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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI. PRASHANT MAHARISHI, PRASHANT MAHARISHI & SHRI KAVITHA RAJAGOPAL KAVITHA RAJAGOPAL
This appeal is filed by assessee against the appellate order This appeal is filed by assessee against the appellate order This appeal is filed by assessee against the appellate order passed by the National Faceless Appeal Centre, Delhi (the passed by the National Faceless Appeal Centre, Delhi (the passed by the National Faceless Appeal Centre, Delhi (the learned CIT learned CIT – A) for assessment year 2014 – 15, dated 30/7/2021, wherein the appeal filed by the assessee 30/7/2021, wherein the appeal filed by the assessee 30/7/2021, wherein the appeal filed by the assessee against the assessment order passed by the Income Tax against the assessment order passed by the Income Tax against the assessment order passed by the Income Tax Officer – 16 (1) (1), Mumbai (the learned Assessing Officer) 16 (1) (1), Mumbai (the learned Assessing Officer) 16 (1) (1), Mumbai (the learned Assessing Officer) under section 143 (3) of the Income Tax Act, 1961 (the Act), under section 143 (3) of the Income Tax Act, 1961 (the A under section 143 (3) of the Income Tax Act, 1961 (the A dated 23/12/2016 dated 23/12/2016, was partly allowed. 02. Assessee is aggrieved with that order and is in appeal Assessee is aggrieved with that order and is in appeal Assessee is aggrieved with that order and is in appeal before us raising following three grounds of appeal:- before us raising following three grounds of appeal before us raising following three grounds of appeal
1. On the facts and circumstances of the case and in law the Learned CIT(A) erred in confirming the action of Assessing Officer in disallowing sum to the extent of Rs.3,82,245/- incurred on account of cost of production & other expenses as per the ground/s contained in the assessment order or otherwise.
2. On the facts and circumstances of the case and in law the Learned CIT(A) erred in confirming the action of Assessing Officer in disallowing sum to the extent of Rs.6,15.600/-being the finance cost as per the ground/s contained in the assessment order or otherwise. 3. On the facts and circumstances of the case and in law the Learned CIT(A) erred in confirming the action of Assessing Officer in making an addition of Rs.10,70,392/- on account of alleged unexplained addition of assets as per the ground/s contained in the assessment order or otherwise. 03. The brief facts of the case shows that assessee, a company engaged in the business of production house of telecast , filed its return of income on 31/3/2016, declaring total income of Rs.14,77,630/–. The return of income was picked up for the scrutiny. The assessee company did not furnish the required details, asked for by the learned Assessing Officer, supporting its return of income. Therefore, the learned Assessing Officer proceeded to make the assessment. Despite opportunities given by the learned Assessing Officer, no information was forthcoming and therefore, the learned Assessing Officer proceeded to make the assessment under section 144 (1) of the Act. 04. The learned Assessing Officer noted that the i. assessee has borrowed short-term borrowing of Rs.2,01,15,600/- shown under the current liability as on 31/3/2014 and which was as on 31/3/2013 at Rs.3,10,000/- only. Accordingly, he found that the assessee has obtained loan from four different entities, which were mentioned in the tax audit report. As no information is coming from the assessee, the learned Assessing Officer called for the information under section 133 (6) of the Act from the above parties. The communications of the ld AO were returned back by postal authorities with the remark ‘left’. Therefore, the learned Assessing Officer was of the view that as assessee has not discharged its onus, the total unsecured loan of Rs.1,31,15,600/- appearing in the books of account of the assessee is required to be added under section 68 of the Act. Accordingly, it was added. ii. On perusal of the profit and loss account, found that assessee has debited the cost of production of television serial of Rs.3,15,99,132/- and other expenditure of Rs.16,83,583/-. As no information is received, he disallowed 10% of the above two expenditures. Thus, the disallowance of Rs.33,28,272/– was made. iii. The Assessing Officer further found that the assessee has claimed finance cost of Rs.17,15,161/-. In absence of any details, the learned Assessing Officer disallowed the same. The Assessing Officer further found that plant and machinery of Rs.4,80,000/- and furniture and fixture of Rs.5,90,392/- was added during the year. However, no details were furnished and therefore, he made an addition of Rs.10,70,392/- to the total income of the assessee.
Consequently, the assessment order under section 143 (3) of the Act was passed on 23/12/2016 at a total income of Rs.2,09,35,292/- against the returned income of Rs.14,77,630/-.
Assessee, aggrieved with the above order of assessment, preferred an appeal before the learned CIT – A. The assessee made an application for admission of additional evidences. Such additional evidences were forwarded to the learned Assessing Officer for submitting the remand report. The remand report was received on 30/9/2019. The learned Assessing Officer also commented on the additional evidences submitted by assessee over and above the objection of the learned Assessing Officer against the admission of the additional evidences itself. The rejoinder of the assessee was obtained by him.
Thereafter, the learned CIT – A decided the respective issues as under :- i. With respect to the disallowance of the cost of production of television serial and other expenditure, where the learned Assessing Officer, in absence of any documentary evidence, has disallowed 10% of the expenditure, amounting to Rs.33,28,272/–, the learned CIT - A, after considering the submission of the assessee and the remand report, disallowed 2% of the expenditure, for which no evidence has been produced. Therefore, the learned CIT – A disallowed 2% of the expenditure, for which no evidence has been produced. Accordingly, Rs.3,82,245/– was disallowed on an expenditure of Rs.1,91,12,271/-. The learned Assessing Officer has disallowed the sum of Rs.3,32,82,715/-. Out of that, the assessee itself has disallowed on its own a sum of Rs.1,23,12,440/- on account of non-deduction of tax at source and further Rs.18,58,004/- under section 43B of the Act. Accordingly, these two disallowances already made by the learned assessee were reduced from the total amount, on which the disallowance was made. ii. With respect to the finance cost of Rs.17,59,161/-, the learned CIT – A directed the learned Assessing Officer to restrict the disallowance to Rs.6,15,600/-, as the balance interest cost of Rs.13,08,000/- is pertaining to interest paid to M/s Trilogic Digital Media Ltd., which was accepted by the learned Assessing Officer as genuine loan during the remand proceedings. Therefore, the interest paid of Rs.11,43,561/- with respect to that party was directed to be deleted. Accordingly, the disallowance of finance cost was restricted to Rs.6,15,600/-. iii. With respect to the addition under section 68 of the Act of Rs.1,31,15,600/-, the learned CIT – A directed the learned Assessing Officer to delete the addition in view of the remand report of the Assessing Officer.
iv. Further, with respect to making an addition of Rs.10,70,392/- on account of unexplained investment in assets made by the learned Assessing Officer, as the learned Assessing Officer did not comment on the submission of the assessee during the remand proceedings, the learned CIT – A did not grant any relief, as the assessee could not produce any evidence or documents, such as purchase bill, bank account statement, etc., evidencing the payments and, therefore, the addition was confirmed.
Against the appellate order passed by the learned CIT – A, the assessee is in appeal before us.
First ground of appeal
is with respect to the confirmation of the action of the learned Assessing Officer to the extent of disallowance of Rs.3,82,245/- on cost of production and other expenses with respect to the production of TV serial. The second ground of appeal is with respect to the confirmation of disallowance of interest cost of Rs.6,15,600/- and the third ground of appeal is with respect to the addition of Rs.10,70,392/- on account of alleged unexplained addition of assets.
10. The learned authorised representative submitted that the appellant was on the verge of liquidation when the assessment proceedings were continuing. The business premises of the assessee was seized as per the order of the Hon’ble Calcutta High Court in the case of sister concern, therefore, before the lower authorities, the assessee was not able to produce adequate evidences. Accordingly, the ex-parte order was passed by the learned Assessing Officer.
11. With respect to the disallowance of television film production cost, it was submitted that the assessee is engaged in the business of film production. It was submitted that the assessee has disallowed on its own the expenses on which tax is deducted at source under section 40(a)(ia) of the Act, amounting to Rs.1,41,70,444/-. It was further submitted that the disallowance is made only based on estimation. The assessee has offered the income of film production during the year and, therefore, the ad-hoc disallowance made by the learned Assessing Officer and confirmed by the learned CIT – A is not correct.
The learned Departmental Representative submitted that the assessee has failed to produce the details before the learned lower authorities and therefore, the learned CIT – A is very reasonable in restricting the disallowance of the expenditure @ 2% only. He further submitted that the assessee’s own submission was that the disallowance should be restricted on the balance amount of Rs.2,09,70,275/-. The learned CIT - A has restricted the disallowance only to the extent of Rs.1,91,12,271/– and therefore, the assessee should not have any grievance. 13. We have carefully considered the rival contentions. We find that the assessee is engaged in the business of film production. The assessee has incurred total expenditure on the film production of Rs.3,32,82,715/-, on a part of which, there was failure on the part of the assessee to deduct tax at source and further some of the amount was hit by the provisions of section 43B of the Act. The assessee in its computation of total income already disallowed such sum. In the additional evidences filed before the learned CIT – A, the assessee itself submitted that even if the addition/disallowance is required to be confirmed, the same should be restricted to some lower percentage. The learned CIT -A has granted reduction of the already disallowed sum out of the total expenditure by the assessee and restricted the disallowance to the extent of 2% of such sum. This is because of the reason that during the assessment proceedings, in the remand proceedings as well as before us, no evidences were placed. Accordingly, we do not find any merit in ground No.1 of the appeal. Accordingly, the disallowance of Rs.3,82,245/- made by the learned CIT – A is confirmed.
The second ground of appeal
is against the confirmation of the disallowance of interest expenditure/finance cost of Rs.6,15,600/-. As the assessee could not produce evidences of total finance cost of Rs.17,59,161/– before the learned Assessing Officer, he disallowed the whole of the sum. Before the learned CIT – A, the assessee produced the details and accordingly the disallowance was restricted to Rs.6,15,600/-. The assessee before us contests it.
15. We find that during the course of appellate proceedings, the assessee submitted that out of the total finance cost of Rs.17,59,161/-, the interest expenditure is only Rs.16,96,661/- and balance sum is the brokerage expenses of Rs.62,500/-. The assessee submitted that the interest expenditure of Rs.3,24,000/- pertains to the loan, which is confirmed and verified and accepted by the learned Assessing Officer. Further interest expenditure of Rs.13,08,000/- is also accepted by the learned Assessing Officer and which is also deleted by the learned CIT – A.
Therefore, there is no reason why this disallowance is sustained. With respect to the balance interest of Rs.64,661/-, the assessee itself has disallowed, as it failed to deduct tax at source thereon. With respect to the brokerage expenditure, the assessee has already deducted tax at source and it is verified by the learned Assessing Officer and accepted. We find that the learned CIT – A has granted relief with respect to only Rs.13,08,000/- pertaining to the interest paid to M/s Trilogic Digital Media Ltd. We find that interest expenditure of Rs.3,24,000/- pertaining to the other parties has also been accepted by the learned Assessing Officer, therefore, the learned CIT -A should have deleted the addition. Therefore, after careful consideration and hearing the parties, we find that a sum of Rs.3,24,000/- disallowance confirmed by the learned CIT – A is also pertaining to the loan, which is accepted by the lower authorities as genuine. Therefore, the disallowance to the extent of Rs.3,24,000/- deserves to be deleted. With respect to the balance interest of Rs.64,661/- , on which assessee itself has disallowed the sum for non- deduction of tax at source, therefore, the said disallowance if retained would result into double disallowance. Therefore, the same is also deleted. With respect to the brokerage expenses of Rs62,500/-, there is no adverse view of the learned Assessing Officer. Accordingly, we direct the learned Assessing Officer to delete the disallowance of the same. Accordingly, the total disallowance retained of Rs.6,15,600/-, the assessee deserves a further relief of Rs.4,51,161/-. Accordingly, the disallowance confirmed by the learned CIT -A to that extent is deleted. In the result, the ground No.2 of the appeal is partly allowed.
Ground No.3 of the appeal is with respect to the addition of Rs.10,70,392/- on account of the alleged unexplained addition of assets. In this case, the learned Assessing Officer noted that the assessee has claimed that depreciation on account of addition of Rs.4,80,000/- on plant and machinery and further sum of Rs.5,90,392/- towards furniture and fixture. This was the addition made to the block of assets during the year. Naturally, the assessee claimed depreciation thereon during the year against the income offered. The learned Assessing Officer added the total income of the investment made in the fixed assets of Rs.10,70,392/-. The learned CIT – A also confirmed the disallowance/addition.
On a careful consideration of the rival arguments, we find that the assessee has not claimed deduction of investment in plant and machinery of Rs.4,80,000/- and furniture and fixture of Rs.5,90,392/-. The assessee, during the course of appellate proceedings, has submitted the tax audit report, wherein the above addition to the block of assets has been made. The assessee has claimed depreciation on that assets of Rs.65,520/-. Therefore, in nutshell, the assessee has claimed depreciation as a deduction/allowance and not the amount of fixed assets purchased. Therefore, what could be disallowed in the hands of the assessee is only the depreciation claimed by the assessee. It is not the claim of the Revenue that the amount of purchase of the fixed assets is not recorded in the books of account of the assessee. Therefore, addition to that extent in spite of the fact that assessee failed to produce the bills, etc., what could have been disallowed is only the depreciation claimed by the assessee. Therefore, the lower authorities are not justified in making the disallowance/addition of the cost of fixed assets purchased by the assessee. Accordingly, we direct the learned Assessing Officer to restrict the disallowance to the extent of depreciation claimed during the year on these two assets of Rs.65,520/-. Accordingly, ground No.3 of the appeal is partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 27.10.2023.