2008 (8) TMI 600 - AT - Income Tax

Tribunal Overturns Motor Car Expense Ruling, Upholds 'Ghulam' Expenses; Denies Deductions, Allows Future 'Ashique' Expenses.

The Tribunal ruled on several issues, partially allowing the appeals. The disallowance of motor car expenses was overturned, favoring the assessee, as a ... Disallowance u/s 37 on Motor Car Expenses - Addition out of expenses for want of verification - Disallowance of loss on Film produced exclusively for TV telecast. Disallowance u/s 37 on Motor Car Expenses - comprising of car maintenance, insurance, interest on car loan and depreciation thereon - AO disallowed 1/6th of Motor Car Expenses on account of personal use by the Directors - HELD THAT:- Admittedly, the assessee company is a Corporate entity and the various Benches of the Tribunal have taken a consistent view that in case of a legal entity no disallowance could be made on account of personal user. Hon’ble Gujarat High Court in the case of Sayaji Iron & Engg. Co.[2001 (7) TMI 70 - GUJARAT HIGH COURT] has also held so. Accordingly, we hold that no disallowance out of car expenses is warranted. Thus, this ground of the assessee stands allowed. Addition out of expenses for want of verification - claimed expenses on total cost of production of film for various expenses which were not signed, hence, disallowed a sum - onus for allowability of any expenditure - HELD THAT:- It is noted that these expenses have been incurred through self-made vouchers, which are not acknowledged by the recipients, hence, having regard to the possibility of inflation of expenses, in this manner and also for want of verification, we confirm the Order of the ld. CIT(A). Thus, this ground of the assessee stands dismissed. Disallowance of loss - Film produced exclusively for TV telecast - Assessee claimed that mode and technology of producing films for TV is different from film produced for theatrical exhibition - claimed that if sub-rule 9A(6) was applied then the assessee was entitled for full amortization of cost of this film - HELD THAT:- We find that the assessee has taken a Certificate from Central Board of Film Certification, which is valid for theatrical release only. Hence, how a film produced for theatrical release, having a different material/technology, can be claimed to have been produced exclusively for TV telecast and if it is not so, then, why the Certificate from the Censor Board, was obtained. The assessee has also claimed that the premier of this film took place on the TV. However, in the present case, the assessee has entered into assignment agreement with Zee Tele Films on 23-4-1999 i.e., much after the date of production as well as approval by the Censor Board. Hence, in the absence of any material on record to show contrary, claim of the assessee that this film was produced exclusively for TV is also rejected. The assessee has mainly claimed that if sub-rule 9A(6) was applied then the assessee was entitled for full amortization of cost of this film, however, it has not given any basis for such claim except stating that it was meant for television which we have already found that is not a correct fact and even if it is correct fact then the said claim is not supported by the accounting practice constantly followed for the reason that even in a case of TV broadcasting the production houses engaged in producing television programmes follow different accounting practices and the said accounting practices are based upon the nature of assignment of television rights, the nature of television programmes i.e., whether the said television programmes are commissioned programmes or sponsored programmes because in the case of commissioned programmes, revenue is recognized when the programme is delivered and in the case of the Sponsored Programmes, the revenue is recognized upon telecast and, accordingly, the cost of production of television programmes is claimed as deduction or is carried forward, hence, it cannot be said that in the case of TV Film, the cost of production is amortized necessarily in the year of assignment of telecast rights. Thus, having regard to the entire facts and circumstances of the case, we confirm the findings of the ld. CIT(A). Accordingly, this ground of the assessee is dismissed. Thus, both appeals stand partly allowed. Issues Involved:1. Disallowance of Motor Car Expenses2. Claim of Depreciation on Certain Assets3. Addition of Expenses for Want of Verification4. Disallowance of Loss in Respect of Film 'Ashique'5. Deduction Under Section 80-IA of the Income-tax Act6. Set Off of Unabsorbed Brought Forward Depreciation7. Additional Expenses as Part of Cost of Production of Film 'Ashique'8. Deduction Under Section 80-IB of the Income-tax ActDetailed Analysis:1. Disallowance of Motor Car Expenses:The assessee challenged the disallowance of 1/6th of Motor Car Expenses by the Assessing Officer (AO) on account of personal use by the Directors. The Tribunal noted that the assessee company is a corporate entity and, based on consistent views from various Tribunal Benches and the Hon'ble Gujarat High Court in the case of Sayaji Iron & Engg. Co. v. CIT, held that no disallowance could be made for personal use in the case of a legal entity. Thus, this ground was allowed in favor of the assessee.2. Claim of Depreciation on Certain Assets:The assessee did not press this ground, and hence, it was dismissed as not pressed.3. Addition of Expenses for Want of Verification:The AO disallowed Rs. 3,15,000 from the cost of production of the film 'Ghulam' due to lack of verification of expenses. The Tribunal upheld the disallowance, noting that the expenses were incurred through self-made vouchers not acknowledged by the recipients, which raised the possibility of inflation of expenses. Thus, this ground was dismissed.4. Disallowance of Loss in Respect of Film 'Ashique':The assessee claimed a loss of Rs. 99,91,212 for the film 'Ashique,' arguing it was produced for TV release and not subject to Rule 9A of the Income-tax Rules. The AO and CIT(A) rejected this claim, noting that the film was certified for theatrical release and Rule 9A applied. The Tribunal upheld this view, stating that exhibition on TV fell within the ambit of Rule 9A and the assessee did not demonstrate the impracticability of applying Rule 9A. Thus, this ground was dismissed.5. Deduction Under Section 80-IA of the Income-tax Act:The assessee claimed deduction under section 80-IA for the film 'Ghulam,' arguing that film production amounted to manufacture or processing of goods. The CIT(A) rejected this claim, noting that the assessee did not have a specific location or substantial plant and machinery for production, and relied on hired equipment. The Tribunal upheld this finding, noting the assessee did not counter the CIT(A)'s findings. Thus, this ground was dismissed.6. Set Off of Unabsorbed Brought Forward Depreciation:The assessee did not press this ground, and hence, it was dismissed as not pressed.7. Additional Expenses as Part of Cost of Production of Film 'Ashique':The assessee sought to include additional expenses of Rs. 1,68,800 as part of the cost of production of the film 'Ashique.' The CIT(A) rejected this claim for the current year but did not direct the AO to consider it in the next year. The Tribunal directed the AO to allow these expenses in the next year after due consideration. Thus, this ground was accepted.8. Deduction Under Section 80-IB of the Income-tax Act:The assessee contested the denial of deduction under section 80-IB, fearing it might affect future profits. The Tribunal upheld the CIT(A)'s rejection of this claim, consistent with the earlier year's findings. Thus, this ground was dismissed.Conclusion:Both appeals were partly allowed, with some grounds decided in favor of the assessee and others dismissed.