FILM LOGIC INDIA P.LATD,MUMBAI vs. ACIT (OSD-1) CEN RG 7, MUMBAI

This appeal by the assessee is directed against the order of the CIT(A)-40, Mumbai dated 29.11.2012 for A.Y. 2009-10.

2 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd.

2. The learned CIT(A) guided by wrong impression that expenses in previous year were NIL, whereas fact remains that the expenses were much more than current year but transferred to other company under conducting agreement. The learned CIT(A) failed to appreciate that all day to day expenses, Directors Remuneration and other expenses were due to company wanted to produce the film and as it could not, those expenses are still valid expenses to be adjusted against the income of the company to arrive the net profit of the company.

3. It is prayed that the above additions be deleted.

.”

4. Various opportunities of hearing were afforded to the assessee, however, none was present for the assessee nor were any applications for adjournment filed before the Bench. On the dates on which the Bench did not function, the hearings were adjourned by display on the Notice Board. Once the case was adjourned for want of time. Even issue of notice through RPAD has not elicited any response from the assessee. Today, i.e. 21.04.2016 when the case was called for hearing, none was present for the assessee but the learned D.R. was present for Revenue. In the above factual matrix of the case, we are of the considered opinion that the assessee is not interested in pursuing this appeal seriously and we, therefore, proceed to dispose off this appeal with the assistance of the learned D.R. for Revenue and the material on record.

3 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd.

5. Grounds 1 to 3 5.1 In these grounds, the assessee contends that in the impugned order the learned CIT(A) failed to appreciate that the assessee company, which was in the process of producing films, preferred to sell the script since it was unable to complete the film due to financial difficulties as well as non- availability of artists. It is submitted that the sale of script is part of the film making activities which is the main object of the company and therefore the income of `32,00,000/- from sale of scripts ought to be treated as normal business income and not as ‘income from other sources’ as held by the learned CIT(A)/Assessing Officer (AO). It is further contended that the learned CIT(A) disregarded the fact that all the day to day expenses, Directors remuneration and other expenses were incurred since the assessee wanted to produce a film and inspite of failure on the part of the assessee to do so, the expenses incurred are to be adjusted against the income of the company to arrive at the net profit of the company. 5.2 The learned D.R. was heard in the matter and he placed strong reliance and support on the findings rendered by the authorities below in their respective orders. The learned D.R. also submitted that he had gone through the paper book (pages 1 to 79) filed on 04.02.2016 and submitted that all the details therein are part of the records of assessment and that of the learned CIT(A). It was pointed out that it is certified that the details at S.Nos 1 to 6 (pages 1 to 48) have been filed before the authorities below. The learned D.R. submitted that the written submission dated 29.10.2012 and 02.11.2012 filed by the assessee before the learned CIT(A) have been duly considered by the learned CIT(A) in the impugned order. The learned D.R. pointed out that details at S.Nos. 7 to 9 of the assessee’s paper book (pages 56-79) are only copies of the impugned order of the learned CIT(A), the order giving effect to CIT(A)’s order and the order of assessment which are already a part of the records of assessment. The learned D.R. submitted that all the relevant details in the assessee’s paper book have been already been considered by the authorities below when coming to an adverse finding in the case of hand. It is contended that since the assessee 4 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. has failed to bring on record any material evidence to controvert the findings in the impugned order, the order of the learned CIT(A) be upheld. 5.3.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record. In the impugned order, the learned CIT(A) has dealt with the issue of treatment of receipt of `32,00,000/- from sale of film scripts as ‘income from other sources’ and not business income and thereby disallowing the claim of various expenses made by the assessee at paras 3.2 to 3.42 of the impugned order as under: - 3.2 During the course of assessment proceedings, the AO noted that during the year, the appellant had derived income of Rs.32,00,000/- from sale of cine script to M/s. Pictures Thought P. Ltd. The appellant company was engaged in the business of providing technical services for cine shooting and the equipments had been sold out in earlier years and, as such, it could not be said that the company was engaged in writing of cine script and the same had never been shown as an asset/work-in-progress by the appellant. The AO observed that a company, being an artificial entity, cannot write a cine script and script writing is .a human activity; and that sale was made by the appellant company since the asset (cine script) was an intellectual work of Mr. Ajay Tuli, director, and not the company. In view of the same, the AO held that there was no business transaction involved during the year in the hands of the appellant company, and, hence, the income of Rs.32,00,000/- should be assessed as "income from other sources". Further, since it was held that there was no business activity during the year in the case of the appellant company, the AO disallowed the entire claim of expenses made by the appellant company, holding that the appellant could not establish the reasonableness of the various expenses claimed. Accordingly, he assessed the entire amount of Rs.32,00,000/- under the head "income from other sources", without allowing any expenditure. 3.3 During the course of appellate proceedings, the appellant made the following' submissions vide letter dated 29/10/2012: "(1) As such, it cannot be said that the company was engaged in writing of cine script and the same was never shown as an asset/ Work-in- Progress by the aforesaid company. The learned Assessing Officer has observed that normally company cannot engaged in writing of cine script. But at the same time he further observed that Film Script was not shown as an asset or work-in-progress by the aforesaid company. Therefore there is contradiction in observation as well as findings of learned AO that an-asset can be there as script of company or it can be under work-in-progress ( under making or half cook ) in the company. ( 2 ) Also in addition to the same, it is a fact that a company being an artificial entity cannot write a cine script. However, script writing is always taking by 5 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. an individual capacity. The script writing is a human activity. In the next line the observation and belief of the learned AO has come to conclusion that company being an artificial entity cannot write a cine script. From writing - half cook story - work in progress, the AO reached to conclusion that a company cannot write a script. The observation of AO on literal meaning is correct that a company being artificial entity cannot write a cine script as a artificial entity company cannot do anything and whatever is to be done, it has to be done by its Directors / employees / agents of the company. The script will certainly be written by individual or set of individual or group and it is human activity. But for every activity of the company can be assigned as human activity. Our writing letter to your honor, representing before you is also human activity and we are doing on behalf of the company. With your permission, Your honor is sending notice of hearing, hearing us, will apply mind on our submission and finally pass judgment / order are also an individual / human activity, but your honor is doing for & on behalf of Income Tax Department, which is like company and as such 'Income Tax Department' without individuals cannot do anything. All companies, Government activities, Corporations, Institutions are working like this and if the findings of learned AO is taken into account than everybody's working can be questioned and can be termed as individual activities, which will be grossly incorrect and will create havoc in legal terms. No company can be run by itself and has to be run by some individuals. Any activity can be said as personal because personal touch is necessary but it is intention that this working is done for company becomes the activity of the company. If Mr. Ratan Tata deals on behalf of company, he is doing an activity where he is personally involved but it is for the company. Even sales man of the company is selling the product, he is doing activity personally but it is for the company. For doing the activity, the directors, employees of the company will use funds of the company, place of the company, human resources of the company and above all the intention from the beginning that it is activity of the company and not of personal, which matters most. In our case, we have written script as we were interested to make films under the banner of the company but it could not materialise as it requires lot of funds and we could not arrange financial partners. However, the script and plots on situations were liked by other Directors / Producers, so they shown their interest to purchase the script. They wanted us to come on set of the film but Directors have refused flatly as they do not wish to work as script writer but ready to sale the script / plotting on situations dialogues etc. and agreed that they do not have objection on changes in script/dialogue. In India, it is not so common to purchase film script or idea on particular situation but in Hollywood it is very common and you can buy as many such script / mix those script in your desired manner. The price and conditions of sale/ purchase of script depends upon the strength of both parties. We are enclosing annexure herewith some of such web sites who are in the business of sale of Film/Tv serial Script. Once again on individual activity / company being artificial entity, we are enclosing herewith annexure in which we have just entered internet and found many Architect, Security Services, Coaching Classes are run as company or corporate entity .which are purely domain on human and intellectual activity.

6 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. (3) It is immaterial to emphasize that the sales has been done by the company M/s Film Logic India Put Ltd. Since the asset under consideration is an intellectual work of the Mr. Ajay Tull and not the company. We would like to inform your honor that the learned Assessing Officer has without assigning proper reasons and without substantiating reasons, treated company income as income of one of the Director Mr. Ajay Tuli. We fail to understand how he come to conclusion that it is intellectual work of Mr. Ajay Tuli especially when both directors run the company and taken Directors Remuneration and above all they were assisted by the employees of the company. The learned AO did not gave any reasons for such conclusion. OUR SUBMISSION: We wish to inform you that the company is reputed and was doing good business for last several years. The company was engaged in film / tv related activity and was successfully doing activity of hiring and providing technical services in it broad object of film related activities including making of film. But as there was change of technology from Mechanical to Digital, company had to sale its equipments as prudent business decision. The company has established contacts and well versed with film and its related activities. The need of the hour was to run the company and its show and not to make it a defunct company. The company had to incur on the staff, AC, Electricity, Conveyance, legal expense etc. on day to day basis. This was also necessary to keep face of the company alive by some activity so tomorrow the bank can entertain for loans, to keep alive established contacts with the producers / directors and with the industry. Therefore it was necessary to have some film related activity which they know, they have requisite strength and the objects are achieved, so the directors decided to do various activities, services to film fraternity. One of activity clicked was of script / plotting of situation / dialogue. It is further submitted that the directors have not taken any film or film related activity in their personal capacity for last several years and they have always worked for the company and face of the company was used for such activity. The directors have taken Directors Remuneration as usual, so it was more of even moral binding for the Directors to give value back to the company. The directors used company, the staff of company, place of company, did various expenses and try to create value for the company in terms of sale of script and realized the money. This way the company is survived and is in the film related activity and keeping contacts alive with film / tv industry which will help in future. The company started doing various activities related to film business but script / story is finally clicked for the company as company wanted to produce the film. When we could not start production of film but in the meantime the idea was in circulation, so some directors and producers were interested in such projects as their own. They wanted to have full team as Script Writer but it was flatly refused and finally it was decided that the Scripts will be sold on as is where is basis. Right from beginning it was the activity of the company and not of the individuals. No time it was thought for individuals. In any case this was neither started or at any point of time it was an individual affair. The Directors, the staff were having no confusion rather they were clear that it was affair of the company as there was no afterthought. Their bonafide belief was to promote the company and since 7 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. incorporation of the company they were doing the same without any afterthought. Ultimately the company is of Directors who were taking Directors Remuneration as well as they were owners of the company as shareholders, so there was no thought or intention or doubt in our mind. They were promoting a perpetual existence platform for their own benefit under the normal frame work of income tax or law of the land. There was no shift of activity or even thought from Individual to Company. If at all the Directors wanted to start story / script activity even without intension to produce film in their personal name, they would have entitled to all the expenses as incurred by the company. Therefore there is no revenue loss in either situation if we assess the things from inception. The directors wanted to run the company, carry on business of the company by way of some activity, wanted to keep alive their contacts with the industry, wanted keep moral of employees for which either this activity or other activity was not material as long as they are into film related services or activity. Though it is not relevant to mention but for clarity of thought we are discussing that the company has not undertaken the activity as salaried person but Directors of the company wanted to conduct business activity in the field of Film / Tv/ Media to fulfill the objects of the company for which the company is formed. Had it was taken activity in their (Directors) personal capacity that would have been their personal business / professional activity and would be entitled to all expenses? So there was not even any kind of thought from tax planning point of view. Therefore under no circumstances it can be said of individual activity or can be said individual income was diverted to company at any point of time. If name of the company is kept going and alive tomorrow by doing film related activities, company can obtain Bank Loan, the contacts of the company will be alive which are prized contacts and if goodwill of the company is kept intact, somebody can join hands with them for film production, film equipment or any other film related activity in big way. By doing scattered activity in personal name such things cannot be achieved rather name of the company and its goodwill will fizzle out which is not in the interest of Directors or Company. Once again we say that no company can be run by itself and has to be run by some individuals. Any activity can be said as personal because personal touch is necessary but it is intention that this working is done for company becomes the activity of the company. If Mr. Ratan Tata deals on behalf of company, he is doing an activity where he is personally involved but it is for the company. Even sales man of the company is selling the product, he is doing activity personally but it is for the company. For doing the activity, the directors, employees of the company will use funds of the company, place of the company, human resources of the company and above all the intention from the beginning that it is activity of the company and not of personal, which matters most. The learned officer could not give thought in detail and could not establish any fact. He disregards the fact that both Directors have worked and taken Directors Remuneration, then how this income was added to one of the Director. The expenses incurred for day to day working, employees, conveyance, Rent, Telephone Expenses, General Expenses were not transferred to personal. Just by treating income as personal income, the learned Assessing Officer, has created imbalance as all expenses remains 8 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. with the company and income is transferred. If that is true and Mr. Ratan Tata or Mr. Birla will have huge personal income because for any decision they have to personally involve themselves and all expenses will remain in the company without adjusted against the income. This cannot be the purpose and interpretation of Income tax Act, otherwise it will create havoc. We can give 1000 such example where the person or personal activity is involved for work of the company. The learned Assessing Officer has not given any findings or did not substantiate, why such treatment is given. We feel it is not the correct interpretation and the matter is in first appeal. NOW WE SAY: The learned AO was in haste and did not gave any reasons for treating income of one director only and not both directors, who have taken Directors Remuneration, From where and how, he arrived to such observation. Further the learned AO has disallowed all the expenses of the company as the same was not pertaining to the business. How he arrived to such conclusion. Even a khoka company will also incur some expenses every year. There may be selective disallowance, if observation suggests but cannot be blanket disallowance. The Assessing Officer has bifurcated income separately in the hands of somebody so he cannot claim expenses and Expenses without income disallowed without assigning any valid reasons. According to us learned AO was expected to do justice beyond simply his belief and understanding. The AO cannot believe that such income can be without any expenses and even f company is not doing anything some expenses still will be justified. Finally, we are surprised how the income is treated in the hands of the company as Income from Other Sources, when the same was treated as individual income and no where it is mentioned that it is on protective basis. The company sold the Scripts on as is where is basis and received Rs. 32.00 Lacs as gross income. Out of this the company has given Directors Remuneration of Rs. 12.00 Lacs. The learned AO is silent on the same. One income is tax in different hands, twice even thrice, which cannot and is not the object of Income Tax Act, 1961. The learned AO has also initiated proceedings u/s. 271 (1) © of the income tax act as he feels that company has furnished inaccurate particulars of income. There are many such issues which are not consistent or contradictory. We can only say that the scripts were made for film production but that was requiring finance, actors etc, which could not be materialized. As some Director / Producer found the Scripts worth trying, they purchase the script as is where is basis, of course all plotting were discussed and explained to them but they were free to do whatever changes they deem fit without our objection. The expenses incurred were on day to day activity of the company and besides Script, the company tried to make film, had various meetings for film production with Financers, Directors, Actors and many film related activities they wanted to pursue for having perpetual existence of the company. In our opinion, the main task of the Directors was to keep company alive and look for various activities which company can undertake for its perpetual existence. Hence all expenses as per belief of our client are incurred as legitimate business expenses.

9 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. In view of the above situation, we humbly request your honor to kindly accept the Income declared by your assessee company as per Return of Income filed and oblige." The appellant made further submissions vide letter dated 2/11/2012 as under:- “Re: WHO WROTE THE SCRIPT AND HOW REMUNERATION WAS PAID. The company wanted to produce the film and as team work the Directors with one employee to assist have written the film scripts and discuss those scripts with Artists / their secretaries, other film Directors and film financers / their agents. The Directors were some time discusses those situation or narration to even drivers, employees, film fraternity people who are coming to office. The idea of film scripts come from some English film or old film in new way to present in today's situation. The idea slowly evolves and with discussion it takes shape of script which can be discussed with film Directors / Actors. It is the concept of the film and its one liner with some tit bit situations, they keep discussing the same for many days / months with various people comes into contact to test and improve because ultimate aim is not film script but film production. The epic centre is film concept to have meeting with film director /actor or technician. To produce a film and to tie up with Artist / Actors, one has to go with 3-4 ideas to make the film and whichever is liked by the Artists; the film concept is finalized and then it needs further changes as per Artists / Director / Artist's previous track record. During the process the concept / plotting were getting better and better by way discussions and their inputs for additions or modifications. After vigorous efforts to discuss the same for 8-10 months the proper presentable film script came to existence. Finally when film production was not possible but as film idea / concept was in circulation, some film Directors / Producers shown interest in the concept for their production. The party to whom movie was sold had discussion for joint venture but they wanted to give different treatment and there were many differences which was different than our thinking, cost consideration etc. It was felt if they cannot produce and if party is interested in the concept / Script, why not sale the script. So it was business decision by the company through their Directors to sale the film Scripts. Therefore, no remuneration as specific was paid to any of the Director or employee which can be assigned as remuneration for writing script. The Directors have received Director Remuneration and employees were getting their salaries for day to day company work and idea was to produce the film. The sale of film scripts were decision due to failure to arrange for finance and Artists for the film. Even today the company has not less than 5-6 concept / one liner film concept ready with the company which they are in process to take to the level of film script and film production. These concepts have no value till those sold or some monetary arrangement is made. Re: EFFORTS TO RAISE FILM FINANCE: Your assessee company has tried its best to raise finance from Film Financers. Most of the film financers were ready to finance for Production of Film but their condition or point was who is Artist. If we can show acceptance letter from any big /settled salable artist then they were ready to finance instantly. Last few years, the trend is if we can rope SRK, Salman Khan, Hrithik Roshan, Ajay Devgan, Emran Hashmi, Ranbir Kapoor and few others, 10 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. then finance is not a problem but they usually accept the film from very reputed and tested production houses and do not take risk with new producers. For small budget / small and unknown artists, the financers normally see much risk and difficult to fiancé but these projects the trend is to get co-producer and terms are usually in favour of co-producers. The company could not arrange for A grade artist where finance was easily available and could not tie up for various reasons as co-producer for not very known artists. The Picture Thoughts Pvt. Ltd. were in the film business and wanted to produce the film and had one or two meetings for even co-production, but could not materialize / finalize. The company must have talked to not less than 8-10 financers or their agents for either finance for film production or to bring co-producer of the film. As finance was not taken it is not appropriate to take their confirmation. It is relevant to mention that 4-6 years back, the corporate were not there in the film business. Today the corporate companies are biggest source of finance as they pre-purchase the film from very start of production cycle. It is bit easy but again everybody wants big salable stars with some experiment with conceptual script based film. No doubt situation today with these corporate is better. As desired by your honor, we are enclosing herewith following for your kind perusal:

1. 1. Copy of P&L A/c and B/ S for 3 years of the company. 2. Copy of Memorandum and Articles of Association of the company. 3. Copy of Sale Agreement of Film Script with Perfect Film Pvt. Ltd.

4. There were two film script were sold to M/ s. Picture Thoughts Put. Ltd. for Rs. 32.00 Lacs. a. Film script for super natural thriller - lady enters into body of lawyer and one after murder. This will be very good with special effects. b. Film script for Underworld Romance - Don Daughter is in love with somebody else." 3.4.1 I have gone through the assessment order, perused the submissions and also discussed the case with the AR of the appellant. The AO noted that during the year, the business of the appellant company, i.e. letting out of camera and other equipments, etc. as in earlier years, had come to an end due to sale of equipments. The income of Rs.32,00,000/- shown by the appellant was claimed to be out of sale of two scripts. The AO objected that writing of cine scripts was not Ole business of the appellant and was never shown as asset/work-in-progress in the Balance Sheet. The AO was also of the opinion that a company, being an artificial entity, cannot write cine scripts, which is a human activity involving individual. Accordingly, he held that since the asset under consideration was the intellectual work of Mr. Ajay Tuli, one of the Directors, the income has to be assessed as income from other sources of the appellant. Consequently, all expenses claimed by the appellant were disallowed. Simultaneously, the same income was added in the hands of Mr. Ajay Tuli also, as business income. During the course of appellate proceedings, to verify 11 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. appellant's claim of business income, it was requested to furnish name of the person/persons who wrote the script, amount of remuneration paid for such writing, agreement, if any, for the script writing giving part-wise details of writers of the entire script along with the name of the particular writer of the two scripts and payments attributable to each part of the script. The appellant was also requested to furnish the details of correspondence with bank or any other financier, in support of its claim that loan was to be obtained for starting film production activity or any such evidence to support the claim that film production business was to be taken up. It would be pertinent to mention here that till date, the appellant has not started the business. These details could not be furnished specifically by the appellant. However, it was claimed that the script was written jointly by the Directors and employee of the company. The appellant argued that the work-in- progress is to be shown only when it is half-cooked, which is not the case of the appellant, since the script was sold during the year itself. The appellant also argued that there is no force in the contention of the AO that an artificial entity cannot write a cine script, but the script can always be written by Directors and employees or their agents. It was further claimed that script was written since the company was interested in making films under its own banner, but due to paucity of funds, the same was not materialized. Here it would be relevant to mention that the appellant could not substantiate its claim regarding efforts made to get finance. The appellant further claimed that the AO's conclusion that the script writing was the intellectual work of Mr. Ajay Tuli was misconceived, since there are two Directors and both run the company and took Directors' remuneration and above all, they were assessed to tax as employees of the company. Since the AO has not given any reason for holding the income out of script writing as income of one Director, I find considerable force in this argument. Also the sale of the script, out of which income of Rs.32,00,000/- was received, is not disputed by the AO. The appellant further claimed that the company was engaged in film/T.V. related activity and was successfully doing activity of hiring and providing technical services with the broad objective of film related activities, including making of films. It was claimed that on the same line, script was written, but the same had to be sold on as is where is basis, and, hence, the business activity was of the company and not of the individual. In this regard, let us have a look into the clauses of the Memorandum of Association and Articles of Association of the appellant company. The main object of the company as per the Memorandum of Association reads as under :- "To make Feature Film/ T.V. Serial/ Ad Film/ Documentaries, Audio and/or Visual Cassettes, Distribution of Films, Management of Live Shows/ Event Management, To do business of Leasing/ Hiring/ to give on Rent any equipment/ any Product or Location connected to films of documentaries or Event Management." From the above, it may be noted that script writing by the company is nowhere mentioned as an object of the company. In the incidental or ancillary objects of the company also, writing of script is nowhere 12 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. mentioned. Thus, the company never intended to do the business of script writing. In its submissions, this fact has been admitted by the appellant by stating that the Directors wanted to keep the morale of the employees, for which either this activity or other activity was not material. In view of these facts, the income derived from sale of cine scripts amounting to Rs.32,00,000/- cannot be considered to have been out of the business activity of the appellant and, hence, the same cannot be taxed under the head 'business income'. 3.4.2 Once it has been held that the income is not taxable as business income and there is a receipt of income, the same has to be taxed under the residual head, i.e. under the head 'income from other sources' u/s.56. As per Sec. 57(iii), the expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income is to be allowed as deduction. Now let us have a look on the expenses claimed by the appellant against the income from sale of script. Admittedly, there are no equipments with the appellant for giving them on hire, and, hence, no depreciation could have been claimed. Further, it is noted that the appellant has claimed interest payment of Rs.2,33,588/-, which is paid for the loan taken for purchase of car during the year. It is further noted that the appellant has given loans and advances and deposits of Rs.1,38,28,387/-, on which no interest is being charged. Further, appellant has also received dividend income during the year and, hence, disallowance u/s.14A was also required to be made. The other expenses claimed by the appellant amounting to Rs.33,93,508/-, along with the details of expenses claimed last year, are as under :- As on 31/3/09 As on 31/3/09 Operative expenditure Amount (Rs.) Amount (Rs.) Salaries and Allowances 4,40,550.00 0.00 Directors Remuneration 12,00,000.00 10,50,050.00 Repairs & Maint-Others 2,12,797.00 0.00 Equipment Hire Charges 0.00 47,96,889.00 Bank Charges 6,192.44 0.00 Conveyance 34,722.00 0.00 Electricity Expenses 2,14,797.00 0.00 Insurance - Equipment 0.00 3,43,940.00 Insurance 81,267.00 0.00 Petrol Expenses 36,867.17 0.00 Professional Fees 55,150.00 0.00 Prempayment charges 20,690.19 0.00 Audit Fees 55,150.00 0.00 Rent 3,00,000.00 0.00 Staff Welfare 60,561.97 0.00 Stationery & Printing 3,972.00 0.00 Telephone Expenses 1,71,273.59 0.00 Travelling Expenses 4,90,495.48 0.00 Office Expenses 2,405.00 0.00 Books & Periodicals 6,618.00 0.00 33,93,508.84 61,90,879.00 13 ITA 1007/Mum/2013 M/s. Film Logic India Pvt. Ltd. From the above, it may be noted that salaries and allowances, repairs and maintenance, bank charges, conveyance, electricity expenses, insurance, petrol expenses, professional fees, pre-payment charges, audit fees, rent, staff welfare, stationery and printing, telephone expenses, traveling expenses, office expenses, books and periodicals did not exist in the last year when the appellant was having full- fledged business, which is not there during this year. From the above details of expenses, it may also be noted that last year, against the income shown from letting out of cameras of Rs.47,96,889/-, the same amount was shown to have been paid as equipment hire charges. Directors' remuneration and insurance of equipments was claimed over and above this expenditure. Thus, during last year, the appellant had incurred a loss, despite which directors' remuneration was paid, which does not appear to be a prudent business practice. Further, it may be noted that even without incurring those expenses which have been claimed during this year exclusively, the appellant was doing business. The appellant failed before me to explain as to how the establishment of office was needed during the year under consideration, requiring payment of salaries, staff welfare, telephone, traveling, etc. In the case of Jaipur Electro Pvt. Ltd. vs. CIT (134 CTR 237), the Hon'ble Rajasthan High Court have held that the doctrine that the businessman is the best judge of business expediency does not affect the right and duty of the Assessing Officer to know whether expenditure was incurred for business purposes and not for other extraneous consideration. In view of the facts and legal position as discussed above, the expenses cannot be allowed u/s.37(1). No explanation/justification has been provided by the appellant to state as to how these expenses are attributable to earning of the income from sale of script and are allowable u/s.57(iii). In the case of CIT vs. Arrtritaben Shah [238 ITR 777] the Hon'ble Bombay High Court have held that u/s.57(iii), expenses are allowable only when they are made exclusively for earning the income under the head. In view of these facts, the disallowance of these expenses made by the AO is justified. However, no income can be earned without incurring some expenditure which has to be allowed u/s.57(iii) of the I.T. Act. Accordingly, an amount of Rs.1,00,000/- is allowed on estimate basis, which can be stated to have been laid out or expended wholly and exclusively for the purpose of making or earning this income. The AO is directed to recomputed the income of the appellant after allowing the deduction of Rs.1,00,000/-.” 5.3.2 We observe from the relevant portion of the impugned order extracted (supra) that the learned CIT(A) has, inter alia, considered the records of assessment as also the submissions placed before him vide letter dated 29.10.2012 and 02.11.2012 and which form part of the assessee’s paper book (pages 1 to 56). We also find that the assessee has failed to place on record any material evidence to controvert the findings of the learned CIT(A)/AO that the income from sale of film scripts is to be treated as