TaxTMI 
TaxTMI 
2026 (9) TMI 1865
X X X X Extracts X X X X
X X X X Extracts X X X X
.... excessive and made to benefit the related concern and hence, covered u/s 40A(2)(b) of the Act. The reasons given by him for doing so are wrong, contrary to the facts of the case and provisions of law. 1.2 On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate the documents, invoice, and supporting evidences furnished by the assessee, which clearly demonstrated that the transactions were undertaken in the ordinary course of business and were at arm's length, thereby disallowance under the provisions of section 40A(2)(b) of the Act is not warranted. 1.3 On the facts and circumstances of the case, the Ld. CIT(A) erred in sustaining the disallowance under section 40A(2)(b) of the Act by summarily rejecting the arguments of the appellant, without providing any cogent reason of its allegation that the benefits are passed on to the related concerns. 2. Ground 2 Disallowance of payment made to "Channel Eight" amounting to Rs. 3,60,00,000 2.1 On the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the action of the Assessing Officer in disallowing the claim of expenditure amounting to Rs. 3,60,00,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....% of the expenditure as per the provisions of section 40(a) of the Act on account of non-deduction of TDS and therefore, addition by the AO amounts to double disallowance to that extent." 2. Briefly stated, facts of the case are that the assessee is engaged in the business of broadcasting news and current-affairs programmes through its 24x7 Bengali news channel, 'Zee 24 Ghanta', in West Bengal, besides sale of television programmes and programme feeds. For the year under consideration, the assessee filed its return of income on 31/10/2017 declaring total income at Rs.13,95,62,230. The return of income filed by the assessee was selected for scrutiny assessment on the parameters of reduction in profit due to Income Computation and Disclosure Standard (ICDS) and deduction and deposit of TDS. The statutory notices under Income Tax Act, 1961 [in short the 'Act'] were issued and complied with. 3. During the course of the scrutiny proceeding, the Assessing Officer observed that (i) the assessee incurred advertisement and publicity expenses inter-alia payments to related parties, namely 'Diligent Media Corporation Limited (DMCL)' of Rs. 5.4 Crores towards advertisement in DNA newspap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer, however, considered the payments to be excessive and unreasonable principally on the ground that the recipients were group concerns. The Assessing Officer observed that the assessee could not substantiate the claim with any comparative data or documents to justify that the transactions were at arm's length. 6.2 Further, the Assessing Officer questioned the payment made to Diligent Media Corporation Limited for advertisement given to 'DNA' newspaper. The Assessing Officer referred to the press release by Audit Bureau of Circulation and observed that the newspaper 'DNA' did not feature anywhere in highest circulated ABC member publication or in the list of top 10 publications language-wise and sales-wise as certified up to 22nd February, 2019. In relation to payment to the Sky Bangla Private Limited on 'Akash aath' channel, he referred to its viewership position by Broadcast Audience Research Council India, and observed that it was not among the top five channels in West Bengal. On that basis, and in the absence of what he considered to be satisfactory comparative evidence, the entire expenditure of Rs.7 crore was disallowed under section 40A(2)(b). 6.3 Before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....med by the appellant is offered to tax as income by the said parties in their return of income." 6.4 The learned CIT(A), nevertheless, sustained the disallowance. He principally relied upon five alleged deficiencies: (i) the purchase orders were for lump-sum amounts; (ii) the expenditure in the January-March quarter was substantially higher than that in the preceding quarter; (iii) the invoices did not themselves contain detailed particulars of the advertisements; (iv) the format and numbering of one invoice differed from earlier invoices; and (v) the Aakash Aath transaction was a package arrangement without telecast logs or certificates accompanying the invoice. The learned CIT(A) concluded that the documents were self-serving and that the payments represented arbitrary transfers for the benefit of related parties. For ready reference, finding of ld CIT(A) is reproduced as under: "1. Ground No. 1: Disallowance under section 40A(2)(b) - Rs. 7,00,00,000/- 1.1 The AO observed that the appellant had made substantial payments to related parties, namely Diligent Media Corporation Ltd (DMCL) for Rs. 5.4 Crores and Sky Bangla Pvt Ltd for Rs. 1.6 Crores, towards advert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e (e.g., "50 insertions @ Rs. 4.25 Lakhs"). Instead, the POs reflect a pre-determined, roundfigure budget allocation (Rs. 2 Crores Rs. 2.5 Crores) irrespective of the actual volume of advertising. This indicates that the "rate card" defense is an afterthought, and the payments were actually fixed lump sums transferred to the sister concern. ii) Inconsistency in Billing and Price Fluctuation: There is a contradiction in the pricing between the quarters. For the period October to December 2016 (3 months), the billing was Rs. 90,00,000. For the immediately succeeding period January to March 2017 (3) months), the billing skyrocketed to Rs. 2,50,00,000. This represents an unexplained increase of nearly 2.8 times in the monthly expenditure within the same financial year. The appellant's explanation of election-related publicity does not justify such a massive variance in billing for the same newspaper "DNA," especially when the Purchase Order descriptions remain identical ("Advertisement in DNA Newspaper"). iii) Deficiencies in Invoice Details: The invoices submitted (e.g., Invoice No. Misc/03/16-17 and Invoice No. DN05766) are la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the learned counsel for the assessee referred to paper book pages from 139 to 158A, comprising of detailed purchase orders, invoices etc in relation to payments to both parties. 6.6 The learned counsel submitted that advertisement in print media in DNA Mumbai was given because advertisement in other newspapers was an expensive affair. The learned counsel filed a copy of the relevant advertisements printed in the newspaper. The Learned counsel also referred to paper book page 141 to 143, which are a copy of invoices raised which include purchase order issued by the assessee to Sky B Bangla Private Limited, copy of invoice issued by Sky B Bangla Private Limited dated 02.06.2016 with reference to purchase order dated 04.04.2016. Further, offer letter of Sky B Bangla to the assessee is also placed on paper book page 143. 6.7 Further on page 145, purchase order issued by the assessee to Diligent Media Corporation Limited dated 1st January 2017 and corresponding invoice issued by said company is placed on paper book page 144. Similarly, another purchase order issued by the assessee dated 1st April 2016 is available on paper book page 147 and corresponding invoice issued by Diligent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iod No. of Advertisements Total Amount Paid (Rs) Average Cost per Ad (Rs) April 2016 - September 2016 48 2,00,00,000 4,16,667 October 2016 - December 2016 22 90,00,000 4,09,091 January 2017 - March 2017 60 2,50,00,000 4,16,667 2.3.5 The amounts paid by the appellant are closely aligned with the published rate card rate of Rs 4,25,000 per insertion. Therefore, the cost incurred by the appellant is completely in line with market norms reaffirming that the expenditure was neither excessive nor unreasonable. In support of its claim, the appellant has furnished comprehensive documentation such as - Reference Annexure A * the official rate card issued by DNA Newspaper; * copies of invoices and purchase order corresponding to each billing period; * physical newspaper clippings evidencing actual publication of the advertisements. 2.3.6 These materials, taken together, provide clear evidence that the transactions were conducted at fair market value and were neither excessive nor unreasonable in comparison with those applicable to external, unrelated advertisers for similar placements during the same pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t slots. 2.4.5 To substantiate that the payments made to Skybangla were not excessive, the appellant submits: The appellant would like to submit the following rate chart comparison between A Aakash Aath and Zee 24 Ghanta to demonstrate that the payments made were consistent with market rates and not excessive - Reference C. This comparison highlights the advertising costs for various formats offered by both channels during the same period. Advertising Format Aakash Aath (per unit) - Sky Bangla Zee 24 Ghanta Rate (per unit) FCT (Fixed Commercial Time) Rs 190/5 sec Rs 350 / 5 sec BUGS Rs 7,000 per unit Rs 7,500 per unit ASTOR BAND Rs 1,250 per unit Rs 1,400 per unit LBAND Rs 1,500 per unit Rs 1,623 per unit SCROLL Rs 5,500 per unit Rs 5,820 per unit The comparative rate chart clearly demonstrates that the amounts paid by the appellant to Sky Bangla (Aakash Aath) for each format of advertisement were either equal to or lower than the rates charged by Zee 24 Ghanta, a comparable regional broadcaster in the same market. The FCT rate charged by Sky Bangla (Rs 190 per 5 seconds) was significantly low....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n in Bengal. In view of the specific instances, the fair market value being not higher than the expenditure incurred by the assessee, no disallowance was required. 6.11 Per contra, the learned DR relied on the order of the lower authorities. 6.12 We have heard rival submissions of the parties and perused the relevant material on record. We find that though the Assessing Officer has made ultimate addition invoking Section 40A(2)(b), but in his reasoning, he has raised the doubt on the rendering of the services itself. But since he has not made any addition in respect of non-rendering of the services and he has made addition only questioning the market value of those services, therefore, we are not going into the issue whether those services were actually rendered or not. Further, since the disallowance is one under section 40A(2)(b) of the Act, the fact that a payment is made to a specified person is a statutory condition for invoking the provision; it does not, by itself, render the expenditure excessive or unreasonable. The statutory enquiry is whether the expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inst Rs.90 lakh for October-December 2016, representing an increase of about 2.78 times in the aggregate quarterly billing. This reasoning overlooks the corresponding increase in the number of advertisements-from 22 insertions in the latter period to 60 insertions in the former. The average cost per insertion, in fact, remained substantially constant and below the stated rate-card rate. The assessee also explained that the January-March period coincided with the West Bengal Legislative Assembly elections, a period of heightened advertising demand and correspondingly higher market rates, as reflected in the independent third-party rate instances placed on record. The learned CIT(A) rejected this explanation merely because the description in the purchase orders remained the same. Such reasoning does not address the relevant question under section 40A(2)(b), namely, whether the consideration paid per unit of service was excessive or unreasonable having regard to its fair market value. 6.16 The third objection was that the invoices did not themselves contain particulars such as the dates of publication, size of advertisements and editions. The learned CIT(A), however, failed to cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned CIT(A) has not brought any contrary market quotation or independent comparable transaction on record. 6.20 We are also unable to approve the broad conclusion that the payments constituted "siphoning of funds" merely because the recipients were related parties. Such a serious conclusion must rest on positive material demonstrating diversion or inflation of expenditure. No such material has been identified either by the Assessing Officer or by the learned CIT(A). 6.21 The decision of the Hon'ble Gujarat High Court in CIT v. Ashok J. Patel [2014] 43 taxmann.com 227 (Guj) also underscores that a disallowance under section 40A(2)(b) cannot rest upon an ad hoc assessment divorced from a determination of fair market value and comparable instances. The present case stands on an even stronger footing for the assessee because the assessee has itself placed rate-card and comparable material on record. 6.22 Thus, the learned CIT(A), instead of testing the material furnished by the assessee against the statutory yardstick of fair market value, has treated incidental documentary features as conclusive against the assessee. We find that approach unsustainable. The Revenue has neith....
X X X X Extracts X X X X
X X X X Extracts X X X X
....signments. He concluded that the transaction was not genuine and that the assessee had failed to establish that the expenditure was incurred wholly and exclusively for business purposes. The relevant finding of ld CIT(A) is reproduced as under: "1.3.2 The appellant has challenged the disallowance primarily on the technical ground of TDS rates (Section 194C vs 194J). However, the issue goes deeper into the very allowability of the expense under Section 37 of the Act. Section 37(1) of the Act provides that any expenditure (not being capital or personal in nature) laid out or expended wholly and exclusively for the purposes of the business is allowable. The burden of proof to establish that the expenditure was "wholly and exclusively" for business lies on the assessee. This burden includes proving the genuineness of the transaction. A transaction that is not genuine cannot be said to be for the purpose of business. ii) In this case, the Assessing Officer issued summons u/s 131 to the payee "Channel Eight" to verify the transaction, but the payee failed to appear. The appellant claims to have submitted invoices and ledgers, but mere paper documentation is insufficient....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... identity and creditworthiness of Channel 8 and genuineness of the transaction between the assessee and Channel 8, including PAN card, ITR acknowledgment, bank statement, and ledger copies, a copy of which is available on paper book page 206 to 208. 7.4 We have heard rival submissions of the parties and perused the relevant material on record. The issue in dispute is (i) whether the amount paid to Channel 8 is in the nature of a contract receipt or it was receipt in the nature of professional or technical services; and (ii) whether services rendered wholly and exclusively or not. 7.5 The reasoning of the learned CIT(A) suffers from two fundamental infirmities. Firstly, non-appearance of the payee pursuant to summons under section 131 is a circumstance requiring further verification; it is not, by itself, proof that the transaction is fictitious. The assessee had furnished documentary material concerning the identity of the payee, its tax particulars, banking transactions, ledger account, invoices and purchase order. The assessee had also identified the programmes produced for it. The learned CIT(A) has not demonstrated any contradiction in those documents, any cash movement, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents. In our opinion, what was required is a satisfactory appreciation of the totality of the evidence. In the present case, the documentary evidence furnished by the assessee has not been displaced by any positive material brought on record by the Revenue. We therefore find that the learned CIT(A) was not justified in converting the payee's non-appearance into a finding of falsity, nor in treating the accounting description as determinative of the nature of the underlying expenditure. As regards the rate of TDS, the Revenue has failed to establish that the payment in question was a payment for professional or technical services falling under section 194J. Consequently, the very foundation of the disallowance on the basis adopted by the Assessing Officer and sustained by the learned CIT(A) does not survive. The disallowance of Rs.3,60,00,000 is accordingly deleted. The ground No. 2 of the appeal is accordingly allowed. Ground No. 3 - Unearned Revenue: Rs.43,85,336 8. The Ground number 3 of the appeal of the assessee relates to addition of the unearned revenue of Rs. 43,85,336/-. 8.1 The facts in brief for the issue in dispute are that the assessee had /raised invoices aggr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether income accrued corresponding the revenue booked is required to be determined on verification of period when the actual services were rendered. The reasoning adopted by the learned CIT(A) that the mere raising of an invoice necessarily results in accrual of taxable income cannot be accepted as an absolute proposition. Under the mercantile system, what is relevant is the accrual of a legally enforceable right to receive income. The accounting entry or nomenclature is not conclusive of the year in which income accrues. The assessee has specifically contended that the corresponding advertising services were to be rendered in the subsequent year and that the amount represented advance/unearned revenue. The assessment order itself contains a tabulation of the underlying invoices showing service periods extending into the subsequent financial year. The question, therefore, is factual and requires examination of the underlying agreements, invoices, period of telecast and actual rendering of services. The learned CIT(A) has proceeded largely on the premise that an invoice creates an unconditional right to receive the amount. That proposition cannot be applied without examining the ter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the respective party account. But, the Assessing Officer treated the expenditure as pertaining to earlier financial years on the basis of the invoices subsequently received. The learned CIT(A) sustained the disallowance on the ground that the assessee had failed to establish with evidence that the provision actually related to services rendered during the year under consideration. 9.2 Before us, the learned counsel for the assessee submitted that those expenses have already been considered in financial year 2014-15 and 2015-16, and in year under consideration they were not claimed, and therefore making disallowance is not warranted. 9.3 We have heard rival submissions of the parties and perused the relevant material on record. The material placed before us indicates that the assessee had created a provision during the year and had already disallowed 30 per cent thereof under section 40(a)(ia). The assessee has further explained that the invoices subsequently received were adjusted against provisions created in the books and that the expenditure represented liabilities pertaining to different years. The precise accounting trail, however, requires verification. The assessee its....