCK AND NEGATIVE STOCK. IT WAS SUBMITTED BY M/S RELIANCE MEDIAWORKS LTD THAT THE NEGATIVE TOCK IS PROCESSED ON RECEIPT AND RETURNED IMMEDIATELY BECAUSE IF THE NEGATIVES ARE NOT KEPT IN A SPECIFIC ATMOSPHERE THE SAME MAY GET DAMAGED AND WOULD ADVERSELY AFFECT THE CLIENT. THEREFORE, NO STOCK STATEMENT IS KEPT IN RE SPECT OF NEGATIVES WHICH ARE PROCESSED BY THEM. IN THIS REGA RD, THEY HAVE FURNISHED A CERTIFICATE. THE INFORMATION RECEIVED FROM M/S RELIANCE MEDIAWOR KS LTD. WAS CONFRONTED TO THE ASSESSEE. THE ASSESSEE IN TURN HA S VERIFIED THE SAME AND FURNISHED A SUMMARY OF ALL THE THREE TYPES OF STOCK MENTIONING THEREIN THE QUANTITY OF STOCK PURCHASED BY THE ASSESSEE AND PROCESSED BY M/S RELIANCE MEDIAWORKS L TD. THE SAME IS REPRODUCED AS UNDER: PARTICULARS INTERMEDIATE STOCK (5242) SOUND NEGATIVE (2378) NEGATIVE STOCK (5217 & 5218) TOTAL FEETS METER FEETS METER FEETS METER FEETS METER DETAILS OF PURCHASE F.Y. 04-05 52,000 15,853 3,000 915 164,400 50,122 219,400 66,890 F.Y. 05-06 42,000 12,805 42,000 12,805 TOTAL(A) 52,000 15,853 45,000 13,720 164,400 50,122 261,400 79,695 AS PER ADLABS F.Y. 04-05 52,000 15,853 2,055 627 125,701 38,323 179,756 54,803 F.Y. 05-06 35,600 10,853 2,423 739 38,023 11,592 TOTAL (B) 52,000 15,853 37,655 11,480 128,124 39,062 217,779 66,395 WASTAGE (A-B) 7,345 2,240 36,276 11,060 43,621 13,300 THE FIGURES GIVEN IN THE ABOVE STATEMENT HAVE BEEN VERIFIED FROM THE DETAILS SUBMITTED BY RELIANCE MEDIAWORKS L TD. AS PER THE ABOVE INFORMATION, THE ASSESSEE HAD PURCHASED T OTAL 79695 METRE OF NEGATIVE STOCK AND QUANTITY OF NEGATIVE GI VEN TO RELIANCE MEDIAWORKS LTD. FOR PROCESSING WAS 66395 M ETRES. THUS THERE IS WASTAGE OF 13300 METRES OF NEGATIVE STOCK. IN VIEW OF THIS INFORMATION, THE QUANTITY OF WASTAGE IS REVISE D AT 13300 METRES AS AGAINST THE QUANTITY OF NEGATIVE STOCK WA STAGE MENTIONED IN THE EARLIER REPORT DATED 18.3.2011 AT 19628 METRES. THE COPY OF THE INFORMATION RECEIVED FROM R ELIANCE MEDIAWORKS LTD. ON VARIOUS OCCASIONS IS ENCLOSED HE REWITH FOR REFERENCE ALONG WITH ASSESSEES SUBMISSION. ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 18 14. THUS, IT IS CLEAR FROM THE REMAND REPORT THAT T HE AO CALLED INFORMATION U/S 133(6) OF THE INCOME TAX ACT FROM M /S ADLABS PVT. LTD. (NOW KNOWN AS RELIANCE MEDIAWORKS LTD.) AND FOUND T HAT THE ASSESSEE PURCHASED TOTAL 79695 METRES OF NEGATIVE STOCK OUT OF WHICH THE QUANTITY OF NEGATIVE GIVEN TO THE RELIANCE MEDIAWORKS PROCES S WAS 66395 METRES. THUS, THE WASTAGE WORKED OUT BY THE AO AT 13300 MET RES OF THE NEGATIVE STOCK. IT IS WELL KNOWN FACT THAT A CERTAIN AMOUNT OF WASTAGE OF NEGATIVE DURING THE SHOOTING OF FILM IS INEVITABLE. THE PERC ENTAGE OF WASTAGE MAY VERY DEPENDING UPON THE PECULIAR FACTS OF THE CASE REGARDING THE SUBJECT AND THEME OF FILM. THE ASSESSEE HAS EXPLAINED THE R EASONS FOR MORE THAN NORMAL WASTAGE AS REPRODUCED BY THE CIT(A) AT PAGE NO. 38 AS UNDER: A. AT THE TIME OF LOADING RAW STOCK IN THE CAMERA, SOME PART IN THE BEGINNING GETS WASTED. SIMILARLY, SOME PART AT THE END OF THE CAMERA OF RAW STOCK ALSO HAS TO BE LEFT BLANK. THUS , THESE LEFT OUT PART WOULD NEVER BE PROCESSED. B. ONE SCENE ARE SHOT FROM DIFFERENT ANGLES. OUT OF ALL SUCH ANGLES, THE ONE WHICH DIRECTOR FINDS APPROPRIATE IS PROCESSED. ACCORDINGLY, RAW STOCK USED FOR SHOOTING OF OTHER A NGLES IS WASTE. C. MAJOR PART OF THE MOVIE KAAL WAS SHOT IN THE F OREST AREA OF BANGKOK AS WELL AS OF INDIA. AT SUCH PLACE, HUGE ST OCK OF RAW FILMS HAVE TO BE MAINTAINED AS THIS ARE ISOLATED AR EA AND IF THERE IS A SHORTAGE OF RAW STOCK, THE SAME COULD NOT BE P ROCURED FROM THE NEAREST AREA. THUS, EXCESS STOCK MAY GET DAMAGE D, IF THE SAME IS NOT UTILIZED IN SHORT SPAN OF TIME. D. ALSO WEATHER IS AN IMPORTANT FACTOR I.E. IN FOGG Y CLIMATE, REELS OF RAW STOCK GETS DAMAGED AND HENCE NOT USEFUL FOR FURTHER USE. E. IF RAW STOCK LEFT IN THE CAMERA IS LESS THAN 100 METRES, THEN THE SAME HAS TO BE LEFT AS IT IS, AS ONE BIGGER SHO T CANNOT BE RECORDED IN THE SIZE OF LES THAN 100 METRES OF STOC K. F. SO FAR AS PROPER SHOT AS PER SATISFACTION OF DIR ECTOR IS NOT TAKEN, RE-TAKES OF THE SAME SHOT IS TAKEN. TO THAT EXTENT, RAW STOCK USED FOR RETAKES EXCEPT THE FINAL ONE, IS WAS TE. ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 19 15. HAVING REGARD TO THE PECULIAR CIRCUMSTANCES AS EXPLAINED BY THE ASSESSEE WE DO NOT FIND ANY REASON TO DISBELIEVE TH E SAME. THE CIT(A) WHILE DECIDING THE ISSUE HAS NOT TAKEN INTO CONSIDE RATION THE NORMAL WASTAGE OF NEGATIVE FILM WHICH IS INEVITABLE IN ANY CASE AND GAVE MORE STRESS ON THE DOCUMENTARY EVIDENCE IN PARA 4.5.1 AS UNDER: 4.5.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER, PE RUSED THE SUBMISSIONS AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. FROM THE ABOVE DISCUSSION, REPORTS OF TH E AO AND SUBMISSIONS OF THE APPELLANT, IT WOULD BE NOTED THA T FINALLY THE AO HAS, AFTER VERIFICATION, FOUND THE WASTAGE OF RA W FILM (NEGATIVE) 13,300 METRES. THE APPELLANT AGREES WITH THIS QUANTITY OF WASTAGE. HOWEVER, IT IS STATED THAT IN CASE OF M/S DHARMA PRODUCTIONS (PROPRIETARY CONCERN OF MR. KARA N JOHAR) FOR A.Y. 2007-08, THE AO HAS ALLOWED THE WASTAGE CLAIME D. HOWEVER, ON PERUSAL OF THE ASSESSMENT ORDER IN THAT CASE, IT IS NOTED THAT THE ISSUE OF WASTAGE HAS NOWHERE BEEN DISCUSSED THE REIN. FURTHER, THE PRINCIPLES OF RES JUDICATA DO NOT APPL Y TO INCOME-TAX PRECEEDINGS, AND HENCE, I DO NOT FIND ANY FORCE IN THIS CONTENTION OF THE APPELLANT. REASONS GIVEN TO EXPLAIN WASTAGE ARE NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE AND, HENCE, H AVE NO FORCE. ACCORDINGLY, THE WASTAGE OF 13,300 METRES ON ACCOUNT OF NEGATIVE STOCK WORKS OUT TO ` 9,64,250/- (13,300 72.50 ` ) AS PER FORMULA GIVEN BY AO IN PARA 4.3 OF REMAND REPOR T DATED 18.3.2011. AO IS DIRECTED TO RESTRICT THE ADDITION OF ` 9,64,250/-. 16. IT IS CLEAR THAT THE CIT(A) HAS NOT CONSIDERED THE JUSTIFICATION OF WASTAGE IN THE PROCESS OF SHOOTING AND IN THE GIVEN FACTS AND CIRCUMSTANCES. THOUGH THE WASTAGE IN THE CASE IS HI GHER THAN THE NORMAL WASTAGE IN ORDINARY CIRCUMSTANCES HOWEVER, KEEPING IN VIEW THE PECULIAR FACTS AS NOTED ABOVE THE DISALLOWANCE IS NOT JUSTIF IED HENCE, DELETED. 17. GROUND NO. 3 TO 8 REGARDING AD-HOC DISALLOWANCE OF 25% OF THE EXPENDITURE TOWARDS PAYMENT TO JUNIOR ARTISTS, COST UMES, DRESSES, MAKEUP, HAIRDRESSERS, DUBBING, SONG RECORDING, MIXI NG, DANCERS, CO- ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 20 ORDINATION CHARGES AND SETTING EXPENSES. THE ASSESS ING OFFICER NOTED THAT THE ASSESSEE HAS NOT PRODUCED CALL SHEET, CONTINUIT Y REPORT AND DID NOT MAINTAIN REHEARSAL BOOK ETC. THE AO ASKED THE ASSES SEE TO EXPLAIN WHY DISALLOWANCE SHOULD NOT BE MADE ON ACCOUNT OF THESE PAYMENTS. THE ASSESSEE CONTENDED THAT IT IS NOT FEASIBLE TO MAINT AIN CALL SHEET, CONTINUITY REPORT OR REHEARSAL BOOK AFTER COMPLETIO N OF THE SHOOTING OF THE FILM BECAUSE THESE DOCUMENTS ARE NOT REQUIRED AND A CCORDINGLY DESTROYED. THE ASSESSEE CONTENDED THAT IT HAS ALREA DY PRODUCED BILLS AND VOUCHERS IN RESPECT OF THE EXPENDITURE INCURRED IN RESPECT OF THE ABOVE ITEMS. THE AO DID NOT ACCEPT THE CONTENTION AND EXP LANATION OF THE ASSESSEE AND ESTIMATED THE DISALLOWANCE AT 25% OF T HESE EXPENSES FOR WANT OF REPORTS/REGISTERS. 18. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ADDITIO N/DISALLOWANCE MADE BY THE AO BY RECORDING THE REASONS THAT DURING THE COURSE OF SURVEY ON 10.9.2009 IN THE ASSESSEES PREMISES IT WAS NOTICED THAT CALL SHEET, CONTINUITY REPORT ETC. BEING MAINTAINED BY THE ASSE SSEE. HENCE THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE COMPANY HAS DELIB ERATELY NOT PRODUCED THESE DOCUMENTS. 19. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION FOR WANT OF PRODUCTION OF CALL SHEET, CONTINUITY REPORT AND REHEARSAL BOOK ETC. WH EREAS THE ASSESSEE PRODUCED THE RELEVANT EVIDENCE IN THE SHAPE OF VOUC HERS/BILLS IN RESPECT OF THIS EXPENDITURE WHICH WERE NOT FOUND BY THE AO AS BOGUS. THE LD. AR HAS FURTHER CONTENDED THE ASSESSEE AS EXPLAINED BEFORE THE AUTHORITIES BELOW ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 21 THAT THE CALL SHEET, CONTINUITY REPORT AND REHEARSA L BOOK ETC. ARE MAINTAINED FOR THE PURPOSE OF SHOOTING OF THE FILM AND NOT PART OF BOOKS OF ACCOUNT AND AFTER COMPLETION OF THE SHOOTING OF THE FILM THESE DOCUMENTS ARE DESTROYED BECAUSE IT IS NOT FEASIBLE TO KEEP TH ESE RECORDS WHICH ARE RELEVANT ONLY FOR MANAGING THE SHOOTING WORK. THE L D. AR OF THE ASSESSEE HAS FURTHER POINTED OUT THAT THE CIT(A) HAS CONFIRM ED THE DISALLOWANCE BY PLACING RELIANCE ON THE RECORD FOUND DURING THE SUR VEY ON 10.9.2009 BUT THE CALL SHEET, CONTINUITY REPORT ETC. FOUND DURING THE SURVEY WERE IN RESPECT OF THE FILMS WHOSE SHOOTING WAS IN PROGRESS AT THE TIME OF SURVEY. THEREFORE, THE CIT(A) HAS CONSIDERED THE RECORD FOU ND DURING THE SURVEY WHICH IS NOT AT ALL RELEVANT FOR THE PURPOSE OF THE CASE IN HAND. HE HAS FURTHER EXPLAINED THAT SUCH RECORD IS MAINTAINED TI LL THE SHOOTING OF THE FILM IS IN PROGRESS. RATHER THE RECORD FOUND DURING THE SURVEY SUPPORTS THE CASE OF THE ASSESSEE THAT THE ASSESSEE DULY MAINTAI N, ALL RELEVANT RECORD OF THE FILM WHOSE SHOOTING IS IN PROGRESS. THESE AR E ON SITE PURPOSE RECORD AND THEREFORE, AFTER COMPLETION OF THE SHOOTING THE SAME IS DESTROYED. HE HAS FURTHER SUBMITTED THAT WITHOUT THESE EXPENSES N O FILM SHOOTING CAN TAKE PLACE AND HENCE THE ENTIRE EXPENDITURE IS DEDU CTIBLE U/S 37 OF THE INCOME TAX ACT AS IT IS FOR BUSINESS PURPOSE. THE L D. AR HAS FORCEFULLY CONTENDED THAT THERE IS NO BASIS FOR ESTIMATING THE DISALLOWANCE AT 25% OF TOTAL EXPENDITURE IN RESPECT OF THESE PAYMENTS. THE LD. AR HAS REFERRED THE DECISION DATED 5.4.2013 OF THIS TRIBUNAL IN CAS E OF YASH RAJ FILMS PVT. LTD. VS ACIT IN ITA NO. 6350/M/2010 AND SUBMITTED T HAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL WH EREBY THE AD-HOC ADDITION IN RESPECT OF JUNIOR ARTISTS HAS BEEN DELE TED AND THE DISALLOWANCE ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 22 IN RESPECT OF THE OTHER EXPENSES HAS BEEN RESTRICTE D TO 5%. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE ASSESSEE HAS FAILED TO PROD UCE THE SUPPORTING RECORD AND DOCUMENT TO PROVE THE GENUINENESS OF THE EXPENSES THEN THE ESTIMATED DISALLOWANCE AT 25% IS JUSTIFIED. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE AO HAS MADE AN AD-HOC DISAL LOWANCE OF 25% IN RESPECT OF THE PAYMENTS MADE TO JUNIOR ARTISTS IN R ESPECT OF FOLLOWING PAYMENTS: EXPENSES IN RESPECT OF PAYMENT OF JUNIOR ARTISTS AD DITION OF ` 3,53,000/- EXPENSES IN RESPECT OF COSTUMES & DRESSES ADDITION OF ` 8,42,346/- EXPENSES IN RESPECT OF MAKEUP & HAIRDRESSERS ADDITI ON OF ` 1,62,686/- DUBBING, SONG RECORDING & MIXING EXPENSES ADDITION OF ` 2,40,703/- DANCERS EXPENSES & CO-ORDINATION CHARGES ADDITION O F ` 3,25,399/- SETTING EXPENSES ADDITION OF ` 15,86,176/- 21. THE ASSESSEE EXPLAINED BEFORE THE AO AS REPRODU CED IN PARA 7.2 OF ASSESSMENT ORDER AS UNDER: 7.2 IN RESPONSE TO THE SAME, THE ASSESSEE HAS SUBM ITTED AS UNDER: YOUR GOODSELF HAS STATED THEN IN THE ABSENCE OF NOT PRODUCING CALL SHEET, CONTINUITY REPORT, AND NOT MA INTAINING REHEARSAL BOOK, YOUR GOODSELF INTENDS TO DISALLOW THE EXPENDITURE INCURRED ON ACCOUNT OF PAYMENT TO JUNIO R ARTISTS, COSTUMES & DRESSES, MAKEUP EXPENSES AND MUSIC RECOR DING ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 23 AND DANCERS EXPENSES. IN THIS CONNECTION, IT IS POI NTED OUT THAT THE SALT! REQUIRED DOCUMENTS ARE ONLY IN EXIST ENCE DURING THE CURRENCY OF THE SHOOTING 01 THE FILM. AS SOON AS THE SHOOTING OF THE FILM IS COMPLETE, THEN THESE DO CUMENTS ARE NOT REQUIRED AND ACCORDINGLY DESTROYED. SO FAR AS THE EXPENDITURE PART IS CONCERNED AS PAYMENT IN JUNIOR ARTISTS AS WELL AS FOR COSTUMES & DRESSES, MAKEUP EXPENSES AND MUSIC RECORDING AND DANCERS EXPENSES, THE ASSESSEE HAS AL READY PRODUCED BILLS AND VOUCHERS IN RESPECT OF THE EXPEN DITURE INCURRED IN RESPECT OF ABOVE ITEMS. ALL BILLS AND V OUCHERS HAVE BEEN PRODUCED BEFORE YOUR GOODSELF AND THE SAM E HAS ALSO BEEN VERIFIED BY YOU AND NOT DOUBTED. THE ASSE SSEES BOOKS ARE AUDITED AND THE SAID BILLS AND VOUCHERS H AVE ALSO BEEN AUDITED AND ARE NOW PART OF THE BOOKS OF ACCOU NT. IT IS NEEDLESS TO SAY THAT A FILM CANNOT BE SHOT WITHOUT THE HELP OF JUNIOR ARTISTS, COSTUMES & DRESSES, MAKEUP EXPEN SES AND MUSIC RECORDING AND DANCERS ETC. THESE ARE THE IMPO RTANT INGREDIENTS OF A FILM AND A FILM PRODUCER IS REQUIR ED TO INCUR EXPENDITURE ON THESE ITEMS. SINCE BILLS & VOUCHERS RELATING TO THESE EXPENSES HAVE BEEN MAINTAINED AND PRODUCED BEFORE YOUR GOODSELF AND NO FLAW OR DEFECTS ARE NO TICED IN THEM, THERE IS NO QUESTION OF ANY DISALLOWANCE. MER ELY BECAUSE CALL SHEET AND CONTINUITY REPORT HAVE N OT BEEN PRODUCED BY US AS THE SAME ARE NOT MAINTAINED NO DISALLOWANCE COULD BE EFFECTED. IN THIS CONNECTION, IT IS FURTHER CLARIFIED THAT AS PER RULE 6F OF IT RULES C ERTAIN BOOKS OF ACCOUNT ARE TO BE MAINTAINED BY FILM PRODUCERS A ND THOSE HAVE BEEN MAINTAINED BY THE ASSESSEE MINUTELY AND H AVE ALSO BEEN PRODUCED BEFORE YOUR GOODSELF. THE SAID R ULE DOES NOT PRESCRIBE FOR MAINTAINING CALL SHEET AND CONT INUITY REPORT. IN SUCH CIRCUMSTANCES, THERE IS NO CASE OF ANY DISALLOWANCE OF EXPENDITURE INCURRED UNDER THE ABOV E HEADS WHICH ARE GENUINELY INCURRED FOR THE PRODUCTION OF A FILM. 22. WE FIND THAT THE AO HAS NOT GIVEN A FINDING THA T THE BILLS/VOUCHERS PRODUCED BY THE ASSESSEE ON THE BASIS OF WHICH THE EXPENDITURE HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT ARE BOGUS. THERE I S NO DISPUTE ON THE POINT THAT THE EXPENDITURE ON THESE ITEMS IS ESSENT IAL IN THE PRODUCTION OF FILM AND THEREFORE, WHEN THE ASSESSEE HAS PRODUCED THE BILLS AND VOUCHERS THEN THERE IS NO REASON TO HOLD THAT THE E XPENDITURE IS BOGUS. WE AGREE WITH THE EXPLANATION OF THE ASSESSEE THAT THE CONTINUITY REPORT, ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 24 CALL SHEET AND REHEARSAL BOOK ARE THE DOCUMENTS MAI NTAINED FOR THE PURPOSE OF SHOOTING AND NOT BEING PART OF THE ACCOU NTS BOOK. THESE RECORDS ARE FOR INTERNAL MANAGEMENT OF WORK OF SHOO TING AND ONCE THE SHOOTING OF A FILM IS OVER THERE IS NO PURPOSE TO K EEP SUCH A RECORD WHICH IS OTHERWISE NOT FEASIBLE. WE FURTHER NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF YAS RAJ FILMS PVT. LTD. (SUPRA) IN PARA 28 AND 2 9 AS UNDER: 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EV IDENCE BROUGHT ON RECORD WHICH IS PLACED IN THE PAPER BOOK. IT IS NOT IN DISPUTE THAT MANY JUNIOR ARTISTS ENGAGED IN THE MAKING OF A MOVIE. THE MAIN ARTISTS IN A MOVIE ARE HARDLY 15 TO 25 IN NUMB ERS WHEREAS THE ENTIRE MOVIE MOVES AHEAD ON JUNIOR ARTISTS. IT IS ALSO NOT IN DISPUTE THAT THE SUPPLIER M/S. PAPPU & CO., HAS CON FIRMED TO HAVE MADE AVAILABLE JUNIOR ARTISTS TO THE ASSESSEE, IT IS ALSO A FACT THAT IF THE CONTRACTOR I.E. PAPPU & CO., COULD NOT FURNISH THE FULL ADDRESS OF THE JUNIOR ARTISTS, THE SAME CANNOT BE USED ADVERSELY AGAINST THE ASSESSEE. FURTHER, THE LI CIT (A) HAS PLACED MUCH RELIANCE ON THE SURRENDER OF RS. ONE CRORE FRO M M/S. PAPPU & CO., DURING THE COURSE OF THE SURVEY OPERATIONS. IF THE SAID CONTRACTOR WAS NOT DISCLOSING ITS INCOME PROPERLY, THAT CANNOT BE HELD AGAINST THE ASSESSEE, ON THE CONTRARY, IT SHOU LD 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 HU MBLE OPINION, NO DISALLOWANCE CAN BE MADE ON THIS ACCOUN T,. WE ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITIONS M ADE ON ACCOUNT OF PAYMENT TO JUNIOR ARTISTS. 29. SO FAR AS OTHER ADHOC DISALLOWANCES MARE CONCER NED, IN THE ABSENCE OF PROPER RECORDS, IN OUR CONSIDERATE V IEW, A DISALLOWANCE OF 5% OF THE EXPENSES CLAIMED UNDER TH ESE HEADS OF EXPENSES WOULD MEET THE ENDS OF JUSTICE. THEREFO RE, REVERSING THE FINDINGS OF THE LD. CIT(A), WE DIRECT THE AO TO RESTRICT THE DISALLOWANCES UNDER THE HEAD DRESSES, COSTUMES, MAK E UP EXPENSES, DUBBING AND MIXING EXPENSES, SETTING EXPE NSES, EDITING, MUSIC RECORDING AND DANCE EXPENSES TO 5% O NLY. GROUND NO. 4 TO 8 ARE THEREFORE PARTLY ALLOWED. ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 25 23. WE DO CONCUR WITH THE VIEW OF THE CO-ORDINATE B ENCH AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF PAYMEN T TO JUNIOR ARTISTS. AS REGARDS THE OTHER EXPENSES THE DISALLOWANCE IS REST RICTED TO 5% AS A SIMILAR VIEW WAS TAKEN BY THE CO-ORDINATE BENCH IN THE ABOVE CASE. 24. GROUND NO. 9 REGARDING DISALLOWANCE OF EXPENSES BY THE CIT(A) UNDER RULE 9A AND THEREBY ENHANCED THE ASSESSMENT. THE CIT(A) HAD PROPOSED TO ENHANCE THE DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF POSITIVE FILM AND ADVERTISEMENT/PUBLICITY EXPENSES AS PER RULE 9A. THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE EXPEN DITURE HAS BEEN INCURRED AFTER COMPLETION OF PRODUCTION AND FOR THE PURPOSE OF BUSINESS AND THEREFORE, ALLOWABLE U/S 37 OF THE INCOME TAX A CT. THE CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND ENHANCED THE DISALLOWANCE AMOUNT OF ` 2,67,73,568/- UNDER RULE 9A. 25. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT AS PER RULE 9A ENTIRE COST OF PRODUCTION SHOULD BE ALLOWED AS D EDUCTION IF THE MOVIE IS RELEASED FOR EXHIBITION ON A COMMERCIAL BASIS AT LE AST 90 DAYS BEFORE THE END OF THE PREVIOUS YEAR. IN THE PRESENT CASE THE M OVIE IS RELEASED ON 29.4.2005 WHICH IS AT THE BEGINNING OF THE PREVIOUS YEAR AND MUCH PRIOR TO 90 DAYS BEFORE THE END OF THE YEAR THEREFORE, AS PER RULE 9A THE ENTIRE COST OF PRODUCTION SHOULD BE ALLOWED AS DEDUCTION. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE C O-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S YAS RAJ FILMS PVT. LTD . (SUPRA). HE HAS FURTHER SUBMITTED THAT THE EXPENSES INCURRED AFTER THE FILM WAS CERTIFIED FOR RELEASE ARE ALLOWABLE U/S 37 OF THE INCOME TAX ACT IN THE NATURE OF ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 26 BUSINESS EXPENDITURE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF CI T VS PRASAD PRODUCTIONS PVT. LTD. 179 ITR 147. HE HAS ALSO RELI ED UPON THE DECISION OF THIS TRIBUNAL IN CASE OF MUKTA ARTS PVT. LTD. VS AC IT 292 ITR (AT) 16 (MUM.) WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISI ON OF HONBLE MADRAS HIGH COURT IN CASE OF PRASAD PRODUCTIONS PVT. LTD. AND HELD THAT THE EXPENSES WHICH DO NOT FORM PART OF PRODUCTION AS PE R RULE 9A ARE ALLOWABLE AS PER NORMAL PROVISIONS OF THE ACT. THUS , THE LD. AR HAS CONTENDED THAT RULE 9A IS NOT APPLICABLE SO FAR AS THE EXPENDITURE WHICH DO NOT FORM PART OF THE COST OF PRODUCTION NAMELY A DVERTISEMENT AND PUBLICITY EXPENDITURE. THEREFORE, THE ENTIRE EXPEND ITURE IS ALLOWABLE AS INCURRED FOR BUSINESS PURPOSE. ON THE OTHER HAND, T HE LD. DR HAS RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE CIT(A) HAS PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTION HI GH COURT IN CASE OF CIT VS S. M 261 ITR 271 AS WELL AS IN CASE OF CIT VS PROGR ESS 260 ITR 456. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ABOUT THE D ATE 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 E NHANCED 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 ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 27 ACCOUNT OF ADVERTISEMENT AND PUBLICITY. THE REASON FOR DISALLOWANCE BY THE CIT(A) IS THAT THE ADVERTISEMENT/PUBLICITY EXPE NDITURE 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 RESP ECT OF THE DISALLOWANCE OF EXPENDITURE UNDER RULE 9A OR 9B WHEREAS THE EXPE NDITURE WHICH DO NOT FORM PART OF THE COST OF PRODUCTION CANNOT BE DISAL LOWED BY INVOKING RULE 9A AND THEREFORE, THE SAME IS ALLOWABLE U/S 37 OF T HE INCOME TAX ACT AS HELD BY THE HONBLE MADRAS HIGH COURT IN CASE OF CI T VS PRASAD PRODUCTION PVT. LTD.(SUPRA) AT PAGE NO. 156 AND 157 AS UNDER: ONLY DURING THE COURSE OF THE PENDENCY OF THE APPE AL BEFORE THE APPELLATE ASSISTANT COMMISSIONER, THE ASSESSEE EXER CISED AN OPTION AS PER RULE 9A OF THE RULES AND UNDER EXPLAN ATION (II)(A) TO RULE 9A(1) OF THE RULES, THE EXPENDITURE INCURRED FOR THE PREPARATION OF THE POSITIVE PRINTS OF THE FILM COU LD NOT BE INCLUDED WITHIN THE EXPRESSION 'COST OF PRODUCTION '. IT IS FOR THIS REASON THAT SUCH EXPENDITURE IS CHARACTERISED AS PO ST-PRODUCTION EXPENDITURE. ORDINARILY, ALL EXPENDITURE INCURRED O N THE PRODUCTION OF A FILM WOULD BE ITS COST OF PRODUCTIO N, BUT THAT WOULD EXCLUDE THE EXPENDITURE INCURRED FOR THE PREP ARATION OF THE POSITIVE PRINTS OF THE FILM SO PRODUCED. THE PU RPOSE OF OBTAINING POSITIVE PRINTS IS TO EXHIBIT THE FILM PR ODUCED WHICH IS A STAGE AFTER THE COMPLETION OF THE PRODUCTION. IN AN Y GIVEN CASE, A PERSON CARRYING ON BUSINESS IN THE PRODUCTION OF FE ATURE FILMS MAY PRODUCE A FILM, BUT FOR A VARIETY OF REASONS, H E MAY NOT BE IN A POSITION TO EXHIBIT IT BY OBTAINING POSITIVE P RINTS. HAVING PRODUCED A FILM, THE PERSON CARRYING ON THE BUSINES S OF PRODUCTION OF FEATURE FILMS MAY EITHER KEEP THEM WI THOUT EXHIBITION OR EVEN PART WITH THEM WITHOUT MAKING AR RANGEMENTS FOR THEIR EXHIBITION. IT CANNOT, THEREFORE, BE ASSU MED THAT IN ALL CASES OF PRODUCTION OF A FILM, THE PRODUCER MUST NE CESSARILY OBTAIN THE POSITIVE PRINTS OF THE FILM AS WELL. IN OTHER WORDS, IF A PERSON CARRIES ON THE BUSINESS OF PRODUCTION OF FIL MS, HE MAY NOT ONLY PRODUCE THE FILMS BUT ALSO PREPARE THE POSITIV E 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 CONSTITUTES 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 CONTEM PLATES STAGE SUBSEQUENT TO THE COMPLETION OF THE PRODUCTION OF T HE FILM, VIZ., ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 28 EXHIBITION OF THE FILM PRODUCED. VIEWED THUS, ANY E XPENDITURE INCURRED IN CONNECTION WITH THE PREPARATION OF THE POSITIVE PRINTS FOR PURPOSES OF EXHIBITION WOULD REALLY BE POST-PRO DUCTION EXPENSES AND ALSO AN ITEM OF EXPENDITURE IN RELATIO N TO THE BUSINESS OF PRODUCTION AND EXHIBITION OF FEATURE FI LMS AND WOULD, THEREFORE, QUALIFY FOR DEDUCTION AS EXPENDITURE LAI D OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. WE HAVE NOT BEEN REFERRED TO ANY PROVISION IN THE A CT OR THE RULES DISALLOWING SUCH EXPENDITURE AS AN ITEM OF BU SINESS EXPENDITURE FOR THE PURPOSE OF SECTION 37 OF THE AC T. THOUGH LEARNED COUNSEL FOR THE REVENUE PLACED CONSIDERABLE RELIANCE UPON THE DECISION IN CIT V. CARBORUNDUM UNIVERSAL L TD. [1977] 110 ITR 621 (MAD), WE ARE OF THE VIEW THAT THAT DE CISION DOES NOT IN ANY MANNER ASSIST THE REVENUE. IN THAT CASE, THE ASSESSEE CLAIMED DEDUCTION OF A CERTAIN AMOUNT IN THE COMPUT ATION OF ITS PROFITS AND GAINS OF THE BUSINESS BY WAY OF CONTRIB UTION TO THE SUPERANNUATION FUND OF ITS FOREIGN COLLABORATORS AN D THAT CLAIM WAS DISALLOWED BY THE AUTHORITIES BELOW. HOWEVER, T HE TRIBUNAL HELD THAT THOUGH THAT AMOUNT WAS NOT AN ALLOWABLE DEDUCTION UNDER SECTION 36(1)(IV) OF THE ACT AS THE CONTRIBUT ION WAS NOT TO A RECOGNISED PROVIDENT FUND OR TO AN APPROVED SUPERAN NUATION FUND NOR COULD BE ALLOWED UNDER SECTION 37 OF THE A CT, THE PAYMENT WAS ALLOWABLE UNDER SECTION 28 OF THE ACT. ON A REFERENCE, IT WAS HELD THAT THE NATURE OF PAYMENT B EING ONE DESCRIBED IN SECTION 36(1)(IV) OF THE ACT AND AS I T COULD NOT BE DEDUCTED UNDER THAT SECTION, IT CANNOT BE HELD TO BE DEDUCTIBLE UNDER SECTION 28 OF THE ACT ON GENERAL PRINCIPLES I N ARRIVING AT THE TRUE PROFITS AND GAINS OF THE BUSINESS IN A COM MERCIAL SENSE. IN THE VIEW WE HAVE TAKEN THAT THE EXPENDITURE INCU RRED IN CONNECTION WITH THE OBTAINING OF POSITIVE PRINTS IS REALLY IN THE NATURE OF POST-PRODUCTION EXPENDITURE AND THAT THER E IS NO PROVISION IN THE ACT OR THE RULES OBLIGING THE AUTH ORITIES TO DISALLOW SUCH EXPENDITURE, THE CLAIM OF THE ASSESSE E THAT SUCH EXPENDITURE WOULD FALL UNDER SECTION 37 OF THE ACT IS, IN OUR VIEW, WELL-FOUNDED. WE, THEREFORE, ANSWER THE SECOND QUES TION REFERRED TO US IN THE AFFIRMATIVE AND AGAINST THE R EVENUE. 27. FOLLOWING THE ABOVE DECISION OF HONBLE MADRAS HIGH COURT, THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN CASE MUKTA ARTS PVT. LTD. (SUPRA) HAS HELD IN PARA 13 AND 21 AS UNDER: 13. AS NOTED, RULE 9A ALSO DEFINES COST OF PRODUC TION TO MEAN, THE ENTIRE EXPENDITURE INCURRED ON THE PRODUCTION O F FILM. HOWEVER, ADVERTISEMENT EXPENDITURE INCURRED AFTER T HE CENSOR BOARD CERTIFICATION IS OBTAINED AND ALSO THE COST O F POSITIVE PRINTS ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 29 OF THE FILM ARE NOT TO BE INCLUDED AS PART OF THE C OST OF PRODUCTION. THE EFFECT OF THE EXCLUSION OF THESE TW O ITEMS NORMALLY MEANS THAT THEY COULD BE ALLOWED IN THE YE AR IN WHICH THESE EXPENSES ARE INCURRED REGARDLESS OF WHETHER FILM IS RELEASED IN THAT YEAR OR NOT AS HELD BY THE HONBL E MADRAS HIGH COURT IN THE CASE OF CIT V. PRASAD PRODUCTIONS P. LTD. AS REPORTED IN [1989] 179 ITR 147 THE COST OF MAKING POSITIVE PRINTS IS ALLOWABLE UNDER SECTION 37 OF THE ACT. FURTHER IN T HE CASE OF B. NAGI REDDY V. CIT AS REPORTED IN [1993] 199 ITR 451 , THE HONBLE MADRAS HIGH COURT HELD THAT ANY LOSS ARISING ON ACC OUNT OF FEATURE FILM BEING ABANDONED MIDWAY WITHOUT COMPLET ING IT, THEN, THE EXPENDITURE INCURRED TILL THAT DATE INCL UDING THE PAYMENTS MADE TO ARTISTS, WRITERS ETC. WOULD BE AL LOWABLE AS A BUSINESS LOSS ON THE PRINCIPLE OF COMMERCIAL EXPEDI ENCY. ALL THE ABOVE INSTANCES MAKE IT CLEAR THAT IN CASE OF FILM PRODUCER, THE EXPENSES WHICH DO NOT FORM PART OF COST OF PRODUCTI ON AS PER RULE 9A ARE ALLOWABLE AS PER THE NORMAL PROVISIONS OF T HE ACT. IT, THEREFORE, FOLLOWS THAT RULE 9A DOES NOT COVER ALL THESE SITUATIONS AND ALL TYPES OF EXPENSES, HENCE THE PROPOSITION TH AT 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 GIVE N TO THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 295(1) OF THE INCOME-TAX ACT, 1961. THUS IT IS A PIECE OF DELEGA TED LEGISLATION AND MUST FUNCTION WITHIN THE PARAMETERS FIXED BY L EGISLATURE BY LAYING DOWN THE LAW, THE POLICY AND THE STANDARD W HICH LEGISLATURE WANTS TO MAINTAIN IN THE APPLICATION AN D ENFORCEMENT OF THE LEGISLATIVE ENACTMENT AND BE CONSISTENT THE REWITH. IT, THEREFORE, FOLLOWS THAT AN ANCILLARY CHANNEL, AT AN Y RATE, CANNOT NEITHER ABRIDGE RIGHTS OR PRIVILEGES GRANTED BY THE STATUTE ITSELF NOR CONFER ANY SPECIAL BENEFITS, RIGHTS OR PRIVILEG ES BEYOND THE PROVISIONS OF THE ACT OR IN CONTRADICTION TO THE PR OVISIONS OF THE LEGISLATIVE ENACTMENT BECAUSE THE OBJECT SUBORDINAT E LEGISLATION IS TO CARRY OUT THE STATUTORY PROVISIONS EFFECTIVEL Y AND NOT TO NEUTRALIZE OR CONTRADICT THEM. IF DELEGATED LEGISLA TION RESULTS INTO ANY SUCH SITUATIONS THAT WOULD AMOUNT TO LEGISLATIO N ITSELF AND WHICH CANNOT BE ABDICATED BY THE LEGISLATURE. IN TH IS VIEW OF THE MATTER, IT IS NOT WITHIN THE POWER OF THE CENTRAL B OARD OF DIRECT TAXES TO CREATE A LEGAL FICTION LIKE RULE 9A IN THE FASHION AS CONTENDED BY LEARNED COUNSEL FOR THE ASSESSEE BECAU SE THIS INTERPRETATION WOULD GO BEYOND THE LEGISLATIVE POLI CY ENACTED IN THE FORM OF SECTION 37(2), 37(2A), 37(3) ETC. OF TH E ACT AND MAKE RULE 9A VOID. IT IS ALSO A SETTLED JUDICIAL PRINCIP LE THAT SUBORDINATE LEGISLATION IN CASE OF CONFLICT MUST YIELD TO PLENA RY LEGISLATION. THE NEGATIVE COVENANT/RESTRICTED PROVISIONS LIKE SE CTION 37(2A) HAVE BEEN ENACTED WITH THE OBJECT OF RESTRICTING TH E DEDUCTION OF EXPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER SECT ION 37. IT IS A FACT THAT EXPENDITURE INCURRED AFTER THE ISSUE OF C ERTIFICATION BY THE CENSOR BOARD ON ACCOUNT OF ADVERTISEMENT AND PU BLICITY AND ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 30 COST OF POSITIVE PRINTS ARE ALLOWABLE UNDER SECTION 37(1) AND, THEREFORE, SUCH EXPENSES COME WITHIN THE PURVIEW OF SECTION 37(3) OF THE ACT EXPENDITURE ON AND COST OF POSITIV E PRINTS HAS TO SATISFY THE CONDITIONS OF SECTION 37 FOR ALLOWANCE. THUS, THERE APPEARS NO REASONABLE BASIS TO ALLOW THE SAME EXPEN DITURE INCURRED BEFORE HAPPENING OF AN EVENT I.E., UP TO T HE DATE OF ISSUE OF CERTIFICATE BY THE CENSOR BOARD IN TOTAL W ITHOUT ANY RESTRICTION WHATSOEVER AND ALLOW THE EXPENDITURE OF THE SAME NATURE INCURRED AFTER THE ISSUANCE OF CERTIFICATE B Y 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 JU STIFY THE EXEMPTION TO FILM PRODUCERS FROM THE APPLICABILITY OF THE PROVISIONS OF SECTION 37(2A) AND/OR SECTION 37(3) I N RESPECT OF EXPENDITURE FORMING PART OF COST OF PRODUCTION AS P ER RULE 9A. 28. IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING T HE DECISION OF HONBLE 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 PUBLIC ITY ARE ALLOWABLE. ACCORDINGLY THE ADDITION ENHANCE BY THE CIT(A) IS D ELETED. ITA NO. 4791/M/2013 ITA NO. 4791/M/2013 ITA NO. 4791/M/2013 ITA NO. 4791/M/2013 29. IN THE PENALTY APPEAL THE ASSESSEE HAS CHALLENG ED THE LEVY OF PENALTY BY THE CIT(A) IN RESPECT OF THE ENHANCEMENT OF DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF ADVERTISEMENT AND PUBLICI TY. 30. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. IN VIEW OF OUR FINDING ON THE ISSUE OF ENHANCEMENT OF DISALLOWANCE ON ACCOUNT OF ADVERTISE MENT AND PUBLICITY ITA NO. 2480 & 4791/M/2013 DHARMA PRODUCTIONS PVT. LTD. 31 EXPENDITURE IN THE QUANTUM APPEAL, THE PENALTY AGAI NST SUCH DISALLOWANCE DOES NOT SURVIVE. ACCORDINGLY, THE PENALTY LEVIED U /S 271(1)(C) IS DELETED. 31. IN THE RESULT, THE QUANTUM APPEAL OF THE ASSESS EE IS PARTLY ALLOWED AND PENALTY APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF SEPTEMBER 2013 SD/- SD/- ( . ) ! '# (D. KARUNAKARA RAO) ACCOUNTANT MEMBER ( ) $ '# (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 18 TH SEPTEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI