2017 (1) TMI 1337 - AT - Income Tax

Assessee Prevails in Tax Dispute, Appeals Partly Allowed, Ensuring Fair Application of Laws

ACIT-Central Circle-29, Mumbai Versus M/s. Yash Raj Films Pvt. Ltd. and Vice-Versa

ACIT-Central Circle-29, Mumbai Versus M/s. Yash Raj Films Pvt. Ltd. and Vice-Versa - TMI Issues Involved:1. Deletion of addition on account of disallowance of cost of production.2. Disallowance made under section 40A(3) of the Income Tax Act.3. Addition on account of miscellaneous receipts.4. Disallowance of expenditure incurred via credit cards.5. Addition on account of remuneration paid to directors.6. Disallowance of various expenses including payments to junior artists.7. Addition on account of proportionate cost of production by applying Rule 9A(5).8. Addition on account of production cost.9. Disallowance of professional fees paid to directors.10. Disallowance on account of depreciation of bungalow.11. Relief of Rs. 3.01 crores based on disallowance confirmed in the previous year.12. Non-reduction of Rs. 18 crores added to taxable income in the previous year.Detailed Analysis:1. Deletion of Addition on Account of Disallowance of Cost of Production:The AO observed discrepancies in the impounded and regular books, leading to an addition of Rs. 1.38 crores under bogus expenditure. The FAA deleted the addition, noting the AO did not prove the expenses were bogus. The Tribunal upheld the FAA's order, stating the AO failed to provide reasons for the disallowance.2. Disallowance Made Under Section 40A(3):The AO disallowed 20% of the Rs. 2.75 crores cash payments, amounting to Rs. 55.04 lakhs, due to lack of supporting vouchers. The FAA reduced the disallowance to Rs. 10 lakhs after verifying the cash book. The Tribunal upheld the FAA's decision, noting most expenses were below Rs. 20,000.3. Addition on Account of Miscellaneous Receipts:The AO added Rs. 96.50 lakhs due to differences in impounded books and financial statements. The FAA deleted the addition, accepting the reconciliation statement provided by the assessee. The Tribunal upheld the FAA's decision, noting the AO failed to understand the presentation difference.4. Disallowance of Expenditure Incurred via Credit Cards:The AO disallowed Rs. 29.26 lakhs as personal expenses. The FAA and Tribunal noted the expenses were business-related, as a company cannot incur personal expenses. The Tribunal upheld the FAA's decision, referencing previous years' decisions.5. Addition on Account of Remuneration Paid to Directors:The AO disallowed Rs. 5.15 crores paid to directors under section 40A(2)(b). The FAA deleted the addition, referencing the Tribunal's decision for AY 2006-07. The Tribunal upheld the FAA's decision, noting the remuneration was reasonable and commensurate with the services provided.6. Disallowance of Various Expenses Including Payments to Junior Artists:The AO disallowed Rs. 1.71 crores for payments to junior artists and other expenses. The Tribunal followed the decision for AY 2006-07, allowing 100% deduction for junior artists and restricting other disallowances to 5%.7. Addition on Account of Proportionate Cost of Production by Applying Rule 9A(5):The AO disallowed Rs. 11.88 crores by applying Rule 9A(5). The FAA and Tribunal noted the issue was decided in the assessee’s favor for AY 2006-07. The Tribunal upheld the FAA's decision, allowing the entire cost of production as the movies were released 90 days before the year-end.8. Addition on Account of Production Cost:The AO added Rs. 1.11 crores due to discrepancies in production cost. The FAA deleted the addition, noting the expenses were recorded in audited financials. The Tribunal upheld the FAA's decision, noting the AO did not provide evidence of inflated expenses.9. Disallowance of Professional Fees Paid to Directors:The AO disallowed Rs. 4.86 crores paid to directors. The Tribunal, referencing decisions for AY 2007-08 and earlier years, dismissed the AO's appeal, noting the fees were reasonable and justified.10. Disallowance on Account of Depreciation of Bungalow:The AO disallowed depreciation on a bungalow. The Tribunal, following the decision for AY 2007-08, dismissed the AO's appeal, noting the facts were similar.11. Relief of Rs. 3.01 Crores Based on Disallowance Confirmed in the Previous Year:The AO contested the FAA's direction to give relief of Rs. 3.01 crores. The Tribunal upheld the FAA's decision, noting the income could not be taxed twice.12. Non-Reduction of Rs. 18 Crores Added to Taxable Income in the Previous Year:The AO did not reduce Rs. 18 crores added in AY 2007-08. The Tribunal directed the AO to follow instructions from preceding years and avoid double taxation.Conclusion:The Tribunal's decisions were largely in favor of the assessee, upholding the FAA's orders and ensuring fair application of tax laws without double taxation or unjustified disallowances. The appeals for AY 2005-06 were partly allowed, while those for AY 2006-07 and 2008-09 were dismissed. The assessee's appeal for AY 2008-09 was allowed.