2016 (1) TMI 1369 - HC - Income Tax

Claim for deduction of Film Production Expenses - allowable busniss expenses - Held that - Matter is remitted back to the file of the Assessing Officer to verify as to whether the assessee / appellant herein had claimed Film Production Expenses as Revenue Expenditure during the assessment year 2001-2002 or in any of the previous or subsequent years as per the Circular No.16/2015 issued by the Central Board of Direct Taxes in F.No.279/Misc./140/2015-ITJ dated 06.10.2015. If no such claim had been made by the Assessee the claim of the assessee with regard to the Film Production Expenses as Revenue expenditure for the assessment year 2001-2002 may be allowed. The Assessee in addition to the records available before the Assessing Officer shall also file an affidavit stating that it had made no such claim for any of the previous or subsequent years.

Issues:
1. Disallowance of film production expenses claimed by the assessee for the assessment year 2001-2002.
2. Competence of the Tribunal to address the disallowance of claim revenue expenses/business loss.
3. Interpretation of Sections 28 and 37(1) of the Income Tax Act in relation to film production expenses.
4. Allowability of film production expenses for the abandoned project in the computation of taxable total income.

Issue 1: Disallowance of Film Production Expenses
The appellant, a company engaged in various business activities, including film production, filed a return of income for the assessment year 2001-2002, claiming a substantial loss. The claim was related to the production of two films, which could not be completed due to various reasons. The Assessing Officer disallowed the claimed film production expenses under Sections 28 and 37(1) of the Income Tax Act, citing the abandonment of the film project in the previous year. This disallowance was upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal in subsequent orders.

Issue 2: Competence of the Tribunal
The appellant raised substantial questions of law challenging the Tribunal's competence to address the disallowance of revenue expenses/business loss without a cross-appeal or cross-objection filed by the respondent. The Tribunal's conclusion on the competence of the appellant to question the disallowance was contested, emphasizing the rules and procedures governing appellate stages and the exchange of correspondences between the parties during assessment.

Issue 3: Interpretation of Sections 28 and 37(1)
The Tribunal's failure to consider the entirety of the claim of revenue expenses/business loss in relation to the shelved film production project was questioned. The appellant argued that Sections 28 and 37(1) of the Income Tax Act should have been applied comprehensively to assess the allowability of the film production expenses, considering the details and evidence presented during the proceedings.

Issue 4: Allowability of Film Production Expenses
In light of Circular No.16/2015 issued by the Central Board of Direct Taxes, the Court set aside the Tribunal's order and remitted the matter back to the Assessing Officer for verification. The Assessing Officer was directed to determine whether the appellant had claimed film production expenses as revenue expenditure for the assessment year 2001-2002 or any other relevant years. If no such claim was made, the appellant's claim regarding film production expenses should be allowed. The appellant was instructed to file an affidavit confirming the absence of such claims in previous or subsequent years for the resolution of the matter.

This judgment highlights the intricacies of tax law concerning the treatment of film production expenses and the procedural aspects of challenging tax assessments before the Tribunal. The Court's decision to remit the matter back to the Assessing Officer for further verification underscores the importance of adherence to tax regulations and the need for detailed examination of claims and expenses in income tax assessments.

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