INCOME TAX OFFICER, GURUGRAM vs. CINEPOLIS INDIA PVT. LTD.(SUCCESSOR TO FUN MULTIPLEX PVT. LTD.), GURUGRAM

The present appeal preferred by the Revenue is directed against the Order, dated 05/03/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 23/03/2025, passed under Section 143(3)of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’],for the Assessment Year 2012-2013. 2. There is a delay of 469 days in filing the present appeal before the Tribunal. When the appeal was taken up for hearing Learned Authorized Representative for the Revenue appearing before us submitted that the delay in filing the present appeal be condoned and Assessment Year 2012-2013 in this regard reliance was placed upon the application seeking condonation of delay in filing the appeal. We note that the delay in filing the appeal was occasioned on account of delay in the transfer of case records. Therefore, accepting the explanation given by the Revenue to be bonafide and reasonable, we hold that in the present case the Revenue was prevented by sufficient cause from filing the appeal before the Tribunal within the prescribed time. Accordingly, we condoned the delay of 469 days in filing the appeal and proceed to adjudicate the grounds raised on merits.

The Revenue has raised following grounds of appeal:

The Assessee is engaged, inter alia, in the business of running, conducting, operating and managing multiplex theaters and allied and incidental activities of sale of food and beverages across India.

For the Assessment Year 2012-2013, the Assessee filed return of income on 27/09/2012 declaring loss of INR.5,48,24,299/-. The Return of Income was revised by the Assessee on 14/03/2013 declaring loss of INR.2,11,48,262/-. Assessment under Section 143(3) of the Act was completed vide Assessment Order, dated 23/03/2015, assessing total income of the Assessee at INR.16,72,23,585/- after, inter alia, making (a) addition of INR.10,85,67,741/- by treating Entertainment Tax Incentive as revenue receipt, and on a protective basis disallowing depreciation to the extent of INR.7,43,81,060/- (by reducing the Written Down Value of the block by the amount of subsidy in case the same is subsequently held to be capital receipt), and (b) disallowance of INR.52,67,428/- under Section 14A of the Act. In appeal preferred by the Assessee, the Learned CIT(A) deleted the aforesaid addition/disallowance. Hence, the present appeal by the Revenue on the grounds reproduced in paragraph 2 above.

We have heard both the sides and have perused the material on record.

Ground No. 1 & 2 are connected and are, therefore, taken up together hereinafter.

The facts relevant for adjudication of the grounds under consideration are that in the computation of income the Assessee included notional entertainment tax of INR.10,85,67,741/- as revenue receipt and offered the same for taxation. However, during the assessment proceedings the Assessee claimed that according to the State Multipleх Policy the Entertainment Tax does not form part of total income being capital receipt and hence, the same be excluded from total income. The Assessee explained that entertainment duty was charged on the activity of film exhibition by the State Governments. These entertainment duties were collected by the multiplex theatres from the viewers as part of the ticket prices and paid to the respective State Governments. In order to promote construction of new cinema houses/theaters, the State Government had granted certain concession in entertainment duty to multiplex theatre complexes. In pursuance of Entertainment Tax Exemption Policy of various State Governments, the entertainment tax was retained by the Assessee as an incentive for setting up these multiplexes. Since the object was promotion of construction of multiplex theatres, the aforesaid entertainment tax retained by the Assessee constituted capital receipts not chargeable to tax. The Assessing Officer did not accept the aforesaid contention of the Assessee. According to the Assessing Officer as per the applicable scheme, the duty which was collected by the Assessee formed part of the cost of the ticket. Therefore, the entertainment tax which had been retained by the Assessee could only be regarded as a revenue receipt. The Assessing Officer noted that the scheme was intended to boost up the revenue of theatre owners, and therefore, the incentive was operational in nature. Thus, the Assessing Officer held that INR.10,85,67,741/- was in the nature of revenue receipt and therefore, added the same to the total income of the Assessee. Without prejudice to the aforesaid, the Assessing Officer observed that if at any appellate stage the entertainment tax subsidy is treated as Capital Receipt, the same would go on to reduce the Written Down Value of the block of asset. Therefore, invoking Explanation 10 to Section 43(1) of the Act, the Assessing Officer re- computed the WDV (by reducing INR.10,85,67,741/- from WDV disclosed) and concluded that the depreciation of INR.7,43,81,060/- was to be added back on a protective basis.

In appeal the Learned the Learned CIT(A) deleted the addition/disallowance after, inter alia, taking note of the favorable decision in the case of the Assessee for the preceding as well as succeeding assessment years.

The Revenue has challenged the above relief granted by the Leanred CIT(A). Ground No. 1 raised by the Revenue is directed against the order of CIT(A) holding that INR.10,85,67,741/- was not an incentive of revenue nature while Ground No. 2 raised by the Revenue pertains to order of CIT(A) deleting disallowance of depreciation of INR.7,43,81,060/- (as an alternative to the issue of entertainment subsidy being held as capital receipt). We have given thoughtful consideration to rival contentions on the aforesaid issues and have perused the decisions relied upon by the Learned CIT(A) including decision in Assessee's own case (as successor of Cinepolis India Private Limited) for Assessment Year 2014-2015 [ITA No. 4021 & CO No. 152/Del/2018, Common Order dated 30/08/2023]. It emerges that in the aforesaid decision the Co-ordinate Bench of the Tribunal has decided the issues under consideration in favour of the Assessee by following decision in Assessee's own cases for the Assessment Years 2010-11, 2011-2012 & 2013-2014 [ITA No. 3630,3631/Del/2019 & 6317/Del/2017, common Order dated 30/09/2022) holding as below:

The order of the learned CIT (Appeals) being in consonance with earlier decision of the Tribunal in assessee’s own case as also the issue being squarely covered in favour of the assessee by the decision of the Apex Court in the case of Chapalkar Brothers (supra), we see no reason to interfere with the order of learned CIT(Appeals) on the issue in question. Ground is rejected.

Apropos to ground no. 2, learned counsel for the assessee submitted that the issue relating to depreciation, involved in ground no. 2 is also squarely covered in favour of the assessee by the aforesaid decision dated 30.09.2022 of the ITAT in assessee’s own case (supra), wherein the Tribunal has followed the decision of Coordinate Bench in the case of PVR Ltd. Vs. Addl. CIT (ITA No. 1897/Del/2010 dated 20.04.2012)

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We find that this issue also came for adjudication before the Tribunal in assessee's own case for AY 2010-11, 2011-12 and 2013- 14 wherein vide common Order dated 30.09.2022 (supra), the Tribunal has decided the issue in favour of the assesses, inter alia, observing as under "

The next common issue arising in these appeals is, in case, the entertainment tax subsidy is held to be capital in nature, whether, it will go to reduce the cost of acquisition of capital assets resulting in disallowance of depreciation claimed by the assessee on plant and machinery to that extent. While framing the assessment, the assessing officer held that in case the appellate authorities hold that the entertainment tax subsidy received is in the nature of capital receipt, then, in terms of Explanation 10 to section 43(1) of the Act, subsidy should be reduced from the written down value of plant and machinery and thereafter depreciation is to be allowed. While, deciding this issue, learned 1897/Del/2010 dated 20.04.2012. 12. Before us, both the parties agreed that the issue is squarely covered in favour of the assessee by the decision of the co- ordinate Bench in case of of PVR Ltd. (supra).

Having considered the submissions of the parties and examined the facts on record in the light of decisions cited before us, we are of the view that that entertainment tax subsidy granted by the State Government is not for the purpose of utilizing on any particular or specified assets. That being the factual position emerging on record, the reasoning of the assessing officer that such subsidy would go to reduce the cost of assets is unacceptable. More so, when the revenue has failed to bring any material on record to demonstrate that the subsidy has actually gone to reduce the cost of any specified assets on which the assessee claimed depreciation. That being the factual position, no part of the subsidy can be reduced from the written down value to compute depreciation.

Accordingly, we uphold the decision of the first appellate authority by dismissing the grounds."

The order of the learned CIT(Appeals) being in consonance with the earlier order of the Tribunal and there being no change in facts and circumstance for the assessment year under consideration we see no reason to interfere in the order of learned CIT(A). Ground is rejected." (Emphasis Supplied)

The Revenue has failed to bring on record any material to distinguish the above decision of the Tribunal either on facts or in law. Therefore, respectfully following the above decision of the Co-ordinate Bench of the Tribunal, we decline to interfere with the order passed by the Learned CIT(A). Therefore, Ground No. 1(i) & (ii) and 2(i),(ii) & (iii) raised by the Revenue are dismissed.

Ground No. 3 raised by the Revenue pertains to the claim that disallowances of INR.52,67,428/- made by the Assessing Officer under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1963 which was deleted by the Learned CIT(A). The Assessing Officer observed that during the year under consideration, the Assessee had made investment in shares and securities generating exempt income but had not allocated any expenses related to earning exempt income and not maintained any separate account for the exempt income. In this regard, the Assessee explained that it had made investment in equity shares of the subsidiary company and sources of investment were internal accruals and non-interest-bearing funds. The Assessee also submitted before the Assessing Officer that during the year under consideration no fresh investments had been made and that the Assessee had also not earned any exempt income. Rejecting the aforesaid submission, the Assessing Officer proceeded to invoke provisions contained in Rule 8D(2)(ii) of the IT Rules and made a disallowance of INR.52,67,428/- under Section 14A of the Act. In appeal, the Learned CIT(A) deleted the disallowance observing that the Assessing Officer has not brought out that the Assessee had earned any exempt income in this year. We note that the Assessing Officer had concluded that disallowance under Section 14A can be made even in a case where no exempt income has been earned during the relevant previous year assessment year. In the case of Principal Commissioner of Income-tax vs. Red Chillies Entertainment (P.) Ltd. [2020] 116 taxmann.com (Bombay)[20-08-2019], relied upon by the Learned CIT(A), it has been held that no disallowance should be made under Section 14A of the Act read with Rule 8D of the IT Rules in case no exempt income had been earned in relevant previous year. Therefore, we do not find any merit in Ground No.3(i) to (vi) raised by the Revenue and the same are rejected.

In result, the appeal preferred by the Revenue is dismissed.