INSPIRE FILMS LTD,MUMBAI vs. INCOME TAX OFFICER, MUMBAI

PER SANDEEP SINGH KARHAIL, J.M.

The assessee has filed the present appeal against the impugned order

dated 12/02/2024, passed under section 250 of the Income Tax Act, 1961

(“the Act”) by the learned Commissioner of Income Tax (Appeals), National

Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year

2013-14.

Inspire Films Ltd. ITA no.1827/Mum./2024 AO's) order of disallowing and adding to the total income, the sum of Rs 32,28,387/- after holding the same as cash expenses disallowable u/s 40A(3) of the Income Tax Act, 1961 (IT Act) although the nature of such payment was advance to cashiers and not the cash expenses.

to disallowance under section 40A(3) of the Act.

the record, are: The assessee is a private limited company mainly engaged

in producing television serials in Hindi for various channels in India. For the

year under consideration, the assessee filed its return of income on

30/09/2013 declaring a total income of INR 27,71,780. The return filed by

the assessee was selected for scrutiny and statutory notices under section

143(2) and section 142(1) of the Act were issued and served on the

assessee. During the assessment proceedings, on perusal of the cash book Page | 2

Inspire Films Ltd. ITA no.1827/Mum./2024 of the assessee, it was observed that the assessee made cash payments in

excess of INR 20,000 to a person in a day. Accordingly, the assessee was

asked to show cause why the payments made be not disallowed under

section 40A(3) of the Act. In response, the assessee submitted that the cash

payments appearing in its cash book were made to its employees, who are

also cashiers. The payment was made as advance to them for petty

expenses to be incurred during shooting at different studios and locations.

The assessee further submitted that at the place of shooting, various petty

expenses are incurred towards conveyance, tea, coffee, snacks,

transportation, repairs, maintenance, etc. It was submitted that from the

advance received, the cashiers incur the expenditure as and when required

and give account to the accountant for advance received and expenses

incurred against the same. By referring to the ledger account, the assessee

submitted that the nature of payments is advance for production/production

shoots and expenses are debited in respective heads of expenditure

incurred. The Assessing Officer (“AO”) vide order dated 15/03/2016 passed

under section 143(3) of the Act disagreed with the submissions of the

assessee and held that it is seen from the ledger that the assessee has

made payment to various parties of more than INR 20,000, which is in

violation of the provisions of section 40A(3) of the Act. Accordingly, the AO

disallowed the amount of INR 32,28,387 under section 40A(3) of the Act and

added the same to the assessee.

by the assessee on this issue and held that the assessee has not proved that

no payment has been made in contravention of the provisions of section Page | 3

Inspire Films Ltd. ITA no.1827/Mum./2024 40A(3) of the Act especially when a huge amount of INR 32,28,387 has

been incurred by the assessee through cashiers as no record of having

incurred these petty expenses has been reproduced. Being aggrieved, the

assessee is in appeal before us.

material available on record. In the present case, there is no dispute

regarding the business profile of the assessee that it is engaged in the

business of producing television serials for various television channels. Since

in the cash book of the assessee, certain payments were found to have been

made in excess of INR 20,000 to a person in a day, the AO disallowed the

entire expenditure of INR 32,28,387 under section 40A(3) of the Act. As per

the assessee, the nature of business of the assessee is that of production of

television serials at various locations/studios and in this process, the

assessee also has to incur various petty expenses in the nature of

conveyance, tea, coffee, snacks, transportation, repairs, maintenance, etc.

It is further the plea of the assessee that during the year under

consideration, it made cash payments to four of its employees, who are also

working as cashiers. From the advance so received, the cashiers incur the

expenditure as and when required and give the account to the accountant

for advance received and expenses incurred against the same. Thereafter,

the accountant accounts for the expense debiting the respective heads of

the expenditure incurred. As per the assessee, as against the expenditure

incurred against the advance received by the cashier, each individual

expenditure is less than INR 20,000 and therefore the assessee company

has not incurred any expenditure in cash at any time in excess of INR Page | 4

Inspire Films Ltd. ITA no.1827/Mum./2024 20,000. In this regard, the assessee placed reliance upon the ledger account

of its cashiers in its books, in order to substantiate the plea that payment

was made for petty expenditure during the shooting of television serials. As

per the assessee, cash paid to the cashier is debited to his individual

account as an advance in the books of the assessee and as against these

advances, when accounts are given the expenditure head is debited and the

cashier’s account is credited. During the hearing, the learned AR submitted

that an individual expense ledger account is also maintained day-wise,

wherein the cashier account is reversed. The learned AR also furnished the

sample copy of such ledger. Further, the assessee has also placed on record

sample invoices/vouchers in respect of the expenditure incurred in cash to

show that the expenditure incurred in cash at any time is not more than INR

20,000. It is evident from the record that none of these evidences were

examined by the authorities and merely on the basis that the total amount

of cash paid to each cashier is more than INR 20,000, the addition was

made under section 40A(3) of the Act. Therefore, we are of the considered

view that it is relevant to examine the accounting treatment of these

expenditures in the books of the assessee and also it is necessary to

examine and verify all the ledger accounts in respect of these expenditures.

Thus, we deem it appropriate to restore this issue to the file of the AO for de

novo adjudication after due examination/verification of the details submitted

by the assessee. The assessee is directed to furnish all the details in support

of its plea and also furnish the details as may be called for by the AO

without any default. Needless to mention, no order shall be passed without

affording reasonable opportunity of hearing to the assessee. With the above

Inspire Films Ltd. ITA no.1827/Mum./2024 directions, the impugned order on this issue is set aside and grounds no.1

raised in assessee’s appeal is allowed for statistical purposes.

to the disallowance made under section 40(a)(ia) on account of non-

deduction of tax under section 194C of the Act on payment made for

generator/hire and fuel charges.

the record, are: During the assessment proceedings, upon perusal of the

ledger of expenses debited to the profit and loss account of the assessee, it

was observed that the assessee has not deducted TDS in respect of payment

made to J.K. Films Power. Accordingly, the assessee was asked to show

cause why the expenditure claimed to be not disallowed under section

40(a)(ia) of the Act. In response, the assessee submitted that J.K. Films

Power supplies generator on hire to the assessee. As per the standard

terms, the generator is given on hire at a fixed rate per day/hour basis

along with diesel/oil as per the consumption. As per the assessee, separate

invoices are issued for the sale of diesel/oil, in which the quantity of diesel,

rate, etc. are separately mentioned. Thus, it was submitted that in respect

of generator hire charges TDS has been deducted at source, while in respect

of diesel/fuel purchased from J.K. Films Power, TDS has not been deducted

as the provision of TDS does not attract. The AO disagreed with the

submissions of the assessee and held that provisions of section 194C of the

Act are attracted in the present case. Accordingly, the AO disallowed the

Inspire Films Ltd. ITA no.1827/Mum./2024 entire expenditure of INR 8,10,150 under section 40(a)(ia) of the Act and

added the same to the total income of the assessee.

by the assessee on this issue and held that the assessee has failed to deduct

TDS in accordance with the provisions of section 194C of the Act. Being

aggrieved, the assessee is in appeal before us.

material available on record. As per the assessee, J.K. Films Power supplies

generator on hire to the assessee as and when required. Further, as per the

standard practice, the generator is given on hire at a fixed rate per day/hour

basis. Along with the generator, J.K. Films Power also supplied/sold diesel

and oil as per the consumption and a separate invoice has been issued in

respect of the same. It is the plea of the assessee that in respect of

generator hire charges/attendant charges TDS was deducted at source.

However, with respect to diesel/fuel purchased from J.K. Films Power, the

provisions of TDS are not attracted and therefore TDS was not deducted on

the same. In this regard, during the hearing, the learned AR placed reliance

upon the ledger account of J.K. Films Power in the books of the assessee,

forming part of the paper book from pages 295-297, in order to support the

submission that generator/attendant hire charges were paid after deduction

of TDS. Further, the assessee has also placed on record the invoices raised

by J.K. Films Power, forming part of the paper book from pages 298-321, in

respect of generator and attendant hire charges, which separately mention

the quantity of fuel consumed and the amount charged for the fuel. Thus, it

Inspire Films Ltd. ITA no.1827/Mum./2024 has been submitted that on hiring charges TDS has been deducted as per

the applicable provisions, however, on fuel charges no TDS has been

deducted as the payment was simply in the nature of reimbursement of the

cost of fuel incurred by J.K. Films Power on behalf of the assessee while

providing the same along with the generator. From the perusal of the

aforesaid invoices, we also find that in certain invoices no fuel charges were

charged by J.K. Films Power. As per the assessee, when the generator is on

standby then no fuel charges are paid by the assessee and the same is

based on fuel consumed and the rate of diesel on that day. Thus, it is the

plea of the assessee that the payment made in respect of fuel charges is in

the nature of reimbursement of expenditure on fuel incurred by J.K. Films

Power.

on record, we find merit in the submission of the assessee that no TDS is

applicable on fuel charges paid by the assessee as the same was reimbursed

on a cost-to-cost basis to J.K. Films Power. Further, we are also of the

considered opinion that the provisions of section 194C of the Act cannot

apply to the charges paid for fuel as the payment is not in nature envisaged

under section 194C of the Act, particularly the same is not for the “work” as

defined in Explanation to the section. Accordingly, the AO is directed to

delete the disallowance in respect of payment made in respect of fuel

charges under section 40(a)(ia) of the Act. As regards the payment made

for generator/attendant hire charges, as per the assessee on generator hire

charges no TDS was deducted as it was below the threshold limit provided

under section 194I of the Act. However, on attendant charges TDS at the Page | 8

Inspire Films Ltd. ITA no.1827/Mum./2024 rate of 1% was deducted by the assessee. We find that apart from the

ledger account of J.K. Films Power in the books of the assessee no other

document, such as Form 16A, has been placed on record by the assessee to

support the aforesaid plea. Accordingly, we restore this issue to the file of

the AO limited to the extent of verification of the plea of the assessee that

TDS as per applicable provisions was deducted on generator hire charges

and attendant charges. If upon verification of the necessary documents, it is

found that the TDS as per applicable provisions was deducted, then the AO

is directed to delete the disallowance made under section 40(a)(ia) of the

Act with respect to the generator hire charges and attendant charges. With

the above directions, the impugned order on this issue is set aside and

ground no.2 raised in assessee’s appeal is allowed for statistical purposes.

to the disallowance made under section 40(a)(ia) of the Act on account of

the non-deduction of tax on payment of professional charges.

the record, are: During the assessment proceedings, it was observed that

the assessee made a payment of professional charges to Ms. Annu Pathak

which was claimed by the assessee in its profit and loss account.

Accordingly, the assessee was asked to furnish a copy of the challan with

respect to the TDS deducted. In response, the assessee submitted that the

TDS was duly deducted while crediting the professional fees to the accounts

of the party. The AO, vide assessment order, disagreed with the submissions

of the assessee and held that ongoing through the ledger account of

Inspire Films Ltd. ITA no.1827/Mum./2024 professional fees in the case of Ms. Annu Pathak, it is seen that an amount

of INR 97,250 where the assessee has not deducted TDS under section 194J

of the Act. On the basis that the assessee has failed to deduct TDS, the AO

disallowed the entire sum of INR 97,250 under section 40(a)(ia) of the Act

and added the same to the total income of the assessee. The learned

CIT(A), vide impugned order, dismissed the ground raised by the assessee

on this issue and upheld the disallowance made under section 40(a)(ia) of

the Act. Being aggrieved, the assessee is in appeal before us.

material available on record. During the year under consideration, the

assessee availed professional services of Ms. Annu Pathak, who was the

production manager. As per the assessee, at the time of booking of the

invoice, the professional fees account was debited and party’s account was

credited. Further, TDS entry was passed in party’s account by debiting

party’s account and crediting the TDS payable account. As per the assessee,

subsequently, when the TDS was paid, the TDS payable account was

debited. Therefore, it is the plea of the assessee that in the individual party’s

account, the TDS was deducted as applicable as per the provisions of the

Act. In this regard, reference was made to the ledger account of Ms. Annu

Pathak in the books of the assessee, forming part of the paper book from

pages 251-252. The assessee has also placed on record the copy of Form

16A from the period 01/10/2012 till 31/12/2012 and from 01/01/2013 till

31/03/2013, which forms part of the paper book from pages 253-257. On

the basis of aforesaid documents, it is the plea of the assessee that during

the year under consideration, an amount of INR 1,33,796 was paid to Ms. Page | 10

Inspire Films Ltd. ITA no.1827/Mum./2024 Annu Pathak and on the same TDS was deducted under section 194J of the

Act. No material contrary to the aforesaid evidence was placed on record by

the Revenue.

material available on the record, we find no basis in the disallowance of INR

97,250 made by the AO under section 40(a)(ia) of the Act as the total

payment made to Ms. Annu Pathak was INR 1,33,796 and as is evident from

the Form 16A, the TDS was also deduction under section 194J of the Act on

the aforesaid payment of professional fees. Accordingly, the addition under

section 40(a)(ia) of the Act on account of payment made to Ms. Annu

Pathak is deleted. As a result, the impugned order on this issue is set aside

and ground no.3 raised in assessee’s appeal is allowed.

to disallowance made under section 40(a)(ia) of the Act on account of the

non-deduction of tax on payment for a film set.

the record, are: During the assessment proceedings, from the perusal of the

ledger of expenses debited to the profit and loss account, it was observed

that the assessee has debited expenses in respect of payment made for a

film set. Accordingly, the assessee was asked to produce the copies of

challan with respect to TDS deducted if any. In response, the assessee

submitted that the assessee purchased a ready-made set from M/s Kathasis

Studio Private Limited, which was readily available in the studio and was

used by them for some of the serials. It was further submitted that the asset Page | 11

Inspire Films Ltd. ITA no.1827/Mum./2024 was purchased and the ownership was acquired and therefore there was no

question of deduction of TDS on the payment made. The assessee submitted

that M/s Kathasis Studio Private Limited neither carried out any work nor

provided any services to the assessee company. The AO, vide impugned

order, disagreed with the submissions of the assessee and held that the

assessee is not in the business of purchasing of set and selling it. It was

further held that the studios are in the business of renting ready-made sets

with little modification. Since the assessee did not deduct TDS under section

194J, the entire sum of INR 5,84,000 paid by the assessee was disallowed

under section 40(a)(ia) of the Act and added to the total income of the

assessee. The learned CIT(A), vide impugned order, dismissed the ground

raised by the assessee on this issue and upheld the disallowance made

under section 40(a)(ia) of the Act.

material available on record. As per the assessee, it hires the studio as and

when required and in the studio taken on rent, sets are made by the

assessee as per its requirements. However, on certain occasions, sets are

also taken on rent. As per the assessee, during the year under

consideration, it purchased the ready-made set from M/s Kathasis Studio

Private Limited, which was used by them for some of the serials and was

readily available in the studio. As per the assessee, the set was purchased

and ownership was acquired, hence question of any TDS thereon does not

arise as it was a sale transaction. During the hearing, in support of the

aforesaid submission, reference was also made to the ledger account of M/s

Kathasis Studio Private Limited in the books of the assessee, which forms Page | 12

Inspire Films Ltd. ITA no.1827/Mum./2024 part of the paper book on page 270. From the perusal of the aforesaid

ledger account, we find that it is specifically mentioned that the amount of

INR 5,50,000 was paid towards the purchase of said property at M/s

Kathasis Studio Private Limited. Thus, we find no merits in the findings of

the AO that as per the ledger account, the amount was paid for site rental

charges. Further, the assessee has also placed on record the invoice raised

by M/s Kathasis Studio Private Limited for the sale of set furniture and

shooting properties, which forms part of the paper book on page 258. No

material contrary to the aforesaid evidence was placed on record by the

Revenue. Therefore, from the perusal of the aforesaid documents, we find

merits in the submission of the assessee that the amount was paid for the

sale of the set and thus no TDS is liable to be deducted on same.

Accordingly, the disallowance made under section 40(a)(ia) of the Act is

deleted and the impugned order on this issue is set aside. As a result,

ground no.4 raised in assessee’s appeal is allowed.

purposes.

Order pronounced in the open Court on 17/12/2024.

S SdSd/- dSd/- OM PRAKASH KANT SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17/12/2024

Inspire Films Ltd. ITA no.1827/Mum./2024 Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order

Assistant Registrar ITAT, Mumbai