USHAKIRON MOVIES PRIVATE LIMITED,RAMOJI FILM CITY V. ACIT., CIRCLE-5(1), HYDERABAD

ITA 541/HYD/2024

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Ushakiran Movies P Ltd appealed against the order of the CIT (A)-NFAC Delhi, which confirmed the addition made by the Assessing Officer regarding the disallowance of a deduction for bad debts amounting to Rs.1,60,26,000. The assessee argued that these were business-related advances to film producers, which were written off as bad debts. The Tribunal noted that the Assessing Officer and CIT (A) had disallowed the claim based on the grounds that the conditions under section 36(2) of the I.T. Act, 1961 were not satisfied, as the advances were not taken into account as income in the previous year. The Tribunal found that the matter required further examination of whether the advances were given in the normal course of business and whether the interest on these advances was treated as business income in previous years.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314300 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2017-2018
• Other Referred Cases: Ashok Leyland Ltd vs. ACIT, Dy. CIT vs. Shreyas S. Morakhia, CIT vs. Shreyas S. Morakhia, Pranava Electronics (P) Ltd vs. Dy. CIT
• Laws Referred To: I.T. Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V. SIVA KUMAR
• Keywords: Business income; Revised return; Bad and doubtful debts; Commercial expediency
• Section: 143(3)

Judgement Text

" ITA No 541 of 2024 Ushakiran Movies P Ltd Page 1 of 13 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ DB-B ‘ Bench, Hyderabad Before Shri Vijay Pal Rao, Vice-President A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.541/Hyd/2024 (िनधाŊरण वषŊ/Assessment Year: 2017-18) M/s. Ushakiron Movies (P) Ltd Ramoji Film City, Hyderabad PAN:AAACU2689L Vs. ACIT Circle 5 (1) Hyderabad (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: Advocate V. Siva Kumar राज̾ व Ȫारा/Revenue by:: Dr. Sachin Kumar, DR सुनवाई की तारीख/Date of hearing: 13/02/2025 घोषणा की तारीख/Pronouncement: 07/05/2025 आदेश/ORDER Per Vijay Pal Rao, Vice President This appeal filed by the assessee is directed against the order dated 27/03/2024 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2017-18. 2. The assessee has raised the following grounds of appeal: ITA No 541 of 2024 Ushakiran Movies P Ltd Page 2 of 13 3. The assessee has also filed a modified ground No.3 as well as an additional ground of appeal as alternate plea as under: ITA No 541 of 2024 Ushakiran Movies P Ltd Page 3 of 13 4. The assessee company is engaged in the business of establishing an integrated film city with all necessary infrastructure for film production. The assessee filed its return of income for the year under consideration on 30/10/2017 declaring total income of Rs.27,87,35,960/- and agricultural income of Rs.8,21,346/-. The case was selected for scrutiny under CASS. The Assessing Officer inter alia made an addition/disallowance of claim of deduction of the amount of loan written off to the tune of Rs.1,60,26,000/-. The assessee challenged the action before the learned CIT (A) and reiterated its claim that the amount written off is an allowable claim as the same was advances to the producers of the film which is inextricably related to the business of the assessee. However, the learned CIT (A) has confirmed the addition made by the Assessing Officer on the ground that the assessee has not satisfied the conditions provided u/s 36(1)(vii) r.w.s. 36(2) of the I.T. Act, 1961. 5. Before the Tribunal, the learned AR of the assessee has submitted that the assessee has explained the reasons for writing off the bad debts amounting to Rs.1,60,26,000/- and ITA No 541 of 2024 Ushakiran Movies P Ltd Page 4 of 13 furnished the list of clients whose amounts have been written off and charged to the P&L Account for the financial year 2016-17. The learned AR has further submitted that the assessee is in the business of providing film production facilities and loans/ advances were given to the producers of the film who are also availing the services of the assessee and therefore, the advances/ loans were given by the assessee for the purpose of business of the assessee. He has referred to the memorandum of association of the assessee company and submitted that one of the main business of the assessee company is to arrange the finance for production, exhibition, distribution of movies, purchase of machinery, equipment etc. The advances were given to the film producers in the course of normal business activities of the assessee and therefore, the outstanding amounts were written off during the year is an allowable deduction u/s 28/37 of the I.T. Act, 1961 as business loss. The learned AR has pointed out that for the A.Y 2016-17, the Assessing Officer allowed the claim of written off of the advances and interest there upon amounting to Rs.94,87,067/- while passing the assessment order u/s 143(3) of the Act placed at page No.53 of the paper book. He has relied upon the following decisions: i) Hon'ble Madras High Court in the case of Ashok Leyland Ltd vs. ACIT (2022) 141 taxmann.com 171 (Mad.) ii) ITAT Mumbai Special Bench in the case of Dy. CIT vs. Shreyas S. Morakhia (2010) 40 SOT 4232 (Mum SB) iii) Hon'ble High Court of Bombay in the case of CIT vs. Shreyas S. Morakhia (2012) 19 taxmann.com 64 (Bom.) ITA No 541 of 2024 Ushakiran Movies P Ltd Page 5 of 13 iv) Bangalore Bench of the Tribunal in the case of Pranava Electronics (P) Ltd vs. Dy. CIT (2022) 40 Taxmann.com 9 (Bang.Trib.) 6. On the other hand, the learned DR has submitted that the Assessing Officer has rightly disallowed the claim of the assessee when the conditions provided u/s 36(2)(i) are not satisfied. No deduction on account of bad debts written off shall be allowed unless such debts have been taken into account while computing the total income of any previous year. In the present case, the assessee is not in the business of finance and therefore, such advances cannot be allowed as deduction when becomes bad. He has relied upon the orders of the authorities below. 7. We have considered the rival contentions as well as the relevant material available on record. The assessee has given the loan of Rs.1.00 crore to M/s. Raja Rajeswari Pictures for production of the film vide loan agreement dated 1/4/2013. The assessee also offered credit up to Rs.30 lakhs for various services provided by the assessee to the borrowers. Though the assessee is in the business of providing infrastructure facilities for film production, however, there is no direct relation between the assessee’s business activities and loan given by the assessee for production of feature films. The Assessing Officer has denied the claim of the assessee by giving findings in para 7 and 7.1 as under: ITA No 541 of 2024 Ushakiran Movies P Ltd Page 6 of 13 ITA No 541 of 2024 Ushakiran Movies P Ltd Page 7 of 13 8. Thus, the Assessing Officer has given the reasons for disallowing the claim of the assessee as the conditions provided u/s 36(2) are not satisfied being the advances were not taken into account as income of the assessee in the previous year. 9. In appeal, the learned CIT (A) has confirmed the disallowances made by the Assessing Officer while giving a similar reasoning in para No.6.4 to 6.10 as under: ITA No 541 of 2024 Ushakiran Movies P Ltd Page 8 of 13 ITA No 541 of 2024 Ushakiran Movies P Ltd Page 9 of 13 ITA No 541 of 2024 Ushakiran Movies P Ltd Page 10 of 13 10. Thus, the learned CIT (A) has given the reasons for upholding the disallowances that the assessee has taken contradictory stand for claiming the deduction on account of bad debts written off and further the conditions provided u/s 36(1)((vii) r.w.s. 36(2) of the I.T. Act, 1961 are not satisfied for claiming the deduction on account of bad debts written off. The learned AR referred to the assessment order for the A.Y 2016-17 and submitted that the Assessing Officer while passing the scrutiny assessment order dated 17/12/2018 has accepted the claim of the assessee on account of bad debts written off. We find that the Assessing Officer for the A.Y 2016-17 has passed the assessment order as under: ITA No 541 of 2024 Ushakiran Movies P Ltd Page 11 of 13 ITA No 541 of 2024 Ushakiran Movies P Ltd Page 12 of 13 11. Thus, it is manifest that the Assessing Officer has not discussed any issue but the order is passed summarily accepting the returned income as declared in the revised return of income filed by the assessee. Therefore, this order would not help the case of the assessee on the issue of disallowance of claim of bad debts written off. The assessee has relied upon various judgments in support of the claim and there is no quarrel that if the advances are given by the assessee in the normal course of business of the assessee and then the non-recovery of those advances leading to written off on the part of the assessee would be an allowable claim because the said loss is directly related to the business of the assessee and the interest, if any, on the amounts advances are offered to tax as business income of the assessee in the preceding years. Therefore, to apply the analogy that the advances are given under the normal course of business of the assessee or as a commercial expediency, then the writing off of such advances on becoming bad is an allowable claim. The assessee has not filed any record to show that the interest income has been offered to tax by the assessee as business income in the preceding years so as to consider the transaction of the loan and advances as directly connected with the business activities of the assessee. Accordingly, in the facts and circumstances of the case, we are of the considered opinion that the matter requires a proper verification and examination of the relevant facts regarding the nature of the loan given by the assessee as well as the interest, if any, offered by the assessee to tax as business income of the assessee. Hence, the matter is remanded to the record of the ITA No 541 of 2024 Ushakiran Movies P Ltd Page 13 of 13 Assessing Officer for fresh adjudication after examination of the relevant record to be produced by the assessee in support of the claim that the loan and advances given by the assessee are in the normal course of the business of the assessee, the Assessing Officer shall decide the issue as per law. 12. In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 07th May, 2025. Sd/- Sd/- (MADHUSUDAN SAWDIA) ACCOUNTANT MEMBER (VIJAY PAL RAO) VICE-PRESIDENT Hyderabad, dated 07th May, 2025 Vinodan/sps Copy to: S.No Addresses 1 Ushakiron Movies (P) Ltd, SP2 Building, Ramoji Film City, Abdullapurmet, Hyderabad, Telangana 505512 2 ACIT, Circle 5(1) 2nd Floor, B Block, I.T. Towers, AC Guards, Masab Tank, Hyderabad 500004 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order "