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TMI Blog2017 (3) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... ments before the Assessing Officer on this issue, filed a letter purportedly filed by Sri Raj Kumar Santoshi, wherein it was claimed that the appellant failed to adhere to the time schedule agreed upon for making the film and in the same letter a passing remark was made by the said Santoshi “The amount of ₹ 2,20, 00,000/- which was paid / was due to me as per the terms of the arrangements between us and………" From the contents of the above letter, apparently no conclusive finding can be made that the appellant had actually given an advance of ₹ 2.20 crores. Thus, the appellant fails on all fronts to prove the claim of even the major amount of ₹ 2.20 crores. Accordingly, I am not inclined to accept that amount of ₹ 3.20 was advanced to technicians and that the same was written off. As such, the disallowance made by the Assessing Officer is upheld Disallowance of expenditure written off during the year - Held that:- As there is no doubt about that payment of the amount, we are not sure why Revenue has not accepted the same and CIT(A) doubts the same that no conclusive finding can be made. The contents of the letter is very clear that assessee has entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowances/additions: a. Disallowance of interest u/s. 14A on investment in share application money deposits of ₹ 1,04,60,798/-; b. Disallowance of interest on investment in residential building at Ramoji Film City of ₹ 2,03,04,932/-; c. Disallowance of advance to technicians written off at ₹ 3,20,73,859/- and d. Disallowance of expenditure incurred towards production cost of feature film In the shadow of Cobra ₹ 10,84,00,000/-; 3. Ld.CIT(A) in appeal has confirmed the above, hence the present appeal. 4. Ground No. 2 is as under: 2. The learned Appellate Commissioner erred in sustaining the disallowance of interest of the extent of ₹ 1,04,60,798/- by holding that the borrowing of money and the investment of the same in share application deposit does not constitute business activity. The learned Appellate Commissioner ought to have held that the said amount of interest expenditure was allowable and deleted the addition made by the Assessing Officer . 4.1. This issue pertains to disallowance of interest pertaining to borrowings for share application money. This issue arose in earlier year and AO and CIT(A) followed the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciple, the Assessing Officer is correct in disallowing the aforementioned interest. However, the appellant has stated that the calculations of the Assessing Officer are incorrect and out of ₹ 29 Crores investment, ₹ 18 Crores was made out of own funds. However, during appeal proceedings, the appellant could not bring any evidence to prove its point. The onus lay squarely on the appellant to state clearly the amount of interest it had claimed with respect to the aforementioned property. This simple detail was not provided by the appellant. Accordingly, given the facts and circumstances, the Assessing Officer is directed to verify the exact amount of interest claimed by the appellant with respect to the residential building at Ramoji Film City and disallow the same . 4.3.1 Since the issue involved is identical, the decision as outlined in the aforementioned case vide my order dated 03.09.2010 also applies to the current case. In other words, the Assessing Officer correctly disallowed the interest. However, the Assessing Officer is directed to verify the exact amount of interest claimed by the appellant with respect to the residential building at Ramoji Film City an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on suspicion, surmise and conjecture. (b) The learned CIT (A) has failed to consider that the expenditure incurred of ₹ 3.20 Crore was part of accounts audited during the period of expenditure. He ought to have given weight to the contemporaneous evidence. (c) In respect of the advance amount of ₹ 2,20,00,000/- the learned CIT(A) is not justified in rejecting the evidence produced by way of a contemporaneous letter written by Sri Rajkumar Santosh to whom it was paid. The letter confirms the payments and also the fact of efforts made for production of the Film MAHABHARAT. The learned CIT(A) has misquoted the crucial sentence by placing OBLIQUE SIGN in between 'was paid' and was 'was due' whereas the letter does not have such sign. He thus misled himself into believing that the payment of ₹ 2,20,00,000/- was not proved. (d) The learned CIT(A) and the Add. CIT have failed to appreciate that the expenditure of ₹ 17,51,347/- incurred through imprest account was duly vouched and accounted for by cashier in conformity with principles of accounting of imprest amounts. (e) The learned CIT(A) is not justified in holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, bills and relevant books of account, etc., the Assessing Officer disallowed the amount of ₹ 3,20,73,859/- under this head. 6.2. Ld.CIT(A) admitted some additional evidences, sent them to AO on remand and after obtaining the same, has decided the issue as under: 5.4. Out of the 11 productions claimed by the appellant, the major amount pertains to the production 'Mahabharat' for ₹ 2,43,07,171/- and this amount was stated to have been advanced to Sri Rajkumar Santoshi, a Director. When asked for the details of payments and confirmation from Sri Santoshi, it was replied by the appellant that Sri Santoshi had passed away and confirmation from him is not possible. As a last resort, the Assessing Officer asked to furnish the details of cheques and bank account details, through which the said amount was paid, For this, the appellant stated produced a bank statement for the period 2000 to 2012 and from this bank account, the Assessing Officer could not get any of the payments claimed to have been paid to Sri Santoshi. For this, the appellant claimed that the Bank had changed its software and needs time for furnishing of full particulars. Accordingly, the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical reasons in USA, and that there was no possibility of making out the cost so incurred in making the movie, the same was written off during the year. AO disallowed the same on the reason that assessee has not justified the expenditure incurred. 7.2. Ld.CIT(A) dismissed the ground stating as under: 6.1 As regards the reasons for the disallowance by the Assessing Officer, the same are similar to the issue of advances. No evidences were purportedly produced by the appellant during assessment stage. On this issue also, during appeal proceedings, the appellant came up with some evidences and the same were forwarded to the Assessing Officer for her comments. The Assessing Officer had furnished her remand report stating that the bills / vouchers are self made and no credence can be given to such material. During remand stage, the appellant also failed to produce the bank account evidencing payment of any the amounts incurred in India and in particular the amount of ₹ 5.98 crores to Frank T. Demartini, through whom all the payments were claimed to have been made to foreign technicians. However, after receipt of remand report, the appellant filed a letter from the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years. With reference to the contention that details are not filed, he referred the details placed on record (even before the AO) and payments by cheques particularly to Mr Rajkumar Santoshi and others. It was the submission that the expenditure incurred was genuine and was part of the record in earlier years. Like-wise, the production cost of film In the Shadow of Cobra . He referred to the schedules in earlier years to submit that the expenditure on production work was recorded in earlier year and was part of the record. 10. Ld. Counsel made reference to legal principles in allowing the expenditure claim either as revenue expenditure or loss or bad debt. It was explained that Rule 9A was not applicable as the film certification was not obtained and referred to Circular No. 16/2015. He took support from the decision of the Hon'ble Bombay High Court in the case of M/s. Venus Records and Tapes P. Ltd., dt. 29-01-2015 (ITA No. 310 of 2013) for the proposition that cost of abandoned film written-off is a revenue expenditure. He also referred to the Co-ordinate Bench decision in the case of ITO Vs. Abdul G. Nadiadwala [29 ITR (Trib) 528] (ITAT, Mumbai) A Bench for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not find any reason to disbelieve the same. Accordingly, the ground raised by assessee with reference to expenditure of ₹ 3.20 Crores is considered allowable and AO is directed to allow the same. Ground No 4 is allowed. 12. Now, coming to the issue of expenditure written-off towards production cost of feature film In the shadow of Cobra ₹ 10.84 Crores, Assessee supports the expenditure by various payments made through banks or through other concerns and the evidences were furnished before the AO in the remand. However, neither the AO nor the CIT(A) examined the same in correct perspective. However, assessee also has not furnished the complete details before us to examine whether such expenditure was incurred except that the balances are shown in the annual reports every year. This requires verification by the AO. Assessee is directed to furnish necessary evidences of production of film, persons employed or contracted, schedules of shooting etc, necessary agreements if any, in support of claim of incurring of the expenditure, if not the actual vouchers of the earlier period and AO is directed to examine and allow the claim after due verification. With these dire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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