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

4. The Ld CIT (A) erred in law and in facts of the case in confirming the AO's order of adding an amount of Rs 5,84,000/- u/s 40 (a)(ia) of the IT Act despite the fact that such payment made was not on account of hire charges paid but actually it was the purchase price/consideration of furniture and shooting set, from Kathasis Studio Pvt Ltd and therefore the same did not attract the provisions to make TDS.

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.

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

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.

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.

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.

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.

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.

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.

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.

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