1. Assessee has challenged the disallowance of 19,19,286, representing the cost of Television serials and film projects abandoned during the year.
2. In the course of assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of Rs. 19,19,286 on account of cost of abandoned project. In response to the query raised by the Assessing Officer to justify its claim, it was submitted by the assessee that it has worked on various concept for making television program and films and incurred expenditure. However, some of the concepts cannot be completed as they are found to be non–workable at various stages of development. It was submitted, these concepts are stock–in–trade of the assessee, hence, un–realisable stock which has no value has to be written–off as per the accounting principles. However, it was submitted, the assessee had incurred Rs. 7,85,806 as seven abandoned television serial projects which was claimed as revenue expenditure. Further, it was submitted by the assessee that the expenditure of Rs. 11,33,000 was incurred for the film project “Robot” and the amount was paid to Shri S. Sankar. It was submitted, the film was to be produced by the assessee under his direction but the company decided not to pursue the project. Assessee submitted, out of the total money paid, Shri S. Sankar, did not return Rs. 11,33,000 which was claimed as revenue expenditure. Assessing Officer after considering the submissions of the assessee, did not find merit in the same. He observed, assessee has not brought anything on record to substantiate that the television and film projects were not completed. Accordingly, he disallowed deduction claimed of Rs. 19,19,386.
3. The learned Commissioner (Appeals) also confirmed the disallowance.
4. Learned Authorised Representative submitted, the very fact that the assessee abandoned the projects proves that such film and television projects weree not in the business interest of the assessee, therefore, the assessee took decision as a prudent businessman to abandon such projects. Hence, it allowable as deduction since it is out of commercial expediency. Learned Authorised Representative referring to the CBDT circular dated 6th October 2015 submitted, the Board has also clarified that cost of production of an abandoned feature film has to be treated as revenue expenditure under section 37 of the Act. In support of his contention the learned Authorised Representative also relied upon the decision of the Hon’ble Jurisdictional High Court in CIT v/s Venus Records and Tapes Pvt. Ltd., ITA no.310 of 2013, judgment dated 28th January 2015 and the decision of the Hon’ble Madras High Court in B. Nagi Reddy v/s CIT , 199 ITR 451 (Mad.).
5. Learned Departmental Representative relied upon the order of the learned Commissioner (Appeals) and the Assessing Officer.
6. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon by the learned Authorised Representative. On a perusal of the orders of the Departmental Authorities, it is observed that the Department has not disputed the fact that the assessee has incurred the expenditure. It is also not disputed that the television and film projects have been abandoned. The expenditure has been disallowed only on the ground that the assessee has not been able to prove that by abandoning the projects, the assessee has benefited. In our view, the reasoning of the Departmental Authorities for disallowing the expenditure is not valid. The very fact that the assessee abandoned the projects goes to prove that the projects were not found to be viable or workable. Therefore, keeping in view the business interest, the assessee decided to abandon the projects. In fact, in the CBDT circular no.16 of 6th October 2015, the Board has clearly stated that cost incurred in abandoned projects should be allowed as revenue expenditure under section 37 of the Act. In view of the aforesaid, we allow assessee’s claim of deduction.