Central Board of Direct Taxes (CBDT), in its communication dated 21st October 2025 (F.No.225/215/2018/ITA-II), has drawn attention to the Comptroller & Auditor General’s (C&AG) Performance Audit Report No.1 of 2019 concerning the assessment of taxpayers in the entertainment sector. The report, also discussed by the 51st Public Accounts Committee (PAC) of the 17th Lok Sabha, highlighted a lack of uniformity in the treatment of pre-operative expenses by Assessing Officers (AOs), even when cases exhibited similar facts and circumstances. This inconsistency has prompted the CBDT to provide guidance on examining expenses in various segments of the entertainment sector, including television, radio, music, event management, films, animation and visual effects, broadcasting, sports, and amusement.
A key focus area identified is the treatment of pre-operative expenses, incurred before the commencement of business. AOs are advised to examine such expenses in line with Section 35D (In CBDT notification same is wrongly been mentioned as 32D, CBDT Finally issued Corrigendum on 28.10.2025 which is been placed at the bottom of this Post) of the Income-tax Act, 1961, for their eligibility for amortisation. The CBDT emphasizes that these should be considered on a case-by-case basis, reflecting the specific nature of each business segment within the entertainment industry.
Another area of guidance pertains to the declaration of expenses in feature film production. Assessees are required to submit Form No. 52A within thirty days from either the end of the financial year or the film’s completion date, whichever is earlier. This form requires detailed disclosure of the production timeline and payments exceeding Rs.50,000 made or due to any individual involved in the production. AOs are instructed to verify these submissions against the books of accounts, with penalties under Section 272A considered for non-compliance.
Finally, the CBDT has clarified procedures for allowing deductions on production-related expenses. Under Rule 9A of the Income-tax Rules, 1962, producers may claim deductions for the cost of film production, whether the exhibition rights are sold or the producer commercially exhibits the film. Similarly, distributors may claim deductions under Rule 9B for expenses incurred in acquiring distribution rights. AOs are advised to verify these claims meticulously to ensure adherence to the applicable provisions.
The CBDT has requested that this guidance be circulated to all officers in the respective jurisdictions to promote consistent assessment practices in the entertainment sector and align with audit recommendations.
F.No.225/215/2018/ITA-II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
***************
Room No.245A, North Block,
New Delhi, dated 21st October, 2025
To
All Principal Chief Commissioners of Income Tax,
Madam/Sir
Subject: C&AG’s performance Audit report No.1 of 2019 on “Assessment of assesses in entertainment sector- verification of expenses in assessment of Entertainment sector – reg
Kind reference is invited to Comptroller & Auditor General (C&AG’s Performance Audit report No.1 of 2019 on “Assessment of assesses in entertainment sector and 51st Public Accounts Committee (PAC) report of 17th Lok Sabha. At para 3.4 of the C&AG’s Performance audit report No.1 of 2019 on “Assessment of assesses in entertainment sector”, it was pointed out that there was no uniformity in allowing pre-operative expenses by the Assessing Officers (AOs) despite the facts and circumstances being similar in nature indicating inconsistent approach adopted by Assessing Officers in similar cases.
2. The entertainment sector consists of different segments under its fold such as television, radio, music, event management, films, animation and visual effects, broadcasting, sports and amusement etc. Therefore, expenses incurred by various segments of the entertainment sector may be examined on a case-to-case basis specific to the nature of business undertaken by assessees. Some of the issues (non-exhaustive) in respect to such expenses are suggested for examination by AOs as under:
2.1 Pre-operative expenses: These expenses are generally incurred before commencement of businesses (pre-operative expenses), which may be examined w.r.t actual commencement of its businesses of assessees engaged in the entertainment sector under the provisions of section 32D 35D of the Income-tax Act,1961 for allowance of such pre-operative expenses for amortisation under that section.
2.2 Declaration of expenses of feature film:
(a) Assessees involved in production of feature films are required to furnish Form No. 52A, within thirty days from the end of the financial year or within thirty days from the date of completion of the film whichever is earlier.
(b) In this Form No. 52A, these entities are required to disclose details regarding the date on which the production of the film was started and date of completion of the film and details of payments of over Rs.50,000 (in aggregate to any person) made by the producer of the film or due from him to each person engaged in the production of the film as employee or otherwise.
(c) The Assessing Officer may verify the submission of Form No. 52A and expenses claimed in books of account of these entities. A penalty u/s 272A of the Act for failure to furnish Form No. 52A within the prescribed time may also be considered by the AOs.
2.3. Expenses incurred on production of feature films:
(a) During the assessment of entities engaged in the production of feature film, the deduction in respect of expenditure on production of feature films may be verified and allowed as per Rule 9A of the Income-tax Rules,1962 (the Rules).
(b) As per Rule 9A of the Rules, the cost of production of a feature film may be allowed as deduction while computing profits and gains from business in the case of producer of a film in various scenarios which inter-alia include sale of all rights of exhibition of the film, or exhibition of film on commercial basis by film producer himself, subject to other conditions specified in that rule.
(c) Similarly, the deduction in respect of expenditure incurred on acquisition of distribution rights of feature films may be examined and allowed as per Rule 9B of the Rules in the case of a distributor of the film.
3. The above may be brought to the notice of all officers posted in your region.
(Dr. Castro Jayaprakash.T)
Under Secretary (ITA-H), CBDT
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F.No.225/215/2018/ITA-II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Room No.245A, North Block,
New Delhi, dated 28th October, 2025
To
All Principal Chief Commissioners of Income Tax,
Madam/Sir
Subject: Corrigendum- Board’s letter dated 21.10.2025 on the subject C&AG’s performance Audit report No.1 of 2019 on “Assessment of assesses in entertainment sector- verification of expenses in assessment of Entertainment sector – reg
Kindly refer to the Board’s letter dated 21.10.2025 (copy enclosed) and the above subject.
2. In this regard, the para no. 2.1 of the above referred letter dated 21.10.2025 mentions section 32D of the Income-tax Act,1961 (the Act) instead of section 35D of the Act. Therefore, para no. 2.1 of the said letter is modified accordingly and read as under:
“2.1 Pre-operative expenses: These expenses are generally incurred before commencement of businesses (pre-operative expenses), which may be examined w. r. t actual commencement of its businesses of assessees engaged in the entertainment sector under the provisions of section 35D of the Income-tax Act,1961 for allowance of such pre-operative expenses for amortisation under that section.”
3. This issues with the approval of Competent Authority.
Encl.as above
(Dr. Castro Jayaprakash.T)
Under Secretary (ITA-II), CBDT
Copy to:
1. PS to Chairman, CBDT & all Members, CBDT
2. All Pr. DGsIT/DGsIT
3. DGIT(Systems), Delhi & Bengaluru
4. All Joint Secretaries/CsIT, CBDT
5. Web Manager with request to upload on the departmental website:www.incometaxindia.gov.in
6. JDIT, Data-Base Cell for uploading on irsofficersonline website
(Castro Jayaprakash.T)
Under Secretary (ITA-II), CBDT
Author Bio
section 35D is erroneously mentioned as 32D in the CBDT’s communication