AO directed to recompute book profit under section 115JB allowing brought forward losses resulting in nil tax liability

ITAT Mumbai directed AO to recompute book profit under section 115JB allowing brought forward losses/unabsorbed depreciation per books, resulting in nil tax liability. Share application money addition under section 68 was remanded for fresh examination considering investor's creditworthiness and genuineness. Expenditure on animated episodes and in-house production costs were allowed as revenue expenditure in the year of telecast, rejecting CIT(A)'s three-year spreading formula. TDS disallowance under section 40(a)(ia) was deleted following Bombay HC precedent that retrospective amendments cannot create impossible compliance obligations. Surplus on demerger was correctly added to book profit under section 115JB. Provision for doubtful advances was properly disallowed as it represents asset diminution. Section 14A disallowance was deleted due to absence of exempt income. Professional fees for demerger were correctly allowed under section 35DD over five years. Mismatch between books and Form 26AS was remanded for reconciliation.

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The judgment involves the following Issues:

1. Addition to book profits due to surplus on demerger.
2. Addition to book profits due to provision for doubtful advances.
3. Disallowance under section 14A.
4. Quantification of brought forward book losses or unabsorbed depreciation.
5. Deduction of legal and professional fees under section 35DD.
6. Form 26AS mismatch.
7. Content cost amortization.
8. Disallowance under section 40(a)(ia) for carriage fees/channel placement fees.
9. Addition under section 68 for share application money.

Issue 1: Addition to Book Profits Due to Surplus on Demerger
The assessee argued that the surplus on demerger should not be added to book profits under section 115JB. The Tribunal upheld the CIT(A)'s decision, noting that the surplus arising from the transfer of the undertaking under demerger should be included in the book profits as per the provisions of section 115JB.

Issue 2: Addition to Book Profits Due to Provision for Doubtful Advances
The Tribunal confirmed the addition of Rs. 1,42,63,197 representing provision for doubtful advances to the book profits under section 115JB, citing the retrospective amendment to section 115JB which requires such provisions to be added back.

Issue 3: Disallowance under Section 14A
The Tribunal ruled that since there was no exempt income earned during the year, no disallowance under section 14A could be made. Consequently, no adjustment to the book profits under section 115JB was required.

Issue 4: Quantification of Brought Forward Book Losses or Unabsorbed Depreciation
The Tribunal directed the AO to compute the book profits by deducting the lower of the brought forward book losses or unabsorbed depreciation as per the books of accounts. The Tribunal noted that the lower amount was Rs. 31,54,53,321, which should be allowed after verification.

Issue 5: Deduction of Legal and Professional Fees under Section 35DD
The Tribunal upheld the CIT(A)'s decision to apply section 35DD, allowing only 1/5th of the legal and professional fees paid for demerger assistance in the current year and directing the balance to be amortized over the next four years.

Issue 6: Form 26AS Mismatch
The Tribunal restored the issue of mismatches between the books of accounts and Form 26AS to the AO for verification. The assessee was directed to reconcile the discrepancies and provide necessary explanations.

Issue 7: Content Cost Amortization
The Tribunal directed the AO to follow the decision in the assessee's case for AY 2008-09, allowing the cost of animated character episodes and in-house production costs as revenue expenditure in the year they were telecast. The remaining costs were to be amortized over three years.

Issue 8: Disallowance under Section 40(a)(ia) for Carriage Fees/Channel Placement Fees
The Tribunal ruled in favor of the assessee, citing the Bombay High Court's decision in NGC Networks (India) Pvt. Ltd., which held that retrospective amendments cannot impose a TDS liability for past years. The disallowance under section 40(a)(ia) was deleted.

Issue 9: Addition under Section 68 for Share Application Money
The Tribunal restored the issue of addition under section 68 for share application money received from NSR PE Mauritius LLC to the AO for fresh examination. The AO was directed to consider all evidence and information received from the Mauritius tax authorities and decide the issue afresh.

Conclusion
The appeals of both the assessee and the AO for AY 2011-12 and 2012-13 were partly allowed, with several issues restored to the AO for fresh examination and verification.

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