ITAT allows assessee's appeals for AY 2009-10 and 2010-11, overturns disallowances, and dismisses revenue's appeals.

The ITAT allowed the assessee's appeals for AY 2009-10 and 2010-11, dismissing the revenue's appeals for both years. The disallowance of the cost of production of TV serials and programs as revenue expenditure was overturned, excess depreciation on 'film software library' was allowed, disallowance of commission paid on advertisement space was rejected, restriction on depreciation for computer accessories was dismissed, and disallowance of depreciation on non-compete fee was remitted for fresh adjudication. The disallowance of employees' contribution to PF & ESI was confirmed by the CIT(A) and not appealed by the assessee.

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Issues Involved:
1. Disallowance of cost of production of TV serials and programs claimed as revenue expenditure.
2. Excess depreciation claimed on 'film software library'.
3. Disallowance of commission paid on sale of space for advertisement in newspapers and television time slots under section 40(a)(ia).
4. Restriction of depreciation on computer accessories.
5. Disallowance of depreciation on non-compete fee.
6. Disallowance of employees' contribution to PF & ESI under section 36(1)(va) read with section 2(24)(x).

Issue-wise Detailed Analysis:

1. Disallowance of Cost of Production of TV Serials and Programs Claimed as Revenue Expenditure:
The AO disallowed the cost of production of TV serials and programs amounting to Rs. 143,49,17,000/- claimed by the assessee as revenue expenditure, treating it as capital expenditure. The CIT(A) confirmed the addition made by the AO. The ITAT, however, referred to the coordinate bench decision in the case of Prism TV Pvt. Ltd., which held that the expenditure incurred on production of television programs should be allowed as revenue expenditure under section 37 of the IT Act. Following this precedent, the ITAT directed the AO to delete the addition made towards the cost of production of TV serials and programs, thus allowing the grounds raised by the assessee.

2. Excess Depreciation Claimed on 'Film Software Library':
The AO allowed depreciation at 15% on 'film software library', treating it as 'plant and machinery', instead of 25% claimed by the assessee treating it as an intangible asset. The CIT(A) confirmed the disallowance. The ITAT, referring to its decision in the assessee's own case for AY 2007-08, held that the 'film software library' should be treated as an intangible asset eligible for depreciation at the rate of 25%. Consequently, the ITAT dismissed the ground raised by the revenue on this issue, affirming the assessee's claim.

3. Disallowance of Commission Paid on Sale of Space for Advertisement in Newspapers and Television Time Slots under Section 40(a)(ia):
The AO disallowed Rs. 101,35,38,405/- under section 40(a)(ia) for failure to deduct TDS on agents' commission for sale of advertisement space. The CIT(A) deleted the disallowance, following the decision in the assessee's own case for AY 2006-07. The ITAT upheld the CIT(A)'s decision, referencing its earlier decisions in the assessee's own cases and a CBDT Circular clarifying that TDS is not required on payments made by TV channels/newspaper companies to advertising agencies. Thus, the ITAT dismissed the revenue's appeal on this ground.

4. Restriction of Depreciation on Computer Accessories:
The AO restricted depreciation on computer accessories to 15%, disallowing the excess claim of Rs. 17,61,897/-. The CIT(A) deleted the disallowance, following the decision in the assessee's own case for earlier years. The ITAT upheld the CIT(A)'s decision, referring to its earlier decision in the assessee's own case for AY 2002-03 & 2003-04, where it was held that depreciation at 60% on computer peripherals should not be disallowed. Thus, the ITAT dismissed the revenue's appeal on this ground.

5. Disallowance of Depreciation on Non-Compete Fee:
The AO disallowed depreciation on non-compete fee of Rs. 109.92 crores, questioning the genuineness and necessity of the payment. The CIT(A) confirmed the disallowance. The ITAT, referring to its decision in the assessee's own case for AY 2008-09, remitted the issue back to the AO for fresh adjudication, directing the AO to consider the impact of the investment made by Equator Trading Enterprises Pvt. Ltd. and the necessity of the non-compete fee. Thus, the ITAT allowed the ground for statistical purposes.

6. Disallowance of Employees' Contribution to PF & ESI under Section 36(1)(va) Read with Section 2(24)(x):
The CIT(A) confirmed the disallowance of employees' contribution to PF & ESI amounting to Rs. 2,90,527/-. The assessee did not appeal against this disallowance, and hence it was not adjudicated by the ITAT.

Conclusion:
The ITAT allowed the assessee's appeals for AY 2009-10 and 2010-11, with the appeal for AY 2010-11 allowed for statistical purposes, while dismissing the revenue's appeals for both assessment years.

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