LATE SHRI JHAMU SUGHAND, THROUGH LEGAL HEIR SMT PUSHPA J SUGHAND,MUMBAI vs. ITO 11(1)(2), MUMBAI

In this appeal, assessee is aggrieved for disallowance of interest of Rs.8,08,549/- on the plea that interest bearing funds was diverted to the non-business purposes. The assessee is also aggrieved for disallowance of amount of Rs.17,79,000/- written off during the year.

Rival contentions have been heard and record perused. The brief facts of the case are that the assessee is in the business of producer, distributors and financier of films. The disallowance of interest so made in 2 the original assessment order was restored by the ITAT vide its order dated 22-9-2010 with a direction to verify the factual contention, the nature of advances given and the availability of the interest free funds. In the set aside proceedings, the AO has confirmed the disallowance.

Ld. AR drew our attention to the non-interest bearing funds of Rs.19.16 crores, against which assessee has made the impugned advances.

From the record, we found that the assessee is a film financer, producer and distributor and all the assets and corresponding liabilities are relatable to commerce, trade and business and as such, there is no diversion of funds whatsoever for any personal or non-business purpose, nor are there any non-business advances or any non-business advance to any sister concern. Furthermore, the non-interest bearing funds available in business are Rs.1917 lacs as against alleged non-interest bearing business advances of Rs.1391 lacs. As such, there is no nexus to interest bearing borrowed funds with non-interest bearing business advances. In any case non-interest bearing funds available in Business are larger than non interest bearing business advances. Accordingly, no disallowance on account of interest expenditure is warranted. The advances so made was in the course of business and for the purpose of business. Whatever interest bearing loans was taken by the assessee, that was for the purpose of assessee’s business of film production and financier. Since the advance was given for the purpose of business, no 3 disallowance of interest is warranted, more particularly when the assessee was having sufficient non-interest bearing funds. Accordingly the AO is directed to delete the disallowance of interest.

With regard to assessee’s claim of bad debt written off, we found that advance was given by the assessee in the course of its business of film distribution and shown in the balance sheet as such and also assessed as such year after year.

From the record we found that similar advances was given by the assessee company and written off in the books as not recoverable, was allowed by the Tribunal in assessee’s own case vide its order dated 29-8- 2012, passed in for the assessment year 2006-07 & 2007-08. As the nature of advance is same, respectfully following the order of the Tribunal in assessee’s own case, we do not find any merit for the disallowance of assessee’s claim of bad debts written off. The assessee’s case is also supported by the recent CBDT Circular No.16/2015, dated 6-10-2015, wherein it is provided that the cost of production of an abandoned feature film is to be treated as revenue expenditure and allowed as per the provisions of Section 37 of the Income Tax Act. In this case also, the advances were given in respect of film which was abandoned, therefore, the advances could not be recovered and claimed by the assessee by writing off the same. We do not find any justification for decline of assessee’s claim of written off of bad debts.