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2015 (5) TMI 539 - AT - Income TaxDisallowance of expenditure incurred on costumes and dress - Held that - Similar addition made in the case of assessee in the assessment years 2006-07 & 2008-09 was deleted by the CIT(A). In the year under consideration, the CIT(A) has confirmed the disallowance of costumes and dress expenses on the assumption that there could be possibility of personal usage in such expenses. Keeping in view the assessee‟s nature of business being anchor, we do not find any merit in the action of the CIT(A) for disallowing expenditure incurred on costumes and dress which was incurred wholly and exclusively for the purpose of business. - Decided in favour of assessee. Disallowance of car insurance, depreciation on car, motor car expenses - Held that -Keeping in view the nature of assessee s business, we restrict the disallowance to 5% of the expenditure so incurred. - Decided partly in favour of assessee. Disallowance u/s.14A read with rule 8D - Held that - AO has mechanically applied the provisions of rule 8D, which is not applicable in the relevant assessment year 2007-08 under consideration as per verdict of Hon‟ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd., 2010 (8) TMI 77 - BOMBAY HIGH COURT . Keeping in view the totality of facts and circumstances, where the AO has not recorded any finding to substantiate that any expenditure has been incurred for the purpose of earning the exempt income, we restrict the disallowance to the extent of ₹ 1,00,000/- insofar as the entire exempt income was on account of tax free bond, shares, PPF etc.- Decided partly in favour of assessee. Disallowance of expenditure on purchase of paintings - Held that - Rule 9A is a complete code in itself. The expenditure incurred on the production of film is allowed only under Rule 9A. Such expenditure is allowable as per the provisions of Rule 9A, irrespective of the year in which such expenditure is incurred and irrespective whether it is capital in nature or revenue in nature. Unlike Section 37(1) of the Act, Rule 9A does not lay down any such restrictions. Once it is established that paintings are a part of Cost of Production, the same should be allowed as deduction. The observation of the CIT(A) to the effect that paintings was for personal usage is not based on any evidence on record. Accordingly, we direct the AO to delete the addition on account of expenditure incurred on purchase of paintings. Thus ground taken by assessee for allowing depreciation of cost of paintings has become infructuous now. - Decided in favour of assessee in part. Adhoc disallowance of 15% on various expenses incurred for the movie Kavi Alvida Na Kehna - Held that - Since in the instant case proper records have been maintained and also furnished before the AO and it was only the case of non-production of technical documents relating to production of films, the disallowance was made by the AO. However, a clear finding has been given by the Tribunal in the case of M/s Dharma Production Pvt. Ltd. 2013 (11) TMI 319 - ITAT MUMBAI that these technical documents are not required to be maintained. Thus following the reasoning given during the assessment year 2009-2010 we restrict the disallowance out of the motor car expenses and depreciation on motor car to the extent of 5%. The adhoc disallowance made out of costumes and dresses expenses are hereby deleted. The disallowance made on account of telephone expenses is restricted to 5%. In the selling expenses there is no personal element, accordingly, we do not find any merit for adhoc disallowance of 10% amounting to ₹ 1,44,009/- out of selling expenses of ₹ 14,40,009/- incurred by the assessee. - Decided partly in favour of assessee.
Issues Involved:
1. Adhoc disallowance of car insurance, depreciation on car, motor car expenses, and costume and dress expenses. 2. Addition under Section 14A read with Rule 8D. 3. Disallowance of expenditure on purchase of paintings. 4. Adhoc disallowance of various expenses related to film production. Detailed Analysis: 1. Adhoc Disallowance of Car Insurance, Depreciation on Car, Motor Car Expenses, and Costume and Dress Expenses: The assessee challenged the adhoc disallowance of 10% made by the AO on various expenses, including car insurance, depreciation on car, motor car expenses, and costume and dress expenses, arguing that these disallowances were unjustified. The Tribunal observed that the assessee, being a TV anchor, required expenditure on costumes and dress materials for professional purposes. Referring to a similar case (Ameesha A. Patel), the Tribunal noted that once the AO accepts such expenses as incurred wholly and exclusively for professional purposes, it cannot be disallowed as personal expenses. The Tribunal directed the deletion of disallowance related to costume and dress expenses. However, for car insurance, depreciation on car, and motor car expenses, the Tribunal restricted the disallowance to 5%. 2. Addition Under Section 14A Read with Rule 8D: The assessee contested the addition of Rs. 2,25,213 under Section 14A read with Rule 8D, arguing that the AO mechanically applied Rule 8D without substantiating that any expenditure was incurred to earn exempt income. The Tribunal noted that Rule 8D was not applicable for the assessment year 2007-08 as per the Bombay High Court verdict in Godrej & Boyce Mfg. Co. Ltd. The Tribunal restricted the disallowance to Rs. 1,00,000, considering the totality of facts and circumstances. 3. Disallowance of Expenditure on Purchase of Paintings: The assessee argued against the disallowance of Rs. 94,53,684 incurred on purchasing paintings, which the AO treated as capital expenditure. The Tribunal noted that the cost of production of a feature film, as defined under Rule 9A of the I.T. Rules, 1962, includes all expenditure incurred on production, excluding specific items. The Tribunal found that the paintings were part of the cost of production and directed the AO to delete the disallowance, as the CIT(A)'s assumption of personal usage was not based on evidence. 4. Adhoc Disallowance of Various Expenses Related to Film Production: The assessee contested the adhoc disallowance of 15% on various expenses incurred for the movie "Kavi Alvida Na Kehna," including payments to junior artists and technicians, costumes and dresses, makeup and hairdressers, dubbing, sound recording, dancers and dance expenses, and setting expenses. The AO made these disallowances due to the non-production of certain technical documents. The Tribunal noted that the required documents were not part of the prescribed books of accounts under Rule 6F and that the expenses were supported by bills and vouchers. Referring to a similar case (M/s Dharma Productions Pvt. Ltd.), the Tribunal directed the deletion of the adhoc disallowance, as the technical documents were not required to be maintained. Assessment Year 2009-2010: For the assessment year 2009-2010, the Tribunal followed the same reasoning and restricted the disallowance out of motor car expenses and depreciation on motor car to 5%. It deleted the adhoc disallowance of costumes and dresses expenses and restricted the disallowance on telephone expenses to 5%. The Tribunal found no merit in the adhoc disallowance of selling expenses. Conclusion: The appeals were allowed in part, with specific disallowances being deleted or restricted as per the Tribunal's detailed analysis. Order Pronounced: The order was pronounced in the open court on 15/04/2015.
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