TaxTMI 
TaxTMI 
2019 (4) TMI 1907
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.... for exhibiting in their theatres. During the previous year relevant to impugned assessment years, audit reports in Form 3CB filed by the assessees mentioned payments made in violation of Section 40A(3) of the Act. Ld. AO required the assessee to explain why cash payments made for purchasing film rights should not be disallowed under the above Section. Assessees thereupon submitted that such payments were made in cash on account of business expediency. As per the assessees, agreements with producers were reached just prior to release date of the film, that too, after the banking hours in many cases. Contention of the assessee was that in such cases, it was constrained to make payments in cash to the producers. However, ld. AO was of the opinion that assessees could not show any exceptional circumstance for making payments in cash and Section 40A(3) of the Act stood attracted. As per the ld. AO, explanation of the assessees did not show any exceptional circumstance warranting an exclusion from the rigours of Section 40A(3) of the Act. Ld. AO also opined that assessees could have used net banking facility for effecting cash payments, if it was urgent to do so. The cash payments effec....
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....ts in favor of Assessees in applying the term business expediency The Assessee have applied their mind to get the distribution rights of film so that the release announced to general public does not fail. This has resulted making Cash Payments but for which the Assessees would have incurred heavy loss by not getting the rights to release these films. The intention of imposing disallowance under Sec 40A(3) to quote the memorandum to the Finance Bill 1968 is to curb wasteful and lavish expenditure and to counter tax evasion and also the Department Officers may not be in a position to identify the payee and reasonableness of payments In the given case the Assessees have given the list of Payees to whom these payments were made, the name of the films for which the payments were made. Further the Assessees have also submitted written statements from the payees affirming these transactions. The Assessees have submitted these details videletter dated 27-6-2016. The learned Assessing Authority has not considered the genuineness of the assessees''. Assessees also submitted a list of the parties to whom cash payments were made alongwith copies of agreements ente....
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....iled the list of the instances where cash payments were made by the assessees for substantiating his contention that these were done only where the gap between the date of release and date of agreement was not morethan two to three days. 6. In support of his argument that compulsions of business was a good reason for exclusion for the application of Section 40A(3) of the Act, ld. AR placed reliance on a judgment of Hon'ble Gujarat High Court in the case of Anupam Tele Services vs. ITO (2014) 366 ITR 122. According to him, the exemptions contained in Rule 6DD was not exhaustive and said rule had to be interpreted liberally. As per the ld. AR, once assessee could show that it was compelled to make cash payments, so as to not to avoid a break-down of its business, such payments would squarely fall within the proviso to Section 40A(3) of the Act. Reliance was also placed on the decisions of Co-ordinate Bench in the cases of Trident Movies vs. ACIT (ITA No.184/Mds/2012, dated 17.01.2013) and ACIT vs. M/s. Safeway Dredging Enterprises (ITA No.1447/Mds/2014, dated 15.07.2016). 7. Ld. Departmental Representative on the other hand submitted that genuineness of the payments was not a c....
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.... Seiyanum Kumaru Power Media 11.06.2013 11.06.2013 14.06.2013 1,25,000 11 Ambikapathy Rite Stone Solutions Pvt. Ltd 26.06.2013 26.06.2013 28.06.2013 40,000 12 Chennai Express Vaaasuu films 07.08.2013 07.08.2013 09.08.2013 40,000 13 Ivan Vera Madhiri Gopuram Films 10.12.2013 10.12.2013 13.12.2013 1,00,000 14 Goli Soda Thirupathi Brothers' 22.01.2014 22.01.2014 24.01.2014 40,000 Total 16,00,000 M/s. Lena Talkies, assessment year 2014-15 Sl. No Picture Name of the Party Date of Agreement Payment Date Release Date Amount in Rs. 1 Kochadaiyan Shanmuga films 22.05.2014 22.05.2014 23.05.2014 6,00,000 2 Vadakari Five Star Pictures 17.06.2014 17.06.2014 19.06.2014 50,000 3 Vela Illa Pattadari Five Star Pictures 17.07.2014 17.07.2014 18.07.2014 3,00,000 4 Yaan Five Star Pictures 30.09.2014 30.09.2014 02.10.2014 1,00,000 5 Vanmam Five Star Pictures 20.11.2014 20.11.2014 &....
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....05/-. Such expenditure incurred by them for previous year relevant to assessment year 2015-2016 is not available on records. In the case of M/s. Vaduganathan Talkies expenditure claimed for purchase of film rights for the previous year relevant to assessment year 2014-2015 came to Rs. 17,52,500/-. Obviously substantial part of the total payments for purchase of film rights were made in cash. It is not as though that such payments were of an insignificant part of the whole. It is also not disputed that assessees were having running bank accounts during the relevant period. One of the reasons cited by the assessees, before the ld. Assessing Officer for not resorting to NEFT/ RGTS was that payments effected through such means could be verified only two hours after the actual payments. However, admittedly, there was not less than 24 hours from the date of agreement and the date of release of movie. Though it has been argued that producers with whom assessees had entered into agreements, were obliged to make payments to financiers for getting their consent for the release, nothing has been brought on record to support this claim. As submitted by the ld. DR, both the assessees had their ....