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TMI Blog2014 (4) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... ion - Assessee has never capitalied expenditure – Decided against Revenue. Deletion of disallowance u/s 69B of the Act – Unexplained investment – Held that:- The assessee had hired a premises and paid Rs.20 lakhs to SG, that AO had gathered information from SG but did not inform the assessee about the result of his inquiry - AO has to confront the assessee with the information that he collects behind the back of the assessee and uses against it - the AO has violated the basic principle of natural justice and only on this basis ground of appeal taken by him can be dismissed - the FAA has held that transaction was with the SM – it is not known whether assessee had hired any other premises besides the SG – thus, the matter is required to be remitted back to the FAA for fresh consideration – Decided in favour of Revenue. Deletion on account of service tax – Held that:- The assessee was not routing the transactions of ST through the P&L A/c. and that it was dealing with ST only in the balance sheet - FAA has given a finding of fact that the basis for making addition was incorrect – the order of the FAA is upheld – Decided against Revenue. Disallowance of cash expenses on estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2006-2007: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai has erred in deleting the disallowance of finance charges of Rs.11, 48, 496/-, which should have been effectively capitalized. 2.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai failed to appreciate the fact that as the assessee company themselves have admitted that nearly 42% of the episodes were kept as work in progress and not sold to the respective channels. 3.The appellant prays that the order of CIT(Appeals) on the above grounds be set aside and that of the Assessing Officer restored. 4.The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 1097/Mum/2011-AY.2007-08 1.On the facts and in the circumstances of the case and in law, the Ld.CIT(A) Mumbai has erred in deleting the disal1owance of Rs.1, 00, 000/-made on account of unexplained investment u/s.69B of the Act. 2.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai failed to appreciate the fact that the issue of deposit with M/s. Studio Gold remains un-reconciled and thus the aforesaid addition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs 1, 26, 75, 490/- i.e. Rs 25, 35, 098/-. The learned CIT (A) erred in confirming the ad hoc disallowance of 20% cash expenses of Rs.1, 26, 75, 490/-i.e. Rs.25, 35, 098/-, production expenses, without any basis and the addition confirmed by the CIT (A) may be directed to be deleted. 2.The learned CIT(A) failed to appreciate that the learned Assessing officer has neither found any defects in the books of account maintained by the appellant nor, the books of account has been rejected, the inspector who has test checked the vouchers has not found any defects, neither provisions of section40(A)(2) or 40(A)(3), is applicable , the appellant being a company there is no personal element to the company, even in the course of survey no defects were found in the books of account maintained by the assessee, as the assessee has proved beyond reasonable doubt the genuineness of cash expenses considering the nature of assessee s business the ad hoc disallowance of 20% cash expenses may be directed to be deleted. B.Ad hoc disallowance of 20% wages Rs 17, 78.418/- and conveyance Rs 3, 16, 081/- (total of Rs. 20, 94, 499/-) i.e . Rs 4, 18, 900/- paid to set workers. 3.The learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO to the total income of assessee. 2.1.Before the FAA it was submitted that the provisions of Accounting Standard(AS) 2were applicable to the assessee, that same was mandatory and it did not require the addition of finance charges for arriving at the cost of production of television serials, that company had paid Finance Charges under the heads Interest on Loan from Entertainment One(Rs.19, 72, 000/-)Interest on Bank Overdraft-Rs.(5, 84, 306/-)Interest on Car Loans(Rs.85, 203/-), Interest on Other Loans from Banks against Persona/guarantees(Rs.83, 727/-), Bank Charges(Rs.4, 289)and Processing Charges Rs. (5, 000), that it had not had not classified WIP as capital asset, that AO had designated WIP as capitalised WIP, that the copyright of the serials were held by the channels themselves and to that extent the WIP was not a capital asset of assessee, that no ownership rights were vested with the assessee, that the interest payment was not covered under the provisions of section 36 (1) (iii) of the Act, that the entire interest expense was for the business and profession of the assessee, that out of the total interest expense incurred by it interest expense on motorcar, cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing about the ownership of the serials which was very important factor to decide the issue.Assessee was following the same practice, writing its books of accounts as per the Account - ing Standards, in earlier years and AO had never pointed out any defect in that practice.It is true that the AO can deviate from the stand taken in earlier years, but for doing so, he has to give cogent reasons.We do not find any reason in the assessment order.We agree with the finding of fact given by the FAA that basis for calculating WIP at 42% was not clear.As per the provisions of the Act expenses can be capitalised in certain conditions, but if AO wants to capitalise any expenses he has to clearly mention the facts leading to his conclusion.Assessee has never capitalied expenditure.Considering the facts and circumstances of the case, we are of the opinion that the order of the FAA does not suffer from any legal infirmity.Therefore, we decide the effective ground of appeal against the AO.Appeal filed by the AO stands dismissed. 1097/Mum/2011-AY.2007-08 3.AO finalised the assessment for the year under appeal on 28.10.2010 u/s.143(3)r.w.w.144 of the Act determining the income of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Bench, AR admitted that no application u/s.154 of the Act was filed by the assessee before the FAA for rectifying the mistake in the names of the studios.Considering the peculiar fact of the case we are restoring back the matter to the file of the FAA for fresh adjudication after hearing the assessee.Ground of appeal filed by the AO is allowed for statistical purposes. 4.Next ground of appeal deals with deleting the addition of Rs.2, 09, 24, 075/-made on account of service tax(ST).From the reconciliation of receipts as per TDS certificates with P L A/c. submitted by the assessee, AO found that there was short credit of receipt to the profit and loss account under the head ST to the tune of Rs.2, 09, 24, 075/-.He further found that the assessee had debited Rs.1.42 Crores to its P L account for ST.He held that the assessee was routing the ST through P L account, that it should have debited and credited the P L account with regard to the ST, that the assessee had only debited the amount of ST paid to the P L account, that it did not credit the receipt, that the P L account remained under credited by Rs.2.09 Crores.Finally, he made an addition of Rs.2.09 Crores to the income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e called for details in this regard.Rejecting the claim made by it, AO held that the explanation of the assessee-company was not acceptable, that there was no evidence to prove that the parties had insisted on payment in cash and that they had expressed unwillingness to render services other - wise, that assessee had simply submitted break up of cash expenses and no further details were furnished, that assessee had simply submitted break up of cash expenses and no further details were furnished, that it was not denied that the recipient parties also had bank accounts and the bank transactions would have been far more expedient and convenient.Finally, he allowed 20% of the total expenses and disallowed the balance 80% of the expenses. 5.1.In the appellate proceedings FAA held that the assessee had claimed direct expenses of Rs. 3, 57, 26, 324/-, that the assessee had claimed cash expense to the tune of Rs.71, 99, 877/-, that that a survey action was carried out in assessee s premises on wherein details with regard to huge cash withdrawals were found, that query was put across to the assessee-company to explain such huge cash withdrawals and corresponding expenses, that it had sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sustained by the FAA was quite reasonable. 5.3.We have heard the rival submissions and perused the material before us.We find that the assessee had claimed cash expense to the tune of Rs.71, 99, 877/-, that during the survey operation details of cash expenses were called for by the members of the team, that later on the AO had directed the assessee to file the entire cash expense details of expenses above Rs.2, 000/-, on 07. 11.2008.On 19.11.2008 assessee filed details like date wise payment/party wise payment/head wise payment.It made a request to the AO to fix a suitable time when the personnel of the assessee-company could show all the relevant vouchers for cross verification.As per the directions of the AO assessee filed further information on 24.11.2008.We find that AO did not fix the date for verifying the material submitted by the assessee, that his order also did not mention the enquiries made by him.It is not known as how did he arrive at the conclusion that 80% of the expenditure could not be allowed.As per his directions assessee had furnished all the necessary details, but he choose not to examine them.AO.s are not supposed to make disallowances without assigning r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring in year 2008, that the AO had made no mention of the survey proceedings or hearing of 2008 in the assessment order/remand proceedings, that the AO was not correct in stating that assessee had not filed details, that books of account vouchers, bills as asked by the AO were produced by the assessee during the course of remand proceedings, that the vouchers for the month of March 2007 were presented and were verified by the AO, that remand report did not indicate any discrepancy of the vouchers, that in the remand report he did not give the details of the bills/vouchers that were not supported by proper documents.During the appellate proceedings, FAA carried out a sample test check of the vouchers for the period 01.03.2007-10. 03.2007and held that claim of the AO that all vouchers were only self-made was factually incorrect.FAA further held that the payments pertaining to set workers wages (Rs. 17.78 lacs), payment to Art Director/Artists- subject to TDS (Rs. 22.83 lacs), disallowance u/s. 40A(ia) (Rs. 77083/-), Cash payment subject to FBT (Rs.27.1 lacs)Ssalary to staff and Directors (Rs. 3.23 lacs), loan distributed to staff(Rs. 32, 000/-) could not be considered for disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations stating that vouchers produced were self-made and could not be verified, that there was merit in assessee s argument that disallowance on account of wages to the set workers was higher than the actual debit for the purpose, that if the purchase of said material was not disputed payment to labours should have been accepted. Finally the disallowance of wages to set workers and conveyance allowance was restricted to 20% of the expenditure incurred i.e.to Rs.4. 18 lakhs. 7.2.Before us, AR submitted that AO had not stated the facts properly even during the remand report, that he had mixed the cost of material as well as the payment made to the workers for making the disallowance, that he did not question the genuineness of the material purchased by the assessee during remand proceedings, that without the labours construction of set was not possible, that FAA had not given any reason for restricting the disallowance to 20%. DR supported the order of the FAA. 7.3.We have heard the rival submissions and perused the material before us.We find that AO has followed a very strange path during the assessment as well as remand proceedings.From the books of accounts, it was cleared ..... X X X X Extracts X X X X X X X X Extracts X X X X
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