2015 (12) TMI 1784 - AT - Income Tax

Disallowance on account of film preview expenses - Held that - AO has not pointed out that the expenditure claimed by the assessee is excessive or abnormal in comparison to the normal expenditure being incurred on such exhibition of movie in the pre-release preview. The assessee produced complete details of the expenses though most or the expenses are incurred in cash, We find that keeping in view the nature of the expenses the payment in cash is inevitable for certain expenses which are on spot and for the purpose of snakes, refreshment, etc. The assessee has produced the vouchers which includes sell-made vouchers as well as the third party vouchers wherein the name of the movie is given. When the name of the movie and name of the theater is given, then the vouchers issued by the third party cannot be doubted. It is worth to be noted that the disallowance is restricted by the DRP is not based on the ground that it is excessive but for want of proper vouchers therefore, we find that the ad-hoc disallowance is not justified when the expenditure is not found to be excessive and the purpose and the occasion on which the expenditure was incurred is not disputed. Disallowing legal expenses - disallowance made on the ground that the assessee was not able to substantiate these expenses with the help of complete evidences - Held that - It is noted that this issue has been sent back by the Tribunal in A.Y. 2009-10 to the file of the AO with some directions. We find it appropriate to send this issue back to the file of the AO in pursuance to the order. We also direct the AO to follow the directions as given by the Tribunal in A.Y. 2009-10 as far as may be applicable on the facts of the case of this year. With these directions this issue is sent back to the file of the AO. Thus, ground no. 2 is allowed for statistical purposes. Disallowance of expenses incurred by the assessee on foreign travelling - Held that - It is noted by us that these expenses pertained to the foreign visit of Mr. Sanjay Gupta, director, of the company, on the ground that no evidence was submitted to establish business purpose for incurring these expenses. Before us also no such evidence has been produced and therefore, we have no option but to confirm the disallowance. Accordingly, disallowance is confirmed and Ground No. 3 is dismissed. Disallowing incurred on Travelling, Advertising and Printing & Stationery expenses @ 5% on ad hoc basis by treating the same as personal expenditure - Held that - We find that the assessee has submitted bills/vouchers as were maintained by it in regular course of business. If the AO was not satisfied with any particular items of expenses, he could have pointed it out to the assessee for inviting its response. In case AO was not satisfied with response of the assessee, then the same could have been considered for the disallowance. There should not be a practice of making an ad-hoc disallowance on the ground of personal expenditure, because there is no concept of personal expenditure in the case of a company. The company is a separate legal juristic person. In case any expenses are incurred on behalf of director or any other senior employees, then the same is liable to be taxed in the hands of the said person as part of perquisite/remuneration, as per law. In our considered view, disallowance had been made beyond the provision of law and therefore same is directed to be deleted. We find our support from the judgment in the case of Sayaji Iron and Engg. Co. (2001 (7) TMI 70 - GUJARAT HIGH COURT). Thus ground no. 4 is allowed. Disallowing u/s 36(1)(iii) on proportionate interest expenditure - Held that - We find that there being sufficient interest free own funds in possession of the assessee, no presumption should be drawn that the assessee has given the disallowance out of interest bearing funds only. Further, the amount has been invested with subsidiary of the assessee company and thus taking support from the judgment of Hon ble Supreme Court in the case of S.A. Builders Ltd. (2006 (12) TMI 82 - SUPREME COURT) it can be said that no disallowance would be made if the amount has been advanced for the strategic business needs. The assessee has submitted copy of resolution signifying its business necessity. Taking in to account all the aforesaid facts and circumstances of the case, we find that the said disallowance is not sustainable as per law. Disallowance u/s 14A, read with rule 8D - Held that - We find that all these issues go to the root of the matter. These have not been properly dealt with by the DRP. The mind of the AO could also not be applied on all these issues at all. The assessee also could not get proper opportunity to explain this issue with proper evidences. There has been lot of development in the legal position with respect to all the contentions raised by the Ld. Counsel. These judgments which have been relied upon by the Ld. Counsel were not available before the AO/DRP. Therefore, for thrashing out the facts properly, and to meet ends of justice and in all fairness, we deem it appropriate to send this issue back to the file of the AO who shall decide this issue afresh. Needless to add, the AO shall offer proper opportunity to the assessee to file requisite details and documents, as per law. The AO shall take into account complete factual material and shall also consider the judgments as may be available at the time of deciding this issue afresh. With these directions, this issue is sent back to the file of the AO. This ground is allowed for statistical purposes. Notional interest on the amount routed by the assessee company through its Dubai subsidiary for the purpose of its business - Held that - This issue is entirely dependent upon the A.Y.2009-10 which has been disposed by the Tribunal. We have gone through the order of the Tribunal and find that the disallowance was made in the assessment year2009-10 on loan given to the same party. In this year, no fresh loan has been given rather amount of loan has been reduced on account of part payments received back from the said party. It is noted from the order of the DRP that opening balance due from the said party at the beginning of the year was ₹ 106.52 crores which was reduced to ₹ 73.96 crores at the end of the year. It is further noted that Hon ble Tribunal in A.Y. 2009-10, after making detailed discussion held that the addition was illegal and therefore the same was deleted

Summary

Issues Involved:
1. Disallowance of film preview expenses.
2. Disallowance of legal expenses.
3. Disallowance of foreign travel expenses.
4. Disallowance of travelling, advertising, and printing & stationery expenses.
5. Disallowance of interest expenditure under Section 36(1)(iii).
6. Disallowance under Section 14A read with Rule 8D.
7. Addition of notional interest on advances to a subsidiary.

Issue-Wise Detailed Analysis:

1. Disallowance of Film Preview Expenses:
The assessee challenged the disallowance of Rs. 19,189/- on account of film preview expenses. The Tribunal had previously allowed these expenses for A.Y. 2009-10, stating that such expenses are routine business expenses and not excessive or abnormal. The Tribunal followed the precedent and allowed the film preview expenses for A.Y. 2010-11 as well, thus allowing ground no. 1.

2. Disallowance of Legal Expenses:
The assessee contested the disallowance of Rs. 2,62,457/- out of total legal expenses of Rs. 5,24,915/-. The Tribunal noted that a similar issue was sent back to the AO in A.Y. 2009-10 for further verification. Following the same approach, the Tribunal remanded the issue back to the AO with directions to follow the Tribunal's instructions from the previous year, allowing ground no. 2 for statistical purposes.

3. Disallowance of Foreign Travel Expenses:
The assessee's foreign travel expenses of Rs. 23,100/- were disallowed due to lack of evidence establishing the business purpose. The Tribunal upheld the disallowance, noting that the issue had been decided against the assessee in A.Y. 2009-10 and no new evidence was presented. Thus, ground no. 3 was dismissed.

4. Disallowance of Travelling, Advertising, and Printing & Stationery Expenses:
The assessee challenged the ad-hoc disallowance of Rs. 38,56,553/- (5% of total expenses) treated as personal expenditure. The Tribunal found that ad-hoc disallowance is not justified for a company, which is a separate legal entity. The Tribunal directed the deletion of the disallowance, citing the Gujarat High Court judgment in Sayaji Iron and Engg. Co. Thus, ground no. 4 was allowed.

5. Disallowance of Interest Expenditure under Section 36(1)(iii):
The assessee contested the disallowance of Rs. 9,62,071/- for interest expenditure on borrowed funds diverted to subsidiaries. The Tribunal noted that the assessee had sufficient own funds exceeding the interest-free loans given to subsidiaries. Citing the Supreme Court judgment in S.A. Builders vs. CIT, the Tribunal found no basis for the disallowance and directed its deletion. Thus, ground no. 5 was allowed.

6. Disallowance under Section 14A read with Rule 8D:
The assessee challenged the disallowance of Rs. 1,02,71,832/- made by the DRP under Section 14A. The Tribunal noted that the issue was raised by the DRP for the first time and various factual matters were not properly addressed. The Tribunal remanded the issue back to the AO for fresh consideration, allowing the assessee to present requisite details and documents. Thus, ground no. 6 was allowed for statistical purposes.

7. Addition of Notional Interest on Advances to Subsidiary:
The assessee contested the addition of Rs. 4,22,12,216/- as notional interest on advances routed through its Dubai subsidiary. The Tribunal noted that a similar addition was deleted in A.Y. 2009-10, where it was found that the advances were for acquiring film rights and not for loans or finance. Following the precedent, the Tribunal directed the deletion of the addition for A.Y. 2010-11 as well, thus allowing ground no. 7.

Conclusion:
The appeal of the assessee was partly allowed, with specific grounds being allowed, dismissed, or remanded back to the AO for further consideration. The Tribunal's order was pronounced in the open court on 9th December 2015.