1994 (8) TMI 72 - AT - Income Tax

Issues Involved:
1. Disallowance of printing and publicity expenditure.
2. Disallowance of repairs expenditure.
3. Levy of interest u/s 139(8), 215, and 216.
4. Disallowance of water charges.
5. Disallowance of expenses for office maintenance.
6. Levy of additional tax u/s 143(1A).
7. Levy of interest u/s 234B and 234C.
8. Depreciation on studio as 'plant'.

Summary:

1. Disallowance of Printing and Publicity Expenditure:
The common issue in the assessee's appeals for the asst. yrs. 1988-89 and 1989-90 was the disallowance of printing and publicity expenditure. The Assessing Officer disallowed 50% of the total expenditure based on prior disallowances for the asst. yr. 1986-87. The CIT(A) upheld this disallowance. The Tribunal found that no incriminating materials were recovered for the years in question and acknowledged the usual practice of recovering such expenses from 'C' class theatres. The Tribunal granted a further discount of 10% for possible inclusion of recoveries in the collection figures, resulting in a reduced disallowance.

2. Disallowance of Repairs Expenditure:
For the asst. yr. 1988-89, the Assessing Officer disallowed Rs. 80,000 out of Rs. 81,211 claimed for repairs and maintenance due to the demolition of the building in the succeeding year and lack of details. The CIT(A) reduced the disallowance to Rs. 40,000. The Tribunal granted further relief of Rs. 10,000 on an estimate basis.

3. Levy of Interest u/s 139(8), 215, and 216:
The assessee objected to the levy of interest under these sections for the asst. yr. 1988-89. The CIT(A) declined to entertain the ground. The Tribunal directed the Assessing Officer to amend the quantum of interest upon final determination of income and tax, following the Supreme Court's decision that levy of interest is substantive law.

4. Disallowance of Water Charges:
For the asst. yr. 1989-90, the assessee's payment of Rs. 13,369 for water charges related to earlier years but was paid in the impugned year. The Tribunal upheld the disallowance as the assessee maintained accounts on a mercantile system.

5. Disallowance of Expenses for Office Maintenance:
The Assessing Officer originally disallowed Rs. 1 lakh for expenses on salary, office maintenance, and batta for offices at Ernakulam and Kozhikode. The CIT(A) reduced the disallowance to Rs. 50,000. The Tribunal further reduced it to Rs. 25,000, considering the increased collections due to successful films.

6. Levy of Additional Tax u/s 143(1A):
The Tribunal found that the facts were unclear from the assessment order regarding the processing of the return u/s 143(1)(a). The issue was restored to the Assessing Officer to provide an opportunity to the assessee before deciding the issue.

7. Levy of Interest u/s 234B and 234C:
The Tribunal held that levy of interest under these sections could not be made without affording an opportunity of being heard to the assessee. The Tribunal deleted the levy of interest, considering the circumstances where the assessee's fixed deposits were frozen, preventing payment of advance tax.

8. Depreciation on Studio as 'Plant':
The Revenue's appeal questioned whether a 'studio' qualifies as 'plant' for depreciation purposes. The CIT(A) allowed the claim, following the functional test. The Tribunal upheld this decision, directing the ITO to grant depreciation on the studio at the rate applicable to 'plant'.

Conclusion:
The appeals of the assessee were allowed in part, and the appeal of the Revenue was dismissed.

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