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TMI Blog2016 (6) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... [2001 (10) TMI 4 - SUPREME Court ] and we therefore uphold the action of the Assessing Officer in charging the assessee the said interest. The Assessing Officer is, however, directed to recompute the interest chargeable, if any, under section 234A, section 234B, section 234C and section 234D of the Act while giving effect to this order. - I. T. A. No. 1007/Mum/2013 - - - Dated:- 27-4-2016 - Jason P. Boaz (Accountant Member) And Sandeep Gosain (Judicial Member) For the Petitioner : None Appeared For the Respondent : Anil Kumar ORDER Jason P. Boaz (Accountant Member) 1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)- 40, Mumbai, dated November 29, 2012, for the assessment year 2009-10. 2. The facts of the case, briefly, are as under : 2.1 The assessee, a company engaged in the business of provision of technical services in connection with cine equipment, filed its return of income for the assessment year 2009-10 on September 29, 2009, declaring a nil total income. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Income-tax Act, 1961 (in short the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing were afforded to the assessee, however, none was present for the assessee nor were any applications for adjournment filed before the Bench. On the dates on which the Bench did not function, the hearings were adjourned by display on the notice board. Once the case was adjourned for want of time. Even issue of notice through registered post with acknowledgment due has not elicited any response from the assessee. Today, i.e., April 21, 2016, when the case was called for hearing, none was present for the assessee but the learned Departmental representative was present for the Revenue. In the above factual matrix of the case, we are of the considered opinion that the assessee is not interested in pursuing this appeal seriously and we, therefore, proceed to dispose of this appeal with the assistance of the learned Departmental representative for the Revenue and the material on record. 5. Grounds 1 to 3 5.1 In these grounds, the assessee contends that in the impugned order the learned Commissioner of Income-tax (Appeals) failed to appreciate that the assessee-company, which was in the process of producing films, preferred to sell the script since it was unable to complete t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has failed to bring on record any material evidence to controvert the findings in the impugned order, the order of the learned Commissioner of Income-tax (Appeals) be upheld. 5.3.1 We have heard the learned Departmental representative for the Revenue and perused and carefully considered the material on record. In the impugned order, the learned Commissioner of Income-tax (Appeals) has dealt with the issue of treatment of receipt of ₹ 32,00,000 from sale of film scripts as income from other sources and not business income and thereby disallowing the claim of various expenses made by the assessee at paragraphs 3.2 to 3.42 of the impugned order as under : 3.2 During the course of assessment proceedings, the Assessing Officer noted that during the year, the appellant had derived income of ₹ 32,00,000 from sale of cine script to M/s. Pictures Thought P. Ltd. The appellant-company was engaged in the business of providing technical services for cine shooting and the equipment had been sold out in earlier years and, as such, it could not be said that the company was engaged in writing of cine script and the same had never been shown as an asset/work-in-progress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on literal meaning is correct that a company being artificial entity cannot write a cine script as a artificial entity company cannot do anything and whatever is to be done, it has to be done by its directors/employees/agents of the company. The script will certainly be written by individual or set of individuals or group and it is human activity. But for every activity of the company can be assigned as human activity. Our writing letter to your honour, representing before you is also human activity and we are doing on behalf of the company. With your permission, your honour is sending notice of hearing, hearing us, will apply mind on our submission and finally pass judgment/order are also an individual/human activity, but your honour is doing for and on behalf of the Income-tax Department, which is like a company and as such the Income-tax Department without individuals cannot do anything. All companies, Government activities, corporations, institutions are working like this and if the findings of the learned Assessing Officer is taken into account than everybody's working can be questioned and can be termed as individual activities, which will be grossly incorrect and will c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated the company income as income of one of the directors, Mr. Ajay Tuli. We fail to understand how he came to the conclusion that it is intellectual work of Mr. Ajay Tuli especially when both directors run the company and taken directors remuneration and above all they were assisted by the employees of the company. The learned Assessing Officer did not gave any reasons for such conclusion. Our submission We wish to inform you that the company is reputed and was doing good business for last several years. The company was engaged in film/TV related activity and was successfully doing activity of hiring and providing technical services in its broad object of film related activities including making of film. But as there was change of technology from mechanical to digital, the company had to sell its equipment as prudent business decision. The company has established contacts and well versed with film and its related activities. The need of the hour was to run the company and its show and not to make it a defunct company. The company had to incur on the staff, AC, electricity, conveyance, legal expense, etc., on day-to-day basis. This was also necessary to keep fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual existence platform for their own benefit under the normal frame work of Income-tax or law of the land. There was no shift of activity or even thought from individual to company. If at all the directors wanted to start story/script activity even without intention to produce film in their personal name, they would have entitled to all the expenses as incurred by the company. Therefore, there is no revenue loss in either situation if we assess the things from the inception. The directors wanted to run the company, carry on business of the company by way of some activity, wanted to keep alive their contacts with the industry, wanted to keep moral of employees for which either this activity or other activity was not material as long as they are into film related services or activity. Though it is not relevant to mention but for clarity of thought we are discussing that the company has not undertaken the activity as salaried person but directors of the company wanted to conduct business activity in the field of film/TV/media to fulfil the objects of the company for which the company is formed. Had it was taken activity in their (directors) personal capacity that would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company without adjusted against the income. This cannot be the purpose and interpretation of the Income-tax Act, otherwise it will create havoc. We can give 1,000 such example where the person or personal activity is involved for work of the company. The learned Assessing Officer has not given any findings or did not substantiate, why such treatment is given. We feel it is not the correct interpretation and the matter is in first appeal. Now we say The learned Assessing Officer was in haste and did not give any reasons for treating the income of one director only and not both directors, who have taken directors remuneration. From where and how, he arrived to such observation Further, the learned Assessing Officer has disallowed all the expenses of the company as the same was not pertaining to the business. How he arrived to such a conclusion. Even a khoka company will also incur some expenses every year. There may be selective disallowance, if the observation suggests but cannot be blanket disallowance. The Assessing Officer has bifurcated income separately in the hands of somebody so he cannot claim expenses and expenses without income disallowed without assigni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and how remuneration was paid The company wanted to produce the film and as team work the directors with one employee to assist have written the film scripts and discuss those scripts with artists/their secretaries, other film directors and film financiers/their agents. The directors were some time discusses those situation or narration to even drivers, employees, film fraternity people who are coming to office. The idea of film scripts come from some English film or old film in a new way to present in today's situation. The idea slowly evolves and with discussion it takes shape of script which can be discussed with film directors/actors. It is the concept of the film and its one liner with some tit-bit situations, they keep discussing the same for many days/months with various people comes into contact to test and improve because the ultimate aim is not film script but film production. The epic centre is film concept to have meeting with film director/actor or technician. To produce a film and to tie up with artist/actors, one has to go with 3-4 ideas to make the film and whichever is liked by the artists ; the film concept is finalised and then it needs further cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of co-producers. The company could not arrange for A grade artist where finance was easily available and could not tie up for various reasons as co- producer for not very known artists. The Picture Thoughts Pvt. Ltd. were in the film business and wanted to produce the film and had one or two meetings for even co-production but could not materialise/finalise. The company must have talked to not less than 8-10 financiers or their agents for either finance for film production or to bring co-producer of the film. As finance was not taken it is not appropriate to take their confirmation. It is relevant to mention that 4-6 years back, the corporate were not there in the film business. Today the corporate companies are biggest source of finance as they pre-purchase the film from very start of production cycle. It is bit easy but again everybody wants big sale able stars with some experiment with conceptual script based film. No doubt situation today with these corporate is better. As desired by your honour, we are enclosing herewith the following for your kind perusal : 1. Copy of the profit and loss account and the balance-sheet for 3 years of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be pertinent to mention here that till date, the appellant has not started the business. These details could not be furnished specifically by the appellant. However, it was claimed that the script was written jointly by the directors and employee of the company. The appellant argued that the work-in-progress is to be shown only when it is half-cooked, which is not the case of the appellant, since the script was sold during the year itself. The appellant also argued that there is no force in the contention of the Assessing Officer that an artificial entity cannot write a cine script but the script can always be written by directors and employees or their agents. It was further claimed that script was written since the company was interested in making films under its own banner but due to paucity of funds, the same was not materialised. Here it would be relevant to mention that the appellant could not substantiate its claim regarding efforts made to get finance. The appellant further claimed that the Assessing Officer's conclusion that the script writing was the intellectual work of Mr. Ajay Tuli was misconceived since there are two directors and both run the company and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income is to be allowed as deduction. Now, let us have a look on the expenses claimed by the appellant against the income from sale of script. Admittedly, there are no equipment with the appellant for giving them on hire, and, hence, no depreciation could have been claimed. Further, it is noted that the appellant has claimed the interest payment of ₹ 2,33,588, which is paid for the loan taken for purchase of car during the year. It is further noted that the appellant has given loans and advances and deposits of ₹ 1,38,28,387, on which no interest is being charged. Further, the appellant has also received dividend income during the year and, hence, disallowance under section 14A was also required to be made. The other expenses claimed by the appellant amounting to ₹ 33,93,508, along with the details of expenses claimed last year, are as under : Operative expenditure As on 31-3-2009 Amount As on 31-3-2009 Amount Salaries and allowances 4,40,550.00 0.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment hire charges. Directors' remuneration and insurance of equipment was claimed over and above this expenditure. Thus, during the last year, the appellant had incurred a loss, despite which directors' remuneration was paid, which does not appear to be a prudent business practice. Further, it may be noted that even without incurring those expenses which have been claimed during this year exclusively, the appellant was doing business. The appellant failed before me to explain as to how the establishment of office was needed during the year under consideration, requiring payment of salaries, staff welfare, telephone, travelling, etc. In the case of Jaipur Electro Pvt. Ltd. v. CIT [1996] 134 CTR (Raj) 237; [1997] 223 ITR 535 (Raj), the hon'ble Rajasthan High Court have held that the doctrine that the businessman is the best judge of business expediency does not affect the right and duty of the Assessing Officer to know whether expenditure was incurred for business purposes and not for other extraneous consideration. In view of the facts and legal position as discussed above, the expenses cannot be allowed under section 37(1). No explanation/justification has been provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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