M/S. KARANDIKAR ENTERPRISES,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - २,, PUNE

ORDER PER DR. DIPAK P. RIPOTE, AM: These appeals filed by the Revenue and Assessee are directed against the order of ld.Commissioner of Income Tax(Appeals)-3, Pune, dated 27.07.2017 for the Assessment Year 2013-14. The Revenue raised the following grounds of appeal:

2. On the facts and circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact that the entertainment tax subsidy received by the assessee is a receipt in lieu of its income. It is a receipt generated because a part of the assessee’s income has not been subjected to taxation by the government and therefore, such concession bear the character of income on revenue account.

3. On the facts and circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact that the entertainment tax under the Bombay Entertainment Duty (Amendment) Act 2001, does not contain any specific direction on how the proceeds are to be utilized and therefore, such incentive cannot be regarded as an aid to the construction of the multiplex or towards any capital outlay. 4. The appellant prays to be allowed to add, amend, modify, rectify, delete or raise any grounds of appeal

during the course of appellate proceedings.” The Assessee raised following grounds of appeal: “1. In the facts and circumstances of the case and in law, the learned CIT(A)erred in confirming the addition of Rs.22,06,000/- by merely stating that the alternative argument of the AO appears valid.

2. While confirming the addition the learned CIT(A) failed to point out which expenditure was incurred by the assessee to remain eligible for receiving the subsidy when in fact no expenditure was incurred in the year under consideration for receiving the subsidy.

3. The learned CIT(A) did not meet the assessee’s arguments that no expenditure was incurred u/s 37(1) and, therefore, no addition can be made u/s 371(1).

4. The learned CIT(A) further erred in confirming the disallowance of Rs.2,07,620/- from out of Cabin Expenses, Travelling and conveyance expenses when no single items was pointed out by the AO as of non-business nature or non-genuine.

5. The reasons adduced by the learned CIT(A) for confirming the additions of Rs.22,06,000/- and of Rs.2,07,620/- are wrong, insufficient and contrary to the provisions of law and facts on record.

6. The appellant craves leave to add, alter amend, modify and/or delete any of the grounds of appeal.”

2. Brief facts of the case are that the Appellant assessee is in the business of film exhibition at Mangala Multiplex Pune, it runs the multiplex. The assessee has treated the Entertainment tax subsidy as [R] for A.Y. 2013-14 Karandikar Enterprises capital receipt. The Assessing Officer in the assessment order hold it as revenue receipt. The ld.CIT(A) held it as Capital receipt following Hon’ble Bombay High court. The AO made certain disallowance u/s 37 of the Act, in the assessment order.

4.1 Thus, the Ground No’s.1, 2 & 3 of the Revenue are dismissed. Ground No.4 is general in nature and no adjudication is required, thus, Ground No.4 is also dismissed.

4.2 Hence, Revenue appeal in is dismissed. Assessee: 5. The appellant assessee has raised ground number 1 regarding disallowance of Rs.22,06,000/-. In the assessment order the AO has ITA No.2091/PUN/2017[A] & ITA No.2458/PUN/2017 [R] for A.Y. 2013-14 Karandikar Enterprises observed that since the entertainment subsidy has been claimed as capital receipt by the assessee, the assessee must have incurred certain administrative & Operational expenditure for the said capital receipt. Therefore, AO made adhoc disallowance u/s 37 of Rs.22,06,000/- (10% of expenditure). However, the said disallowance was not added by AO in the assessment order because the AO has added entire entertainment subsidy as capital receipt. This is an adhoc disallowance. AO has not pointed out any specific expenditure which was in the nature of revenue expenditure. AO cannot presume it. Therefore, the AO is directed to delete the said disallowance. Accordingly, the assessee’s Ground No.1, 2 and 3 are allowed.

6.1 Heard ld.DR and perused the material available on record. It is important to understand here that the ld.CIT(A) has given a finding that many of these expenditures were not supported by bills. Before us also the Assessee has not claimed that all the expenditures were supported by bills. The onus is on the assessee to prove the genuineness of the expenditure and to prove that the expenditure were incurred wholly and [R] for A.Y. 2013-14 Karandikar Enterprises exclusively for the purpose of business of the assessee, In this case the assessee has not filed any documents to prove that the expenditure were wholly and exclusively for the business and has also not filed bills. Therefore, we uphold the disallowance made by the AO. Accordingly, this Ground No.4 of assessee related to disallowance of Rs.2,07620/- is hereby dismissed.

6.2 Ground No.5 is related to disallowances. We have discussed the issue of disallowances in earlier Para. Accordingly, there is no need to adjudicate this ground separately. Accordingly, dismissed.

6.3 Ground No.6 is general in nature, hence dismissed.

6.4 Thus, appeal of the assessee in is partly allowed.