VISTAAR RELIGARE FILMS LTD,NEW DELHI vs. ACIT CIRCLE - 26(2), NEW DELHI

ORDER PER KUL BHARAT, JM :

This appeal by the assessee is directed against the order of the Ld. CIT(A)—13, New Delhi dated 14th June, 2019, pertaining to the Assessment Year 2012-13. The assessee has raised following grounds of appeal:-

“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in passing the impugned order and that too without granting adequate opportunity of hearing.

2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that assessment order u/s 143(3) of the Act, passed by the Ld. AO is void ab initio and has been passed in undue haste without providing adequate opportunity of being heard.

3. That in any case and in any view of the matter, action of Ld. CIT(A) in passing the impugned order is bad in law and against the facts and circumstances of the case, and that the Ld. CIT(A) has erred in part-confirming the action of Ld. AO of making an addition to the extent of Rs. 2,70,83,628/- out of a total addition of Rs. 5,43,47,256/-.

4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the full claim of expenditure even after accepting the claim principally, but still making a disallowance of 50% of the expense on ad-hoc basis, which is absolutely untenable in law facts of the present case.”

The Assessing Officer while framing the assessment disallowed the expenditure of Rs. 5,41,61,256/- claimed on account of cost production of feature films. Further, the Assessing Officer also disallowed expenditure of Rs. 1,80,000/-. Thus, computed taxable income at Rs. 37,784/- against the declared loss of Rs. 5,41,61,256/-.

He relied on the decision of the Assessing Officer .

“4.8 In light of the above peculiar facts and circumstances of the case, the appellant's appeal to allow the loss of Rs.5,43,47,256/- was considered and the genuineness of expenditure factually incurred was referred to the AO. The AO in the remand report, while challenging the contention of the appellant u/r 46A stated that since no revenue was reflected in his books, his case would not be covered u/r 9A and accordingly, was not entitled to the expenses claimed in the P&L a/c.

4.9. After perusal of the arguments put forth by the appellant and the report of the AO, it is held that firstly, the appellant's case is not covered by the Board's circular no. 16 of 2016 dated 06.10.2016 since there was no abandonment of the film by the appellant himself. Rather he made his claim before the Hon'ble Bombay High Court which however held that the first right on revenue would lie with Eagle Films and if the film made profit, the appellant would be paid for the expenses incurred in making the film. It is another matter* that the film was a flop and a gross collection was not enough to meet out the expenses /cost of production of the film incurred even by M/s Eagle Films (P) Ltd.

4.10. As regards, the claim of expenses incurred to the tune of Rs.5,41,67,256/-. In the P&L a/c, the AO disallowed the same on the ground that the assessee did not fullfil the condition of rule 9A of the Income Tax Rules, 1962 and that he failed to furnish any information as to why the revenue from the feature film was not shown while claiming the entire expense of cost of production. In light of the observations made earlier it is held that legally and factually the appellant was entitled to the revenue from the Feature Film which however did not materialize due to the peculiar facts of the case that it did not earn adequate revenue at the box office.

4.11. The AO in his remand report also stated that the assessee was asked to furnish complete details alongwith copy of the ledger account of the said expenses to justify the claim. While the copy of the ledger account was furnished vide reply dated 04.02.2015 no further details as called for were produced. Mere production of the ledger was not satisfactory explanation or justification to claim the expenses as genuine. Moreover, the fact that a substantial amount of expense to the tune of Rs.4.77 crores was also stated to have been claimed by M/s Eagle Films (P) Ltd., in production of the same film (Office Office), the duplicacy of certain expenses cannot be ruled out. Accordingly, it is considered fair and reasonable to disallow 50% of the expenses claimed, since the same had not been subjected to verification by the AO as has also been stated in the remand report. Thus, the addition to the extent of Rs.2,70,83,628/- is hereby confirmed on account of disallowance of 50% of expenses claimed to have been incurred on cost of production of the film.”

Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 06th January , 2022.