Tribunal modifies disallowances in tax appeals, limits car expenses to 5%, deletes adhoc film production disallowance.

The Tribunal allowed the appeals in part, directing the deletion or restriction of specific disallowances. The disallowance related to costume and dress expenses was deleted, while for car insurance, depreciation on car, and motor car expenses, the disallowance was limited to 5%. The addition under Section 14A read with Rule 8D was restricted to Rs. 1,00,000. The disallowance of expenditure on purchasing paintings was deleted, and the adhoc disallowance on various film production expenses was also deleted. The Tribunal maintained consistent reasoning for the assessment year 2009-2010, restricting disallowances on motor car expenses, depreciation, costumes and dresses, and telephone expenses to 5%.

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Issues Involved:
1. Adhoc disallowance of car insurance, depreciation on car, motor car expenses, and costume and dress expenses.
2. Addition under Section 14A read with Rule 8D.
3. Disallowance of expenditure on purchase of paintings.
4. Adhoc disallowance of various expenses related to film production.

Detailed Analysis:

1. Adhoc Disallowance of Car Insurance, Depreciation on Car, Motor Car Expenses, and Costume and Dress Expenses:
The assessee challenged the adhoc disallowance of 10% made by the AO on various expenses, including car insurance, depreciation on car, motor car expenses, and costume and dress expenses, arguing that these disallowances were unjustified. The Tribunal observed that the assessee, being a TV anchor, required expenditure on costumes and dress materials for professional purposes. Referring to a similar case (Ameesha A. Patel), the Tribunal noted that once the AO accepts such expenses as incurred wholly and exclusively for professional purposes, it cannot be disallowed as personal expenses. The Tribunal directed the deletion of disallowance related to costume and dress expenses. However, for car insurance, depreciation on car, and motor car expenses, the Tribunal restricted the disallowance to 5%.

2. Addition Under Section 14A Read with Rule 8D:
The assessee contested the addition of Rs. 2,25,213 under Section 14A read with Rule 8D, arguing that the AO mechanically applied Rule 8D without substantiating that any expenditure was incurred to earn exempt income. The Tribunal noted that Rule 8D was not applicable for the assessment year 2007-08 as per the Bombay High Court verdict in Godrej & Boyce Mfg. Co. Ltd. The Tribunal restricted the disallowance to Rs. 1,00,000, considering the totality of facts and circumstances.

3. Disallowance of Expenditure on Purchase of Paintings:
The assessee argued against the disallowance of Rs. 94,53,684 incurred on purchasing paintings, which the AO treated as capital expenditure. The Tribunal noted that the cost of production of a feature film, as defined under Rule 9A of the I.T. Rules, 1962, includes all expenditure incurred on production, excluding specific items. The Tribunal found that the paintings were part of the cost of production and directed the AO to delete the disallowance, as the CIT(A)'s assumption of personal usage was not based on evidence.

4. Adhoc Disallowance of Various Expenses Related to Film Production:
The assessee contested the adhoc disallowance of 15% on various expenses incurred for the movie "Kavi Alvida Na Kehna," including payments to junior artists and technicians, costumes and dresses, makeup and hairdressers, dubbing, sound recording, dancers and dance expenses, and setting expenses. The AO made these disallowances due to the non-production of certain technical documents. The Tribunal noted that the required documents were not part of the prescribed books of accounts under Rule 6F and that the expenses were supported by bills and vouchers. Referring to a similar case (M/s Dharma Productions Pvt. Ltd.), the Tribunal directed the deletion of the adhoc disallowance, as the technical documents were not required to be maintained.

Assessment Year 2009-2010:
For the assessment year 2009-2010, the Tribunal followed the same reasoning and restricted the disallowance out of motor car expenses and depreciation on motor car to 5%. It deleted the adhoc disallowance of costumes and dresses expenses and restricted the disallowance on telephone expenses to 5%. The Tribunal found no merit in the adhoc disallowance of selling expenses.

Conclusion:
The appeals were allowed in part, with specific disallowances being deleted or restricted as per the Tribunal's detailed analysis.

Order Pronounced:
The order was pronounced in the open court on 15/04/2015.

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