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TMI Blog2020 (6) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by the assessee. We have gone through the copies of the ledger a/c of advances received and written off which are now filed as additional evidence and find that the assessee has incurred loss on the distribution of each of the films which was been claimed by the assessee during the relevant A.Y. Any debt which has become bad, can be written off as bad debt without having to establish that it has really become bad. In the case before us, the assessee has claimed to incurred Loss due to non-recovery of advances and therefore, claimed it as loss which is not impermissible under the law. However, the additional evidence filed by the assessee needs verification. Therefore, the issue is set aside to the file of AO for denovo consideration. The assessee s grounds of appeal on this issue are accordingly treated as allowed for statistical purposes. Disallowance of expenditure debited to P L A/c on the ground that it is not supported by pucca bills - AO has disallowed only 5% of the expenditure and not 20% as alleged by the assessee in its grounds of appeal. Except raising the above grounds, the assessee has not be able to establish as to why 5% disallowance is unreasonable. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has claimed loss, were released and exhibited on commercial basis for more than 90 days in the relevant previous years i.e. 2008-09, 2009-10 and 2007-08 respectively. Therefore, according to him, under Rule 9B, the same needs to be allowed in the corresponding assessment years and not in the A.Y 2012-13. 3. With regard to the fourth movie Snehithudu released on 27.01.2012, he observed that since it was exhibited for less than 90 days before the end of the previous year, the balance amount shall be carried forward to the next following previous year i.e. 2012-13 (A.Y 2013-14) and shall be allowed as a deduction in that year. He therefore, called for assessee s explanation. The assessee claimed that these amounts were written off as bad debts u/s 36 37 of the I.T. Act during the relevant previous year. But on perusal of ledger copies of these accounts filed by the assessee, the AO noticed that Complete ledger copies of these accounts were called for during the scrutiny assessments. In the ledger copies, the amounts corresponding each movie were simply transferred to P L account on 31.03.2011. The assessee neither claimed these amounts as bad debts nor ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) The Ld. CIT(A) ought to have appreciated that the specific Rule 9 B of I.T. Rules, 1962 which is applicable to cases of Exhibition of movies, is not to be used against the general provisions of section 36(1)(vii) of the Act. 8) The Ld. CIT(A) ought to have deleted the disallowance made on an adhoc basis for ₹ 5,30,747/-. 9) The Ld. CIT(A) ought to have appreciated that merely because the expenditure clamed is not supported by pucca bills and is supported by kucha vouchers, the disallowance of the same at a very high percent of the order of 20 % is unreasonable and is not justified. 10) The Ld. CIT(A) ought to have appreciated that, if at all any disallowance is warranted in the appellant's case for the year under consideration on account of non-maintenance of pucca bills for the expenditure claimed, the reasonable disallowance is not to exceed 1 % or 2%. 11) The assessee may add, alter or modify, delete all are any of the grounds at any time before or at the time of hearing of the case . 5. The learned Counsel for the assessee has filed the written submissions as under: The assessee is a Private Limited Company engaged in the business ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 5,10,00,000/- and ₹ 1,07,00,000/- were paid to M/s.Viswamithra Creations and M/s. Silver Screen Movies respectively in financial year 2011-12 and ₹ 8,97,082/- and ₹ 2,00,000/- respectively were outstanding as at 31.03.2012. Thus, the amounts claimed in the table given in para 3 of the assessment order, represent the advances receivable in earlier years for the above said pictures. Out of the amounts paid as advances, the impugned amounts have not been received for a period of more than 3 years and the same are clearly reflected in the ledger accounts submitted as additional evidence vide Paper Book filed on 04.01.2019. These are the recoverable amounts. Since the same have not been received so far, they have been treated as bad debts and have been written off in P L account as Loss on Pictures . This treatment is in accordance with the provisions of section 36(1)(vii) and 37 of the Act. In this regard, the assessee relies on the decision of Delhi High Court in the case of M/s. Mohan Meakins vs. CIT (348 ITR 109) (Delhi). As detailed above, the impugned amounts represent unrecovered advances which do not represent the expenditure incurred for the films. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82/-. 4. The ad hoc disallowance of ₹ 5,30,747/- towards expenditure claimed under different heads is not warranted - [Ground nos.8, 9 10] : The Assessing Officer vide para 4 of the assessment order disallowed the amount of ₹ 5,30,747/- (1/5th of ₹ 26,53,736/-) under different heads on the ground that the relevant vouchers/bills were selfmade and that some of the vouchers were unverifiable. The Ld. CIT(A) confirmed the disallowance on the ground that the expenditure was supported by Kucha Vouchers but not by pucca bills. In this connection, it is submitted that the Assessing Officer made the adhoc addition arbitrarily, unreasonably and without identifying as to what amount was found to be not genuine. It may be submitted that the entire expenditure is verifiable, but only some of the vouchers are self-made. This is because, in the line of assessee's business, majority of the expenditure is incurred on manual services from unorganised sectors and individuals. No printed vouchers could be obtained from those persons or services, for the payments made. In that case, the stamped receipts are taken on the assessee's printed receipts/slips, some time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival contentions and Rule 9B of the I.T.Rules, we find that the assessee is not claiming the expenditure incurred on the acquisition of movies but the assessee is claiming loss due to non-recovery of advances paid. Rule 9B only provides a method of computing deduction available in respect of expenditure on acquisition of distribution rights of feature films, but does not address the sequence in which deductions are to be allowed. The Hon'ble Delhi High Court in the case of Honey Enterprises Vs. CIT in ITA No.163/2002, dt.08.12.2015 has considered the provisions of Rule 9B and has held as under: 13. Rule 9B of the Rules has been framed under Section 295 of the Act by the Central Board of Direct Taxes (hereafter 'CBDT') and provides for the deduction in respect of expenditure incurred on acquisition of distribution rights of feature films. Rule 9B(1) of the Rules provides that deduction in respect of cost of acquisition of a feature film shall be allowed in accordance with sub-rule (2) to sub-rule (4) of Rule 9B of the Rules. A plain reading of the explanation to Rule 9B(1) of the Rules indicates that where the rights of exhibition have been acquired on a minim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had also relied upon the following decisions in support of his contention that loss should be allowed to him in this year: a) Hon'ble High Court of Delhi in the case of Mohan Meakins vs. CIT, 348 ITR 109. b) Andhra Pradesh High Court in the case of P. Satyanarayana vs. CIT, 116 ITR 803. c) ITAT Hyderabad in the case of Ushodaya Enterprises in ITA No.1429/Hyd/2008. d) ITAT Hyderabad in the case of DCIT vs. ECI Engg. Construction Co. in ITA No.111/Hyd/2014. e) Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd, 88 ITR 192. f) Hon'ble Gujarat High Court in the case of CIT vs. Vallabhbhai Gonadhai, 221 Taxmann.385 g) ITAT Hyderabad in the case of Tourist India Convention Hotel P Ltd vs. DCIT in ITA No.1329/Hyd/2017. 8. In the case of P. Satyanarayana vs. CIT (Supra), the Hon'ble High Court was considering the case of a film distributor who had written off of the balance outstanding with the Producers and the Hon'ble High Court has stated that the loss sustained was in the course of business and incidental thereto and therefore, the trading loss is allowable u/s 28 of the Act. However, this decision is rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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