2013 (4) TMI 136 - HC - Income Tax

Revenue expenses or capital expenses - expenses was incurred for production of animation film - commission expenses - Valuation on the basis of certificate - Held that - in the previous year relevant to the Assessment Year, the assessee had not sold the project which was shown in the earlier year as work in process - there is no evidence on record that any revenue was generated from the said project and there was any chance of recovery. In the previous year relevant to the Assessment Year, the assessee Company had written off the said amount by debiting Profit and Loss account as animation film, which was made in the year 2001, became out of date - deduction allowed - Decided in favor of assessee. Regarding allowability of Commission - Held that - The Commissioner of Income Tax (Appeals) specifically found that the assessee had paid commissions in the past years also and the same had been allowed by the Assessing Officer in the previous years and the assessee had deducted Tax Deducted at Source for commission payments and the commission had been paid to three agents who have brought business and added clients there was no justification for disallowance of commission - Deduction allowed - decided in favor of assessee. Valuation of work in progress - Certificate of Valuation - Held that - The assessee had completed the projects in May and June 2006 and on the basis of the bills raised for these projects aggregating Rs.8,28,895 00, the assessee had valued the work in process as on 31st March 2006 at Rs.3,75,500 00 as per the certificate of the Officer In-charge of the projects. - the finding cannot be said to be based on No Evidence nor can it be said to be based on any inadmissible evidence - Decided in favor of assessee and against the revenue.

Summary

Issues:
1. Allowance of expenses incurred for production of animation film as revenue expenses.
2. Allowance of commission expenses claim.
3. Valuation of work in process for incomplete projects.

Analysis:
1. The first issue revolves around the allowance of expenses incurred for the production of an animation film as revenue expenses. The company had incurred the expenditure for a 2D animation film with the intention to generate revenue. However, after completion, the company found no market for the film and subsequently wrote it off. The court noted that the project was not for any customer, and there was no recovery or action possible against any party. Both lower authorities concluded that the expenditure had a nexus with the business activities and did not result in any enduring advantage, leading to the disallowance of the addition of the said amount.

2. The second issue pertains to the allowance of commission expenses claim. The Commissioner of Income Tax (Appeals) found that the assessee had paid commissions in the past, which were allowed by the Assessing Officer. The Tribunal affirmed this finding, stating that the assessee had discharged the onus by providing details of commission payments, agents involved, and business brought in. The court upheld the decision to delete the addition made by the Assessing Officer, as there was no material to disapprove the findings of the lower authorities.

3. The final issue addresses the valuation of work in process for incomplete projects. The Assessing Officer added a certain amount based on presumptions regarding incomplete projects. However, the Commissioner of Income Tax (Appeals disagreed, stating that the addition was without proper consideration of sales bills and project completions. The Commissioner found the valuation of work in process by the assessee to be correct based on various project completions and advances received. The Tribunal upheld this decision, emphasizing that there was no justification for any further addition. The court concurred with these findings, stating that no substantial question of law was involved, leading to the dismissal of the appeal.