VISHAL VIRENDRA DEVGAN, MUMBAI V. ACIT CIRCLE - 16(1), MUMBAI

ITA 705/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4976 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 01-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIV GUBGOTRA
• Assessee Lawyers: MIHIR C NANIWADEKAR
• Keywords: Depreciation; Business expenditure; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 705 /MUM/201 7 ASSESSMENT YEAR: 2013 - 1 4 MR. VISHAL VIRENDRA DEVGAN 5 - 6, SHEETAL APARTMENTS, OPP. CHANDAN CINEMA JUHU, MUMBAI - 400049. VS. ACIT, CIRCLE 16(1), MUMBAI, ROOM NO. 439, AAYAKAR BHAVAN, MUMBAI - 400020. PAN NO. AAEPD7930Q APPELLANT RESPONDENT ASSESSEE BY : MR. MIHIR C. NANIWADEKAR, AR REVENUE BY : MR. RAJIV GUBGOTRA, DR DATE OF HEARING : 23/10/2018 DATE OF PRONOUNCEMENT : 21/01/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2013 - 1 4 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 4 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF TH E INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST GROUND OF APPEAL THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF SUNDRY BALANCES WRITTEN OFF TO THE EXTENT OF RS.9,22,953/ - THE REASONS GIVEN BY HIM IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 2 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE HAD DEBITED RS.10,32,424/ - AS SUNDRY BALANCES WRITTEN OFF. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN AS TO WHY SUNDRY BALANCES WRITTEN OFF IN M/S AJAY DEVGAN FILMS ( IN SHORT ADF) OF RS. 10,32,424/ - SHOULD NOT BE DISALLOWED, SINCE THE BALANCES ARE OF LOANS AND ADVANCES, WHICH ARE CAPITAL ITEMS IN NATURE, THE ASSESSEE SUBMITTED THAT THE ABOVE SUM WAS WRITTEN OFF FR OM MISCELLANEOUS AND SUNDRY ACCOUNTS ON ACCOUNT OF VARIOUS REASONS SUCH AS (I) UNCLAIMED SERVICE TAX, (II) NON - DEPRECIABLE ASSETS WRITTEN OFF, (III) VARIOUS LOANS TO STAFF WRITTEN OFF AND (IV) MISCELLANEOUS DEBIT BALANCES TO PARTIES. IT WAS FURTHER SUBMI TTED BEFORE THE AO THAT DURING THE MAKING OF THE FILM, PAYMENTS WERE MADE TO VARIOUS VENDORS, ARTISTES, TECHNICIANS AND STAFF AND SOMETIMES SUNDRY BALANCE S R EMAIN IN THE ACCOUNT WHICH NEED TO BE WRITTEN OFF AFTER THE RELEASE OF THE FILM SO AS TO CLEAN UP T HE ACCOUNTS. HOWEVER, THE AO WAS NOT CONVINCED TO THE ABOVE EXPLANATION OF THE ASSESSEE AND DISALLOWED THE CLAIM OF RS.10,32,424/ - FOR THE REASON THAT THE BUSINESS WAS NOT IN EXISTENCE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE OF SERVICE TAX CENVAT WRITTEN OFF AMOUNTING TO RS.1,99,309/ - ON THE REASON THAT SUCH TAXES BEING UNCLAIMED I S NOT GOING TO BE RECOVERED. THE LD. CIT(A) THUS RESTRICTED THE DISALLOWANCE TO THE BALANCE AMOUNT OF RS.9,22,953/ - . MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 3 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT IT IS NOT AS IF IN THE CASE OF A FILM PRODUCER, EXPENSES CAN BE ALLOWED ONLY UN DER RULE 9A OF THE INCOME TAX RULES, 1962 (THE RULES) . THE SAID RULE S DEAL WITH ALLOWANCE ONLY OF COST OF PRODUCTION. OTHER EXPENSES ARE TO BE ALLOWED UNDER T HE NORMAL PROVISION OF THE ACT. IN THIS REGARD, RELIANCE IS PLACED BY HIM UPON THE DECISION OF T HE TRIBUNAL IN DHARMA PRODUCTIONS P. LTD. V. DC 62 SOT 177. 6. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). SPECIFIC REFERENCE IS MADE BY HIM TO PARA 5.4 OF THE APPELLATE ORDER DATED 29.11.2016 PASSED BY THE LD. CIT(A). 7. W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IT IS FOUND THAT NEITHER THE AO NOT THE LD. CIT(A) COULD ESTABLISH THAT SUNDRY BALANCES WRITTEN OFF TO THE TUNE OF RS.9,22,953/ - HAD TO BE DISALLOWED AS PER THE PROVISIONS OF THE ACT. THE WRITTEN OFF AMOUNTS FROM MISCELLANEOUS AND SUNDRY ACCOUNTS COMPRISED OF NON - DEPRECIABLE ASSETS WRITTEN OFF, VARIOUS LOANS TO STAFF WRITTEN OFF AND MISCELLANEOUS DEBIT BALANCES TO PARTIES. THE FACT REMAINS THAT DURING THE MAKING OF THE FILM, PA YMENTS WERE MADE TO VARIOUS VENDORS, ARTISTES, TECHNICIANS AND STAFF AND SOMETIMES SUNDRY BALANCE S REMAIN IN THE ACCOUNT WHICH NEED TO BE WRITTEN OFF AFTER THE RELEASE OF THE FILM SO AS TO FINALIZE THE ACCOUNTS. THE SAME THING HAS HAPPENED IN THE INSTANT C ASE. THEREFORE, WE SET - ASIDE THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF SUNDRY BALANCES WRITTEN OFF OF RS.9,22,953/ - MADE BY THE AO AND ALLOW THE 1 ST GROUND OF APPEAL. MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 4 8. THE 2 ND GROUND OF APPEAL THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.4,44,571/ - BEING 20% OF TRAVELLING EXPENSES OF RS.22,22,855/ - THE REASONS GIVEN BY HIM IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. 9. THE ASSESSEE HAD DEBITED RS.36,85,071/ - ON ACCOUNT OF TRAVELLING EXPE NSES. THE AO ON EXAMINATION OF IT FOUND THAT OUT OF THE ABOVE EXPENSES, A SUM OF RS.22,22,855/ - HAS BEEN PAID BY THE ASSESSEE TO HANS R AJ CHARTERS. IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THAT THE SAME WAS INCURRED FOR SHOOTING THE FILM SATYAGRAH. HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT IN FILM INDUSTRY, MOST OF THE EXPENDITURES PERTAINING TO AN ARTIST OR TECHNICIAN IS BORNE BY THE FILM PRODUCER AND THERE IS HARDLY ANY EXPENDITURE TO BE INCURRED BY AN ARTIST OR TECHNICIAN EXCEPT FEW ROUTINE EXPENSES. AS PER THE AO THE ASSESSEE HAS NOT OFFERED ANY INCOME FROM SATYAGRAH MOVIE DURING THE YEAR UNDER CONSIDERATION. CONSIDERING THAT IT CANNOT BE SAID THAT THESE EXPENDITURES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND PROFESSION, THE AO MADE A DISALLOWANCE OF 20% OF RS.22,22,855/ - WHICH COMES TO RS.4,44,571/ - . 10. IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND CONFIRMED THE DISALLOWANCE OF RS. 4,44,571/ - . MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 5 11 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE DOCUMENTARY EVIDENCE IN RESPECT OF THE ABOVE EXPENSES WERE FILED BEFORE THE AO AS WELL AS THE LD. CIT(A) AND IT IS OBVIOUS THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSES OF THE BUSINESS. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE EXPENSES OF RS.22,22,855/ - WERE INCURRED BY THE ASSESSE E FOR VISIT FROM JAIPUR TO BHOPAL AND MUMBAI TO BHOPAL FOR SHOOTING OF THE FILM SATYAGRAH. THE ASSESSEE WAS ACCOMPANIED BY THREE STAFF MEMBERS. WE ALSO FIND THAT THE DOCUMENTARY EVIDENCE IN RESPECT OF THE ABOVE EXPENSES WERE FILED BEFORE THE AO AS WELL AS THE LD. CIT(A). THEREFORE, THERE WAS NO NECESSITY ON THE PART OF THE AO FOR RESORTING TO AN AD - HOC DISALLOWANCE OF 20% OF RS.22,22,855/ - WHICH COMES TO RS.4,44,571/ - . AS THE ABOVE AD - HOC DISALLOWANCE IS NOT SUPPORTED BY ANY MATERIAL EVIDENCE, WE DELETE IT AND ALLOW THE 2 ND GROUND OF APPEAL. 13. THE 3 RD GROUND OF APPEAL THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.8,09,514/ - BEING 15%OF CERTAIN EXPENSES. THE REASONS GIVEN BY HIM IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO EXPLAIN EXPENSES OF RS.1,00,08,263/ - WITH SUPPORTING EVIDENCE. IN RESPONSE TO IT, THE ASSESSEE FILED DETAILS AND STATED THAT MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 6 THESE EXPENDITURES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND PROFESSION ONLY. HOWEVER, THE AO OBSERVED THAT THESE EXPENSES WERE NOT FULLY VERIFIABLE AND NOT SUPPORTED BY THIRD - PARTY EVIDENCE. THE AO HELD THAT THE INVOLVEMENT OF PERSONAL ELEMENT IN THESE EXPENDITURES COULD NOT BE TOTALLY RULED OUT. THEREFORE, THE AO MADE AN AD - HOC DISALLOWANCE @ 15% OF RS.1,00,08,263/ - WHICH COMES TO RS.15,01,240/ - . 15. IN APPEAL THE LD. CIT(A) CONSIDERED THE FACT THAT THE ABOVE SUM OF RS.1,00,08,263/ - COMPRISES OF DEPRECIATION ON CAR OF RS.46,11,497/ - WHI CH HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE. HE REFERRED TO THE ORDER OF THE TRIBUNAL IN THE CASE OF PREETI JANGIANI V. ITO AND HELD THAT , CONSIDERING THE NATURE OF EXPENSES, PERSONAL ELEMENT, LACK OF VERIFIABLE BILLS, INCURRENCE OF EXPENDITURE IN CASH, DIRECTED THE AO TO RESTRICT THE DISALLOWANCE OF RS.8,09,514/ - (15% OF RS.1,00,08,263/ - MINUS RS.46,11,497/ - ). 16. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE RELIANCE IN THE CASE OF MS. PREETI JANGIANI (SUPRA) IS NOT JUSTIFIED AS THE SAID DECISION DOES NOT LAY DOWN A RULE OF THUMB THAT A CERTAIN PERCENTAGE OF THE EXPENSES ARE DISALLOWABLE. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 1 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IT IS FOUND THAT THE AO HAS MENTIONED AT PARA 7.1 OF HIS ORDER DATED 29.03.2016 THAT THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS FILED DETAILS. THE AO COULD HAVE EXAM INED THOSE DETAILS MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 7 AND MADE VERIFICATIONS. HE HAS NOT DONE SO. WHILE RESORTING TO AD - HOC DISALLOWANCE @ 15% OF THE SAID EXPENDITURE, THE AO HAS MADE SWEEPING OBSERVATIONS. AS THE DISALLOWANCE OF RS.8,09,514/ - CONFIRMED BY THE LD. CIT(A) IS NOT BASED ON SPE CIFIC FINDINGS, WE DELETE IT AND ALLOW THE 3 RD GROUND OF APPEAL. 1 8 . THE 4 TH GROUND OF APPEAL THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.89,43,764/ - IN RESPECT OF PROFITS EARNED FROM THE FILM 'SON OF SARDAR', THE REASONS G IVEN BY HIM IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. 1 9 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT AS THE SHARE OF PROFIT PAYABLE TO YASH RAJ FILMS (IN SHORT YRF) IS RS.3,14,00,126/ - , THEN THE SAME PROFIT SHOULD BE IN ADF , AS BOTH ARE 50% PARTNERS. IN RESPONSE TO THE QUERY RAISED BY THE AO TO EXPLAIN IT, THE ASSESSEE VIDE LETTER DATED 10.03.201 6 SUBMITTED BEFORE THE AO THAT AS PER THE WORKING OF PROFIT SHARING OF FILM SON OF SARDAR, THE PROFITS OF BOTH THE PARTIES I.E. ADF AND YRV HAS BEEN CALCULATED AT RS.3.14 CRORES AND THERE IS NO DIFFERENCE IN THE PROFIT SHAR ING OF BOTH THE PARTIES AND THERE IS NO QUESTION OF ANY DISALLOWANCE OUT OF THE SAME . IN THIS REGARD, THE ASSESSEE FILED A COMPUTATION SHEET BEFORE THE AO WHICH HAS BEEN EXTRACTED AT PARA 8 OF THE ASSESSMENT ORDER DATED 29.03.2016. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT AS PER BASIC LOGIC, WHEN T HE PROFIT SHARING RATIO OF THE PARTNERS ARE EQUAL AND SHARE OF PROFIT TO YRV IS MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 8 RS.3,14,00,126/ - , THEN SIMILARLY THE PROFIT FOR ADF SHOULD BE RS.3,14,00,126/ - . THUS THE AO BROUGHT TO TAX THE DIFFERENTIAL AMOUNT OF RS.89,43,764/ - . 20 . IN APPEAL, THE LD. CI T(A) CONFIRMED THE ABOVE ADDITION OF RS.89,43,764/ - ON THE REASON THAT THERE WAS NO JUSTIFICATION FOR SHOWING LESS PROFIT FROM THE FILM SON OF SARDAR AS COMPARED TO 50% SHARE TO YRV. 2 1 . BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE DISPUTE RELATES TO (I) EXPENSES OF RS.49,25,752/ - INCURRED BY ADF WITHOUT THE APPROVAL OF YRF AND (II) INTEREST ON FIXED DEPOSITS OF RS.35,85,359/ - . IN RESPECT OF THE FIRST ITEM, IT IS SUBMITTED BY THE LD. COUNSEL THAT THE EXPENSES OF RS.49,25,752/ - ARE SUPPORTE D BY LEDGER ACCOUNTS WHICH WERE FILED BEFORE THE AO AS WELL AS THE LD. CIT(A). IT IS STATED THAT EVEN IF THE SAID EXPENSES ARE NOT TREATED AS PART OF COST OF PRODUCTION OF THE MOVIE, THEY ARE CERTAINLY BUSINESS EXPENDITURE AND THUS ALLOWABLE . THE LD. COUNS EL SUBMITS THAT THE ISSUE BEFORE THE AO WAS WHETHER THE ADDITION OF THE SAID AMOUNT IS JUSTIFIED AND NOT WHETHER THE SAID AMOUNT IS TO FORM PART OF THE COST OF PRODUCTION OR NOT. IN RESPECT OF THE 2 ND ITEM, THE LD. COUNSEL SUBMITS THAT THE ASSESSEE HAS A LREADY DISCLOSED THE FIXED DEPOSIT INTEREST AS INCOME FOR AYS 2012 - 13 AND 2013 - 14. THUS IT IS SUBMITTED BY HIM THAT ONCE THIS AMOUNT HAS ALREADY BEEN DISCLOSED AS INCOME, WHETHER IT IS SHOWN AS A PROFIT FROM THE MOVIE, BECOMES IRRELEVANT. MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 9 2 2 . ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). A SPECIFIC REFERENCE IS MADE BY HIM TO PARA 8 TO 8.7 OF THE APPELLATE ORDER DATED 29.11.2016 PASSED BY THE LD. CIT(A). 2 3 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEV ANT MATERIALS ON RECORD. AS MENTIONED EARLIER, THE DISPUTE ARISES ON ACCOUNT OF (I) EXPENSES OF RS.49,25,752/ - INCURRED BY ADF WITHOUT THE APPROVAL OF YRF AND (II) INTEREST OF RS.35,85,359/ - ON FIXED DEPOSITS. HAVING EXAMINED THE DOCUMENTS, IN RESPECT OF THE 1 ST ITEM, WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL THAT EVEN IF THE SAID EXPENSES ARE NOT TREATED AS PART OF THE COST OF PRODUCTION OF THE MOVIE, THEY ARE CERTAINLY BUSINESS EXPENDITURE AND THUS ALLOWABLE. ALSO THERE IS MERIT IN THE CONTENTI ON OF THE LD. COUNSEL THAT THE ISSUE IN THE INSTANT CASE IS WHETHER THE ADDITI ON OF THE SAID AMOUNT IS JUSTIFIED AND IT IS NOT A CASE TO FIND OUT WHETHER THE SAID AMOUNT IS TO FORM PART OF THE COST OF PRODUCTION OR NOT. IN RESPECT OF THE 2 ND ITEM, IT IS FOUND THAT THE ASSESSEE HAS ALREADY DISCLOSED THE FIXED DEPOSIT INTEREST AS INCOME FOR AYS 2012 - 13 AND 2013 - 14. THERE IS MERIT IN THE CONTENTIONS OF THE LD. COUNSEL THAT ONCE THIS AMOUNT IS ALREADY DISCLOSED AS INCOME, WHETHER IT IS SHOWN AS A PROFIT FROM THE MOVIE, BECOMES IRRELEVANT. IN VIEW OF THE ABOVE FACTUAL MATRIX, WE DELETE THE ADDITION OF RS.89,43,764/ - MADE BY THE AO ON ACCOUNT OF PROFITS FROM THE FILM SON OF SARDAR AND ALLOW THE 4 TH GROUND OF APPEAL. MR. VISHAL VIRENDRA DEVGAN ITA NO. 705/MUM/2017 10 2 4 . DURING THE COURSE OF HEARING, THE LD. COUNSEL SUBMITS THAT THE ASSESSEE WOULD NOT PRESS THE 5 TH GROUND OF APPEAL. ACCORDINGLY, THE ABOVE GROUND OF APPEAL IS DISMISSED AS NOT PRESSED. 25 . IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/01/2019. SD/ - SD/ - (C.N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 21/01/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI