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2017 (5) TMI 527 - AT - Income TaxAmortization or allowability of entire cost in the current year - Held that - The claim of assessee is not in tune with the accounting policy in open market on this issue of amortization of TV programme/ Film Rights. No special reasons are demonstrated before us the reasons justifying the deviations by the assessee. Therefore, we are of the view that the AO is directed to apply the said order of the Tribunal in case of Zee Media (2015 (8) TMI 612 - ITAT MUMBAI ) of the granting reasonable opportunity of being heard to the assessee fully. AO is also directed to reduce the extent of cost already telecast i.e. ₹ 26,50,87,780/- from the total cost of ₹ 89.06 crore as there is no justification for not allowing the content, which is already telecast in the current year. Thus, AO should examine the correctness of the said figure and the extent relatable to both TVprogramme or Film rights before granting the full deduction out of ₹ 89.06 crore. On the balance, the accounting policies in the market relating to this industry should be applied. AO shall grant reasonable opportunity to the assessee. With these directions, the issue raised in both appeals are allowed as above. Sales promotion & advance expenses - Held that - The revenue is on the matching principle ie assessee cannot be allowed to claim huge expenditure against meagre income reported in this year. In the process, revenue lost the much established accounting principle of Mercantile System of Accounting by the assessee in this year under consideration. We also find that the decisions relied on by the AO are distinguishable on both facts and legal issue. They are not on the brand building related issues. On the other hand, the decision in case of Core Healthcare Ltd and others (2008 (10) TMI 74 - GUJARAT HIGH COURT ) on this issue only. Nothing is made out by the Ld. DR that cricket sponsoring expenditure constitutes capital nature. It is never the case of the revenue that ₹ 7.03 crore of expenditure is not revenue in nature. The question is only if they should be amortized over the period of 6 years or otherwise. In our view, the CIT(A) order, on this issue, constitutes fair and reasonable and it does not call for any interference. The expenditure incurred on account of sponsoring of cricket or launch expenditure are allowable revenue expenditure as they are in the nature of advertisement expenditure. Accordingly, the relevant grounds of the revenue on this issue are dismissed. Disallowance of legal and professional fee - Held that - The expenses incurred till 31.08.2007 should be considered for capitalization and the date of set up of the business in place of assessee s claim of 01.06.2007. Delivery date is 6.8.2007 and reasonable time is needed for unp0arking, distribution and installation. Therefore, it cannot reliably argued that all the above activities are done only the said due date of 6.8.2007 for delivery to the assessee in Mumbai. Therefore, on estimation basis, we grant till the end of the month for installation activity. This is needed for completion of the set up of business completely. Consequently, the expenditure incurred by assessee between 1.9.2007 to November 2007 are to be allowed as deductible expenses. AO is directed to recomputed the above allowable expenses and assessee the income accordingly. Accordingly, the grounds raised are partly allowed. Addition u/s 68 on account of share application money (SAM), share capital and share Premium - Held that - We are of the view on the investments by the residentcompanies that the AO has not made out proper case and not fortified his addition with any clinching evidences either on identity or on creditworthiness or on the genuineness of the transactions. Thus, the addition of investment by IIMPL and IIPL in the equity share capital and preferential share capital with premium is unsustainable in law. Therefore, the conclusions of the CIT (A) on this issue are fair and reasonable and it does not call for any interference. Accordingly, relevant grounds of the Revenue are dismissed. Addition on account of non-resident foreign institution investments into the share application money and share application and the preferential share capital with premium - Held that - There is no incriminating material so far gathered by the AO / investigation wing of the Department against the claim of the assessee. As on date, the CBDT has not come out with any incriminating material against the assessee. Therefore, we are of the view that it is premature to make any addition on this account without having any information against the assessee either on identity or creditworthiness or genuineness of the transactions. Present addition is a case of surmises, suspicion etc. Therefore, the addition is unsustainable in law. For all these reasons also, we are of the view, the order of the CIT (A) is fair and reasonable. Therefore, the decision of the CIT (A) does not call for any interference.
Issues Involved:
1. Addition based on AIR Information. 2. Addition on account of content cost. 3. Sales promotion and advertisement expenditure. 4. Legal and professional fees. 5. Addition under Section 68 (domestic and non-resident investors). Issue-wise Detailed Analysis: 1. Addition Based on AIR Information: The AO made an addition of ?1,61,798/- based on AIR information, which the assessee could not reconcile. The CIT(A) upheld this addition, placing the onus on the assessee. However, the Tribunal, referencing a prior decision in A.F. Ferguson’s case, found that such additions without corroborative evidence are unsustainable. Consequently, the Tribunal ruled in favor of the assessee, allowing the appeal on this ground. 2. Addition on Account of Content Cost: The assessee debited ?122.70 crore as content cost, which includes TV programs and film rights. The AO disallowed ?89.06 crore, treating it as capital expenditure. The CIT(A) partially agreed, allowing 85% as revenue expenditure and amortizing the remaining 15% over three years. The Tribunal, referencing a similar case involving Zee Media Corporation, directed the AO to allow the cost of content already telecasted in the current year and amortize the rest according to industry standards. The Tribunal allowed the appeal partly, directing the AO to verify and appropriately deduct the content cost. 3. Sales Promotion and Advertisement Expenditure: The assessee claimed ?70.38 crore under sales promotion and advertisement. The AO allowed only 1/6th of this amount, amortizing the rest over six years, citing brand-building expenses. The CIT(A) disagreed, treating the expenses as revenue in nature and fully deductible in the current year. The Tribunal upheld the CIT(A)’s decision, referencing similar cases and established accounting principles, dismissing the revenue’s appeal on this issue. 4. Legal and Professional Fees: The assessee claimed ?13.28 crore under legal and professional fees. The AO disallowed ?7.13 crore, considering the business was set up on 01.06.2007 and launched in November 2007. The CIT(A) allowed the expenses from 01.06.2007, treating them as business expenses. The Tribunal, considering the evidence and judicial precedents, partially allowed the revenue’s appeal, directing the AO to capitalize expenses incurred until 31.08.2007 and allow expenses from 01.09.2007 to November 2007 as deductible. 5. Addition Under Section 68: Domestic Investors: The AO added ?146.24 crore received from resident investors, questioning the identity, creditworthiness, and genuineness of the transactions. The CIT(A) deleted the addition, finding the assessee had provided sufficient documentation. The Tribunal upheld the CIT(A)’s decision, noting the AO’s failure to provide contrary evidence despite multiple opportunities. Non-Resident Investors: The AO added ?263.28 crore received from non-resident investors, citing insufficient details on identity, creditworthiness, and genuineness. The CIT(A) deleted the addition, accepting the assessee’s documentation. The Tribunal upheld the CIT(A)’s decision, criticizing the AO for not conducting a thorough investigation and relying on suspicions. The Tribunal noted the AO’s failure to provide a remand report and awarded costs against the revenue for delaying the proceedings. Conclusion: The Tribunal partly allowed the appeals of both the assessee and the revenue, providing detailed directions on each issue. The judgment emphasized the need for proper evidence and adherence to established accounting principles and judicial precedents.
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