TaxTMI 
TaxTMI 
2015 (10) TMI 1083
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....ment expenditure of Rs. 4,44,49,789/- and claimed the same as deduction. The AO noticed that the assessee has incurred the advertisement expenditure after the issue of certificate by the Censor Board. The AO took the view that the assessee is not entitled to claim advertisement expenditure as deduction in view of the provisions of Rule 9A and 9B of I.T Rules, since it has been incurred after issuing of certificate by Censor Board. Accordingly he disallowed the claim of advertisement expenses and the same was also confirmed by Ld CIT(A). 3. We heard the parties on this issue. Since, the dispute revolves around the provisions of Rule 9A and Rule 9B, we feel it pertinent to extract the relevant provisions below:- "9A. [(1) In computing the profits and gains of the business of production of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film producer), the deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year shall be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4). Explanation : In this rule,- (i) "Board of F....
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.... production of the film in so far as it does not exceed the amount realised by the film producer by exhibiting the film on a commercial basis or the amount for which the rights of exhibition are sold or, as the case may be, the aggregate of the amounts realised by the film producer by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year. (4) Where, during the previous year in which a [***] feature film is certified for release by the Board of Film Censors, the film producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year; and the entire cost of production of the film shall be carried forward to the next following previous year and allowed as a deduction in that year. [(5)] Notwithstanding anything contained in the foregoing provisions of this rule, the dedu....
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....ilm is delivered by the film producer to the film distributor. [(8)] [Nothing contained in this rule shall apply in relation to any assessment year commencing before the 1st day of April, 1987.] [***]" 9B. (1) In computing the profits and gains of the business of distribution of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film distributor), the deduction in respect of the cost of acquisition of a feature film shall be allowed in accordance with sub-rule (2) to sub-rule (4). Explanation : For the purposes of this rule, "cost of acquisition", in relation to a feature film, means the amount paid [by the film distributor to the film producer or to another distributor under an agreement entered into by the film distributor with such film producer or such other distributor, as the case may be] for acquiring the rights of exhibition and, where the rights of exhibition have been acquired on a minimum guarantee basis, the minimum amount guaranteed, not being- (i) the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film; and (ii) the expenditure incurre....
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....sis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of acquisition of the film in computing the profits and gains of such previous year; and the entire cost of acquisition shall be carried forward to the next following previous year and allowed as a deduction in that year. (5) Notwithstanding anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless- (a) in a case where the film distributor,- (i) has himself exhibited the feature film on a commercial basis; or (ii) has sold the rights of exhibition of the feature film; or (iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas, the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold, or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible ; (b) in a case where the film distribu....
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.... the beginning of the previous year and as per Rule 9A of the Income Tax Rule the entire cost of production is allowable deduction. The CIT(A) has enhanced the disallowance by invoking Rule 9A in respect of the amount of Rs. 41,43,240/- on account of positive films and a sum of Rs. 2,26,30,328/- on account of advertisement and publicity. The reason for disallowance by the CIT(A) is that the advertisement/publicity expenditure is not part of the cost of production therefore, is not allowable as per Rule 9A. The decision relied upon by the CIT(A) are only in respect of the disallowance of expenditure under Rule 9A or 98 whereas the expenditure which do not form part of the cost of production cannot be disallowed by invoking Rule 9A and therefore, the same is allowable u/s 37 of the Income Tax Act as held by the Hon'ble Madras High Court in case of CIT Vs Prasad Production Pvt. Ltd.(supra) at page no. 156 and 157 as under: "Only during the course of the pendency of the appeal before the Appellate Assistant Commissioner, the assessee exercised an option as per rule 9A of the Rules and under Explanation (ii )(a) to rule 9A(1), the expenditure incurred for the preparation of the p....
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...., we are of the view that that decision does not in any manner assist the revenue In that case, the assessee claimed deduction of a certain amount in the computation of its profits and gains of the business by way of contribution to the superannuation fund of its foreign collaborators and that claim was disallowed by the authorities below. However, the Tribunal held that though that amount was not an allowable deduction under section 36(1)(ii) of the Act as the contribution was not to a recognized provident fund or to an approved superannuation fund nor could be allowed under section 37 of the Act, the payment was allowable under section 28 of the Act. On a reference, it was held that the nature of payment being one described in section 36(1)(iv) of the Act and as it could not be deducted under that section, it cannot be held to be deductible under section 28 on general principles in arriving at the true profits and gains of the business in a commercial sense. In the view we have taken that the expenditure incurred in connection with the obtaining of positive prints is really in the nature of post-production expenditure and that there is no provision in the Act or the Rules obligin....
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....erefore, follows that an ancillary channel, at any rate, cannot neither abridge rights or privileges granted by the statute itself nor confer any special benefits, rights or privileges beyond the provisions of the Act or in contradiction to the provisions of the legislative enactment because the object subordinate legislation is to carry out the statutory provisions effectively and not to neutralize or contradict them. If delegated legislation results into any such situations that would amount to legislation itself and which cannot be abdicated by the Legislature. In this view of the matter, it is not within the power of the Central Board of Direct Taxes to create a legal fiction like rule 9A in the fashion as contended by learned counsel for the assessee because this interpretation would go beyond the legislative policy enacted in the form of section 37(2), 37(2A), 37(3) etc. of the Act and make rule 9A void. It is also a settled judicial principle that subordinate legislation in case of conflict must yield to plenary legislation. The negative covenant/restricted provisions like section 37(2A) have been enacted with the object of restricting the deduction of expenditure which is o....
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....claimed by the assessee under the following heads on the reasoning that the assessee has failed to produce primary evidences relating to these expenses:- (a) Payment made to Junior artistes (b) Costumes & Dresses (c) Make up & hair dressers (d) Dubbing, song recording & mixing expenses (e) Dancers expenses & co-ordination charges (f) Setting expenses The Ld CIT(A) also confirmed the same. 6. The Ld A.R submitted identical issues were considered by the Co-ordinate bench of Tribunal in the assessee's own case relating to AY 2006-07 (supra), wherein the Tribunal deleted the disallowance pertaining to Payment made to Junior Artistes and restricted the disallowances made from other items of expenses at 5%. The Ld A.R submitted that the assessee has been maintaining all the vouchers with proper details and hence disallowances are not called for. He submitted that the assessee is required to prepare continuity report by director, Log book w.r.t. hiring of employees, Film Editors report, copies of call sheets and rehearsal book for planning the shooting. He submitted that the assessee destroys all these documents after completion of the shooting, as they are no long....
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....in AY 2006-07 also. They were considered by the co-ordinate bench of Tribunal and the Tribunal has deleted the disallowance made out of payment made to Junior artistes and restricted the disallowances in respect of other items of expenses to 5% by following the decision rendered by the Tribunal in the case of Yas Raj Films Pvt Ltd (supra). 10. In the instant year, the AO has taken the assessee has failed in his obligation to substantiate its claim for expenses. The AO has taken the view that the following records are necessary to examine the claim made by the assessee towards expenses:- (a) Time Table relevant for checking correctness of Studio hire expenses. (b) Film Editor's Report relevant for ascertaining consumption of raw film. (c) Laboratory registers give details of footage of negatives, positives and sound film processed for particular picture. (d) Call Sheets containing details of artistes, junior artistes and technicians engaged on any particular day for shooting. (e) Rehearsal Book containing details of artistes participating in rehearsals. (f) Statement given by Controller of Production relating to arrangements made for shooting. However accordi....
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....s maintained by the assessee along with bills vouchers were produced" and again at page 15 stating that "during the course of assessment proceedings the assessee has produced various details / vouchers/ bills etc. for verification". It is not the case of the A.O. that the expenses incurred, is bogus. Thus, the ratio of the finding in the case of M/s Dharma Productions Pvt Ltd in respect of the documents called for by the A.O., is also applicable in the given case, as the facts of both the cases are identical. Since in the instant case proper records have been maintained and also furnished before the AO and it was only the case of non-production of technical documents relating to production of films, the disallowance was made by the AO. However, a clear finding has been given by the Tribunal in the case of M/s Dharma Production Pvt. Ltd. that these technical documents are not required to be maintained. Accordingly, we do not find any merit for adhoc disallowance merely for the reasons that such technical documents relating to production of films were not produced by the assessee. Accordingly, we direct the AO to delete the adhoc disallowance so made." In the above said case, the ....