ACIT CIRCLE - 26(2), NEW DELHI vs. VISTAAR RELIGARE FILMS LTD, NEW DELHI

Heard and perused the record. When the case was called for hearing, none has appeared for the assessee. The notices have been issued repeatedly and the same have been received back with the report that there is no such firm at the given address. No more opportunity is justified. Accordingly, arguments of ld. DR were heard who has supported the findings of the ld. AO. It was submitted that the ld.CIT(A) has fallen in error in arbitrarily restricting the addition to 50% of the cost of production of the feature film without appreciating the duplication of expenses.

As we appreciate the matter on record and submissions of Ld. DR, it comes up that the assessee is a special purpose vehicle created in December, 2008 for production of a film ‘Officer Office’ and Vistaar Religare Media Fund and Eagle Film Private Ltd. had jointly produced this movie. Most of the production was done during the F.Y. 2008-09 and 2009-10 and some part of it was done in FY 2010-11. There was dispute between the two firms for which matter went before the Hon’ble Bombay High Court where the Hon’ble Court delivered a verdict in favour of Eagle Film Private Ltd., however, the release of the film was not stayed. The film was released on 5th August, 2011 and as per Court order, Eagle Film Private Ltd. had to pay revenues to Vistaar Religare Media Fund (VRMF) only after meeting out their expenses on production of 2 this film. The box office collection of the film was Rs.1.57 crores (gross) while Eagle Films Pvt Ltd. had incurred expenses totaling to Rs.4.77 crore on production of the film. Since Eagle Films Pvt. Ltd. did not recover their investment in the film, VRMF did not get anything. In such circumstances, the cost of production of Rs.5,41,67,256/- was claimed as business loss during FY 2011-12. Subsequent to the FY 2011-12, no new project had been undertaken by the assessee company till date and the expenses which were necessary for maintaining the corporate entity were incurred and claimed as business loss. The assessee had taken recourse to Rule 9A and 9B which are applicable in case of film production and distribution, but, the ld. AO questioned the same as there was no revenue receipts in the P&L Account. The assessee claimed benefit of a Board Circular No.16/2015 dated 06.10.2015 by treating it as a case of abandoned film. This plea was neither accepted by the ld. AO nor by the ld.CIT(A) as, certainly, it was not a case of abandonment of a film, rather, the film was a failure.

It appears that the ld.CIT(A) has taken into consideration the fact that due to the judgement of the Hon’ble Bombay High Court, the assessee was entitled to the share of the revenue, which though was not actually given to the assessee. Therefore, the non-earning of the revenue cannot be a reason to disallow the expenditure. There is no error in this view because the revenue share became consequential to a court decree assessee cannot be faulted by alleging assessee has not done any business.

However, the ld. CIT(A) mentions that substantial amount of the expenses to the tune of Rs.4.77 crores was also stated to have incurred by M/s Eagle Films Pvt. Ltd., in the production of the same film, so, duplication of certain expenses cannot be ruled out. Therefore, using his judicial discretion, disallowed 50% of the expenses claimed by the assessee. The Revenue is not satisfied with the same.

We are of the considered view that the ld.CIT(A) has fallen in error in allowing relief of Rs.2,70,83,628/- without actually having any evidences of claim of expenses and examining the extent of expenses actually claimed by the M/s Eagle Films Pvt. Ltd. Either such information should have be sought from the assessee or report be called from the AO. Giving relief on ad-hoc basis in the absence of such vital information cannot be sustained. Accordingly, the issue is restored to the file of the ld.CIT(A) to decide afresh in the light of aforesaid observation of this bench. Assessee may also be given an opportunity to make submission on such information if procured on enquiry by Ld. CIT(A) or by remand report from the AO

In the result, the appeal of the Revenue is allowed for statistical purposes only.