TaxTMI 
TaxTMI 
2026 (8) TMI 550
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....ity of the assessee. (ii) The Ld CIT(A) has failed to consider that the payment of Rs. 3,00,00,000/- by the assessee as compensation was based on a consent and not based on any finding of the Hon'ble High Court of Mumbai who identified the expense as a legal liability of the assessee. (iii) The Ld.CIT(A) has failed to consider the assessee, vide its Advocate's letter dated 15th October 2018, has sought to disassociate himself from M/s Movie Makers Inc who had actually signed MoU with M/s Essel Vision Production P Ltd and are legally liable to compensate for the non-completion of the movie. (iv) The Ld.CIT(A) failed to consider that M/s Essel Vision Production P Ltd had paid M/s Movie Makers Inc a sum of Rs 4,25,00,000/- for making of the project and not the assessee and therefore, the legal liability of the assessee to compensate for non- performance on an agreement that he did not sign does not arise. (v) The Ld.CIT(A) failed to consider that M/s Essel Vision Production P Ltd had claimed in its suit that one of the partner of M/s Movie Makers Inc is the assessee's brother-in- law and that the compensation could have been paid by the ....
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....ing in the ordinary course of business nor satisfied the conditions prescribed u/s. 36(1)(vii) of the Act. 2.3. The AO further noticed that the Memorandum of Understanding dated 10.03.2016 had been executed only between M/s Movie Makers Inc. and M/s Essel Vision Production Pvt. Ltd. and that the assessee was not a signatory thereto. According to the AO, there was no contractual obligation cast upon the assessee requiring him to compensate EVPL for non-completion of the project. The AOalso observed that although the assessee was impleaded as Defendant No.4 before the Hon'ble Bombay High Court, the liability arose only under the consent terms entered into by the parties and not on account of any adjudication by the Court determining the legal liability of the assessee. According to the AO, the payment was voluntary in nature and therefore could not be regarded as an expenditure incurred wholly and exclusively for the purposes of the assessee's profession. The AO further referred to the advocate's letter dated 15.10.2018, wherein the assessee had denied liability and attempted to disassociate himself from M/s Movie Makers Inc. It was also noticed that the payments towar....
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....though the expenditure had been wrongly claimed as bad debt in the return of income, the nomenclature adopted by the assessee could not determine the true nature of the claim. Since the expenditure had arisen directly from the assessee's professional activities as a director and co-producer of the film and had been incurred wholly and exclusively in connection with such profession, the same was allowable u/s. 37(1) of the Act. Accordingly, the ld.CIT(A) directed the AOto delete the disallowance of Rs. 3,00,00,000/-. 4. Aggrieved by the relief granted by the ld.CIT(A), the Revenue is in appeal before the Tribunal. 5. The ld. Authorised Representative (AR) strongly supported the order of the ld.CIT(A) and submitted that the appellate authority had passed a well-reasoned and speaking order after considering all the documentary evidence placed on record. The ld. AR for the assessee also filed paper book containing the following: Index of Paper Book S. No. Contents Page nos. 1 MoU between Mr. Prakashraj and M/s Moviemakers Inc. (MMI) 1-5 2 MoU between M/s Moviemakers Inc. and Essel Vision Productions Ltd. (EVPL) 6-10 3 Legal notice issued by....
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.... and submitted that the assessee had failed to establish that the payment represented a crystallized legal liability arising in the course of his profession. He argued that the Memorandum of Understanding was executed only between M/s Movie Makers Inc. and EVPL and that the assessee was not a contracting party. The payment was made only because the assessee voluntarily entered into consent terms before the Hon'ble Bombay High Court and not because any legal liability had been adjudicated against him. The ld. DR further submitted that the assessee himself had denied liability through his advocate's letter dated 15.10.2018 and had sought to distance himself from Movie Makers Inc. Therefore, the subsequent payment lacked commercial nexus with the assessee's profession. He further argued that EVPL had advanced funds only to Movie Makers Inc. and not to the assessee. No evidence had been produced to establish that the assessee had personally received any money or had undertaken any contractual obligation towards EVPL. The ld. DR also contended that the assessee had not earned any income from EVPL during the relevant assessment year and that one of the partners of Movie Maker....