PCIT Vs Red Chillies Entertainment Pvt. Ltd. (Bombay High Court)
Summary: The Bombay High Court, in Pr. Commissioner of Income Tax Central-2 Vs M/s. Red Chillies Entertainment Pvt. Ltd., dismissed the Revenue’s appeal challenging the Income Tax Appellate Tribunal’s decision allowing advertisement and publicity expenditure of Rs.2,39,39,631 incurred after certification of a film and rejecting disallowance under Section 14A read with Rule 8D where the assessee had earned no exempt income. The Division Bench comprising Justice M.S. Sanklecha and Justice Nitin Jamdar delivered its order on 20 August 2019 concerning Assessment Year 2009-10. The appeal was filed under Section 260A of the Income Tax Act, 1961, against the Tribunal’s order dated 31 May 2016.
The first issue concerned the deductibility of advertisement and publicity expenses amounting to Rs.2,39,39,631 incurred after certification of a feature film. The Assessing Officer had disallowed the expenditure by invoking Rule 9A of the Income Tax Rules, 1962. The Revenue contended that expenditure relating to film production was governed by the special provisions of Rule 9A(5) and Rule 9A(6) and could not independently be allowed under Section 37 of the Income Tax Act. The Tribunal, however, had accepted the assessee’s claim that expenditure not allowable under Rule 9A could nevertheless qualify for deduction under Section 37.
Before the High Court, Revenue counsel fairly acknowledged that the controversy had already been decided against the Department in CIT Vs Dharma Productions (P) Ltd., reported at 263 Taxman 585. The Tribunal had relied upon its coordinate Bench’s decision in Dharma Productions, and the Revenue’s appeal against that decision had been dismissed by the Bombay High Court on 19 March 2019. In view of this binding precedent, the Court concluded that the proposed question concerning advertisement and publicity expenditure did not raise any substantial question of law and declined to entertain it.
The second issue concerned disallowance under Section 14A read with Rule 8D despite the absence of exempt income during the relevant previous year. The Revenue questioned whether the Tribunal was justified in deleting the disallowance merely because the assessee had not earned exempt income during Assessment Year 2009-10. Both parties agreed that this issue had already been decided in favour of Red Chillies Entertainment in its own earlier appeal, Income Tax Appeal No. 597 of 2017, decided by the Bombay High Court on 11 June 2019.
Cases Discussed:
- CIT Vs Dharma Productions (P) Ltd. (Bombay High Court), 263 Taxman 585, decided on 19.03.2019 — Film advertisement and publicity expenditure issue was already decided against the Revenue; no substantial question of law arose.
- Pr. Commissioner of Income Tax Vs Red Chillies Entertainment Pvt. Ltd. (Bombay High Court), Income Tax Appeal No. 597 of 2017, decided on 11.06.2019 — No disallowance under Section 14A arises where no exempt income is earned during the relevant previous year.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 31st May, 2016 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 31st May, 2016 is in respect of Assessment Year 2009-10.
2 Revenue urges the following questions of law, for our consideration:
“(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in allowing advertisement and publicity expenses of Rs.2,39,39,631/- incurred after date of certification and disallowed by AO invoking Rule 9A of IT Rule by holding that amount not allowable under rule 9A, may be allowed under Section 37 of IT Act, 1961, ignoring the fact that expenditure related to film production has to be allowed only as per Rule 9A(5) or Rule 9A(6), under the Chapter ‘Determination of Income special Cases?
(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that no disallowance should be made u/s. 14A r.w.r. 8D, if exempt income had not been earned for the year under scrutiny?”
3. Re. Question (a):-
(i) Mr. Sureh Kumar, learned Counsel for the Revenue very fairly states that the issue raised herein stands concluded against the Revenue and in favour of the Respondent-Assessee by the decision of this Court in CIT v/s. Dharma Productions (P) Ltd., 263 Taxman 585. In fact, it was pointed out that the impugned order of the Tribunal has placed reliance upon the decision of its co-ordinate bench in the case of Dharma Productions (P) Ltd., (supra), which was challenged by the Revenue in appeal before this Court and was dismissed on 19th March, 2019;
(ii) In view of the above, the question as framed does not give rise to any substantial question of law. Thus, not entertained.
4. Re. Question (b):-
(i) It is an agreed position between the parties that this issue stands concluded against the Revenue and in favour of the Respondent by the decision of this Court in Respondent-Assessee’s own case being Income Tax Appeal No. 597 of 2017 decided on 11th June, 2019;
(ii) In the above case, the Court has held that in the absence of any exempt income arising in the previous year relevant to the subject Assessment Year, no occasion to make any disallowance under Section 14A of the Act can arise.
(iii) In view of the above decision, the question as proposed does not give rise to any substantial question of law. Thus not entertained.
5 Accordingly, Appeal dismissed.
