HIGHLIGHT PICTURES (I) P. LTD, MUMBAI V. ASST CIT 11(1), MUMBAI

ITA 5825/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6595 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 23-04-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts
• Section: 40A(3); 131

Judgement Text

, ,P ,P,P ,P INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.5825/MUM/2011, ! ! ! ! / ASSESSMENT YEAR-2006-07 HIGHLIGHT PICTURES (I) P. LTD. MAHALAXMI SILK MILLS PREMISES, MATHURDAS MILL COMPOUND, N.M.JOSHI MARG, LOWER PAREL, MUMBAI-400013 VS ASST. CIT 11(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN:AAACB6674L ( '# / APPELLANT) ( $%'# / RESPONDENT) &' ( ) / ASSESSEE BY : SHRI APURVA SHAH ( ) / REVENUE BY : SHRI PITAMBER DAS ( (( ( '+ '+ '+ '+ / DATE OF HEARING : 23-04-2014 ,-! ( '+ / DATE OF PRONOUNCEMENT : 07-05-2014 , 1961 ( (( ( 254 )1( '.' '.' '.' '.' / / / / ORDER U/S..254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DT.30.06.2011 OF THE CIT(A)-3 ,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI ERRED: 1. IN DISALLOWING DEPRECIATION ON PAINTINGS BASED O N VARIOUS PRESUMPTIONS AND SURMISES. 2. IN DISALLOWING DEDUCTING FOR LOSSES ARISING OUT OF AMOUNTS NOT RECOVERABLE AND ARISING IN THE COURSE OF BUSINESS. HE ERRED IN PARTICULAR IS HOLDI NG THAT AMOUNTS RECEIVABLE FROM KALA GHODA ASSOCIATION WAS IN THE NATURE OF A SUBSCRIPTION TO AN ASSOCIATION. HE ALSO ERRED IN HOLDING THAT DEPOSIT AMOUNT RECOVERABLE FROM SECUNDERABAD RAILWA YS COULD NOT BE TREATED AS A BAD DEBT. 3. IN CONFIRMING A DISALLOWANCE OF RS.30,20,618 IN RESPECT OF EXPENSES INCURRED ON BEHALF OF CUSTOMER MERELY ON THE GROUND THAT THESE WERE RECEIVABLE AT THE END OF THE YEAR. HE ERRED IN HOLDING THAT THE SAME WAS NOT GENUINE BASED ON INCORRECT PRESUMPTION S. 4. IN NOT APPRECIATING THAT WHILE THE AO HAD MADE A DISALLOWANCE ON ONLY EXPENSES INCURRED IN CASH, IN THE APPELLATE ORDER A DISALLOWANCE OF OTHER EXPE NSES WAS ALSO MADE AS A PART OF THE RS. 30,20,618 MENTIONED ABOVE WITHOUT GIVING ANY SPECIF IC ENHANCEMENT NOTICE TO THE APPELLANT. 5. IN DISALLOWING 100% OF EXPENSES INCURRED ON OTHE R PROJECTS AMOUNTING TO RS.8.78 LAKHS BASED ON PRESUMPTIONS AND SURMISES.WITHOUT PREJUDICE, THE SA ID DISALLOWANCE NEEDS TO BE SUBSTANTIALLY REDUCED. 6. IN DISALLOWING20% OF CASH EXPENSES INCURRED ON B EHALF OF THE CUSTOMER BASED ON PRESUMPTIONS AND SURMISES AND WITHOUT APPRECIATING THE FACTS OF THE CASE.WITHOUT PREJUDICE THE SAID DISALLOWANCE IS EXCESSIVE AND NEEDED TO BE SUBSTANTIALLY REDUCED.WI THOUT PREJUDICE, HE ERRED IN NOT TAKING COGNIZANCE OF AMOUNTS ALREADY DISALLOWED BY THE APP ELLANT ITSELF U/S 40A(3). 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF PRODUCE R/DISTRIBUTOR OF ADVERTISEMENT FILMS,FILED ITS RETURN OF INCOME ON,30.11.2006,DECLARING INCOME AT RS.NIL.ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT,ON 14.11.200 8,DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.1,00,28,540/-. 2 ITA NO.5825/MUM/2011 HIGHLIGHT PICTURES (I) P. LTD. 2.1. FIRST GROUND OF APPEAL IS ABOUT DEPRECIATION ON PAI NTINGS.DURING THE COURSE OF ASSESSMENT PROCEEDINGS,AO ASKED THE ASSESSEE TO FURNISH DETAIL S WITH REGARD TO ADDITION TO FIXED ASSETS. AFTER CONSIDERING THE REPLY OF THE ASSESSEE,DATED 21.08.2 008, AO HELD THAT ASSESSEE HAD PURCHASED HIGH- END PAINTINGS OF RENOWNED ARTISTS,THAT IT HAD BEEN DEBITING DEPRECIATION ON THESE EXPENSES UNDER THE HEAD FURNITURE AND FIXTURES AND IN ITS DEPRECIA TION SCHEDULE,THAT SUCH ACCOUNTING TANTAMOUNTED TO USING COLOURABLE DEVICE FOR CLAIMING EXPENSES ON ITEMS WHICH WERE PURELY OF PERSONAL EFFECTS, THAT NONE OF THE PAINTINGS HAD EVER FIGURED IN ANY OF THE ADVERTISEMENT WORK UNDERTAKEN BY THE ASSESSEE.AS A RESULT,DEPRECIATION,AMOUNTING TO RS.8 4,772/-,CLAIMED ON THE PAINTING WAS DISALLOW - ED BY THE AO AND WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE.IN THE APPELLATE PROCEEDINGS, FIRST APPELLATE AUTHORITY (FAA) HELD THAT ASSESSEE WAS IN ADVERTISEMENT BUSINESS, THAT THERE WAS NO EVIDENCE THAT PAINTINGS WERE USED IN THE ADVERTI SEMENT FILMS, THAT THE PAINTINGS WERE IN THE NATURE OF PERSONAL EFFECT.DISMISSING THE APPEAL FIL ED BY THE ASSESSEE,HE CONFIRMED THE ORDER OF THE AO. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT TRIBUNAL VIDE ITS ORDER DATED 30 TH AUGUST 2013 (ITA/5826/MUM/2011-AY-2008-09) HAD DECI DED THE ISSUE IN FAVOUR OF THE ASSESSEE. DEPARTMENTAL REPRESENTATIVE (DR) LEFT THE ISSUE TO BE DECIDED BY THE BENCH.WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE YEAR 2008-09 AND THE TRIBUN AL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER: 7. AFTER CONSIDERING THE RIVAL CONTENTIONS WE AGREE WITH THE CLAIM OF ASSESSEE. OBVIOUSLY ASSESSEE IS IN THE BUSINESS OF PRODUCING AD FILMS O R ASSISTING IN LOCATIONS, SETTINGS ETC., WHICH IS I TS NATURE OF BUSINESS. IT WAS SUBMITTED THAT HIRING OF THE PAINTINGS FOR ORIGINAL SHOOTS WAS UNAFFORDABLE. THEREFORE, THEY HAVE PURCHASED AND UT ILIZED THE PAINTINGS WHICH WERE EITHER HUNG IN THE OFFICE OR GIVEN TO THE PRODUCER FOR THE ORIGINA L SHOOTS, OR USED IN VARIOUS SETTING. THEREFORE, TH E CLAIM WAS THAT PAINTINGS ARE ALSO PART OF FURNITURE . THIS OPINION IS SUPPORTED BY THE DECISION OF CO- ORDINATE BENCH AT CHENNAI IN THE CASE OF BURNSIDE I NVESTMENTS. & HOLDINGS LTD. VS. DY. CIT (61 ITD 601), WHEREIN SIMILAR ISSUE WAS CONSIDERED AND DEPRECIATION ON PAINTINGS WAS ALLOWED. IT WAS HELD THAT: FACTS THE ASSESSEE-COMPANY WAS DENIED DEPRECIATION ON PA INTINGS WHICH, ACCORDING TO THE ASSESSEE, CONSTITUTED PART OF INTERIOR DECORATI ON AND PART OF THE FURNITURE AND FITTINGS USED IN THE COURSE OF BUSINESS. THE ASSESS ING OFFICER WAS OF THE OPINION THAT SUCH PAINTINGS COULD NOT BE TAKEN TO CONSTITUTE ITE MS OF FURNITURE AND FITTINGS. ON APPEAL, THE COMMISSIONER (APPEALS), UPHELD THE ASSE SSING OFFICERS ORDER. HELD FROM THE DICTIONARY MEANING OF THE WORD FURNITURE , IT IS CLEAR THAT ALL ARTICLES OF CONVENIENCE OR DECORATION USED FOR THE PURPOSE OF F URNISHING A PLACE OF BUSINESS OR AN OFFICE ARE ARTICLES OF FURNITURE. IN THE INSTANT CASE, THERE WAS NO DISPUTE THAT THES E PAINTINGS WERE USED AS DECORATIONS IN THE OFFICE AND THE OFFICE WAS USED F OR THE PURPOSE OF BUSINESS. THEREFORE, THESE PAINTINGS CONSTITUTE INTERIOR DECO RATION TO GIVE A GOOD LOOK TO THE PLACE OF BUSINESS. THEREFORE, THE ASSESSEE WAS ENTI TLED TO DEPRECIATION ON THESE PAINTINGS. 7. 1 RESPECTFULLY FOLLOWING THE SAME WE DIRECT AO TO ALLOW DEPRECIATION AS CLAIMED UNDER TH E HEAD FURNITURE AND FIXTURES. GROUND IS ALLOWED. RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATIN G BENCH, WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 3. NEXT GROUND OF APPEAL IS ABOUT AMOUNTS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS BAD DEBTS. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD CLAIMED BAD DEBTS OF VARIOUS EXPENSES/DEPOSITS,THAT NO FURTHER DETAILS,AS TO WHI CH YEAR THE BAD DEBTS CLAIMED WAS CREDITED AS INCOME,WAS SUBMITTED.AS PER THE AO,THE ASSESSEE DID NOT FURNISH ANY DETAILS THOUGH MORE THAN 3 ITA NO.5825/MUM/2011 HIGHLIGHT PICTURES (I) P. LTD. EIGHT OPPORTUNITIES WERE GIVEN TO IT FOR SUBMITTING REQUISITE DETAILS AO DISALLOWED THE CLAIM OF RS. 3.39 LAKHS. 3.1. IN THE APPELLATE PROCEEDINGS ASSESSEE SUBMITTED THA T RS. 2.10 LAKHS;RECEIVABLE FROM KALAGHODA ASSOCIATION(KA);WERE BOOKED AS INCOME FOR THE YEAR ENDED ON MARCH 2005 BEING REIMBURSEMENT RECEIVABLE FOR PRODUCTION EXPENSES,THAT SAME WERE W RITTEN OFF DURING THE YEAR UNDER APPEAL.WITH REGARD TO DEPOSIT OF RS.1.30 LAKHS GIVEN TO SECUNDE RABAD,CENTRAL RAILWAY(SCR)FOR PROVIDING A 2 ND CLASS COACH FOR SHOOTING OF THE FILM BHOPAL EXPRES S, THAT THE ADVANCE WAS GIVEN IN 1998, THAT ASSESSEE WAS VERBALLY FOLLOWING FOR RECOVERY, THAT CONSIDERING THE FACT THAT A LONG TIME HAD ELAPSED IT HAD WRITTEN OFF OF THE AMOUNT IN THE BOO KS OF ACCOUNTS.IT WAS ALSO SUBMITTED THAT IN CASE THE SAME WAS NOT ALLOWED AS BAD DEBTS THAN THE SAME SHOULD BE ALLOWED AS BUSINESS LOSS,THAT THE DEPOSITS GIVEN IN THE COURSE OF BUSINESS. FAA HELD THAT ASSESSEE HAD NOT FILED DETAILS OF SUC H CLAIMS BEFORE THE AO, THAT THE PAYMENTS TO KA WERE IN NATURE OF CONTRIBUTION FOR THE YEARLY EV ENTS,THAT SAME WAS NOT BUSINESS EXPENDITURE/ BAD DEBTS,THAT THE DEPOSIT WITH SCR COULD NOT BE TR EATED AS BAD DEBTS,THAT ASSESSEE HAD TO ESTABLISH THAT LOAN HAS BECOME BAD.FINALLY,HE DISAL LOWED THE APPEAL FILED BY THE ASSESSEE. 3.2. BEFORE US,AR SUBMITTED THAT THE FAA HAD WRONGLY PRE SUMED THE FACT THAT ASSESSEE HAD PAID SUBSCRIPTION,THAT INCOME WAS OFFERED FOR THE TAXATI ON IN EARLIER YEAR, THAT MONEY WAS NOT RECEIVED FROM KA,SO SAME WAS WRITTEN OFF IN THE BOOKS OF ACC OUNTS,THAT IT WAS ALLOWABLE AS PER THE PROVISI -ONS OF THE ACT.WITH REGARD TO DEPOSIT GIVEN TO SCR ,IT WAS SUBMITTED THAT ASSESSEE COULD NOT RECOVER THE AMOUNT FOR SO MANY YEARS FROM THE RAILW AY AUTHORITIES SO SAME WAS WRITTEN OFF.HE REFERRED TO PAGE NO.71 OF THE PAPER BOOK.HE MADE AL TERNATIVE ARGUMENT THAT IF IT WAS NOT TO BE ALLOWED AS BAD DEBTS THAN SAME SHOULD BE ALLOWED AS BUSINESS LOSS.DR SUBMITTED THAT ASSESSEE HAD NOT MADE ANY CLAIM BEFORE THE AO, THAT PAYMENT MADE TO KA WAS YEARLY CONTRIBUTION, THAT PAYMENT MADE TO SCR WAS NOT A BUSINESS EXPENDITURE. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ASSESSEE OFFERED INCOME AMOUNTING TO RS. 2.10 LAKHS IN THE Y EAR 2005-06 FROM KA FESTIVAL,THAT IN THE YEAR UNDER APPEAL IT HAD ACTUALLY WRITTEN OFF OF THE SAI D ITEM AS BAD DEBTS IN ITS REGULAR BOOKS OF ACCOUNTS.IN OUR OPINION,AFTER AMENDMENT TO THE SECT ION 36 OF THE ACT THE ONLY REQUIREMENT FOR ALLOWING BAD DEBTS IS ACTUAL WRITING OFF OF THE AMO UNT CONCERNED IN THE BOOKS OF ACCOUNTS.SO,WE ARE OF THE OPINION THAT FAA WAS NOT JUSTIFIED IN CO NFIRMING THE ORDER OF THE AO.HERE WE WANT TO FURTHER MENTION THAT THERE WAS NO EVIDENCE ON RECOR D TO SHOW THAT AMOUNT IN QUESTION WAS SUBSCRIPTION TO KA,AS ALLEGED BY THE FAA. IN SHORT, FIRST PART OF GROUND NO.2 IS ALLOWED. 3.4. AS FAR AS DEPOSIT TO SCR IS CONCERNED,WE FIND THAT ASSESSEE HAD PRODUCED THE RECEIPT ISSUED BY RAILWAY AUTHORITIES (PAGE 71 OF P.B.).FROM THE RECE IPT IT IS CLEAR THAT THE PAYMENT TO THE RAILWAY AUTHORITIES WAS MADE.AS THE ASSESSEE HAD DECIDED TO WRITE IT OFF IN THE YEAR UNDER APPEAL AFTER MAKING NECESSARY ENTRIES IN THE BOOKS OF ACT.. IN T HESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT CLAIM MADE BY THE ASSESSEE SHOULD HAVE BEEN ALLOWED . OTHERWISE ALSO THE SAID EXPENDITURE WAS ALLOWABLE AS BUSINESS LOSS BECAUSE ASSESSEE HAS HIR ED A COACH FOR SHOOTING OF A FILM. CONSIDERING THE ABOVE, 2 ND PART OF GROUND OF APPEAL NO. 2 IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. NEXT EFFECTIVE GROUND OF APPEAL(GOA 3TO 6) DEALS WI TH SAME ISSUE AND THAT IS ABOUT DISALLOWANCE OF CASH EXPENDITURE.DURING THE ASSESSMENT PROCEEDIN GS AO FOUND THAT ASSESSEE INCURRED CASH EXPENDITURE OF RS. 92 LAKHS DURING THE YEAR.A SURVE Y OPERATION, U/S. 131 OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 29. 08.2008 WHEREIN CASH EXPENSES WERE LOOKED INTO.IT WAS EXPLAINED BY THE ASSESSEE TO THE OFFICE RS OF THE SURVEY PARTY THAT IT HAD UNDERTAKEN THE JOB TERMED AS HOLIDAY IN GOA (HIG)FOR TOTAL COST OF RS. 4.48 CRORES,THAT IT WAS BASED ON REIMBURSEMENT OF EXPENSES,THAT IT HAD RECEIVED ADDI TIONAL SERVICE FEES OF RS. 28.6 LAKHS FROM INDIA FILMS INVESTORS (IFI), THAT AS COMPARED TO TO TAL COST OF THE PROJECT CASH EXPENSES WERE ONLY 18% (RS. 84 LAKHS), THAT ASSESSEE HAD ALSO INCURRED CASH EXPENDITURE OF RS. 8 LAKHS ON OTHER PROJECT. 4 ITA NO.5825/MUM/2011 HIGHLIGHT PICTURES (I) P. LTD. CONSIDERING THE ABOVE FACTS,AO HELD THAT ASSESSEE H AD ENTERED INTO TRANSACTIONS WHICH WERE CONTRARY TO THE ACCOUNTING STANDARD 11 AND ACCOUNTI NG STANDARD 9, THAT REVENUE WAS THE GROSS INFLOW OF CASH, RECEIVABLES OR OTHER CONSIDERATION, THAT ASSESSEE-COMPANY HAD VOLUNTARILY DECIDED THAT PARTICULAR COMPONENT OF INCOME SHOULD STAY OUT OF THE BOOKS ON THE BEHEST THAT IT WAS CONSIDERED FOR A REIMBURSEMENT BASIS PROJECT.WHEN A O MADE FURTHER ENQUIRIES IN THIS REGARD ASSESSEE VIDE ITS LETTER DATED 19.08.2008 STATED TH AT IT WAS IN THE FIELD OF PROJECTION OF AD FILMS AS WELL AS THE PROVIDING PRODUCTION SERVICES TO ADD FI LMS MAKERS, THAT IT WAS APPOINTING ITS REPRESENTATIVE WHO WOULD TAKE CASH ADVANCES AND PAY OFF AT SIDE AS AND WHEN THE NEEDS AROSE, THAT IT WAS NECESSARY TO PAY CASH ADVANCES TO BOOKS LOCA TIONS, EQUIPMENTS AND OTHER PRODUCTION SERVICES.AO WAS NOT SATISFIED WITH THE SUBMISSION M ADE BY THE ASSESSEE.HE HELD THAT ASSESSEE HAD NOT PRODUCED ANY EVIDENCE THAT PARTIES HAD EXPRESSE D THEIR UNWILLINGNESS TO RENDER SERVICES WITHOUT GETTING PAYMENT IN CASH,THAT IT WAS NOT DEN IED THAT RECIPIENT PARTIES HAD ALSO BANK ACCOUNTS,THAT ASSESSEE WAS NOT KNEW EITHER TO THE B USINESS OR TO THE PROVISIONS OF THE ACT. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE AO, HE HELD THAT ASSESSEE HAD ADOPT A UNIQU E METHOD OF ACCOUNTING IN RESPECT OF HOLIDAY IN GOA PROJECT UNDERTAKEN BY IT ON BEHALF OF THE CU STOMERS, THAT ASSESSEE HAD FOLLOWED THE NORMS OF AS-11 OR AS-9, THAT THE ASSESSEE RECEIVED SERVIC ES FEES COMMISSION ON ACCOUNT OF THE SAID PROJECT OF RS. 28.6 LAKHS AND SAME WAS SHOWN AS INC OME OF THE ASSESSEE, THAT AO HAD NOT VERIFIED THE CLAIM OF EXPENDITURE OF RS. 92 LAKHS CLAIMED TO HAVE BEEN INCURRED IN CASH AS THE DETAILS WERE NOT FURNISHED NOR CALLED FOR, THAT AO HAD NO OCCASI ON TO EXAMINE THE AUTHENTICITY EXPENDITURE INCURRED IN CASH, THAT LEDGER ACCOUNT WITH IFA SHOW ED AND OUTSTANDING CASH BALANCE OF RS. 30.20 LAKHS RECEIVABLE AS ON 31.03.2006,THAT EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT FULLY REIMBUR -SED DURING THE PERIOD UNDER CONSIDERATION, THAT IT SHOULD HAVE BEEN FIGURED AS BALANCE SHEET AS RECEIVABLE, THAT THE SAID AMOUNT (30.20 LAKHS) DID NOT FIGURE IN THE BALANCE SHEET AS THE ASSESSEE HAD NOT TAKEN THIS IN ACCOUNT OF PROFIT & LOSS ACCO UNT,THAT THE CLAIM MADE BY THE ASSESSEE THAT EXPENDITURE WAS BEING REIMBURSED ON WEEKLY BASIS WA S INCURRED AND NOT BELIEVABLE, THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT BACKED BY THE PROPER A ND SUFFICIENT EVIDENCE.HE HELD THAT PAYABLE AMOUNT OF RS. 30.20 LAKHS TO CUSTOMERS WAS NOT GENU INE, THAT SAME WAS NOT EXAMINED BY THE AO ALSO.HE CONFIRMED THE DISALLOWANCE OF RS. 30.20 LAK HS. WITH REGARD TO EXPENDITURE OF RS.8 LAKHS HE HELD THAT SAME DID NOT PERTAIN TO HIG PROJECT, T HAT SAME WAS ALSO NOT VERIFIED BY THE AO AS THE SAME PERTAIN TO OTHER JOB UNDERTAKEN BY THE ASSESSE E, THAT SAID AMOUNT WAS ALSO NOT VERIFIABLE.HE HELD THAT DISALLOWANCE OF RS. 8.78 LAKHS WAS TO BE CONFIRMED.AFTER MAKING ADDITION RS. 38.98 LAKHS(RS. 30.20+8.78 LAKHS),FAA DISCUSSED BALANCE C ASH EXPENDITURE OF RS.53.02 LAKHS.IN THIS REGARD, HE HELD THAT SAID AMOUNT WAS NOT FULLY VERI FIABLE AND WAS ALSO NOT EXAMINED BY THE AO. CONSIDERING THE FACTS OF THE CASE HE DISALLOWED 20% OF THE BALANCE AMOUNT.ACCORDINGLY, DISALLOWANCE OF CASH EXPENSES OF RS.49.39 LAKHS (RS .30.20 +8.78+10.41 LAKHS)WAS CONFIRMED BY HIM AND BALANCE AMOUNT I.E. RS. 42.61 LAKHS WAS DEL ETED. BEFORE US,AR SUBMITTED THAT ASSESSEE WAS PRODUCING ADD FILMS,THAT NO NOTICE U/S.251(2) OF THE ACT WAS ISSUED TO THE ASSESSEE BEFORE ENHANCEMENT OF IN COME,THAT PRODUCTION FEE OF RS.26.8 LAKHS WAS SHOWN AS INCOME AND WAS OFFERED FOR TAXATION,THAT T HE ASSESSEE HAD RECOVERED REIMBURSEMENT OF RS.448 LAKHS FROM THE CLIENT ,THAT SAID AMOUNT WAS PART OF THE BALANCE-SHEET, THAT PART OF PRODUCTION FEE WAS RECEIVED IN NEXT YEAR,THAT HIG P ROJECT WAS ON REIMBURSEMENT BASIS SO NO DISALL -OWANCE WAS TO BE MADE,THAT IN EARLIER YEARS SIMILA R KIND OF EXPENDITURE WERE CLAIMED BY THE ASSESSEE.HE REFERRED TO THE ORDER OF THE TRIBUNAL F OR PREVIOUS YEAR WHEREIN ONLY 5% OF THE CASH EXPENSES WERE DISALLOWED.DR SUBMITTED THAT THERE WA S VIOLATION OF PROVISIONS OF RULE 40A(3) R.W.RULE 6DDJ OF THE INCOME-TAX RULES,1962,THAT ASS ESSEE HAD MADE CASH PAYMENT OF RS. 92 LAKHS,THAT FAA HAD DISALLOWED THE ONLY 20% OF CASH EXPENSES. 5 ITA NO.5825/MUM/2011 HIGHLIGHT PICTURES (I) P. LTD. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE CONFIRMING THE ORDER OF THE AO,FAA HAS ALSO ENHANCE D THE INCOME OF THE ASSESSEE.AS PER THE PROVISIONS OF SECTION 251(1)OF THE ACT,FAA HAS TO I SSUE NOTICE TO THE ASSESSEE BEFORE ENHANCING THE INCOME OF AN ASSESSEE AND NO DISCRETION IS AVAI LABLE TO HIM IN THIS REGARD.AS THE ENHANCEMENT HAS BEEN MADE WITHOUT FOLLOWING THE PROPER PROCEDUR E,SO,IN THE INTEREST OF JUSTICE,WE ARE REMITTING BACK THE MATTER OF DISALLOWANCE OF EXPENS ES TO THE FILE TO THE FAA FOR FRESH ADJUDICATI - ON.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNIT Y OF HEARING TO THE ASSESSEE.EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART . AS A RESULT,APPEAL FILED BY THE ASSESSE E STANDS PARTLY ALLOWED. 0'1 &' 2 3 ( .4 /'1 5 ( ' 67. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MAY,2014 . / ( ,-! 9 : 7 EBZ , 201 4 - ( . ; SD/- SD/- ( MK MKMK MK0 00 0 ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, : /DATE: 07.05.2014. SK / / / / ( (( ( $'< $'< $'< $'< = ? , 4. THE CONCERNED CIT / > ? 5. DR H BENCH, ITAT, MUMBAI / <@. $' ,P ,P,P ,P , . . . 6. GUARD FILE/ . 0 %<' %<' %<' %<' $' $'$' $' //TRUE COPY// / / BY ORDER, A / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI