DCIT- CC- 3(1), MUMBAI vs. CINEYUG ENTERTAINMENT PVT. LTD., MUMBAI

This appeal by the Revenue is directed against order dated 18.07.2018 passed by the Ld. Commissioner of Income-tax (Appeals)-51, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: a. "Whether on the facts and circumstances of the case the CIT(A) was correct in law in deleting the disallowances made by the Assessing Officer under the heads Travelling expenses, Sales promotion and Visa & Passport Expenses and vehicle hire on the ground that the expenditure has not increased in percentage terms in comparison to preceding assessment year when the facts of each assessment year are different

M/s Cineyug Entertainment P. Ltd. 2 M/s Cineyug Entertainment P. Ltd. and claim of expenses is required to be proved before its allowance for and claim of expenses is required to be proved before its allowance for and claim of expenses is required to be proved before its allowance for each assessment year ? each assessment year ? b. Whether on the facts and circumstances of the case the CIT(A) was b. Whether on the facts and circumstances of the case the CIT(A) was b. Whether on the facts and circumstances of the case the CIT(A) was correct in law in deleting the disallowance of the expenditure on account correct in law in deleting the disallowance of the expenditure on account correct in law in deleting the disallowance of the expenditure on account of Rehearsal hall hire charges by accepting the claim of the assessee that f Rehearsal hall hire charges by accepting the claim of the assessee that f Rehearsal hall hire charges by accepting the claim of the assessee that the expenses have been incurred through cheques as payments through the expenses have been incurred through cheques as payments through the expenses have been incurred through cheques as payments through cheques are not always sacrosanct? cheques are not always sacrosanct? c. Whether on the facts and circumstances of the case the CIT(A) was c. Whether on the facts and circumstances of the case the CIT(A) was c. Whether on the facts and circumstances of the case the CIT(A) was correct in law in restricting the disallowance under the heads production law in restricting the disallowance under the heads production law in restricting the disallowance under the heads production expenses, wages, food expenses and car expenses, on the ground that expenses, wages, food expenses and car expenses, on the ground that expenses, wages, food expenses and car expenses, on the ground that lower expenses were disallowed in AY 2014 lower expenses were disallowed in AY 2014-15 as the facts of the each 15 as the facts of the each assessment year are different and the same percentage assessment year are different and the same percentage of disallowance of disallowance cannot be adopted for disallowance for every assessment year? cannot be adopted for disallowance for every assessment year? cannot be adopted for disallowance for every assessment year? d. Whether on the facts and circumstances of the case the CIT(A) was d. Whether on the facts and circumstances of the case the CIT(A) was d. Whether on the facts and circumstances of the case the CIT(A) was correct in law in restricting the disallowance under the head Lodging and correct in law in restricting the disallowance under the head Lodging and correct in law in restricting the disallowance under the head Lodging and Boarding Expenses, to Rs. 7 lacs as Boarding Expenses, to Rs. 7 lacs as gainst Rs. 35.92 lacs on the ground gainst Rs. 35.92 lacs on the ground that the disallowance is on higher side ignoring the fact that the AO has that the disallowance is on higher side ignoring the fact that the AO has that the disallowance is on higher side ignoring the fact that the AO has disallowed the part of expenses on the ground of non production of disallowed the part of expenses on the ground of non production of disallowed the part of expenses on the ground of non production of supporting of expenses also ? supporting of expenses also ? 2. Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed return of income on 28.09.2015 declaring total income at Rs. Nil. return of income on 28.09.2015 declaring total income at Rs. Nil. return of income on 28.09.2015 declaring total income at Rs. Nil. The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 assessment and statutory notices under the Income assessment and statutory notices under the Income (in short ‘the Act’) were issued and complied with. The assessee (in short ‘the Act’) were issued and complied with. The assessee (in short ‘the Act’) were issued and complied with. The assessee company was engaged in the business of management of various company was engaged in the business of management of various company was engaged in the business of management of various shows and award money etc. shows and award money etc.

2.1 During the assessment proceedings, the Assessing Officer During the assessment proceedings, the Assessing Officer During the assessment proceedings, the Assessing Officer observed that complete bills and vou observed that complete bills and vouchers in respect of various chers in respect of various expenses were not supported by the assessee and therefore, the Ld. expenses were not supported by the assessee and therefore, the Ld. expenses were not supported by the assessee and therefore, the Ld. Assessing Officer dis disallowed various expenses in percentage term allowed various expenses in percentage term verifying from 15 to 25% and made addition of Rs.2,80,73,722/-. verifying from 15 to 25% and made addition of Rs.2,80,73,722/ verifying from 15 to 25% and made addition of Rs.2,80,73,722/

M/s Cineyug Entertainment P. Ltd. 3 M/s Cineyug Entertainment P. Ltd.

On further appeal, the Ld. CIT(A On further appeal, the Ld. CIT(A) deleted the various additions ) deleted the various additions observing as under:

“5.2 I have considered the facts of the case, submissions and I have considered the facts of the case, submissions and I have considered the facts of the case, submissions and contentions of the appellant. as also the order of the AO. The contentions of the appellant. as also the order of the AO. The contentions of the appellant. as also the order of the AO. The assessee submits that its accounts have been audited and the assessee submits that its accounts have been audited and the assessee submits that its accounts have been audited and the been duly verified in course of audit. said expenses have said expenses have been duly verified in course of audit. Moreover, the assessee submits that the said expenses are duly Moreover, the assessee submits that the said expenses are duly Moreover, the assessee submits that the said expenses are duly supported with bills / vouchers and major portion of the said supported with bills / vouchers and major portion of the said supported with bills / vouchers and major portion of the said expenditure has been incurred by way of cheque. Therefore, the expenditure has been incurred by way of cheque. Therefore, expenditure has been incurred by way of cheque. Therefore, assessee contends that the q assessee contends that the question of making any disallowance disallowance on the ground that they have not been incurred wholly and on the ground that they have not been incurred wholly and on the ground that they have not been incurred wholly and exclusively for the purpose of its business, does not arise. exclusively for the purpose of its business, does not arise. exclusively for the purpose of its business, does not arise. 5.3 In course of the appellate proceedings, the assessee has 5.3 In course of the appellate proceedings, the assessee has 5.3 In course of the appellate proceedings, the assessee has contended that the action of the AO of ma contended that the action of the AO of making disallowance out king disallowance out of the expenses claimed under the heads, of the expenses claimed under the heads, "travelling expenses", "travelling expenses", "sales promotion", "sales promotion", "visa and passport" and "vehicle hire" on the hire" on the ground that they have gone up disproportionately in the relevant ground that they have gone up disproportionately in the relevant ground that they have gone up disproportionately in the relevant year as compared to the preceding year year as compared to the preceding year vis-ä-vis the turnover, is vis the turnover, is on wrong assumption of facts since actually the expenses under on wrong assumption of facts since actually the expenses under on wrong assumption of facts since actually the expenses under these heads have actually decreased in terms of the percentage these heads have actually decreased in terms of the percentage these heads have actually decreased in terms of the percentage of the turnover. It was further submitted that the expenses of the turnover. It was further submitted that the expenses of the turnover. It was further submitted that the expenses claimed under the head "rehearsal hall hire claimed under the head "rehearsal hall hire" have been incurred " have been incurred by way of cheque and not by cash and therefore are fully by way of cheque and not by cash and therefore are fully by way of cheque and not by cash and therefore are fully verifiable. It was also submitted that in the preceding year i.e, verifiable. It was also submitted that in the preceding year i.e, verifiable. It was also submitted that in the preceding year i.e, AY 2014-15, the disallowance made by the then AO was in the 15, the disallowance made by the then AO was in the 15, the disallowance made by the then AO was in the range of 5% to 10% as against the range of 15% to 50 range of 5% to 10% as against the range of 15% to 50% made for % made for the relevant year though the facts are more or less the same. the relevant year though the facts are more or less the same. the relevant year though the facts are more or less the same. Moreover, it was submitted that in the preceding year, no Moreover, it was submitted that in the preceding year, no Moreover, it was submitted that in the preceding year, no amount was disallowed by the AO out of the expenditure amount was disallowed by the AO out of the expenditure amount was disallowed by the AO out of the expenditure claimed under the head, "conveyance" and therefore the action of claimed under the head, "conveyance" and therefore the action of claimed under the head, "conveyance" and therefore the action of the AO of making disallowance out of the expenditure claimed O of making disallowance out of the expenditure claimed O of making disallowance out of the expenditure claimed under this head during the relevant year, is not correct as per under this head during the relevant year, is not correct as per under this head during the relevant year, is not correct as per the rule of consistency. the rule of consistency. 5.4 The contentions of the assessee have been duly considered. The contentions of the assessee have been duly considered. The contentions of the assessee have been duly considered. The claim of the assessee that the expenses cla The claim of the assessee that the expenses claimed under the imed under the heads "travelling expenses", promotion", "visa and passport" heads "travelling expenses", promotion", "visa and passport" heads "travelling expenses", promotion", "visa and passport" "sales and "vehicle hire" for the relevant year have come and "vehicle hire" for the relevant year have come and "vehicle hire" for the relevant year have come down as a percentage to the turnover as compared to the preceding as a percentage to the turnover as compared to the preceding as a percentage to the turnover as compared to the preceding year, is found to be correct. Therefore, the disallowanc year, is found to be correct. Therefore, the disallowance made by e made by the AO out of the expenses claimed under these heads is deleted the AO out of the expenses claimed under these heads is deleted the AO out of the expenses claimed under these heads is deleted since the said disallowances have been made on wrong since the said disallowances have been made on wrong since the said disallowances have been made on wrong assumption of facts. Further, the disallowance made by the AO assumption of facts. Further, the disallowance made by the AO assumption of facts. Further, the disallowance made by the AO out of "rehearsal hall hire charges" is also not correct, if the cl "rehearsal hall hire charges" is also not correct, if the claim "rehearsal hall hire charges" is also not correct, if the cl of the assessee that the expenditure claimed under this head of the assessee that the expenditure claimed under this head of the assessee that the expenditure claimed under this head has been fully incurred by way of cheques is correct. The AO is has been fully incurred by way of cheques is correct. The AO is has been fully incurred by way of cheques is correct. The AO is therefore directed to verify this claim of the assessee of cheque therefore directed to verify this claim of the assessee of cheque therefore directed to verify this claim of the assessee of cheque

M/s Cineyug Entertainment P. Ltd. 4 M/s Cineyug Entertainment P. Ltd. expenditure and if found correct, not to make any disallowance expenditure and if found correct, not to make any disallowanc expenditure and if found correct, not to make any disallowanc out of "rehearsal hall hire charges" out of "rehearsal hall hire charges" 5.5 It is further noted that for the year relevant to AY 2014 It is further noted that for the year relevant to AY 2014 It is further noted that for the year relevant to AY 2014-15, the AO had made disallowance out of the e the AO had made disallowance out of the expenses claimed by xpenses claimed by the assessee the assessee under the head, "production expenses" by adopting "production expenses" by adopting rate of 5%. However, for the rate of 5%. However, for the relevant year, the AO has made relevant year, the AO has made disallowance out of the expenses claimed under this head by disallowance out of the expenses claimed under this head by disallowance out of the expenses claimed under this head by adopting rate of 15%. The appeal of the assessee for AY 2014-15 adopting rate of 15%. The appeal of the assessee for AY 2014 adopting rate of 15%. The appeal of the assessee for AY 2014 was decided after suitably restricting the disallowance made by was decided after suitably restricting the disallowance made by was decided after suitably restricting the disallowance made by the AO under this head. Since, the f the AO under this head. Since, the facts for the relevant year are acts for the relevant year are more or less similar, the disallowance out of "production more or less similar, the disallowance out of "production more or less similar, the disallowance out of "production expenses" Is restricted to an amount of Rs 10,00,000/ expenses" Is restricted to an amount of Rs 10,00,000/-. 5.6 As regards the disallowance of expenses claimed by the 5.6 As regards the disallowance of expenses claimed by the 5.6 As regards the disallowance of expenses claimed by the assessee under the heads, "wages", assessee under the heads, "wages", ' "food expenses" and "car and "car expenses", it is observed that the AO has expenses", it is observed that the AO has adopted a rate of 25% adopted a rate of 25% as against only 10% adopted in the preceding year. The AO has as against only 10% adopted in the preceding year. The AO has as against only 10% adopted in the preceding year. The AO has not given any justification as to why a different rate has been not given any justification as to why a different rate has been not given any justification as to why a different rate has been adopted for making the disallowance under the said heads. adopted for making the disallowance under the said heads adopted for making the disallowance under the said heads Therefore, the AO is directed to restrict the disallowance in Therefore, the AO is directed to restrict the disallowance in Therefore, the AO is directed to restrict the disallowance in respect of the expenses claimed under the said heads by respect of the expenses claimed under the said heads by respect of the expenses claimed under the said heads by adopting a rate of 10% as done in the preceding year. adopting a rate of 10% as done in the preceding year. 5.7 As regards the disallowance out of expenses claimed under As regards the disallowance out of expenses claimed under As regards the disallowance out of expenses claimed under the head, "lodging a "lodging and boarding", the assessee submits that the nd boarding", the assessee submits that the said expenditure has been incurred in respect of a musical show said expenditure has been incurred in respect of a musical show said expenditure has been incurred in respect of a musical show titled " Bollywood" through a joint venture with Viacom 18 Media titled " Bollywood" through a joint venture with Viacom 18 Media titled " Bollywood" through a joint venture with Viacom 18 Media P Ltd., which was proposed to be undertaken in 12 cities. It was P Ltd., which was proposed to be undertaken in 12 cities. It was P Ltd., which was proposed to be undertaken in 12 cities. It was further submitted further submitted that unfortunately this show did not do well that unfortunately this show did not do well and the assessee incurred a loss. The assessee submitted that and the assessee incurred a loss. The assessee submitted that and the assessee incurred a loss. The assessee submitted that the entire claim of expenditure under this head is genuine and the entire claim of expenditure under this head is genuine and the entire claim of expenditure under this head is genuine and therefore the action of the AO of disallowing 50% of the same is therefore the action of the AO of disallowing 50% of the same is therefore the action of the AO of disallowing 50% of the same is not correct. The cont not correct. The contentions of the assessee on this disallowance entions of the assessee on this disallowance have been duly considered. It is a fact that the AO has not have been duly considered. It is a fact that the AO has not have been duly considered. It is a fact that the AO has not disputed the genuineness of the expenditure incurred under this disputed the genuineness of the expenditure incurred under this disputed the genuineness of the expenditure incurred under this head but has only held that the assessee has not demonstrated head but has only held that the assessee has not demonstrated head but has only held that the assessee has not demonstrated that this expenditure has that this expenditure has been incurred wholly and exclusively been incurred wholly and exclusively for the purpose of its business. The fact that the AO himself has for the purpose of its business. The fact that the AO himself has for the purpose of its business. The fact that the AO himself has allowed 50% of the expenditure under this head suggests that allowed 50% of the expenditure under this head suggests that allowed 50% of the expenditure under this head suggests that the AO also agrees that such expenses are required to be the AO also agrees that such expenses are required to be the AO also agrees that such expenses are required to be incurred by an assessee in course incurred by an assessee in course of its business. It is observed of its business. It is observed that the AO has not specifically pointed out even on sample that the AO has not specifically pointed out even on sample that the AO has not specifically pointed out even on sample basis as to which expenses under this head have not been basis as to which expenses under this head have not been basis as to which expenses under this head have not been incurred wholly and exclusively for the purposes of the business incurred wholly and exclusively for the purposes of the business incurred wholly and exclusively for the purposes of the business of the assessee. The Hon'ble Supreme Court of the assessee. The Hon'ble Supreme Court in the case of in the case of Dhakeshwari Cotton Mills Ltd (267 ITR 775) has held that it is Dhakeshwari Cotton Mills Ltd (267 ITR 775) has held that it is Dhakeshwari Cotton Mills Ltd (267 ITR 775) has held that it is the duty of the AO to correctly determine the income and the best the duty of the AO to correctly determine the income and the best the duty of the AO to correctly determine the income and the best judgement can be made only on the basis of cogent material. It judgement can be made only on the basis of cogent material. It judgement can be made only on the basis of cogent material. It has further been held by the Hon'ble Supreme Cou has further been held by the Hon'ble Supreme Court that an rt that an adhoc disallowance without bringing on record any evidences adhoc disallowance without bringing on record any evidences adhoc disallowance without bringing on record any evidences cannot be made by the AO. Considering the overall factual cannot be made by the AO. Considering the overall factual cannot be made by the AO. Considering the overall factual

M/s Cineyug Entertainment P. Ltd. 5 M/s Cineyug Entertainment P. Ltd. position, the action of the AO of making disallowance out of position, the action of the AO of making disallowance out of position, the action of the AO of making disallowance out of "lodging & boarding" expenses by adopting a rate of 50% "lodging & boarding" expenses by adopting a rate of 50% "lodging & boarding" expenses by adopting a rate of 50% appears to be very high. However, it is also a fact that the be very high. However, it is also a fact that the assessee does not dispute that a portion of this expenditure has assessee does not dispute that a portion of this expenditure has assessee does not dispute that a portion of this expenditure has been incurred in cash and is therefore, not fully verifiable. been incurred in cash and is therefore, not fully verifiable. been incurred in cash and is therefore, not fully verifiable. Therefore, to meet the ends of justice, it will be appropriate if the Therefore, to meet the ends of justice, it will be appropriate if the Therefore, to meet the ends of justice, it will be appropriate if the disallowance under this head of "lodging & boarding" is ance under this head of "lodging & boarding" is ance under this head of "lodging & boarding" is restricted to Rs 7,00,000/ restricted to Rs 7,00,000/-. 5.8 In view of the above discussion, the AO is accordingly 5.8 In view of the above discussion, the AO is accordingly 5.8 In view of the above discussion, the AO is accordingly directed to recompute the disallowance under the various heads directed to recompute the disallowance under the various heads directed to recompute the disallowance under the various heads viz. viz. "production "production expenses" expenses" "travelling expenses", expenses", "sales "sales promotion expenses" promotion expenses" "wages" , "food expenses", "visa & passport "visa & passport expenses", "vehicle hire charges", expenses", "vehicle hire charges", , "rehearsal hall hire charges", , "rehearsal hall hire charges", "car expenses" "car expenses" "donation", "conveyance" "conveyance" and "lodging & and "lodging & boarding" expenses. Accordingly, all the boarding" expenses. Accordingly, all the grounds of appeal grounds of appeal except ground no 12 are partly allowed. und no 12 are partly allowed.”

3. We have considered the rival submission of the parties on the We have considered the rival submission of the parties on the We have considered the rival submission of the parties on the issue in dispute and perused the relevant material on record. We issue in dispute and perused the relevant material on record. We issue in dispute and perused the relevant material on record. We find that the Assessing Officer made various additions on the find that the Assessing Officer made various additions on the find that the Assessing Officer made various additions on the ground that expenses were not ground that expenses were not partly supported by the bills and tly supported by the bills and vouchers, but he did not point out did not point out any specific deficiency of the bills any specific deficiency of the bills and vouchers in respect of expenses. Further, the Ld. CIT(A) has and vouchers in respect of expenses. Further, the Ld. CIT(A) has and vouchers in respect of expenses. Further, the Ld. CIT(A) has made analysis of the expenses and increase in expenses as made analysis of the expenses and increase in expenses as made analysis of the expenses and increase in expenses as compared to disallowance to disallowance. The Ld CIT(A) noted that t Ld CIT(A) noted that there was no substantial increase substantial increase in expenses as compared to the preceding expenses as compared to the preceding assessment year. The Ld. CIT(A) has also observed that expenses in assessment year. The Ld. CIT(A) has also observed that expenses in assessment year. The Ld. CIT(A) has also observed that expenses in respect of ‘rehearsal hall hire charges rehearsal hall hire charges’ have been incurred though have been incurred though cheque and therefore, cont cheque and therefore, contention of non-verification of the bills and verification of the bills and vouchers is not justified. In view of the detailed reasoning given by vouchers is not justified. In view of the detailed reasoning given by vouchers is not justified. In view of the detailed reasoning given by the Ld. CIT(A) for deleting the addition, we do not find any infirmity the Ld. CIT(A) for deleting the addition, we do not find any infirmity the Ld. CIT(A) for deleting the addition, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and we in the order of the Ld. CIT(A) on the issue in dispute and we in the order of the Ld. CIT(A) on the issue in dispute and we

M/s Cineyug Entertainment P. Ltd. 6 M/s Cineyug Entertainment P. Ltd. accordingly uphold the same. Accordingly all the grounds from (a) ly uphold the same. Accordingly all the grounds from (a) ly uphold the same. Accordingly all the grounds from (a) to (d) of the appeal of the Revenue are accordingly dismissed. to (d) of the appeal of the Revenue are accordingly dismissed. to (d) of the appeal of the Revenue are accordingly dismissed.