M/s. ZEE ENTERTAINMENT ENTERPRISES LTD., MUMBAI V. ACIT Rg. 11(1), MUMBAI

ITA 5216/MUM/2005

• Counselvise Citation: 521619914 RSA 2005
• Duration Of Justice: 5 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 27-12-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 02-08-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B SENTHIL KUMAR
• Assessee Lawyers: K SHIVARAM
• Keywords: Business income; Depreciation; Revised return; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.5216/MUM/2005 (ASSESSMENT YEAR: 2002-03) ZEE TELEFILMS LTD., NOW ZEE ENTERTAINMENT ENTERPRISES LTD. CONTINENTAL BUILDING, 135, DR. ANNIE BESANT ROAD, WORLI, MUMBAI -400 018 ..... APPELLANT VS ACIT COMMISSIONER OF I. TAX, RANGE 11(1), AAYAKAR BHAVAN, MUMBAI -400 020 .....RESPONDENT ITA NO.5787/MUM/2006 (ASSESSMENT YEAR: 2002-03) ACIT-CIRCLE 11(1), AAYAKAR BHAVAN MUMBAI -400 020 ..... APPELLANT VS ZEE TELEFILMS LTD., (NOW ZEE ENTERTAINMENT ENTERPRISES LTD.) CONTINENTAL BUILDING, 135, DR. ANNIE BESANT ROAD, WORLI, MUMBAI -400 014 .....RESPONDENT PAN: AAACZ 0243 R ASSESSEE BY: SHRI K. SHIVARAM REVENUE BY: DR. B. SENTHIL KUMAR O R D E R PER R.S. PADVEKAR, JM ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 2 THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND ANO THER BY THE REVENUE ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) - 11, MUMBAI DATED 1.06.2005 FOR THE A.Y. 2002-03. W E FIRST TAKE THE ASSESSEES APPEAL BEING ITA NO.5216 OF 2005. 2. GROUND NO.1 READS AS UNDER:- 1. THE LD. CIT (A) ERRED IN LAW AND FACTS IN CONFI RMING THE DISALLOWANCE OF RS 8,11,598/- U/S.14A OF THE ACT OUT OF INTEREST EXPENSES ON FUNDS USED FOR ADVANCES GIVEN FOR PURCHASE OF SHARES (PARA 3.3 OF THE ORDER) OF COMPA NIES WITH BUSINESS SYNERGY. THE INTEREST OUGHT TO HAVE BEEN ALLOWED U/S.36(I)(III) OF THE ACT. 3. WE HAVE HEARD THE PARTIES. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION OF TV DISTRIBUTOR, BROAD CASTING TV CHANNELS ETC., FILM, MEDIA NEWS ETC. THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS 58,53,62,734/- IN THE A.Y. 2002-03. THE A.O. DISALLOWED RS 4,30,94,198/- U/S.14A ON THE GROUND THAT (I) INTEREST OF RS 8,11,598/- WILL BE ATTRIBUTED TO INVESTMENT AND ADVANCE OUT OF THE BORROWED FUNDS DURING THE YE AR AND; (II) RS 4,22,82,600/- PERTAINS TO INVESTMENTS MADE UPTO 31.2.2001 AND DISALLOWED IN THE A.Y. 2001-02; (III) THE INCOME BY WAY OF DIVIDEND FROM THE INVESTMENTS IN SHARES IS EXEMPT U/S.10(33) OF THE ACT AND HENCE IN TEREST ATTRIBUTABLE FOR INVESTMENT IS TO BE DISALLOWED U/S .14A OF THE ACT. 4. THE LD. COUNSEL SUBMITS THAT DURING THE YEAR NO INTEREST WAS ATTRIBUTABLE TO THE INVESTMENT/ADVANCES. THE DISAL LOWANCE OF RS ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 3 4,22,82,600/- PERTAINS TO INVESTMENTS MADE IN THE E ARLIER YEARS, AND WHICH IS MADE ON THE AD-HOC BASIS WHICH IS NOT PERM ISSIBLE. IN FACT, THE ASSESSEE HAS PROVED THAT NONE OF THE INVESTMENT S IN THE A.Y. 2001-02 AND EARLIER YEARS WAS OUT OF THE INTEREST B EARING BORROWED FUNDS. THE ADDITION MADE IN THE A.Y. 2001-02 IS DE LETED. IT IS FURTHER ARGUED THAT DURING THE YEAR INVESTMENT AND ADVANCES HAD BEEN SOURCED BY THE ASSESSEE FROM THE INTERNAL ACCRUALS, EXCEPT THE ADVANCE OF RS 535.20 LAKHS TO M/S. JRY INVESTMENTS PVT. LTD. FOR PURCHASING THE SHARES OF ETC NETWORK LTD. THE ASS ESSEE INCURRED THE COST FROM RS 8,11,598/- ON THE ADVANCES TO THE JRY INVESTMENTS. THE LD. COUNSEL ARGUES THAT THE SEC.14A HAS NO APPL ICATION, AS IN THE CASE OF THE INVESTMENT IN SHARES OF SITI CABLE NETW ORK LTD., WHICH WAS MADE ON THE LAST DAY OF THE FINANCIAL YEAR 31.3.200 2 AND IN RESPECT OF THE INVESTMENT OF SHARES IN THE DAKSHIN MEDIA LTD. THE SAID COMPANY WAS MERGED WITH THE ASSESSEE-COMPANY AND NO DISALLOWANCE IS CALLED FOR. SO FAR AS PADMALAYA ENTERPRISES PVT . LTD. AND M/S. ZEE INTERACTIVE LEARNING SYSTEMS LTD. (ZILS) ARE CONCER NED, MONEY IS INVESTED OUT OF INTERNAL ACCRUALS. IN FACT, BUSINE SS OF PADMALAYA ENTERPRISES PVT. LTD. WHICH IS ENGAGED IN THE FILMS , SERIES AND PROGRAMES, SOFTWARE THE ASSESSEE IS GETTING HUGE AD VANTAGE TO ITS BUSINESS. THE LD. COUNSEL ALSO ARGUED THAT THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD IN THE CASE OF DCIT VS. GODREJ BOYCE MFG. CO. LTD. 328 ITR 81 HELD THAT RULE 8D IS ONLY APPLICABLE PRO SPECTIVELY I.E. FOR THE A.Y. 2008-09 AND AS THE PRESENT A.Y. IS 2002-03 HAS NO APPLICATION. WE HAVE ALSO HEARD THE LD. D.R. 5. WE FIND THAT THE ASSESSEE HAS TWO FOLD ARGUMENTS ; ONE ARGUMENT IS THAT THE ASSESSEE HAS UTILIZED ITS INTE RNAL SOURCE FOR INVESTMENT AND ANOTHER ARGUMENT IS THAT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. (SUPRA) THE HONBLE HIGH COURT HAS HE LD THAT HAVING THE PROSPECTIVE APPLICABILITY AND IT CANNOT BE APPLIED FOR MAKING THE DISALLOWANCE AS PER THE FORMULA GIVEN IN THE SAID R ULE FOR ANY PRECEDING YEAR. IN OUR OPINION THE DECISION IN THE CASE OF GODREJ ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 4 BOYCE MFG. CO. LTD. (SUPRA) WAS NOT AVAILABLE TO B OTH THE AUTHORITIES BELOW WHEN THIS ISSUE WAS ADJUDICATED. MOREOVER, T HE ASSESSEE HAS ALSO PLACED SOME DOCUMENTS TO SHOW THAT THE ASSESSE E HAS SUFFICIENT FUND WHICH IS A SOURCE FOR INVESTMENT IN THE SHARES OF THE DIFFERENT COMPANIES. IN OUR OPINION, THIS ISSUE NEEDS RECONS IDERATION. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE A. O. FOR FRESH ADJUDICATION TO DECIDE THE SAME IN THE LIGHT OF THE PRINCIPLES LAID DOWN IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. (SUPRA). THE ASSESSEE SHOULD ALSO EXAMINE, AS PER THE DETAILS FILED BY THE ASSES SEE WHETHER FOR MAKING THE INVESTMENT IN SOME OF THE COMPANIES THE FUNDS ARE GENERATED FROM THE INTERNAL SOURCES / ACCRUALS. AC CORDINGLY, GROUND NO.1 IS RESTORED TO THE FILE OF THE A.O. AND RESULT ANTLY ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO.2 IS IN RESPECT OF DEFERRED REVENUE EX PENSES AND THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND:- 2. THE LD. CIT (A) ERRED IN LAW AND FACTS IN AND H OLDING THE EXPENSES OF RS 3,62,83,206/- AS CAPITAL IN NATURE A ND DISALLOWING THE SAME EVEN WHEN THIS INCLUDES OF RS 130,94,650/- THE EXPENSES OF REVENUE IN NATURE AND INCURRED AFTER THE SET UP OF THE DTO PROJECT, ALLOW ABLE BEING INCURRED FOR THE BUSINESS OF THE APPELLANT RELYING ON THE JUDGMENT IN THE CASE OF ROLLI WOLF (BOM) 121 ITR 26 2 (DEPRECIATION OF RS 45,35,401/- ON THIS AMOUNT TREA TING IT AS CAPITAL IS ALLOWED) (PARA 4.4 OF THE ORDER). A) THE LD. CIT (A) ERRED IN LAW AND FACTS IN HOLDING T HE PREPAYMENT PREMIUM OF RS 2,17,20,049/- ON TERM FOR DTO PROJECT AS CAPITAL EXPENDITURE AND DISALLOWING THE SAME (PARA 4.4 O THE ORDER). B) WITHOUT PREJUDICE TO ABOVE, THE CIT (A) ERRED IN LA W AND FACTS IN NOT GIVING THE FINDING TO ALLOW DEPRECIATI ON ON ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 5 RS 2,17,20,049/- HELD TO BE CAPITALIZED (PARA 4.4 O F THE ORDER). 7. THE MAIN GRIEVANCE OF THE ASSESSEE IS THE DISALL OWANCE OF THE EXPENSES OF RS 3,62,83,206/- DTO PROJECT AND RS 2,1 7,20,049/- BEING THE PREMIUM PAID FOR PRE-PAYMENT OF THE LOAN BY TRE ATING THEM AS CAPITAL IN NATURE. THE LD. COUNSEL SUBMITS THAT TH E ASSESSEE HAS INCURRED EXPENDITURE OF RS 3,62,83,206/- ON DIRECT TO OPERATOR (DTO) PROJECT. DURING THE PERIOD BETWEEN SETTING-UP AND STARTING UP THE COMMERCIAL OPERATION I.E. W.E.F 24.2.2002 THE DATE ON WHICH THE PERMISSION WAS GRANTED. THE LD. COUNSEL REFERRED T O PAGE NO.29 OF THE COMPILATION WHICH IS A NOTICE FORMING THE PART OF THE BALANCE- SHEET. IT IS ARGUED THAT THE PROJECT WAS SET-UP IN THE FINANCIAL YEAR 2000-01 AND WAS READY IN ALL RESPECT. THE ASSESSEE HAD TO MAKE THE FURTHER EXPENDITURE OF RS 2,17,20,049/- AS PREMIUM FOR PRE-PAYMENT OF LOAN. THE LD. COUNSEL REFERRED TO PAGES 1989-90 OF THE COMPILATION WHICH IS THE COPY AND SUBMISSIONS MADE. THE A.O. D ISALLOWED EXPENDITURE ON THE BPO PROJECT ON THE GROUND THAT T HE SAID EXPENDITURE IS PRE-OPERATIVE AND CAPITAL IN NATURE. SO FAR AS THE EXPENDITURE OF RS 2,17,20,049/- IS CONCERNED, WAS D ISALLOWED BY THE A.O. BUT ON THE PRINCIPLES OF AMORTIZATION 20% WAS ALLOWED EACH YEAR FOR FIVE YEARS. IT IS ARGUED THAT THE PROJECT COUL D NOT COMMENCE COMMERCIALLY IN THE ABSENCE OF UP-LINKING PERMISSIO N FROM THE GOVERNMENT OF INDIA. BUT THE PROJECT WAS SET-UP AN D READY IN ALL RESPECTS AND ALSO THE TRIALS WERE CARRIED OUT. THE LD. COUNSEL RELIED ON THE DECISIONS IN THE CASE OF CIT VS. ROLLI WOLF LTD. 121 ITR 262 (BOM) AND ACIT VS. VOSUM 1 SOT 65 (CHANDIGARH). SO FAR AS THE EXPENDITURE OF RS 2,17,20,169/- IS CONCERNED, THE LD. COUNSEL DREW OUR ATTENTION TO THE ORDER OF THE LD. CIT (A) IN WH ICH THE INCOME IS ENHANCED BY WITHDRAWING THE 20% CLAIM ALLOWED BY TH E A.O. IT IS ARGUED THAT NO NOTICE U/S.251 WAS GIVEN BY THE LD. CIT (A) AND THUS NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE. IT IS AR GUED THAT PREMIUM OF RS 1,17,20,409/- PAID TO THE ICICI TOWARDS THE PRE-PA YMENT OF LOAN ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 6 WHICH THE APPELLANT HAS TAKEN FOR THE BPO PROJECT. THE TERM LOAN WAS WITH HIGH INTEREST RATE AND WAS PRE-PAID PRE-MO DESTLY FETCHING THE PREMIUM OF RS 2,17,20,049/- WAS PAID. THE LD. COUNSEL RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. MICROSOFT CORPORATION OF INDIA (P) LTD. 210 TAXATIO N 161 (DEL.), WHICH IS THE CASE IN WHICH THE AMOUNT WAS PAID TO RENDER FOR THE TERMINATION OF THE LEASE WAS HELD AS REVENUE EXPEND ITURE FOR DEDUCTION U/S.37. THE ALTERNATIVE PLEA OF THE ASSE SSEE IS THAT THE SAID AMOUNT IS SAID TO BE CAPITAL EXPENDITURE AGAINST WH ICH SUITABLE DIRECTIONS SHOULD BE GIVEN TO ALL THE DEPRECIATION CHARGED (GROUND NO.2(B). WE HAVE ALSO HEARD THE LD. D.R. 8. IT IS AN ADMITTED POSITION THAT THE BUSINESS WAS NOT COMMENCED IN THE A.Y. 2002-03. BUT AT THE SAME TIME WE FIND THE FORCE IN THE ARGUMENT OF THE LD. COUNSEL THAT OTHERWISE THE BUSI NESS WAS ORGANIZED IN ALL RESPECT AND ALSO READY TO COMMENCE BUT THE PERMISSION FROM THE GOVERNMENT HAS NOT RECEIVED, HE NCE, NO EFFECTIVE BUSINESS ACTIVITY WAS CARRIED OUT. IT IS WELL SETT LED PRINCIPLE THAT IF THE BUSINESS OF THE ASSESSEE IS READY IN ALL RESPECT TH EN AS PER THE WELL SETTLED PRINCIPLES THE EXPENDITURE IS TO BE ALLOWED . WE, THEREFORE, CONSIDER IT FIT TO RESTORE THE ISSUE OF THE EXPENDI TURE ON THE DTO PROJECT TO THE FILE OF THE A.O. WHICH IS TO THE TUN E OF RS 3,62,83,206/- FOR FRESH ADJUDICATION WITH THE DIRECTION THAT HE S HOULD CONSIDER PLEA OF THE ASSESSEE WHEN THE PROJECT WAS READY IN ALL R ESPECT AND ONLY ON THE REASON THAT PERMISSION HAD NOT BEEN GIVEN HENCE THE COMMERCIAL ACTIVITY WAS NOT DONE. THE A.O. ALSO SHOULD TAKE I NTO CONSIDERATION THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF ROLLI WOLF LTD (SUPRA) AS WELL AS THE DECISION OF THE ITA T IN THE CASE OF ACIT VS. OSWAL PALM INDIA LTD. (SUPRA). 8(I) SO FAR AS THE GRIEVANCE OF THE ASSESSEE IN RES PECT OF THE DISALLOWANCE OF RS 2,17,20,409/- IS CONCERNED, IN OUR OPINION, THE SAME IS TO BE ALLOWED IF IT IS IN THE NATURE OF THE PREMIUM TOWARDS PRE- ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 7 PAYMENT OF THE LOAN TAKEN FROM THE ICICI AS PER LAW APPLICABLE TO THE A.Y. 2002-03. WE, THEREFORE, DIRECT THE A.O. TO VE RIFY WHETHER THE AMOUNT REPRESENT THE PREMIUM PAID TO THE ICICI DUE TO THE RE- PAYMENT OF THE LOAN TAKEN/GIVEN BY THE ASSESSEE. ACCORDINGLY, GROUND NO.2(A) AND (B) ARE SET ASIDE AND IN RESULT ALLOWED FOR THE STATISTICAL PURPOSE. 9. GROUND NO.3 IS IN RESPECT OF DELAYED PAYMENT OF ESIC OF RS 4,88,123/-. 10. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUB MITS THAT THERE IS A DELAY IN THE PAYMENT OF ESIC PAYMENT OF THE EM PLOYEES AS WELL AS CONTRIBUTION OF THE EMPLOYERS BEYOND THE DUE DATE BUT THE PAYMENT IS ACTUALLY MADE BEFORE FILING OF THE RETURNS. THE LD . COUNSEL ARGUED THAT THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREM E COURT IN THE CASE OF CIT VS. ALOM EXTRUSION 319 ITR 306 WAS SQUA RELY APPLICABLE AND IF THE PAYMENTS ARE MADE BEYOND DUE DATE BUT BE FORE FILING OF THE RETURN OF INCOME THEN THE SAME IS TO BE ALLOWED. W E HAVE ALSO HEARD THE LD. D.R. 11. SO FAR AS CONTRIBUTION OF THE EMPLOYERS IS CON CERNED, WHICH, AS PER THE ASSESSEE IS TO THE TUNE OF RS 3,55,464/-, THE SAME IS TO BE ALLOWED AS THERE IS NO CONFUSION ON THE ALLOWABILIT Y AS HELD IN THE CASE OF ALOM EXTRUSION (SUPRA). SO FAR AS THE ELEMENT O F THE EMPLOYEES CONTRIBUTION OF ESIC IS CONCERNED, WE RESTORE THE S AID ISSUE RAISED AT RS 1,32,639/- TO THE FILE OF THE A.O. TO EXAMINE TH E ALLOWABILITY IN THE LIGHT OF THE PRINCIPLES LAID DOWN IN THE CASE OF AL OM EXTRUSION (SUPRA). ACCORDINGLY, GROUND NO.3 IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. 12. SO FAR AS GROUND NO.4 IS CONCERNED, IT IS IN RE SPECT OF THE DEPRECIATION ON THE SKYBUSTER. THE LD. COUNSEL SUB MITS THAT, AS PER THE INSTRUCTION OF THE ASSESSEE HE IS NOT PRESSING THE SAID GROUND. AS GROUND NO.4 IS NOT PRESSED THE SAME IS DISMISSED AS NOT PRESSED. ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 8 13. GROUND NO.5 READS AS UNDER:- 5. A) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UP HOLDING THE FINANCIAL ACTIVITIES (THE ORGANIZED BUSINESS ACTIVI TY OF THE ASSESSEE) AS INCOME OF THE NATURE SPECIFIED IN EXPL N. (F) TO SEC. 80HHF OF THE ACT, AND DEDUCTED 90% OF INTEREST INCOME RS 56,03,44,853/- FROM THE BUSINESS INCOME FOR COMPUTATION OF DEDUCTION U/S.80HHF OF THE ACT. B) THE LD. CIT (A) OUGHT TO HAVE PROPERLY CONSTRUE D THE PROVISION OF THE ACT AND TREATED THE FINANCE ACTIVI TIES AS BUSINESS OF THE ASSESSEE AND INCLUDED THE REVENUE F ROM FINANCE ACTIVITIES (INTEREST RECEIVED) IN THE TOTAL TURNOVER FOR COMPUTING THE DEDUCTION IN U/S.80HHF OF THE ACT. T HE LD. CIT (A) ON THE OTHER HAND NOT DISPUTED THE INCOME F ROM FINANCE ACTIVITIES ASSESSED AS BUSINESS INCOME. C) WITHOUT PREJUDICE TO ABOVE, THE LD. CIT (A) OUG HT TO HAVE HELD 90% OF THE NET INTEREST INCOME OF RS 16,11,91,000/- I.E. INTEREST RECEIVED INTEREST PA ID RS 74,63,66,000/- - 58,51,75,000/- TO BE DEDUCTED FOR COMPUTING THE PROFIT OF THE BUSINESS FOR COMPUTING DEDUCTION U/S.80HHF OF THE ACT AS ALL FUNDS ARE INTERMINGLED, MIXED UP AND USED FOR ITS BUSINESS AC TIVITIES. D) THE LD. CIT (A) ERRED IN LAW AND FACTS IN DEDUC TING NET INTEREST OF RS 56,03,44,853/- INSTEAD OF RS 74,69,45,064/- FROM TOTAL TURNOVER EVEN WHEN THE AM OUNT OF INTEREST INCLUDED IN TOTAL TURNOVER IS RS 74,69,45,064/-. E) THE LD. CIT (A) ERRED IN LAW AND FACTS IN DEDUC TING MISCELLANEOUS INCOME RS 1,85,20,372/- FROM TOTAL TURNOVER EVEN WHEN THIS AMOUNT IS NOT INCLUDED IN THE TOTAL TURNOVER. ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 9 F) THE LD. CIT (A) ERRED IN LAW AND FACTS IN DEDUC TING 90% OF RS 1,37,34,672/-, THE MISCELLANEOUS INCOME FROM BUSINESS INCOME TO ARRIVE AT PROFIT OF THE BUSINESS INSTEAD OF SAME TO BE ADDED TO THE TOTAL TURNOVER BEING THE REVENUE OF THE NATURE OF TURNOVERABLE ITEMS. 14. WE HAVE HEARD THE PARTIES AND MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE INTEREST INCOME IS TO BE TREATED AS PART O F THE ELIGIBLE BUSINESS PROFIT/INCOME FOR ALLOWING THE DEDUCTION U/S.80HHF. 15. IN OUR OPINION, THE LAW IS WELL SETTLED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ASIAN STARS CO.LTD.326 ITR 56( BOM). WE DO NOT FIND ANY MERIT IN THE PLEA OF THE ASSESSEE. WE, AC CORDINGLY, CONFIRM THE ORDER OF THE LD. CIT (A) AS THE ISSUE STANDS CO VERED AGAINST THE ASSESSEE BY THE DECISION OF THE ASIAN STARS LTD. (S UPRA). 16. SO FAR AS THE ISSUE OF MISCELLANEOUS INCOME OF RS 1,85,20,372/- IS CONCERNED, THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE SAID AMOUNT IS NOT INCLUDED IN THE TOTAL TURNOVER AND TH ERE WAS NO NECESSITY TO DEDUCT FURTHER AMOUNT WHILE COMPUTING THE TOTAL TURNOVER. IT IS FURTHER ARGUED THAT THERE IS NO JU STIFICATION TO DEDUCT 90% OF RS 1,37,34,672/- FROM THE MISCELLANEOUS INCOME WHILE COMPUTING THE DEDUCTION U/S.80HHF. THE LD. COUNSEL REFERRED TO PAGE NO.62 AND 63 OF THE COMPILATION WHERE THE BREA K-UP IS GIVEN. IN THE MISCELLANEOUS INCOME THE AMOUNT INCLUDES THE EX CHANGE FLUCTUATION DIFFERENCE, INCOME FROM E-CONNECT, INCO ME FROM FIRST TAKE, INCOME FROM RESPONSE, INCOME FROM FOOTAGE AND MISCELLANEOUS INCOME ETC. IN THE SAME WAY, SO FAR AS THE INCOME FROM THE SCRAP SALE IS CONCERNED, IF IT IS GENERATED DIRECTLY FROM THE BUSINESS ACTIVITY OF THE ASSESSEE THEN THE SAME IS TO BE ALLOWED. SO FAR AS THE OTHER MISCELLANEOUS INCOMES ARE CONCERNED, THE NATURE OF THE INCOME IS NOT CLEAR. SO FAR AS ROYALTY FOR (ZEE RECORDS) IS CONC ERNED, NO EVIDENCE IS ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 10 PLACED BEFORE US TO EXAMINE THE NATURE OF THAT AMOU NT. WE, THEREFORE, DIRECT THE A.O. NOT TO DISALLOW THE 90% FROM AMOUNT OF THE EXCHANGE FLUCTUATION OF RS 1,761,508 AND SCRAP SALE IF IT IS DIRECTLY GENERAT ED FROM THE BUSINESS OF THE ASSESSEE. SO FAR AS THE O THER ITEMS ARE CONCERNED, WE CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. ACCORDINGLY, GROUND NO.5 (A TO D) ARE DISMISSED AND GROUND NO.5(E & F) ARE PARTLY ALLOWED. 17. GROUND NO.6 READS AS UNDER:- 6 A) THE LD. CIT (A) ERRED IN LAW AND FACTS IN ACC EPTING THE ELIGIBILITY OF THE APPELLANT FOR DEDUCTION U/S.80IA BUT REJECTING THE CLAIM FOR DEDUCTION U/S.80IA ACT ON T HE BASIS OF SECTION 80HHF(5) OF THE ACT. THE REASONS GIVEN BY HIM ARE CONTRARY TO THE PROVISIONS AND INTENTIONS OF LA W. THE DEDUCTION U/S.80IA OUGHT TO HAVE BEEN ALLOWED SUBJE CT TO 80IA(9) OF THE ACT. B) THE LD. CIT (A) HAS NOT PROPERLY CONSTRUED TH E PROVISION OF THE ACT. HE OUGHT TO HAVE LIBERALLY INTERPRETED TH E PROVISION OF SEC. 80HHF AND SEC. 80IA KEEPING IN VIEW THE INT ENTION AND OBJECTION OF THE LEGISLATION. 18. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUB MITS THAT ON THIS ISSUE THE DECISION OF THE HONBLE JURISDICTION AL HIGH COURT HAS COME IN TO PLAY IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. (2011) VS. DCIT 50 DTR (BOM) 65 AND THE RESPECTIVE PROVISIONS ARE ELABORATELY DISCUSSED, HENCE, THE ISSUE MAY BE RESTORED TO THE FILE OF THE A.O. IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE HONBL E HIGH COURT OF BOMBAY IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. (SUPRA). THE LD. D.R. HAS NO OBJECTION FOR RESTORING THE ISSUE. ACC ORDINGLY, WE RESTORE THE ISSUE ARISING OUT GROUND NO.6 TO THE FILE OF TH E A.O. TO DECIDE THE SAME AFRESH AFTER CONSIDERING THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (P) L TD. (SUPRA). ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 11 ACCORDINGLY, GROUND NO.6 IS SET ASIDE AND RESULTANT LY ALLOWED FOR THE STATISTICAL PURPOSES. 19. GROUND NO.7 IS GENERAL IN NATURE. 20. NOW, WE TAKE-UP THE REVENUES APPEAL BEING ITA NO.5787 OF 2005. 21. GROUND NO.1 IS IN RESPECT OF DELETING THE ADDIT ION MADE BY THE A.O. U/S.14A AND THE REVENUE HAS TAKEN THE FOLLOWIN G GROUND, WHICH READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A)-XI, MUMBAI HAS ERRED IN RESTRI CTING THE ADDITION OF RS 4,30,94,198/- MADE BY THE ASSESSING OFFICER U/S.14A OF THE I.T. ACT TO RS 8,11,598/-. 22. WE HAVE HEARD THE PARTIES. THE A.O. HAS MADE TO TAL DISALLOWANCE OF RS 4,30,94,198/- WHICH WAS RESTRICT ED TO RS 8,11,598/- BY THE LD. CIT (A). THE REVENUE HAS RAI SED THE SERIES OF OBJECTIONS ON THE RELIEF GIVEN BY THE LD. CIT (A). THE LD. CIT (A) HAS DEALT WITH THIS ISSUE FROM PAGE NO.1 TO 5 OF HIS OR DER. THE LD. CIT (A) HAS NOTED THAT THE INVESTMENT OF RS 11 CRORES WITH M/S. E-CONNECT LTD. WAS MADE ON THE LAST DAY OF THE FINANCIAL YEAR I.E. ON 31.03.2002, THEREFORE, NO INTEREST COULD BE RELATED TO SUCH INV ESTMENTS. SO FAR M/S. DAKSHIN MEDIA LTD. IS CONCERNED, IT IS MERGED WITH THE ASSESSEE AND ALL THE LIABILITIES ALSO GOT MERGED WITH THE LI ABILITIES OF THE ASSESSEE. AT THE SAME TIME, WE FIND THAT SO FAR AS M/S. PADMALAYA ENTERPRISES PVT. LTD. TO WHICH ADVANCE OF RS 58 CRO RES ARE GIVEN AND M/S. ZEE INTERACTIVE RUNNING SYSTEMS TO WHICH RS 5 CRORES ARE GIVEN, THERE IS NO DISCUSSION BY THE LD. CIT (A). THE LD. COUNSEL HAS FILED CHART AND DATA TO PROVE THAT THE BORROWED FUNDS WER E NOT UTILIZED FOR THE SAME. AS THE DETAILS ARE NOT FILED BEFORE US, WE, THEREFORE CONSIDERED IT FIT TO RESTORE THE INTEREST ATTRIBUTA BLE TO THE ADVANCE ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 12 MADE TO THE M/S. PADMALAYA ENTERPRISES PVT. LTD. I. E. RS 58 CRORES AND M/S. ZEE INTERACTIVE RUNNING SYSTEMS I.E. RS 5 CRORES TO THE FILE OF THE A.O. FOR FRESH EXAMINATION AND ADJUDICATION. I F THE ASSESSEE PROVES THAT THE SAID ADVANCES ARE MADE FROM THE INT EREST FREE FUNDS AND THEN NO ADDITION SHOULD BE MADE, THE ASSESSEE I S DIRECTED TO PUT ALL THE MATERIAL BEFORE THE A.O. TO PROVE THE CLAIM . AT THE SAME TIME THE A.O. SHOULD ALSO CONSIDER THE DECISION OF THE J URISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. (SU PRA). ACCORDINGLY, GROUND NO.1 OF THE REVENUE IS PARTLY ALLOWED FOR TH E STATISTICAL PURPOSES. 23. GROUND NO.2 READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A)-XI, MUMBAI HAS ERRED IN HOLDIN G THAT THE FRONT END FEES PAID TO ICICI FOR OBTAINING NEW LOAN OF RS 200 CRORES REPRESENTED AS PART OF INTEREST AND ALL OWING THE SAME. 24. THE FACTS REVEALED FROM THE RECORDS ARE AS UNDE R. THE ASSESSEE HAD INCURRED THE EXPENDITURE OF RS 4.2 CRORES AS FRONT END FEES FOR OBTAINING FRESH LOANS OF RS 200 CRORES FROM ICICI FOR THE PURPOSE OF THE BUSINESS FOR THE PERIOD OF 5 YEARS FROM SEPTEMB ER 2001 TO SEPTEMBER 2006. THE A.O. TREATED IT AS A DEFERRED REVENUE EXPENDITURE AND DISALLOWED THE SAME WHEN THE ISSUE CAME BEFORE THE LD. CIT (A). THE LD. CIT (A) WAS OF THE OPINION T HAT AS PER SECTION 2(28A) OF THE I.T. ACT. INTEREST MEANS INTEREST P AYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION ) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEY S BORROWED OR DEBT INCURRED. IN THE OPINION OF THE A.O., THE FRONT EN D FEES REPRESENTED PART OF INTEREST AND THE SAME DESERVES TO BE ALLOWE D. THE LD. COUNSEL PUT HIS RELIANCE ON THE DECISION OF THE HONBLE HIG H COURT OF MADRAS IN THE CASE OF CIT VS. SUPER SPINNING MILLS LTD. 29 6 ITR 168 IN WHICH ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 13 THE FRONT END PAYMENT IN RESPECT OF LOAN BORROWED F OR EXPANSION OF THE UNIT IS HELD TO BE IN THE NATURE OF PROCESSING FEES PAID TO BANK TO RELEASE THE LOAN AND ALSO IT IS HELD TO BE A REVENU E EXPENDITURE. THE LD. COUNSEL FURTHER SUBMITS THAT THE IDENTICAL ISSU E HAS BEEN CONSIDERED BY THE ITAT MUMBAI IN THE CASE OF BOROSI L GLASS WORKS LTD. VS ADDL. CIT (2004) 3 SOT 940 (MUM). HE, THER EFORE, PRAYED FOR CONFIRMING THE ORDER OF THE LD. CIT (A). 25. WE HAVE HEARD THE LD. D.R. WHO RELIED ON THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF TAPARIA FI LMS LTD. VS. CIT. IN THE CASE OF TAPARIA FILMS LTD. (SUPRA), THE ISSUE B EFORE THEIR LORDSHIP WAS IN RESPECT OF UP-FRONT INTEREST PAYMENT ON DEBE NTURES, WHICH WAS ALLOWED BY SPREADING THE AMOUNT THROUGH THE LIFE OF THE DEBENTURES BY APPLYING THE MATCHING CONCEPT. IN THE PRESENT CA SE, THE A.O. ALLOWED THE EXPENDITURE TO SPREAD-OVER FOR FIVE YEARS EQUAL LY OVER THE LOAN PERIOD AND ALLOWED 1/5TH OF THE EXPENDITURE. IN OU R OPINION, THE GROUND HAS TAKEN BY THE REVENUE HAS TO SUCCEED IN V IEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT ON THE ID ENTICAL ISSUE AND PRINCIPLES LAID DOWN IN THE CASE OF JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF TAPARIA FILMS LTD. (SUPRA). WE, ACC ORDINGLY, REVERSE THE ORDER OF THE LD. CIT (A) AND RESTORE THE ORDER OF T HE A.O. ACCORDINGLY, GROUND NO.2 IS ALLOWED. 26. GROUND NO.3 READS AS UNDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A)-XI, MUMBAI HAS ERRED IN DIRECT ING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS 5,50,000/- FOR ONE TIME CLUB ENTRANCE FEES. 27. WE HAVE HEARD THE PARTIES. THE SHORT CONTROVER SY IS IN RESPECT OF ONE TIME INTEREST FEE PAYMENT BY THE ASSESSEE. THE LD. COUNSEL PLACED HIS RELIANCE ON THE HONBLE HIGH COURT OF BO MBAY IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. 195 ITR 682 (BOM) WH O FURTHER SUBMITS THAT THE SAME ISSUE HAS BEEN DECIDED IN THE EARLIER YEARS, COPY OF THE ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 14 TRIBUNAL ORDER IS PLACED. THE ISSUE IS IDENTICAL I N THIS YEAR ALSO, ACCORDINGLY, WE DO NOT FIND ANY REASON TO TAKE ANY DIFFERENT VIEW IN THIS MATTER. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND GROUND NO.3 IS DISMISSED. 28. GROUND NO.4 READS AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A)-XI, MUMBAI HAS ERRED IN DIRECT ING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S.80HHF OF T HE I.T. ACT OF RS 19,76,95,023/- AS AGAINST DEDUCTION OF RS NIL ALLOWED BY THE ASSESSING OFFICER. 29. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASS ESSEE HAS CLAIMED THE DEDUCTION U/S.80HHF OF RS 32,29,56,303/- IN HIS REVISED RETURN. THE A.O. REDUCED THE DEDUCTION CLAIMED BY THE ASSES SEE U/S.80HHF BY REDUCING 90% OF THE GROSS COMMISSION AND INTERES T INCOME WITHOUT GIVING THE BENEFIT OF THE NETTING OFF. THE A.O. HA S DISCUSSED THIS ISSUE IN SHORT ON PAGE NO.2 OF THE ASSESSMENT ORDER. THE ASSESSEE EARNED THE COMMISSION ON SPACE SELLING AND PAY TV DISTRIBU TION. THE A.O. REDUCED 90% OF FOLLOWING ITEMS:- I) INTEREST RS 74,69,45,064/- II) DISTRIBUTION COMMISSION RS 18,95,04,669/- III) SPACE SELLING COMMISSION RS 79,04,23,166/- IV) OTHER MISCELLANEOUS INCOME RS 1,85,20,372/- AS PER THE WORKING MADE BY THE A.O. THERE WAS NEGAT IVE PROFIT AND IN THE OPINION OF THE A.O. THE ASSESSEE WAS NOT ELIGIB LE FOR DEDUCTION U/S.80HHF. ON APPEAL THE LD. CIT (A) ALLOWED THE C OMMISSION AS PER THE COMPUTATION TREATING THE SAME AS THE CORE BUSIN ESS ACTIVITY AND DID NOT REDUCE 90% FROM THE PROFIT OF THE BUSINESS. SO FAR AS OTHER ITEMS LIKE INTEREST IS CONCERNED, THE LD. CIT (A) W ORKED OUT INTEREST ALLOCABLE OF RS 18,66,00,211/- TO INTEREST INCOME OF RS 74,6945,064/- AND ARRIVED AT NET INTEREST WORKING AT RS 56,03,44,853/-. FROM THE ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 15 GROUND TAKEN BY THE REVENUE THE GRIEVANCE OF THE RE VENUE IS THE FINDING OF THE LD. CIT (A) FOR ALLOWING THE DEDUCTI ON U/S.80HHF TO THE ASSESSEE. THE LD. CIT (A) FOLLOWING THE DECISION I N THE CASE OF BANGALORE CLOTHING CO. LTD. 260 ITR 361 HELD THAT T HE AMOUNT TO THE OPERATIONAL INCOME ARISING FROM THE CORE BUSINESS A CTIVITY. IN THE OPINION OF THE LD. CIT (A), THE DISTRIBUTION COMMIS SION OF RS 18,95,04,669/- AND SPACE SELLING COMMISSION OF RS 79,04,23,166/- ARE TO BE CONSIDERED AS A MAIN BUSINESS ACTIVITIES AND THOSE TWO INCOME ITEMS CANNOT BE ACCEPTED. SO FAR AS THE INT EREST INCOME IS CONCERNED, THE LD. CIT (A) RELIED ON THE DECISION O F PINK STAR 72 ITD 137 (MUM) OF THE ITAT MUMBAI. SO FAR AS MISCELLANE OUS EXPENDITURE OF RS 1,85,20,372/- IS CONCERNED, IT IS NOTED THAT THE S AME DOES NOT INCLUDE ANY OF THE ITEMS OF THE INCOME ENUMERATED F ROM THE CORE BUSINESS ACTIVITY AND SAME HAS TO BE CONSIDERED AS PER THE EXPLANATION (F) TO SECTION 80HHF OF THE I.T. ACT. HE, THEREFORE, DIRECTED TO EXCLUDE RS 57,88,65,225/- FROM THE TOTAL TURNOVER OF THE ASSESSEE AS AN AMOUNT OF RS 47,89,695/- WAS FORMING PART OF THE TOTAL TURNOVER WOULD BE EXCLUDED AND BALANCE AMOUNT OF RS 1,37,34,677/- WOULD BE CONSIDERED UNDER EXPLANATION (F) TO SECTIO N 80HHF OF THE I.T. ACT. 30. THE LD. COUNSEL SUBMITS THAT THE IDENTICAL ISSU E HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE A.Y.S 2000- 01 AND 2001-02 IN ITA NOS. 8765 AND 8766/MUM/2004 O RDER DATED 15.7.2009, COPY OF THE ORDER IS FILED WHICH IS PLAC ED ON RECORD. ON THE PERUSAL OF THE ORDER OF THE TRIBUNAL, WE FIND THAT THE MAJOR ISSUE WHETHER THE COMMISSION INCOME CAN BE TREATED AS OPE RATIONAL INCOME HAS NOT BEEN CONSIDERED BY THE TRIBUNAL ANYWHERE IN THE ORDER AND MAJOR DISCUSSION IS REGARDING INTEREST INCOME. 31. SO FAR AS THE PRESENT CASE IS CONCERNED, BOTH T HE AUTHORITIES HAVE NOT BROUGHT RELEVANT FACTS ON RECORD WHETHER T HE COMMISSION EARNED ON SPACE SELLING AND PAY T.V. CHANNELS DISTR IBUTION CAN BE ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 16 CONSIDERED AS COVERED UNDER EXPLANATION (F) TO SECT ION 80HHF AS ITS OPERATIONAL INCOME AS HELD BY IN THE BANGALORE CLOT HING CO. LTD. (SUPRA). WE FIND THAT THOUGH THE LD. CIT (A) HAS R EFERRED TO THE DECISION OF BANGALORE CLOTHING COMPANY (SUPRA) BUT NECESSARY AND RELEVANT FACTS HAVE NOT BEEN BROUGHT ON RECORD. WE , THEREFORE, CONSIDERED IT FIT TO RESTORE THIS ISSUE FOR EXAMINA TION AND FRESH ADJUDICATION TO THE FILE OF THE A.O. WITH A DIRECTI ON THAT THE A.O. SHOULD BRING ON RECORD ALL THE RELEVANT FACTS ON TH IS ISSUE AND AFTER CONSIDERING PROVISIONS OF LAW TO DECIDE THE SAME. SO FAR AS THE INTEREST INCOME IS CONCERNED, THE A.O. IS DIRECTED TO CONSIDER THE DECISION IN THE CASE OF CIT VS. PFIZER INDIA LTD. 3 26 ITR 556. 32. IN THE RESULT, ASSESSEES APPEAL AND THE REVENU ES APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3 TH MAY 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 13 TH MAY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)XI, MUMBAI. 4) THE CIT CITY-XI, MUMBAI. 5) THE D.R. D BENCH, MUMBAI. BY ORDER // TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 5216/M/2006 ITA 5787/M/2006 ZEE TELEFILMS LTD. 17 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 06.05.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 10.05.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER