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2016 (6) TMI 298 - AT - Income TaxDisallowance of expenses for obtaining ISO certificates - revenue or capital expenditure - Held that - It is evident from the order of the Departmental Authorities that they have considered the expenditure to be capital in nature because the certificate is valid for three years. However, in our view, that cannot be a ground to treat the expenditure as capital in nature unless it creates an asset of enduring nature. Neither the Assessing Officer nor the learned Commissioner (Appeals) has established on record that by obtaining the certificate, the assessee created any asset of enduring nature. On the other hand, the decisions relied upon by the learned Authorised Representative as referred to above have held that sum paid by the assessee for obtaining ISO certificates are revenue expenditure. Thus we allow assessee s claim of deduction. As far as the allegation of learned Commissioner (Appeals) that the expenditure does not pertained to the impugned assessment year, we are not convinced with the same. As rightly pointed out by the learned Authorised Representative, there is no dispute that the expenditure was incurred during the relevant previous year. That being the case, assessee is eligible to claim the deduction Disallowance on account of cost of production of feature film - whether provisions of section 194J is applicable to such payments made in kind - Held that - Since the payment made by the assessee is in kind, the provisions of section 194J are not applicable. Accordingly, allowing assessee s claim, we delete the addition made by the Assessing Officer. See CIT v/s Chief Accounts Officer, Bruhat Bangalore Mahanagar Palika 2015 (10) TMI 2184 - KARNATAKA HIGH COURT Disallowance of advertisement and publicity expenses - Held that - The expenditure incurred in regular course of business has to be allowed under section 37. The ratio laid down by the co ordinate bench of the Tribunal is squarely applicable to the facts of the present case. Therefore, expenditure incurred by the assessee being wholly and exclusively laid down for the purpose of assessee s business is allowable as deduction under section 37 of the Act. Accordingly, allowing assessee s claim of deduction, we delete the addition made by the Assessing Officer. See Dharma Productions Pvt. Ltd. v/s DCIT 2013 (11) TMI 319 - ITAT MUMBAI Disallowance of cost of Television serials and film projects abandoned during the year - Held that - On a perusal of the orders of the Departmental Authorities, it is observed that the Department has not disputed the fact that the assessee has incurred the expenditure. It is also not disputed that the television and film projects have been abandoned. The expenditure has been disallowed only on the ground that the assessee has not been able to prove that by abandoning the projects, the assessee has benefited. In our view, the reasoning of the Departmental Authorities for disallowing the expenditure is not valid. The very fact that the assessee abandoned the projects goes to prove that the projects were not found to be viable or workable. Therefore, keeping in view the business interest, the assessee decided to abandon the projects. In fact, in the CBDT circular no.16 of 6th October 2015, the Board has clearly stated that cost incurred in abandoned projects should be allowed as revenue expenditure under section 37 of the Act Disalllowance under section 14A r/w rule 8D - Held that - On a perusal of the assessment order, we do not find any observations by the Assessing Officer to the effect that during the relevant previous years, assessee had earned / claimed any exempt income. It is the assertion of the learned Authorised Representative before us that assessee has not earned any exempt income during the previous year relevant to the assessment year under dispute. As held by the Hon ble Delhi High Court in Cheminvest (2015 (9) TMI 238 - DELHI HIGH COURT unless during the relevant previous year, assessee earns any exempt income no disallowance under section 14A r/w rule 8D can be made. Therefore, applying the ratio laid down by the Hon ble Delhi High Court as aforesaid, we hold that no disallowance under section 14A r/w rule 8D can be made in case assessee had not earned any exempt income during the relevant previous year. Therefore, we direct the Assessing Officer to verify this aspect and if it is found that the assessee has not earned any exempt income during the relevant previous year, no disallowance under section 14A can be made. In view of our aforesaid observation, there is no need to deal with the alternative contention of the assessee that the investment in shares since was made out of interest free funds available with the assessee, no disallowance under section 14A can be made out of the interest expenditure.
Issues Involved:
1. Disallowance of certification expenses. 2. Disallowance of cost of production of feature film. 3. Disallowance of advertisement and publicity expenses. 4. Disallowance of cost of abandoned projects. 5. Disallowance under section 14A read with rule 8D. Detailed Analysis: 1. Disallowance of Certification Expenses: The assessee challenged the disallowance of ?6,59,613 as certification expenses, which were treated as capital in nature by the Assessing Officer (AO) and the Commissioner (Appeals). The AO argued that the certification, valid for three years, provided an enduring benefit, thus capitalizing the expense and allowing depreciation. The assessee contended that the certification did not create any tangible or intangible asset and could be withdrawn if requirements were not met, making it a revenue expenditure. The Tribunal, referencing decisions from higher courts, concluded that the certification did not create an enduring asset and allowed the expenditure as revenue in nature. The Tribunal also dismissed the Commissioner (Appeals)'s claim that the expenditure did not pertain to the assessment year, as it was incurred during the relevant previous year. 2. Disallowance of Cost of Production of Feature Film: The assessee disputed the disallowance of ?52,58,118 related to gifts given to business associates for their work on a film. The AO treated these gifts as professional fees requiring tax deduction at source under section 194J, and disallowed the expense under section 40(a)(ia) due to non-deduction of tax. The Tribunal, however, held that "any sum" in section 194J refers to payments in money terms, not in kind, and thus the provisions of section 194J were not applicable. Consequently, the Tribunal allowed the assessee's claim and deleted the addition made by the AO. 3. Disallowance of Advertisement and Publicity Expenses: The assessee challenged the disallowance of ?2,39,39,631 incurred on advertisement and publicity expenses for the film "Billu Barber" post-certification by the Board of Film Censors. The AO disallowed the expenses under rule 9A, which restricts such expenses post-certification. The Tribunal, referencing previous decisions, held that while these expenses could not be included in the cost of production under rule 9A, they were still allowable as business expenses under section 37. The Tribunal thus allowed the deduction and deleted the addition. 4. Disallowance of Cost of Abandoned Projects: The assessee contested the disallowance of ?19,19,286 related to costs of abandoned television serials and film projects. The AO disallowed the expense due to lack of evidence that the projects were not completed. The Tribunal, referencing CBDT circulars and judicial precedents, held that costs incurred on abandoned projects should be treated as revenue expenditure under section 37. The Tribunal allowed the deduction, recognizing the business decision to abandon non-viable projects. 5. Disallowance under Section 14A read with Rule 8D: The assessee disputed the disallowance of ?33,91,821 under section 14A read with rule 8D, related to investments in shares. The AO made the disallowance due to the potential for exempt income from these investments. The assessee argued that no exempt income was earned during the relevant year, and the investments were made from interest-free funds. The Tribunal, following judicial precedents, held that if no exempt income was earned, no disallowance under section 14A could be made. The AO was directed to verify this and refrain from making the disallowance if no exempt income was found. Conclusion: The Tribunal allowed the appeals for both assessment years, granting relief to the assessee on all contested grounds.
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