PUJA ENTERTAINMENT (INDIA) LIMITED ,MUMBAI vs. DY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -2(4) , MUMBAI

4.1. Accordingly, during the relevant Assessment Year, assessee had written-off certain old advances in its books of accounts which were given to various parties for the ventures to be undertaken in ordinary course of business for new movies proposed to be produced in near future. However, due to unforeseen reasons, certain proposed ventures were abandoned and no new ventures could be undertaken with them till date.

4.2. In the present case of the assessee, since the projects could not be materialised then and no further projects were undertaken with them for a substantial period of time, it decided to write-off such old

PUJA ENTERTAINMENT INDIA LIMITED F.Y. 2019-20 SUMMARY OF TRADE ADVANCES WRITTEN-OFF SR. NO. NAME PAN NOS. PROFESSION GROSS AMOUNT TDS NET AMOUNT 1 GAUTAM MENON AFRPM0775L DIRECTOR 11,00,000 1,24,630.00 9,75,370.00 2 KEN GHOSH AACPG2639K DIRECTOR 7,00,000 39,270.00 6,60,730. 00 3 K.P.S PRODUCTION PRODUCTION HOUSE 4,50,000 4,50,000.00 4 NKUMAR(PR.16) AOCPK3500M DIRECTOR 5,00,000 24,170.00 4,75,830.00 5 ADITYA DUTT (NV) AFJPDS534J DIRECTOR 3,00,000 16,830.00 2,83,170.00 AKARSH KHURANA AMLKP0532C STORY WRITER 2,00,000 19,545.00 1,80,455.00 6 ANAND RATHORE ANWPR5193C DIALOGUE WRITER 1,75,000 18,025.00 1,56,975.00 7 8 APOORVA LAKHIA ABJPL5013E DIRECIOR 22,25,098 2,37,930.00 19,87,168.00 ASHWIN1 CHOUDHARY DIRECTOR 4,50,000 50,985.00 3,99,015.00 9 BOBBY KHAN AVRPK6984F DIALOGUE WRITER 4,50,000 5,150.00 4,44,850.00 10 BUZI ENTERTAINMENT APSPS0274H WRITER 5,00,000 50,000.00 4,50,000.00 11 12 _j ELAN MODELLING AGENCY PVT. LTD. AADCE7139A 25,00,000 - 25,00,000.00 PROVIDING SIDE ARTISTS & MODELS 13 KUNAL KOHLI PRODUCTIONS PVT. LTD. AAACK6053C PRODUCTION HOUSE 16,00,000 1,60,000.00 14,40,000.00 14 LEANDER PAES AEQPP1423G CELEBRITY 21,00,000 2,10,000.00 18,90,000.00 15 MADHUR SHARMA BJGPS1621F WRITER 23,000.00 2,07,000.00 2,30,000 16 MAHESH DATTANI AAPPD0724K WRITER 3,00,000 30,900.00 2,69,100.00 17 MILAP ZAVERI AABPZ5796K DIRECTOR 5,00,000 50,000.00 4,50,000.00 18 MOHANA KRISHNA AIUPA1646C D.O.P 2,50,000 25,000.00 2,25,000.00 19 MOORTUZA N BORSADI ACQPB2265E DIRECTOR 2,00,000 22,660.00 1,77,340.00 20 MUSHTAQ SHAIKH AMDPS2097Q WRITER 12,50,000 1,41,62.5.00 11,08,375.00 21 NITIN KAKKAR APTPK3065R DIRECTOR 21,00,000 2,10,000.00 18,90,000.00 22 PANKAJ PARASHAR AAAPP9015A DIRECTOR 10,00,000 1,13,300.00 8,86,700.00 23 RAJKUMAR SANTOSHI AAEPS8988B DIRECTOR 1,83,00,000 17,50,000.00 1,65,50,000.00 24 SAMEER (N.V.) AEJPP8865P LYRICS 2,00,000 10,200.00 1,89,800.00 25 APRPS8992R LYRICS 3,00,000 30,000.00 2,70,000.00 SAMEER SHARMA 27 SANJAY CHERIAN AKZPC6788Q 50,000 - 50,000.00 28 STORY & SCREENPLAY WRITER 3,00,000 33,990.00 2,66,010.00 SAURABH R KABRA 29 S FARHAN STORY WRITER 77,142.00 86,000 8,858.00 30 SHARIB HASHMI ABDPH3216M WRITER 2,00,000 1,80,000.00 20,000.00 31 SHAWN ARANHA AEXPA4352C DIRECTOR 5,32,020.00 6,00,000 67,980.00 32 SHIMIT AMIN AGEPL2587L DIRECTOR 2,70,000.00 3,00,000 30,000.00 33 SHIRAZ AHMED AABPA8038P WRITER 16,89,350.00 18,51,000 1,61,650.00 34 SURESH NAIR AAAPN5524S 8,50,000 96,305.00 7,53,695.00 CHOREOGRAPHER 35 TEJAL KISHOR SON1 5,00,000 5,00,000.00 - 36 TUTU FILMS AABCI7516L PRODUCTION HOUSE 50,00,000 37 TUTU SHARMA AABCT75161_ PRODUCER 4,50,000 38 WINAY KAMATH STORY 5 SCREENPLAY WRITER 1,16,610.00 1,30,000 13,390.00 39 YASH KESWANI STORY & SCREENPLAY WRITER 1,16,610.00 1,30,000 13,390.00 40 HIMESH RESHAMIYA AABPR3574R MUSIC DIRECTOR REMU. 5,00,000 27,500.00 4,72,500.00 41 VINAY SAPRU AAJPS8187R DIRECTOR 5,00,000 56,650.00 4,43,350.00 42 ZAYED KHAN AHOPK4293N ARTISTE 25,00,000 2,26,050.00 22,73,950.00 43 MOTURI CREATIONS PRODUCTION HOUSE 6,12,000 - 6,12,000.00 44 ABHISHEK BACHHAN AEHPB1823P ARTISTE 1,64,99,000 12,57,630.00 1,52,41,370.00 45 FILMALAYA PVT. LTD. AAACF2586R STAGE BOOKING 1,00,000 1,00,000.00 46 K K FILMS ADUPP9251D PRODUCTION HOUSE 3,30,000 3,30,000.00 47 M J FILMS PRODUCTION HOUSE 5,00,000 5,00,000.00 48 ODBALL MOTION PICTURFS PVT LTD AACCO2947H PRODUCTION HOUSE 1,46,73,526 1,46,73,526.00 49 RADHIKA RAO ACPPR9843R STORY & DIRECTION 5,00,000 4,43,350.00 56,650.00 50 ROSSHAN ANDRREWS (Pr.22) AHGPA7371P DIRECTOR 1, 10,000 1,10,000.00 51 SAI KABIR SRIVASTAV BBYPS5858Q SCREENPLAY & D1SALOGUE 10,20,000 9,14,675.00 1,05,325.00 52 S PRIYADARSHAN AAAPN9678B DIRECTOR 90,000 90,000.00 53 PADMINI FILMS AABCP9216B ADVANCES 52,50,000 57,50,000.00 54 A MUTHU AAJPM4671Q EDITOR 10,00,000 10,00,000.00

9,23,62,428 52,93,543 8,13,68,689 Total 4.3. Ld. CIT(A) while adjudicating on the issue, observed that there was no material on record to substantiate that the advances given were for furtherance of business, in absence of which claim of assessee u/s.37(1) was rejected. He further observed that assessee failed to bring any material before him to establish evidences in respect of bad debts claimed or provision made in that regard. He thus, sustained the disallowance made by ld. Assessing Officer by treating the claim as bad debts written off u/s.36(1)(vii). Ld. CIT(A) while sustaining the disallowance, placed reliance on the decision of Hon’ble Supreme Court in the case of CIT(A) vs. Khyati Realtors Pvt. Ltd. [2022] 141 taxmann.com 461 (SC). Aggrieved, assessee is in appeal before the Tribunal.

5.1.1. Further, clause-2 which deals with Term/Tenure is also reproduced which is in line with the modus operandi explained by the ld. Counsel, as noted in the above paragraphs. “2.1 The Director shall direct and start the Film tentatively to be titled on or before January, 2012 from the date hereof and during the making of the said Film. The said Film will be based on a Original story, screenplay and Dialogues written by the Director and his team. The Producers will be responsible for all artistic and other talents and money made available for the said Film, as deemed fit and proper as soon as possible after execution of this Agreement, the Director will concentrate on the subject, further conceptualize and develop the story, screenplay and dialogue written by himself and his writer/s. The Director will allot his dates on priority basis for the said Film as deemed necessary. The Director agrees to complete the said Film within 9 months with a grace period of 3 months from the date of start of first schedule of the shooting, subject to availability of funds.”

5.1.2. This agreement also contains various clauses pertaining to performance, allotment of time/dates, remuneration, producers right and remedies, copyrights and intellectual property rights in the work, undertaking by director, confidentiality, termination, etc. Against this agreement, assessee had made payment of Rs.1,83,00,000/- to Shri Rajkumar Santoshi which was subjected to TDS of Rs.17,50,000/-. These details are already tabulated above.

5.2. On a sample basis, reference was made to another agreement between assessee and Odd Ball Motion Pictures Pvt. Ltd. to whom assessee had made a payment of Rs.1,46,73,526/-. The said agreement is placed at page 144 of the paper book. Similarly, for other parties, copies of agreement are placed in the paper book. Assessee also furnished copies of ledger confirmation for certain parties giving details in respect of payments made, TDS done duly acknowledged by the respective parties. Details in respect of agreements and ledger confirmations furnished by the assessee is extracted below:

5.3. Assessee also brought on record various e-mail communications between different parties who confirmed the transaction undertaken Puja Entertainment (India) Ltd., AY 2020-21 which evidently demonstrates that payments made were business advances in the course of conduct of business by the assessee. Copies of the e-mail print outs are also placed on record.

7.1. On these payments made by assessee, since the business activity as foreseen by the assessee did not materialise over a long period of time and the amount continued in the books of accounts as advances, it eventually treated the same as loss incurred by it, in the conduct of business and thus, claimed it as business loss/deduction permissible u/s.37(1) of the Act. Contrary to this, ld. Assessing Officer has treated the same as bad debts written off u/s. 36(1)(vii) subject to conditions prescribed u/s. 36(2) and held assessee not eligible for the same having failed to meet the requirements of these sections.

7.2. In our view, even if deduction of advances written off by assessee, during the year are not allowable as bad debt, same would not jeopardize claim of assessee for deduction of it as business loss. Assessee has evidently demonstrated that money advanced by it was in the nature of business expediency and is an allowable deduction u/s.37(1), if not under this section then as a business loss u/s. 28(1).

7.3. Repeatedly, authorities below have alleged that assessee has failed to furnish necessary documentary evidences including confirmation from the parties on the advances paid by the assessee. To this effect, we take note that required documentary evidences are placed on record by the assessee in the form of paper book, summary of which is extracted above in the table form. Having gone through the material on record as discussed above, payments made by the Puja Entertainment (India) Ltd., AY 2020-21 assessee to various parties are business advances relating to the business undertaken by the assessee. Since business did not materialise over a long period of time after making the payments, as required under the industry practice, assessee has ultimately claimed the same as its business loss. We agree to the claim of the assessee and accordingly delete the disallowance so made by ld. Assessing Officer. It is not a case where the payments made by assessee to these parties are held to be sham, bogus or accommodation entries. These being genuine transactions undertaken in the ordinary course of business are allowable as claimed by the assessee.

7.4. Ld. CIT(A) has placed reliance on the decision of Hon'ble Supreme Court in the case of Khyati Realtors (supra) while upholding the addition made by ld. Assessing Officer. In this respect, we find that this judgement has been dealt by Hon'ble Jurisdictional High Court of Bombay in the case of Mahindra and Mahindra Ltd. vs. CIT [2023] 151 taxmann.com 332 (Bom), for which it noted that judgement in the case of Khyati Realtors is of no help because it is not the case of assessee that it claimed deduction u/s.36 but was claimed u/s.28. Relevant extracts from the decision of Hon'ble High Court of Bombay if para-16 is reproduced below:

“16. Before we proceed further, we would note that Mr. Suresh Kumar reiterated the findings of the Assessing Officer, CIT(A) and ITAT. Mr. Suresh Kumar also relied upon the judgment of the Apex Court in Pr. CIT v. Khyati Realtors (P.) Ltd. [2022] 141 taxmann.com 461/289 Taxman 60/447 ITR 167 (SC)/AIR 2022 SC 4030. to submit that Section 36(1) of the Act gives benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year and that benefit is subject to Section 36(2) of the Act. Appellant has not satisfied the ingredients of both these provisions. In our view, this judgment is of no help because it is not appellant's case that they are claiming deduction under section 36 of the Act but actually they are claiming deduction under section 28 of the Act. The moot point is whether appellant could claim such deduction and also the miscellaneous expenses incurred.”

Puja Entertainment (India) Ltd., AY 2020-21 7.4.1. Further, in this decision of Mahindra and Mahindra Ltd. (supra), the substantial question of law which came up before the Hon'ble Court has a direct bearing on the issue in hand addressed by us in the present appeal. The substantial question framed by the Hon'ble Court is reproduced below” “Whether on the facts and in the circumstances of the case as well as in law the Tribunal was right in not allowing expenses of Rs. 42.89 lakhs incurred by the appellant company for MMC and not allowing deduction of write off of Rs. 622,01 lakhs (not Rs. 578.09 lakhs as originally put) u/s. 28 of the Act being the amount lent to MMC including interest due thereon and advances for purchase of machineries given in the course of business dealings with MMC?”

7.4.2. Fact in brief in relation to the above substantial question of law is that assessee claimed deduction of Rs.622.01 lakhs in computing the taxable income. This amount was considered not recoverable by the assessee and was written off while computing income under the head “profits and gains of business or profession”. Hon'ble Court examined whether the expenditure incurred or the deduction claimed arose in carrying on business of assessee or incidental to it. Hon'ble Court noted the fact that commercial expediency required assessee to incur expenditure or give advances or give ICDs cannot be dismissed lightly. According to the Hon'ble Court, list of allowances enumerated in section 30 to 37 are not exhaustive. According to it, an item of loss or expenditure incidental to business may be deducted in computing profits and gains even if it does not fall within any of these sections, for the tax is on profits and gains computed on ordinary commercial principles. In order to arrive at profits and gains, account must necessarily be taken of all losses incurred by the assessee. It was thus, held that business losses, though they fall outside the purview of sections 30 to 37 are allowable on ordinary commercial principles of computing principles. Hon'ble Court also held that whether to treat the debt as bad debt or as business loss / deduction u/s. 28 is a commercial or business decision of the assessee based on relevant Puja Entertainment (India) Ltd., AY 2020-21 material in possession of the assessee. According to the Hon'ble Court, once assessee records the amount as business loss/deduction in its book of account that would prima facie establish that it was not recoverable loss, unless ld. Assessing Officer has good reasons to hold otherwise. This burden would be on the ld. Assessing Officer to make out cogent reasons which according to the Hon'ble Court was not so in the case under consideration. It was thus, noted that there is no dispute that amount spent /recoverable from group company MMC and thus quite obvious that the amount in question was incurred by assessee for business expediency.

7.4.3. While arriving at these findings, support was drawn from the decision in the case of Harshad J. Choksi vs. CIT [2012] 25 taxmann.com 567 (Bom) which dealt with this issue in paragraph 9 to 12 that any loss which occurs in carrying on the business and is related to the business operation is entitled to be deducted to arrive at profits and gains of the business u/s.28 of the Act. These paragraphs are extracted below for ready reference:

“9. Our opinion is sought on the issue, whether if an amount is held to be not deductible as a bad debt, in view of non compliance of the condition precedent as provided under section 36(2) of the Act, could the same be considered as a allowable business loss. The Tribunal in its order dated 19-12-1994 has not considered the issue, whether or not a loss claimed by the assessee is allowable as a business loss on the basis of the evidence produced by the assessee. The Tribunal proceeded on a premise that once a claim is made for deduction as bad debts, then the deduction can be granted only if the provision of section 36 of the Act are satisfied and it is not open to an assessee to claim a deduction in the alternative under any other provision of the Act. In view of the above, we are not making any observation with regard to whether the claim of the assessee on merits is allowable as a business loss. We are only examining the issue posed for us viz. that when the claim made for bad debts is not satisfied, could it be considered as a allowable business loss.

7.4.4. Hon'ble Court also made a useful reference to the judgement of Hon'ble Supreme Court in Badridas Daga vs. CIT [1958] 34 ITR 10 (SC)wherein it was held that, for assessing the amount of profits and gains liable to tax, one must necessarily have regard to the accepted commercial practice that deduction of such expenses and losses is to be allowed if it arises in carrying on business and is incidental to it. There is no bar in claiming a loss, if the same is incidental to carrying on of a business. Hon'ble Court, thus concluded that expenditure/debts incurred for the purpose of business are directly relatable to the business of the assessee and thus eligible for deduction under business expenditure/loss in assessee’s return of business income and therefore would be deductible u/s.28 of the Act. Appeal was thus allowed in favour of the assessee.

Puja Entertainment (India) Ltd., AY 2020-21 7.5. In the present case before us, assessee has written off trade advances being not recoverable for which elaborate discussion has already been made and findings arrived at by us in above paragraphs. Our observations and findings on the same are fortified by the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Mahindra and Mahindra Ltd. (supra). Accordingly, grounds taken by the assessee in this respect are allowed.