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Facts
For AY 2013-14, the assessee, engaged in TV serial production, had additions made by the AO under Section 143(3). The CIT(A) partly deleted the disallowances but sustained additions totaling Rs. 13,01,260/- relating to rent and project expenses, leading to this appeal before the ITAT.
Held
The ITAT upheld the CIT(A)'s decision, confirming the disallowance of rent expenses under Section 37(1) as the premises were used for residential purposes and not exclusively for business. It also confirmed the disallowance of project expenses, treating them as capital expenditure and noting the assessee's failure to provide supporting evidence during any stage of the proceedings.
Key Issues
1. Whether rent expenses were allowable as wholly and exclusively for business purposes under Section 37(1). 2. Whether project expenses constituted revenue expenditure or capital expenditure under Section 37(1).
Sections Cited
143(3), 37(1), 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI KUL BHARAT & SHRI BRAJESH KUMAR SINGH
O R D E R PER KUL BHARAT, JM:
This appeal, preferred by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-23, New Delhi, dated 29.01.2018, pertaining to the assessment year 2013-14. The assessee has raised following grounds of appeal:
“1. That the order passed by the CIT (A) is bad both in the eye of law and on facts.
That the CIT (A) has erred both on facts and in law in upholding the addition of Rs. 13,01,260/- on account of revenue expenditure incurred wholly and exclusive for business purpose.
3. That the CIT (A) has erred in confirming the addition of Rs. 3,07,500/- for the rent expenses. The Rent Expenses claimed by the appellant in the P & L account for the assessment year under consideration for Rs. 1,32,000/- only whereas addition confirmed by Ld. CIT (A) of Rs. 3,07,500/-. 4. That the CIT (A) has erred in confirming the addition of Rs. 9,93,760/- for the project expenses. The project expenses include the expenditure on production of pilot episodes of serials for approval from TV Channels. These Pilots/ pilot episodes have no sale value as there is no guarantee of selection from TV Channels. These expenses are not capital expenditure in nature and the same are in nature of revenue expenditure. 5. That the addition has been confirmed despite the same having, been made grossly indulging in conjecture and surmises without there being any direct adverse material against the appellant, based only on suspicion. 6. That the addition has been confirmed despite the appellant bringing on record all evidences and material to prove the genuineness of the transaction. 7. On the facts and circumstances of the case, the CIT (A) has erred both on facts and in law in confirming the addition which was made on the basis of material used at the back of the appellant without giving appellant an opportunity to rebut the same is violation of the principle of natural justice. 8. That the penalty proceedings u/s 271(1)(c) initiated separately against the appellant which was not justified as the appellant did not furnish any inaccurate particulars of income. 9. That the appellant craves leave to add, alter amend or withdraw herein or add any further grounds as may be considered necessary either before or during the hearing.”
2. Facts, in brief, are that for A.Y. 2013-14, under consideration, the assessee was engaged in the business of production of TV Serials. It filed its return of Income on 27.09.2013 declaring total loss of Rs. 64,15,243/-. The case was selected for scrutiny. In response to statutory notices issued by the AO, the assessee furnished requisite information/details and documents. The AO completed the assessment under section 143(3) of the Income-tax Act, 1961 (the “Act”) vide order dated 23.03.2016 determining total loss of Rs. 33,710/- by making addition of Rs. 63,81,535/- on account of disallowance of expenses claimed, other than audit fee of Rs. 33,708/-. Aggrieved against it the assessee preferred appeal before the learned CIT(A), who partly allowed the appeal by deleting the disallowance of expenses to the extent of Rs. 50,80,275/- and sustained the addition of Rs. 13,01,260/- on account of Rent Expense of Rs. 3,07,500/- and Project Expenses of Rs. 9,93,760/- vide order dated 29.01.2018. Aggrieved against the sustenance of addition by the learned CIT(A), the assessee is in appeal before this Tribunal.
No one appeared on behalf of the assessee at the hearing despite service of notice for hearing. Even assessee has not applied for adjournment of hearing.
Therefore, we are constrained to dispose of the appeal, ex parte, qua the assessee, on merits, after hearing learned DR and perusing the material available on record.
Apropos to the grounds of appeal, learned DR relied on the orders of authorities below.
5. After going through the material available on record we find that the learned CIT(A) has upheld the additions on account of rent expenses and project expenses, inter alia, by observing as under:
“5.2 However, as per section 37, the onus is upon the appellant to prove that the expenses were i) revenue in nature, ii) incurred wholly and exclusively for the purpose of business and iii) not in contravention of any law. It is seen from the agreement regarding payment of office rent @ Rs. 41,000 per month(which is effective from 16th August, 2011 to 15th July 2012) that this agreement was in personal name of Ms. Rachna Tiwari and the agreement says that the premises is purely for residential purposes of licensee (Ms. Rachna Tiwari). Apparently, the expenditure is in contravention of law. Also, (apparently) this is not wholly and exclusively for business purposes. Neither during the assessment proceedings, nor during present appellate proceedings, any supporting were produced to controvert this apparent proposition finding. Hence, it is held that, the onus of the appellant remains un-discharged and therefore, expenses of Rs. 3,07,500/- (41000 X 7.5 months) is not allowable u/s 37(1). Similarly, there are expenses of Rs. 9,93,760/- under the head 'Project Expenses'. This Is apparently capital expenditure. Neither during the assessment proceedings, nor during present appellate proceedings, any supporting were produced to controvert this apparent proposition finding. Moreover, there is no corresponding WIP. Also, there is no averment or indication that such project was abandoned and value of corresponding WIP became NIL. Hence, it is held that, the onus of the appellant remains un- discharged and therefore, expenses of Rs. 9,93,760/- is not allowable u/s 37(1).”
From the order of learned CIT(A) it is revealed that learned CIT(A) upheld the disallowance in respect of rent expenses by observing that the premises was purely for residential purposes of licensee and was not wholly and exclusively for business purposes. Similarly, regarding expenses of Rs. 9,93,760/- claimed under the heard ‘Project Expenses’, the learned CIT(A) disallowed the claim treating the same as capital expenditure. In disallowing the claim, learned CIT(A) has specifically mentioned that no supporting evidence was adduced on behalf of the assessee in support of its claim. Before us also no supporting material has been adduced on behalf of the assessee so as to take a different view in the matter. We find no flaw or infirmity in the impugned order of learned CIT(A) and the same is upheld. Grounds are rejected.
Appeal of the assessee is dismissed. Order pronounced in open court on 28th June, 2024.