Ch. Ramoji Rao (HUF), Hyderabad V. Addl.CIT, Range-16, Hyderabad

ITA 651/HYD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6066 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 06-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-05-2013
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Additional evidence; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 651/HYD/2013 ASSESSMENT YEAR: 2009-10 CH. RAMOJI RAO (HUF), HYDERABAD [PAN: AADHR6836E] VS THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-16, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO, AR FOR REVENUE : SMT G. APARNA RAO, CIT-DR DATE OF HEARING : 18-01-2017 DATE OF PRONOUNCEMENT : 10-03-2017 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE FOR AY. 2009-10 AGAIN ST THE ORDER OF LD.COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD DATED 26-02-2013. WE HAVE HEARD THE LD. COUNSEL AND LD.DR AND PERUSED THE PAPER BOOK AND WRITTEN SUBMISSIONS PLACED ON RECORD. THE GROUNDS ARE DEALT WITH HEREIN AFTER. 2. BRIEFLY STATED, FOR THE AY. 2009-10, ASSESSEE IN THE STATUS OF HUF, FILED HIS RETURN OF INCOME ON 30-09-2009 DECLAR ING LOSS FROM BUSINESS AT RS. 16,36,81,503/- (AFTER SET OFF OF INCOM E FROM HOUSE PROPERTY) AND LONG TERM CAPITAL GAINS AT RS. 5,01,61 ,56,602/-. I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 2 - : THE AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE INC OME TAX ACT [ACT] BY MAKING THE FOLLOWING DISALLOWANCES/ADDITIO NS: A. DISALLOWANCE OF INTEREST U/S. 14A ON INVESTMENT IN SHAR E APPLICATION MONEY DEPOSITS OF RS. 1,04,60,798/-; B. DISALLOWANCE OF INTEREST ON INVESTMENT IN RESIDENTIAL B UILDING AT RAMOJI FILM CITY OF RS. 2,03,04,932/-; C. DISALLOWANCE OF ADVANCE TO TECHNICIANS WRITTEN OFF AT RS . 3,20,73,859/- AND D. DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS PRODUCTI ON COST OF FEATURE FILM IN THE SHADOW OF COBRA RS. 10,84,00,000/-; 3. LD.CIT(A) IN APPEAL HAS CONFIRMED THE ABOVE, HENC E THE PRESENT APPEAL. 4. GROUND NO. 2 IS AS UNDER: 2. THE LEARNED APPELLATE COMMISSIONER ERRED IN SUS TAINING THE DISALLOWANCE OF INTEREST OF THE EXTENT OF RS. 1,04, 60,798/- BY HOLDING THAT THE BORROWING OF MONEY AND THE INVESTMENT OF THE SA ME IN SHARE APPLICATION DEPOSIT DOES NOT CONSTITUTE BUSINESS AC TIVITY. THE LEARNED APPELLATE COMMISSIONER OUGHT TO HAVE HELD THAT THE SAID AMOUNT OF INTEREST EXPENDITURE WAS ALLOWABLE AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 4.1. THIS ISSUE PERTAINS TO DISALLOWANCE OF INTEREST PE RTAINING TO BORROWINGS FOR SHARE APPLICATION MONEY. THIS ISSUE AROSE IN EARLIER YEAR AND AO AND CIT(A) FOLLOWED THE ORDERS IN EARLIE R YEARS. LD. COUNSEL FAIRLY ADMITTED THAT ASSESSEE WITHDREW THE GROUND IN AY. 2007-08 AND REFERRED TO PG. 37 IN APPEAL NO. 1507/HY D/2010 DT. I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 3 - : 20-02-2015. AS THE GROUND IS NOT PRESSED BEFORE US ALSO, THE SAME IS DISMISSED AS NOT PRESSED. 5. GROUND NO. 3 IS AS UNDER: 3. THE LEARNED APPELLATE COMMISSIONER ERRED IN SUS TAINING THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS. 2,03, 04,932/- BY HOLDING THAT THE SAME WAS INTEREST ON THE INVESTMENT IN THE RESI DENTIAL BUILDING MADE OUT OF BORROWED MONEY. THE LEARNED APPELLATE COMMI SSIONER OUGHT TO HAVE HELD THAT THE INVESTMENT IN THE RESIDENTIAL BU ILDING WAS OUT OF PROFITS AND INTERNAL GENERATION FROM THE BUSINESS UNITS OF THE HUF AND THAT THERE WAS NO NEXUS BETWEEN THE INVESTMENT IN THE RESIDENT IAL BUILDING AND THE BORROWED FUNDS AND ACCORDINGLY DELETED THE ADDITION MADE ON THIS ACCOUNT BY THE ASSESSING OFFICER. 5.1. BRIEFLY STATED THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE-HUF H AD CONSTRUCTED RESIDENTIAL BUILDING FOR HIS OWN OCCUPATION AT RAMOJI FILM CITY AND THE COST OF THE SAID CONSTRUCTION WAS MET FROM THE BORROWED FUNDS. SINCE THE SAID INVESTMENT WAS NOT MADE BY THE ASSESSEE FOR BUSINESS PURPOSES, THE ASSESSING OFFICE R HELD THAT THE INTEREST ATTRIBUTABLE TO THE INVESTMENT MADE IN THE RESIDENTI AL BUILDING AT RAMOJI FILM CITY WAS LIABLE TO BE DISALL OWED. ACCORDINGLY, HE WORKED OUT THE INTEREST TO BE DISALLOWE D AT RS.4.39 CRORES AND MADE A DISALLOWANCE TO THAT EXTENT. 5.2. ON APPEAL, LD.CIT(A) DISMISSED THE GROUND , STATI NG AS UNDER: 4.3 THE NEXT ADDITION RELATES TO DISALLOWANCE OF I NTEREST ON BORROWED FUNDS FOR CONSTRUCTION OF RESIDENTIAL BUIL DING AT RAMOJI FILM CITY AMOUNTING TO RS.2,03,04,932/- AN IDENTICAL ISSUE HA S BEEN DISCUSSED IN DETAIL AND DECIDED BY MY PREDECESSOR IN THE CASE OF THE APPELLANT FOR THE AY 2007-08 VIDE ORDER IN ITA NO.0224/AC-16(2)/CIT(A )-V/2009-10, DATED 03.09.2010. THE OPERATIVE PART OF THE SAID ORDER IS AS BELOW: I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 4 - : '6.1 I HAVE CONSIDERED THE ARGUMENTS AND FACTS AND I FIND THAT ONCE AGAIN THERE IS NO APPLICABILITY OF SECTION 14A OF THE ACT IN THIS CAS E BECAUSE THERE IS NO INCOME GENERATED OUT OF THIS ASSET. FURTHER, IT IS DEFINITELY NOT A BUSINESS ASSET BEING A RESIDENTIAL HOUSE MEANT FOR OWN OCCUPATION. EVEN THE APPELLANT HAS AD MITTED THE SAME IN HIS REPLY GIVEN ABOVE. THEREFORE, IN PRINCIPLE, THE ASSESSING OFFIC ER IS CORRECT IN DISALLOWING THE AFOREMENTIONED INTEREST. HOWEVER, THE APPELLANT HAS STATED THAT THE CALCULATIONS OF THE ASSESSING OFFICER ARE INCORRECT AND OUT OF RS.29 CR ORES INVESTMENT, RS.18 CRORES WAS MADE OUT OF OWN FUNDS. HOWEVER, DURING APPEAL PROCE EDINGS, THE APPELLANT COULD NOT BRING ANY EVIDENCE TO PROVE ITS POINT. THE ONUS LAY SQUARELY ON THE APPELLANT TO STATE CLEARLY THE AMOUNT OF INTEREST IT HAD CLAIMED WITH RESPECT TO THE AFOREMENTIONED PROPERTY. THIS SIMPLE DETAIL WAS NOT PROVIDED BY TH E APPELLANT. ACCORDINGLY, GIVEN THE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER IS D IRECTED TO VERIFY THE EXACT AMOUNT OF INTEREST CLAIMED BY THE APPELLANT WITH RESPECT TO T HE RESIDENTIAL BUILDING AT RAMOJI FILM CITY AND DISALLOW THE SAME. 4.3.1 SINCE THE ISSUE INVOLVED IS IDENTICAL, THE DE CISION AS OUTLINED IN THE AFOREMENTIONED CASE VIDE MY ORDER DATED 03.09.2010 ALSO APPLIES TO THE CURRENT CASE. IN OTHER WORDS, THE ASSESSING OFFICE R CORRECTLY DISALLOWED THE INTEREST. HOWEVER, THE ASSESSING OFFICER IS DI RECTED TO VERIFY THE EXACT AMOUNT OF INTEREST CLAIMED BY THE APPELLANT WITH RE SPECT TO THE RESIDENTIAL BUILDING AT RAMOJI FILM CITY AND DISALLOW THE SAME . 5.3. LD. COUNSEL FAIRLY ADMITTED THAT THIS ISSUE IS HELD AGAINST IN AY. 2005-06 ONWARDS AND REFERRED THE ORDER OF ITAT IN ITA NO. 1087/HYD/2010 DT. 20-02-2015 VIDE PARA 26, THE ITAT H ELD AS UNDER: 26. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNE D COUNSEL FOR THE ASSESSEE HAS REITERATED BEFORE US THE SUBMISSIONS M ADE BY THE ASSESSEE ON SIMILAR ISSUE BEFORE THE LEARNED CIT(A) FOR ASSE SSMENT YEAR 2005-06, THAT OUT OF THE TOTAL INVESTMENT OF RS.29.68 CRORES MADE IN THE RESIDENTIAL BUILDING, A SUM OF RS.18.68 CRORES WAS OUT OF OWN F UNDS, WHEREAS THE BALANCE AMOUNT OF RS.11 CRORES ONLY WAS UTILISED OU T OF THE FUNDS BORROWED ON INTEREST. HE HAS CONTENDED THAT INTERES T ATTRIBUTABLE ONLY TO THE BORROWED FOUNDS, THEREFORE, IS LIABLE TO BE DIS ALLOWED AND THE DISALLOWANCE OF RS.4,39,25,177 MADE BY THE ASSESSIN G OFFICER ON THIS COUNT IS EXCESSIVE AND UNREASONABLE. IN THIS REGARD , IT IS OBSERVED THAT KEEPING IN VIEW THE SIMILAR STAND TAKEN BY THE ASSE SSEE IN ASSESSMENT YEAR 2005-06, A DIRECTION WAS GIVEN BY THE LEARNED CIT(A) TO THE ASSESSING OFFICER TO VERIFY THE EXACT AMOUNT OF INT EREST EXPENDITURE INCURRED BY THE ASSESSEE WITH RESPECT TO THE RESIDE NTIAL BUILDING AT RAMOJI FILM CITY AND MAKE A DISALLOWANCE TO THAT EXTENT. I N HIS IMPUGNED ORDER I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 5 - : FOR ASSESSMENT YEAR 2006-07, THE LEARNED CIT(A) HAS FOLLOWED HIS OWN ORDER FOR THE ASSESSMENT YEAR 2005-06 AND HAS GIVEN A SIMILAR DIRECTION TO THE ASSESSING OFFICER TO VERIFY THE EXACT AMOUNT OF INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WITH RESPECT TO THE RESIDEN TIAL BUILDING AT RAMOJI FILM CITY AND MAKE DISALLOWANCE TO THAT EXTENT. WE THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT( A) ON THIS ISSUE AND UPHOLDING THE SAME, WE DISMISS GROUND NO.3 OF THE A SSESSEES APPEAL. 5.4. SINCE THE ISSUE IS SAME, RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION, WE DISMISS THIS GROUND. 6. GROUND NO. 4 IS AS UNDER: 4(A) THE LEARNED CIT(A) IS NOT JUSTIFIED IS NOT AC CEPTING THAT THE AMOUNT OF RS. 3.20 CRORES WAS ADVANCED TO THE TECHNICIANS AND IN SUSTAINING THE DISALLOWANCE OF THE WRITTEN OFF EXPENDITURE. HE HAS GROSSLY ERRED IN REJECTING THE CLINCHING EVIDENCE PRODUCED BEFORE HI M AND THE ADDITIONAL COMMISSIONER OF INCOME TAX (ADDL.CIT). HIS CONCLUS ION IN THIS REGARD IS ARBITRARY AND BASED ON SUSPICION, SURMISE AND CONJE CTURE. (B) THE LEARNED CIT (A) HAS FAILED TO CONSIDER THAT THE EXPENDITURE INCURRED OF RS.3.20 CRORE WAS PART OF ACCOUNTS AUDITED DURIN G THE PERIOD OF EXPENDITURE. HE OUGHT TO HAVE GIVEN WEIGHT TO THE C ONTEMPORANEOUS EVIDENCE. (C) IN RESPECT OF THE ADVANCE AMOUNT OF RS.2,20,00, 000/- THE LEARNED CIT(A) IS NOT JUSTIFIED IN REJECTING THE EVIDENCE P RODUCED BY WAY OF A CONTEMPORANEOUS LETTER WRITTEN BY SRI RAJKUMAR SANT OSH TO WHOM IT WAS PAID. THE LETTER CONFIRMS THE PAYMENTS AND ALSO THE FACT OF EFFORTS MADE FOR PRODUCTION OF THE FILM MAHABHARAT. THE LEARNED CIT(A) HAS MISQUOTED THE CRUCIAL SENTENCE BY PLACING OBLIQUE S IGN IN BETWEEN 'WAS PAID' AND WAS 'WAS DUE' WHEREAS THE LETTER DOES NOT HAVE SUCH SIGN. HE THUS MISLED HIMSELF INTO BELIEVING THAT THE PAYMENT OF RS.2,20,00,000/- WAS NOT PROVED. (D) THE LEARNED CIT(A) AND THE ADD. CIT HAVE FAILED TO APPRECIATE THAT THE EXPENDITURE OF RS.17,51,347/- INCURRED THROUGH IMPR EST ACCOUNT WAS DULY VOUCHED AND ACCOUNTED FOR BY CASHIER IN CONFORMITY WITH PRINCIPLES OF ACCOUNTING OF IMPREST AMOUNTS. (E) THE LEARNED CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE ADVANCE PAYMENTS OF RS.77,67,290/- OUT OF WHICH RS.69.37 LA KHS WERE MADE THROUGH CHEQUES, WAS NOT PROVED. I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 6 - : (F) THE LEARNED CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE EXPENSES OF RS.L,21,153/- BY WAY OF CASH AND RS.4,34,069/- BY W AY OF DEBIT NOTES WERE NOT PROVED. 6.1. BRIEFLY STATED FACTS ARE THAT THE APPELLANT CLAIMED AN AMOUNT OF RS.14,05,19,570/- TOWARDS ADVANCES TO TECHNICIANS, ETC., WRITTEN OFF. WHEN THE ASSESSING OFFICER ASKED TO SUBSTANTIATE THE SAID WRITE OFF, THE APPELLANT DURING SCRUTINY PROCEEDINGS S UBMITTED AS UNDER: 'M/S USHAKIRON MOVIES - FILMS DIVISION ENGAGED IN THE PRODUCTION OF FEATURE FILMS PRIMARILY IN TELUGU AND ALSO IN OTHER LANGUAGES SIN CE MANY YEARS. DURING THE COURSE OF PURSUING AND EXPLORING VARIOUS TOPICS I STORIES FOR PRODUCING FEATURE FILMS DURING THE PERIOD FROM 1997 ONWARDS, IT HAD INCURRED EXPENDITU RE BY WAY OF ADVANCES GIVEN TO THE TECHNICIANS, VIZ.. DIRECTORS, STORY WRITERS, LYRIC WRITERS, DIALOGUE WRITERS AND OTHERS AS PER THE STATEMENT ANNEXED THERETO. AS YOU MAY KINDLY AW ARE, UNLESS VARIOUS TOPICS ARE EXERCISED PRUDENTLY, A FILM CANNOT BE MADE AND IN T HE PROCESS OF CARRYING OUT SUCH EXERCISES CONSTANTLY, IT IS NECESSARY FOR THE DIVIS ION TO INCUR SUBSTANTIAL EXPENDITURE ON STORIES AND TECHNICIANS AS WELL OVER A PERIOD OF TI ME. AFTER CONDUCTING A DETAILED REVIEW OF THE EXPENDITURE AS TO CHANGES MAKING ANY FILM ANY T IME IN FUTURE, IT WAS CONCLUDED THAT THE ADVANCES HELD NO LONGER WOULD MATERIALIZE INTO A FILM AS MANY OF THE IDEAS WERE NOT RECEIVED FINAL CONSENSUS AMONG TEAM WHO HAVE EXERCI SED AND HAS BECOME NECESSARY TO CHARGE THE ENTIRE EXPENDITURE WHICH IS CLOSELY AND INTIMATELY CONNECTED WITH THE BUSINESS CARRIED BY THE DIVISION. IT IS ALSO SUBMITTED THE E XPENDITURE NOW CHARGED BY WAY OF WRITE OFF IS QUITE COMMON IN THE TRADE AND INDUSTRY AS EV ERY PRODUCER NEED TO GO THROUGH A SIMILAR EXERCISE. IF THE FILM IS RELEASED, IT WOULD AUTOMATICALLY GO INTO THE COST OF THE FILM FOR WRITE OFF DIRECTLY AND IN THE CASES WHEREVER IT IS INCURRED FOR EXPLORING BUSINESS IDEAS HAVE TO BE GIVEN REASONABLE TIME FOR FINAL CONSENSU S ..... ' AFTER GOING THROUGH THE SUBMISSIONS AND THE OTHER DETAIL S FURNISHED, OBSERVING THAT THE AMOUNTS CLAIMED TO HAVE BEEN WRITTEN OFF PERTAIN TO THE PERIODS 1998-99 TO 2007, AND THAT THE ASSESSEE HAD NOT FURNISHED ANY PROOF OF PAYING THE SUMS LIKE RECEIPTS / VOUCHERS, BILLS AND RELEVANT BOOKS OF ACCO UNT, ETC., THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS.3,20,73 ,859/- UNDER THIS HEAD. I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 7 - : 6.2. LD.CIT(A) ADMITTED SOME ADDITIONAL EVIDENCES, SEN T THEM TO AO ON REMAND AND AFTER OBTAINING THE SAME, HAS DECID ED THE ISSUE AS UNDER: 5.4. OUT OF THE 11 PRODUCTIONS CLAIMED BY THE APPE LLANT, THE MAJOR AMOUNT PERTAINS TO THE PRODUCTION 'MAHABHARAT' FOR RS.2,43,07,171/- AND THIS AMOUNT WAS STATED TO HAVE BEEN ADVANCED TO SRI RAJKUMAR SANTOSHI, A DIRECTOR. WHEN ASKED FOR THE DETAILS OF PAYMENTS AND CONFIRMATION FROM SRI SANTOSHI, IT WAS REPLIED BY THE APPELLANT THAT SRI SANTOSHI HAD PASSED AWAY AND CONFIRMATION FROM HIM IS NOT POSSIBLE. AS A LAST RESORT, THE ASSESSING OFFICER ASKED TO FURNISH THE DETAILS OF C HEQUES AND BANK ACCOUNT DETAILS, THROUGH WHICH THE SAID AMOUNT WAS PAID, FOR THIS, THE APPELLANT STATED PRODUCED A BANK STATEMENT FOR THE PERIOD 2000 TO 2012 AND FROM THIS BANK ACCOUNT, THE ASSESSING OFFICER C OULD NOT GET ANY OF THE PAYMENTS CLAIMED TO HAVE BEEN PAID TO SRI SANTOSHI. FOR THIS, THE APPELLANT CLAIMED THAT THE BANK HAD CHANGED ITS SOF TWARE AND NEEDS TIME FOR FURNISHING OF FULL PARTICULARS. ACCORDINGLY, TH E ASSESSING OFFICER GRANTED SOME MORE TIME ON TWO OCCASIONS. HOWEVER, THE APPELLANT HAD NOT PRODUCED ANYTHING FURTHER BEFORE THE ASSESSING OFFICER. AS SUCH, THE ASSESSING OFFICER CONCLUDED THAT THE CLAIM OF PAYME NT OF RS.2.20 CRORES TO SRI SANTOSHI AND THE TOTAL CLAIM OF ADVANCES TO TEC HNICIANS IS UNFOUNDED. 5.5. ON THIS REMAND REPORT, DURING APPEAL PROCEEDIN G APPELLANT ALMOST REITERATING THE SUBMISSIONS AND ENUMERATING THE DEVELOPMENTS BEFORE THE ASSESSING OFFICER ON THIS ISSUE, FILED A LETTER PURPORTEDLY FILED BY SRI RAJ KUMAR SANTOSHI, WHEREIN IT WAS CLAIMED THAT THE APPELLANT FAILED TO ADHERE TO THE TIME SCHEDULE AGREED UPON FOR MAKI NG THE FILM AND IN THE SAME LETTER A PASSING REMARK WAS MADE BY THE SAID S ANTOSHI THE AMOUNT OF RS.2,20, 00,000/- WHICH WAS PAID / WAS DUE TO ME AS PER THE TERMS OF THE ARRANGEMENTS BETWEEN US AND' FROM THE CONTENTS OF THE ABOVE LETTER, APPARENTLY NO CONCLUSIVE FINDING CAN BE MADE THAT T HE APPELLANT HAD ACTUALLY GIVEN AN ADVANCE OF RS.2.20 CRORES. THUS, THE APPELLANT FAILS ON ALL FRONTS TO PROVE THE CLAIM OF EVEN THE MAJOR AMO UNT OF RS.2.20 CRORES. ACCORDINGLY, I AM NOT INCLINED TO ACCEPT THAT AMOUN T OF RS.3.20 WAS ADVANCED TO TECHNICIANS AND THAT THE SAME WAS WRITT EN OFF. AS SUCH, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UPHEL D. 7. GROUND NO. 5 IS AS UNDER: 5(A). THE LEARNED CIT (A) IS NOT JUSTIFIED IN UPHO LDING THE DISALLOWANCE OF RS.10.84 CRORES MADE BY THE ADDL.CIT ALLEGING THAT THE CLAIM WAS FICTITIOUS AND UNREALISTIC. I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 8 - : (B) THE LEARNED CIT(A) AND THE ADDL.CIT (IN HER REM AND REPORT) ARE NOT JUSTIFIED INDISBELIEVING THE EXPENDITURE INCURRED O N THE ONLY GROUND OF SELF MADE VOUCHERS IGNORING THE EVIDENCE PRODUCED IN SUP PORT THEREOF. (C) THE LEARNED CIT(A) HAS GROSSLY ERRED IN NOT GIV ING ANY WEIGHT TO THE EVIDENCE PRODUCED IN SUPPORT OF PAYMENT OF RS. 5,98 ,83,397/- TO FRANK T. DEMARTINI. THE PAYMENTS IN FOREIGN EXCHANGE WERE M ADE AFTER SATISFYING THE BANK ABOUT THE GENUINENESS OF THE PURPOSE OF TH E PAYMENTS IN FOREIGN EXCHANGE. (D) THE ORDERS OF THE LEARNED CIT(A), THE ADDL. CIT (A) AND THE CONCLUSIONS IN THE REMAND REPORT ARE CAPRICIOUS AND ARBITRARY. 7.1. THE FACTS RELATING TO THIS DISALLOWANCE ARE THAT THE ASSESSEE PRODUCED AN ENGLISH MOVIE BY NAME 'IN THE SHADOW OF C OBRA' WITH A COST OF 10.84 CRORES AND AS THE MOVIE COULD NOT BE R ELEASED FOR TECHNICAL REASONS IN USA, AND THAT THERE WAS NO POSSIB ILITY OF MAKING OUT THE COST SO INCURRED IN MAKING THE MOVIE, TH E SAME WAS WRITTEN OFF DURING THE YEAR. AO DISALLOWED THE SAME ON THE REASON THAT ASSESSEE HAS NOT JUSTIFIED THE EXPENDITURE I NCURRED. 7.2. LD.CIT(A) DISMISSED THE GROUND STATING AS UNDER: 6.1 AS REGARDS THE REASONS FOR THE DISALLOWANCE B Y THE ASSESSING OFFICER, THE SAME ARE SIMILAR TO THE ISSUE OF ADVAN CES. NO EVIDENCES WERE PURPORTEDLY PRODUCED BY THE APPELLANT DURING ASSESS MENT STAGE. ON THIS ISSUE ALSO, DURING APPEAL PROCEEDINGS, THE APPELLAN T CAME UP WITH SOME EVIDENCES AND THE SAME WERE FORWARDED TO THE ASSESS ING OFFICER FOR HER COMMENTS. THE ASSESSING OFFICER HAD FURNISHED HER R EMAND REPORT STATING THAT THE BILLS / VOUCHERS ARE SELF MADE AND NO CRED ENCE CAN BE GIVEN TO SUCH MATERIAL. DURING REMAND STAGE, THE APPELLANT A LSO FAILED TO PRODUCE THE BANK ACCOUNT EVIDENCING PAYMENT OF ANY THE AMOU NTS INCURRED IN INDIA AND IN PARTICULAR THE AMOUNT OF RS.5.98 CRORE S TO FRANK T. DEMARTINI, THROUGH WHOM ALL THE PAYMENTS WERE CLAIMED TO HAVE BEEN MADE TO FOREIGN TECHNICIANS. HOWEVER, AFTER RECEIPT OF REMA ND REPORT, THE APPELLANT FILED A LETTER FROM THE BANK CONFIRMING THAT ON REQ UEST OF M/S USHA KIRON MOVIES INTERNATIONAL, THE BANK PAID AMOUNTS OF RS.5 ,98,83,397/- TO FRANK T. DEMARTINI. HOWEVER, THE NATURE OF PAYMENT AND TH E PURPOSE FOR WHICH THESE AMOUNTS WERE PAID COULD NOT BE MADE OUT FROM THIS CONFIRMATION. IN THE ABSENCE OF ANY CLINCHING EVIDENCES THAT THE APP ELLANT HAD ACTUALLY I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 9 - : INCURRED THE AMOUNT CLAIMED ON A MOVIE AND THAT THE SAME COULD NOT BE RELEASED FOR TECHNICAL REASONS AND FINALLY THE WRIT E OFF OF SUCH AMOUNT, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT IS UPHELD REJECTING THE GROUNDS OF THE APPELLANT. 8. SINCE THE ISSUE IN GROUND NO. 4 AND 5 ARE SIMILAR , THEY ARE DEALT WITH TOGETHER. ASSESSEE FILED THE FOLLOWING NOTE JUSTIFYING THE WRITE-OFF DURING THE YEAR. NOTE ON WRITE OFF OF EXPENDITURE ON VARIOUS FILMS DURING THE YEAR 2008-09 DURING THE FINANCIAL YEAR 2008-09, WE HAVE DECIDED NOT TO PRODUCE ANY MORE FILMS UNDER THE STATUS HUF, WE HAVE LISTED OUT ALL ABANDONED PROJECTS WHEREIN THERE IS NO SCOPE FOR REVIVAL OR R ESHOOTING OF ANY OF THE FILMS LISTED OUT IN THE STATEMENT HERETO, THE ENTIR E COST INCURRED ON THESE FILMS WHICH HAVE BEEN ABANDONED HAS BEEN WRITTEN OF F COMPLETELY DURING THE SAID YEAR. THEREAFTER THE ASSESSEE UNDER THE HU F STATUS DID NOT VENTURE ANY FILM OR TELEFILMS/SERIALS TILL DATE. TH E REASON FOR WRITE OFF IN THIS YEAR WAS DUE TO THE DECISION NOT TO PRODUCE AN Y FILMS IN HUF. IT IS ALSO SUBMITTED THAT THE WRITE OFF A SUM OF RS.3,20, 73,859 AND RS.10,84,45,711 BEING THE COST INCURRED ON THE ENGL ISH MOVIE 'SHADOW OF COBRA', IN THE FINANCIAL YEAR 2008-09 RELEVANT TO T HE ASST YEAR 2009-10, DID NOT RESULT INTO ANY ADDITIONAL TAX ADVANTAGE IN TERMS OF SET OFF OF BUSINESS LOSS AS THE HUF WAS HAVING HUGE UNABSORBED LOSSES OF EARLIER YEARS. FURTHER SUBMITTED THAT THERE IS A DETERMINED LOSS FOR THE ABOVE SAID ASST YEAR 2009-10 EVEN AFTER EFFECTING THE ABOVE SA ID DISALLOWANCES. IT IS THEREFORE PRAYED THAT THE LEGITIMATE EXPENDITURE IN CURRED IN EXPLORING VARIOUS FILMS BUT ABANDONED, MAY PLEASE BE CONSIDER ED AND ALLOWED AS REVENUE EXPENDITURE FOR THE YEAR. 9. LD. COUNSEL REITERATED THE ABOVE TO SUBMIT THAT THE H UF HAS STOPPED PRODUCING FILMS AND ALL THESE ABANDONED OR UN FINISHED FILMS WERE WRITTEN-OFF. IT WAS SUBMITTED THAT HUF HAS LO SSES IN EARLIER YEARS AS WELL AND IT WOULD NOT MAKE ANY DIFF ERENCE EVEN IF THE SAME WAS WRITTEN-OFF IN EARLIER YEARS. WITH REFERE NCE TO THE CONTENTION THAT DETAILS ARE NOT FILED, HE REFERRED THE DE TAILS PLACED ON RECORD (EVEN BEFORE THE AO) AND PAYMENTS BY CHEQUE S PARTICULARLY TO MR RAJKUMAR SANTOSHI AND OTHERS. IT WAS THE SUBMISSION THAT THE EXPENDITURE INCURRED WAS GENUINE AND WAS I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 10 -: PART OF THE RECORD IN EARLIER YEARS. LIKE-WISE, THE P RODUCTION COST OF FILM IN THE SHADOW OF COBRA. HE REFERRED TO THE SCH EDULES IN EARLIER YEARS TO SUBMIT THAT THE EXPENDITURE ON PRODUCTI ON WORK WAS RECORDED IN EARLIER YEAR AND WAS PART OF THE RECO RD. 10. LD. COUNSEL MADE REFERENCE TO LEGAL PRINCIPLES I N ALLOWING THE EXPENDITURE CLAIM EITHER AS REVENUE EXPENDITURE OR LOS S OR BAD DEBT. IT WAS EXPLAINED THAT RULE 9A WAS NOT APPLICABLE AS THE FILM CERTIFICATION WAS NOT OBTAINED AND REFERRED TO CIRCULAR NO. 16/2015. HE TOOK SUPPORT FROM THE DECISION OF THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. VENUS RECORDS AND TAPES P. LTD., DT. 29-01-2015 (ITA NO. 310 OF 2013) FOR THE PROPOSITION THAT COST OF ABANDONED FILM WRITTEN-OFF IS A REVENUE EXP ENDITURE. HE ALSO REFERRED TO THE CO-ORDINATE BENCH DECISION IN THE CASE OF ITO VS. ABDUL G. NADIADWALA [29 ITR (TRIB) 528] (IT AT, MUMBAI) A BENCH FOR THE SAME. HE ALSO SUBMITTED THAT WAS NON-PR ODUCTION OF VOUCHERS SHOULD NOT BE TAKEN ADVERSELY, WHEN ASSESSEE IS ABLE TO JUSTIFY THE PAYMENTS BY OTHER EVIDENCE. 10.1. LD. DR, HOWEVER, RELIED ON THE DETAILED ORDER S OF THE AO AND CIT(A). 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS AND PAPER BOOK PLACED ON RECORD. AS FAR AS THE EXPENDITURE OF RS. 3.20 CRORES DISALLOWED BY THE AO IS CONCERNED , THIS IS PART OF TOTAL CLAIM OF RS. 14.05 CRORES WRITTEN-OFF. ASSESSEE H AS ABANDONED THE PRODUCTION OF FILMS AND HAS WRITTEN-OFF THE AMOUNT. NEITHER THE AO NOR THE CIT(A), AS SEEN FROM THE ORDERS, HAS AN Y OBJECTION FOR WRITE-OFF. THE ONLY REASON FOR DISALLOWING THE AMOUNT IS THAT I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 11 -: ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPENDITURE INCUR RED. AS FAR AS THE LEGAL PRINCIPLES ARE CONCERNED, THE BOARD CIRCULAR AS WELL AS THE DECISION OF THE COURTS STATE THAT THE EXPENDITURE INC URRED ON ABANDONED MOVIES ARE ELIGIBLE TO BE WRITTEN-OFF AS RE VENUE EXPENDITURE. THAT IS THE REASON WHY AO ALLOWED THE SAME PARTLY. ASSESSEES CONTENTIONS ARE THAT THESE EXPENDITURES WERE I NCURRED IN EARLIER YEARS AND THEY ARE AVAILABLE IN THE BOOKS OF ACCOUNT, WHICH WERE SCRUTINIZED IN EARLIER YEARS AND SINCE THE Y WERE WRITTEN- OFF DURING THE YEAR, THEY ARE ELIGIBLE AS SUCH. WE HAVE ALSO PERUSED THE DOCUMENTS PLACED ON RECORD SUPPORTING THE CLAIMS. LD.CIT(A) VIDE PARA 5.5 SPECIFICALLY REFERRED TO ABOUT SHRI RAJ KUMAR SANTOSHI. AS CONTENTED BY ASSESSEE IN THE GROUND, T HE USE OF (/) IN ITALICS PORTION EXTRACTED BY THE CIT(A) IN THE ORDER GIVES A COMPLETELY DIFFERENT MEANING THAN WHAT WAS INTENDED BY THE LETTER. IN FACT SHRI RAJ KUMAR SANTOSHI, AS EARLY AS 18 TH NOV. 2003, HAS SENT TO ASSESSEE WITH THREE PAGE LETTER WHICH CLEARLY I NDICATES THAT HE HAS RECEIVED RS. 2.20 CRORES, AS CLAIMED BY ASSE SSEE. AS THERE IS NO DOUBT ABOUT THAT PAYMENT OF THE AMOUNT, WE ARE NOT SURE WHY REVENUE HAS NOT ACCEPTED THE SAME AND CIT(A) DOUB TS THE SAME THAT NO CONCLUSIVE FINDING CAN BE MADE. THE CON TENTS OF THE LETTER IS VERY CLEAR THAT ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR PRODUCTION OF FILM MAHABHARAT TO BE DIRECTED BY SHR I RAJ KUMAR SANTOSHI AND AS A PART OF THAT, PAID RS. 2.20 CRORES AND INCURRED INCIDENTAL EXPENDITURE, ULTIMATELY DUE TO DELAY IN START OF THE SHOOTING OF THE PICTURE, THE PROJECT WAS ABANDONED. SI NCE ASSESSEE HAS FURNISHED EVIDENCE BEFORE THE AUTHORITIES, WE DO N OT FIND ANY REASON TO DISBELIEVE THE SAME. ACCORDINGLY, THE GROU ND RAISED BY ASSESSEE WITH REFERENCE TO EXPENDITURE OF RS. 3.20 CRO RES IS I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 12 -: CONSIDERED ALLOWABLE AND AO IS DIRECTED TO ALLOW THE S AME. GROUND NO 4 IS ALLOWED. 12. NOW, COMING TO THE ISSUE OF EXPENDITURE WRITTEN-OFF TOWARDS PRODUCTION COST OF FEATURE FILM IN THE SHADOW OF COBRA RS. 10.84 CRORES, ASSESSEE SUPPORTS THE EXPENDITURE BY VARIOU S PAYMENTS MADE THROUGH BANKS OR THROUGH OTHER CONCERNS AND THE E VIDENCES WERE FURNISHED BEFORE THE AO IN THE REMAND. HOWEVER, NEITHER THE AO NOR THE CIT(A) EXAMINED THE SAME IN CORRECT PERSPE CTIVE. HOWEVER, ASSESSEE ALSO HAS NOT FURNISHED THE COMPLETE DETAILS BEFORE US TO EXAMINE WHETHER SUCH EXPENDITURE WAS INC URRED EXCEPT THAT THE BALANCES ARE SHOWN IN THE ANNUAL REPORTS EVERY YEAR. THIS REQUIRES VERIFICATION BY THE AO. ASSESS EE IS DIRECTED TO FURNISH NECESSARY EVIDENCES OF PRODUCTION OF FILM, P ERSONS EMPLOYED OR CONTRACTED, SCHEDULES OF SHOOTING ETC, NE CESSARY AGREEMENTS IF ANY, IN SUPPORT OF CLAIM OF INCURRING O F THE EXPENDITURE, IF NOT THE ACTUAL VOUCHERS OF THE EARLIER P ERIOD AND AO IS DIRECTED TO EXAMINE AND ALLOW THE CLAIM AFTER DUE VERIFICATION. WITH THESE DIRECTIONS, THE ISSUE IN GROUND NO. 5 IS SE T ASIDE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 13. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MARCH, 2017 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMB ER HYDERABAD, DATED 10 TH MARCH, 2017 TNMM I.T.A. NO. 651/HYD/2013 CH. RAMOJI RAO (HUF) :- 13 -: COPY TO : 1. CH. RAMOJI RAO (HUF), NO. 3, CHIKOTI GARDENS, BEGUMPET, HYDERABAD. 2. ADDL. COMMISSIONER OF INCOME TAX, RANGE-16, HYDERABAD. 3. CIT (APPEALS)-V, HYDERABAD. 4. CIT-IV, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.