MARUTI INTERNATIONAL,MUMBAI vs. ITO CIRCLE 16(1)(3), MUMBAI

Brief facts are, the assessee, a partnership firm, is engaged in the business of production, distribution, exhibition and export of feature film. For the assessment year under dispute, the assessee filed its return of income on 27th November 2019 declaring nil income after set–off of loss. During the assessment proceedings, the Assessing Officer noticed that against the profit shown from audio royalty received during the year, the assessee has claimed expenditure of ` 3,14,850, relating to old films. When called upon to justify the claim, it was submitted by the assessee that certain expenditure relating to two films were incurred during the year. Therefore, it has been claimed as expenditure in the impugned assessment year. The Assessing Officer, however, did not accept the claim of the assessee. Referring to the provisions of rule 9A, he held that such expenditure can be claimed only in the year of release of the film. Accordingly, he disallowed the amount of ` 3,14,850.

The learned Commissioner (Appeals) also sustained the disallowance while deciding assessee’s appeal on the issue.

The learned Authorised Representative submitted, the assessee follows cash system of accounting which has also been accepted by the Assessing Officer. He submitted, there is also no dispute with regard to the genuineness of expenditure claimed. He submitted, rule 9A is an 3 Maruti International enabling provision and cannot be resorted to for disallowing assessee’s claim of expenditure.

The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).

We have considered rival submissions and perused the material on record. As could be seen from the facts on record, the amount of ` 3,14,850, claimed as expenditure represents payment made to technicians, junior artist supplier and dress and costumes for two films. It is not disputed that the assessee is following cash system of accounting and the aforesaid expenditure has been incurred during the year under consideration. There is also no dispute regarding the genuineness of such expenditure. That being the case, the expenditure claimed has to be allowed under section 37(1) of the Act. In our considered opinion, both, the Assessing Officer and learned Commissioner (Appeals) were not justified in disallowing the expenditure by taking recourse to rule 9A. Accordingly, the addition of ` 3,14,850, is deleted. This ground is allowed.

During the assessment proceedings, the Assessing Officer called upon the assessee to furnish the details of other expenses debited to the Profit & Loss account. On verifying the break–up furnished by the assessee, he found that the amount includes sundry balance written– off amounting to `46,90,525. On further verification, he found that the amount of ` 33 lakh comprises of an amount of ` 25 lakh given to Bharat K. Patel towards advance for film, amount of ` 7 lakh to Sumitra Devi Jain towards advance for film and ` 1 lakh to Taruna Manish Asopa as advance to employee. After perusing the details furnished by the assessee, the Assessing Officer was of the view that the assessee was unable to demonstrate that such advances were considered as income in the earlier years and further, the assessee has not proved the fact that such advances have not been recovered. Accordingly, he disallowed assessee’s claim of write–off of ` 33 lakh and added back to the income of the assessee.

The learned Commissioner (Appeals) also sustained the addition made by the Assessing Officer.

The learned Authorised Representative submitted, the amount of `1 lakh was paid to widow of an employee who died while in employment. He submitted, considering the fact that the widow of the 5 Maruti International employee was not in a position to repay the amount, the assessee had to write–off the amount. Thus, he submitted, the amount of `1 lakh has to be allowed. As regards the balance amount of ` 32 lakh representing advance to two parties for film, the learned Authorised Representative submitted, these relate to two film projects which were ultimately abandoned. Therefore, the assessee was unable to recover the advances given. He submitted, given an opportunity, the assessee would furnish all documentary evidences to support its claim. Thus, the learned Authorised Representative requested for restoring the issue relating to the addition of ` 32 lakh to the Assessing Officer for fresh adjudication.

The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).

We have considered rival submissions and perused the material on record. As regards the amount of `1 lakh given to Taruna Manish Asopa, it has been submitted before us that the amount was paid to widow of an employee who died during employment. Thus, the assessee was unable to recover the amount on humanitarian ground. We find the aforesaid submission of the assessee convincing, hence, acceptable. Therefore, the amount of ` 1 lakh out of the total addition

In the result, appeal is partly allowed. Order pronounced in the open Court on 26.02.2020