Case Law Details

Case Name : CIT Vs M/s. Dharma Productions Pvt.Ltd. (Bombay High Court)
Appeal Number : Income Tax Appeal No. 1140 of 2014
Date of Judgement/Order : 05/06/2017
Related Assessment Year : 2006-07
Courts : All High Courts (3699) Bombay High Court (670)

It was observed that the assessee company is owned by Mr. Karan Johar and RCEPL is owned by Mr.Shahrukh Khan. Both are known personalities of Indian film industry. The authorities have not disputed the fact of providing services by Mr.Shahrukh Khan in the production and marketing of the film `Kaal’. The film was released under joint banner of Karan Johar and Shahrukh Khan which itself is an material aspect of marketing and publicity of the film. Undisputedly, Mr.Shahrukh Khan has performed in the title song of the film and for which no  separate payment has been made by the assessee. Further, it is evident from the terms and conditions of the agreement that RCEPL shall provide necessary contribution in the field of concept, characterization, dialogue, music, theme etc. in the production of the film. Thus, functions are creative in nature and require personal and professional expertise and, therefore, the confirmation of the party regarding rendering of the services itself is a material evidence.  If the parties to the agreement admitted the role and function of creative work in the film, then, in the absence of any contrary material, the confirmation cannot be doubted. It is further submitted that the Assessing Officer and the  CIT(A) have placed much reliance on the fact that the services are required by Mr. Shahrukh Khan and not by RCEPL. The Tribunal disagreed with the said view on the ground that the services are creative in nature and demand personal expertise and talent which could be rendered by somebody on behalf of the company. Therefore, when no separate  payment was made or alleged to have been made to Mr. Shahrukh Khan for the services rendered and when the parties have confirmed that, all the services are rendered under the agreement, then only inference can be drawn from the given facts and circumstances is that the services rendered by Mr.Shahrukh Khan are on behalf of RCEPL and under  the contractual obligation. It is further observed that apart from the services of creativity, the assessee also claimed that RCEPL provided the cinematographic equipment for the production of the film. It is to be noted that the equipments are essential and inevitable for production of the film. There cannot be a case that the assessee has not used the equipment in production of the film. One important aspect of the matter is that the assessee has not booked  any expenditure in respect of the hire charges of these very equipments. Hence the claim cannot be termed as bogus claim. The assessee has given the comparative chart of the equipment hire charges of various films and contended that the hire charges are very less in comparison to the other film. It is further observed that from the chart, it is clear that higher charges of the equipments of film `Kaal’ is less in comparison to other films. This fact has not been disputed by the Revenue. It was further observed that the assessee has produced the confirmation of RCEPL in that regard and no finding has been given that the confirmation is false. The assessee filed bills of transportation of equipments issued in  the name of RCEPL. Even otherwise, the Assessing Officer has not given any finding that the bills are bogus. The Tribunal, therefore, came to the conclusion that the assessee has established that the payment has been made as per agreement between the parties and against the services provided by RCEPL and hence it is allowable under Section  37(1) of the Act.

Full Text of the High Court Judgment / Order is as follows:-

1. These two appeals are preferred challenging the order dated 18th September 2013 passed by Income Tax Appellate Tribunal, `D’ Bench, Mumbai (`Tribunal’). The appeals are directed against two separate orders of Commissioner of Income Tax (Appeals), one arising from the assessment order passed under Section 143(3) of Income Tax Act, 1961 (`the Act’) and another arising from penalty order passed under Section 271(1)(c) of the Act of the assessment order 2006­-07.

2. The factual matrix leading to the aforesaid appeals is as follows :

(a) The assessee/Respondent M/s.Dharma Productions Pvt.Ltd. is a company engaged in the business of distribution of cinematic films as well as production of films. The assessee filed E- return of income tax for assessment year 2006-­07 on 30th November 2006, declaring income of Rs.3,65,65,066/­. The assessee filed copies of audited balance sheet, profit and loss account and report under Section 44AB in form 3CA of the Act. The report was processed under Section 143(1) on 21st February 2008;

(b) Thereafter the assessee’s case was taken up for scrutiny and accordingly statutory notices under Sections 143(2)  and 142(1) along with questionnaire were issued on 11th November 2008. During the course of scrutiny, the Assessment Officer called for various explanations and evidence including the books of accounts and vouchers to justify the claim of expenditure debited in the profit and loss account. All the requisite details as well as explanations were submitted as sought. After scrutiny of these details, the Assessing Officer assessed the income at Rs.6,75,23,446/­  as against the declared income of Rs.3,65,65,066/­. The Assessing Officer made an addition of Rs.3,09,58,380/­ on  various counts to the assessee’s income;

(c) The Deputy Commissioner of Income Tax, Central, Circle­1, Mumbai, by order dated 29th December 2008 passed  an order of assessment stating that since the tax computed under regular provisions of the Act is more than the tax computed under the provisions of Section 115JB, the total income is taken at Rs.6,75,23,446/­ It was further directed that the assessee is assessed under Section 143(3) of the Act. Charge interest u/s 234B and 234C of the Act, as applicable. Give credit for taxes paid after due verification. Penalty proceedings under Section 271(1)(c) of the Act are initiated. Issue demand notice and challan along with copy of ITNS­150;

(d) The assessee/Respondent challenged the aforesaid order dated 29th December 2008 by preferring an appeal  before the Commissioner of Income Tax, Central (Appeals­IV), Mumbai;

(e) By order dated 10th January 2013, the said appellate authority enhanced the income of the assessee by  Rs.2,67,73,568/­. The Assessing Officer was directed to tax the said amount accordingly. The said appellate authority,  however, modified the amount in relation to dis­allowance of society charges on the ground that incorrect computation was done by the Assessing Officer. It was directed that instead of dis­allowance of Rs.1,34,648/­, it should be computed to Rs.13,648/­, which fact was accepted by the Assessing Officer vide remand report dated 18th March 2011. The order further directed penalty proceedings for filing inaccurate particulars of income and thereby concealment of income of Rs.2,67,73,568/­;

(f) Vide order dated 20th May 2013, the Commissioner of Income Tax (Appeals), Mumbai, passed an order under   Section 273(1)(c) of the Act and imposed minimum penalty of Rs.90,11,984/­;

(g) The orders dated 10th January 2013 and 20th May 2013 were challenged by the assessee by preferring appeals  before the Tribunal at Mumbai. The Tribunal by order dated 18th September 2013, partly allowed the quantum appeal and also allowed the penalty appeal of the assessee;(h) The Appellant­ Revenue has challenged the aforesaid orders by preferring present appeals by invoking Section  260(A) of the Act.

3. In Income Tax Appeal No.1140 of 2014, the Appellant had raised two questions of law which are enumerated in paragraphs 6.1 and 6.2. However, the learned counsel appearing for the Appellant submitted substituted questions of law. The said substituted questions of law were taken on record and marked as “X” for identification.

4. Following questions were raised as substituted questions of law by the Appellant in Appeal No.1140 of 2014 :

“6.1 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal was justified in deleting the addition of Rs.1,51,80,116/­ made by the Assessing Officer and confirmed by the CIT(A) on the ground that the assessee could not provide any evidence in support of the claim of services received from M/s.Red Chillies Entertainment Pvt.Ltd. without the assessee adducing any new evidence in support of its claim ?

6.2 Without prejudice to the above, whether on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal was justified in not holding that the payment to M/s.Red Chillies Entertainment Pvt.Ltd. could be an application of income in view of the judgments of the Hon’ble Supreme Court in the case of CIT Vs. Sitaldas Tirathdas (1961)­41­ITR­367 (SC) and CIT Vs. Sunil J. Kinariwala (2003)259­ITR­10 (SC), cited by the Assessing Officer in his order ?

6.3 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal was justified in deleting the addition of Rs.41,43,240/­ on account of expenditure incurred for positive prints and addition of Rs.2,26,30,328/­ on account of expenditure incurred for positive prints and expenditure incurred in connection with advertisement as these expenditures were not part of the cost of production of the film under the provisions of Rule 9A of the Rules ?”

6.4 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal was justified in mechanically allowing the aforesaid deductions of expenditure under Section 37(1) of the Act without the assessee establishing that the strict conditions for allowing deduction under Section 37(1) were satisfied and without the Hon’ble ITAT noting that this aspect has been highlighted in the order of the Hon’ble ITAT in the case of Mukta Arts Pvt.Ltd. extracts of which has been reproduced in the impugned order of the Hon’ble ITAT “6.5 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal was justified in fully allowing the aforesaid deductions without examining the issues of the valuation of closing stock of positive prints and deferred revenue expenditure in respect of advertisement and publicity expenses which are crucial to determine the correct income of the assessee during the assessment year and without appreciating that in the absence of such exercise the true profit of a given year would get distorted ?

6.6 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal was justified in not examining the facts of the case in detail and determining the correct income ?

6.7 Whether on the facts and in the circumstances ofthe case and in law, the order of the Hon’ble Income Tax Appellate Tribunal is perverse as no reasonable person, acting judicially and properly instructed in the relevant law, could arrive at such a finding on the evidence on record ?”

5. In Income Tax Appeal No.1144 of 2014, following question of law is enumerated by the Appellant :

“6.1 Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the penalty of Rs.90,11,984/­ levied by the learned CIT(A) u/s 271(1)(c) of the IT Act, 1961 ?”

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6. Vide show cause notice dated 23rd December 2008, the assessee was required to explain why payment of  Rs.1,51,80,116/­ to M/s. Red Chillies Entertainment Pvt.Ltd. (`RCEPL’) was made. It was therefore required to explain and justify with evidence the nature of service rendered and why the said payment should not be brought to tax. The assessee responded to the said notice and pointed out that there is an agreement between the assessee and RCEPL  dated 9th August 2004 for sharing revenue at the rate of 50% with respect to “Kaal” film. As per the said agreement, RCEPL is under obligation to provide following services :

(a) to allow Dharma Productions Pvt. Ltd. (`DPPL’) unlimited use of all the cinematographic equipments which  RCEPL owns or acquires in the future for the purpose of “pictures” free of cost;

(b) to give creative, technical and marketing inputs;

(c) to ensure that all the creative work and concept, characterization, dialogue, music, theam song, title montage and  all visuals etc. are original work at all times and that no creative or other copyright of anyone in part or whole is  contravened under any circumstances and to ensure the authenticity of any data/factual information represented in `The Pictures’;

(d) to refrain from raising, incurring any debt of any nature whatsoever or creating any lien, or mortgage on any part  or whole of `The Pictures’, at all times and specifically since the entire funding, is being provided by DPPL. It was also pointed out that RCEPL is under an obligation to provide above services to the assessee company in the production of  a film. Accordingly, RCEPL has provided such services and guided the assessee company from time to time in the production of film. Various equipments owned by RCEPL have been used by the assessee. Mr.Shahrukh Khan being a director of RCEPL, has not only advised/helped in the production of the film but also performed in the title song of the film itself in the form of creative input. This proves beyond doubt that RCEPL is very much involved in the production of the film. It was further pointed out that this agreement is valid for a period of eleven years from the date of execution. The assessee is under an obligation to share profit with RCEPL for a period of eleven years from the date of execution of agreement. In view of the contractual liability and use of the services provided by RCEPL, the assessee has paid 50% of the net realization of the film `Kaal’ to the said company during the year. Thus, there is no diversion of income rather it is a charge on the profit of the assessee company. It was, therefore, requested that the expenditure of Rs.1,51,80,116/­ incurred as payment to RCEPL may be allowed.

7. The Assessing Officer vide order dated 29th December 2008 has observed that no tangible evidence has been provided to buttress the claim that any of the stated services have been provided by RCEPL. No proof by way of records for transport of equipments, deployment of personnel used in tandem with the directors report for deployment of the cinematographic equipments have been supplied to ascertain the correct facts. It was further stated that services to be rendered are abstracts which are not verifiable and for which no cogent evidences have been brought on record to support assessee’s averment that such services have been provided. The claim of the assessee is, therefore, unjustified. Thus, RCEPL had no role to play in the making of the film `Kaal’. The assessee has without any justification remitted 50% of the net receipts on release of the film to RCEPL. It was further observed that the assessee  has not provided the required details/reports as sought for by the Assessing Officer. The Assessing Officer, therefore, concluded that the assessee was not justified in making payment of Rs.1,51,80,116/­ to RCEPL out of its own income by creating a third party obligation without basis and hence the same is disallowed. Penalty proceedings under Section 271(1)(c) were initiated separately for furnishing inaccurate particulars of income thereby concealment of income  chargeable to tax.

8. In the aforesaid assessment order dated 29th December 2008, it was further concluded that it is gathered from the records of Yash Raj Films Pvt.Ltd. that an amount of Rs.43,00,974/­ has been paid to Kodak India Limited towards purchase of raw stock for the movie `Kaal’ and the same has been claimed as an expense by by Yash Raj Films Pvt.Ltd. However, the said expense does not appear to have been reflected in the accounts of assessee. Since the said expense relates to production of film `Kaal’, the assessee has derived a benefit as the said expense has been borne by Yash Raj  Films Pvt.Ltd. Therefore, the said expense will be treated as business income of the assessee company under the provisions of Section 28(iv) of the Act. It was further observed that since the tax computed under regular provisions of the Act is more than tax computed under the provisions of Section 115JV, the total income is taken at Rs.6,75,23,446/­.  The order directed initiation of penalty proceedings under Section 271(c)(c) of the Act.

9. The assessee challenged the aforesaid order dated 29th December 2008 by preferring an appeal before the Commissioner of Income Tax, Central (Appeals). Several grounds were raised in the said appeal challenging the aforesaid decision. The appellate authority vide order dated 10th January 2013 partly allowed the said appeal. The appellate authority observed that the contention of the assessee that performance of Shahrukh Khan was in pursuance  of the agreement, is factually incorrect, since the agreement dated 9th April 2004 does not mention of any such  performance to be made by him. It was further observed that the assessee has admitted that there is no evidence in support of equipments of RCEPL having reached the place of shooting and hence use of the equipments claimed to  have been provided by RCEPL for the business of assessee is not proved. After analyzing factual aspects as well as considering various decisions cited before the appellate authority, it was concluded that the authority is of the considered opinion that the Assessing Officer has rightly made the dis­allowance of expenditure on account of payment made to RCEPL.

10. The assessee had also contested the addition of Rs.60 lakhmade by Assessing Officer on account of unconsumed films and addition of Rs.43,00,974/­ being expenditure incurred by another entity vis. Yash Raj Films Pvt.Ltd. of raw films made by Assessing Officer on protective basis by invoking provisions of Section 28(iv) of the Act. The appellate authority rejected the contention of the assessee by relying upon the documents on record and the reports of Assessing Officer. The appellate authority has also enhanced the income of the assessee by an amount of Rs.2,67,73,568/­ (Rs.41,43,240 + Rs.2,26,30,328/­) under Section 251(1)(A) of the Act. The dis­allowance on account of society charges  was restricted to Rs.13,648/­ and penalty proceedings under Section 271(1)(c) are initiated for filing inaccurate particulars of income and thereby concealment of income of Rs.2,67,73,568/­.

11. The assessee/Respondent challenged the said decision by preferring an appeal before Income Tax Appellate Tribunal, Mumbai on following grounds :

(i) On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the dis­allowance made by learned Assessing Officer of Rs.1,51,80,116/­ as contractual liability paid to M/s.Red Chillies Entertainment Pvt.Ltd. for the services rendered. The appellant prays that the said dis­allowance is unjustified and may please be deleted.

(ii) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in confirming the addition  made by learned Assessing Officer at Rs.9,64,250/­ on account of wastage of 13,300 meters of negative films (raw), completely ignoring the reasons for such wastage. The appellant prays that the said addition is unjustified and may please be deleted;

(iii) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in confirming the dis­ allowance made by learned Assessing Officer of Rs.3,53,000/­ on ad­hoc basis @ 25% out of Rs.14,12,000/­ paid to  junior artists. The appellant prays that the said dis­allowance is unjustified and may please be deleted;

(iv) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in confirming the dis­ allowance made by learned Assessing Officer of Rs.8,42,346/­ @ 25% on ad­hoc basis out of expenditure of Rs.33,69,382/­ incurred in respect of costumes and dresses. The appellant prays that the said dis­allowance is unjustified and may please be deleted;

(v) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in confirming the dis­allowance made by Assessing Officer of Rs.1,62,686/­ on ad­hoc basis @ 25% of the expenditure of Rs.6,50,745/­ incurred in respect of make up and hairdressers. The appellant prays that the said dis­allowance is unjustified and may please be deleted;

(vi) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in confirming the dis­ allowance made by Assessing Officer of Rs.2,40,703/­ on ad­hoc @ 25% out of expenditure of Rs.9,62,811/­ incurred on account of dubbing, song recording and mixing expenses. The appellant prays that the said dis­allowance is unjustified and may please be deleted;

(vii) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in confirming the dis­allowance made by the Assessing Officer of Rs.3,25,399/­ @ 25% on ad­hoc basis out of the expenditure of Rs.13,01,594/­ in respect of dancers expenses and co­ordination charges. The appellant prays that the said allowances is unjustified and may please be deleted;

(viii) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in confirming the dis­ allowance made by the Assessing Officer of Rs.15,86,176/­ @ 25% on ad­hoc basis out of expenditure of Rs.63,44,705/­  incurred as setting expenses. The appellant prays that the said dis­allowance is unjustified and may please be deleted;

(ix) On the facts and in the circumstances of the case and in law, the CIT(A) grossly erred in enhancing a sum of  Rs.2,26,30,328/­ under Rule 9A, on account of the expenses incurred for preparation of positive prints for the exhibition of the film `KAAL’ and Advertisement and Publicity expenses incurred after the date of certification of release of film by Censor Board. The appellant prays that the said dis­allowance is unjustified and may please be  deleted.

12. The Tribunal in the order dated 18th September 2013 has observed that the assessee had entered into agreement  dated 9th August 2004 with RCEPL and clause 5(b) of the agreement was subsequently amended. This agreement is for joint production of film and sharing of net profit from film `Kaal’ in the ratio of 50:50. The obligation of the parties under the agreement was provided in clauses 2 and 3 of the said agreement. The existence of agreement between the parties was not disputed by the authorities below but the payment in question has been disallowed on the ground that  no service was rendered by RCEPL and consequently it was held that the expenditure was not for the purpose of business. The Tribunal held that the assessee has established that the payment has been made as per agreement between the parties and against services provided by RCEPL and is allowable under Section 37(1) of the Act.

13. The Tribunal further observed that CIT(A) has not considered the justification of wastage in the process of shooting and in  the given facts and circumstances. Though the wastage in the case is higher than normal wastage in ordinary  circumstances, however, keeping in view peculiar facts, the dis­allowance is not justified and hence deleted. It was further observed that the Assessing Officer has not given a finding that bills/vouchers produced by the assessee on the basis of which expenditure has been recorded in the books of accounts are bogus. There is no dispute on the point that  the expenditure on these items is essential in the production of film and, therefore, when the assessee has produced the bills and vouchers, then there is no reason to hold that the expenditure is bogus. The Tribunal agreed with the explanation of the assessee that continuity report, call sheet and rehearsal book are the documents maintained by the assessee for the purpose of shooting and not being a part of the books of accounts. These records are for internal  management of work and shooting; and once the shooting of a film is over, there is no purpose to keep such record which is otherwise not feasible. The Assessing Officer was directed to delete the addition made on account of payment to junior artists. As regards other expenses, the dis­allowance was restrict to 5%. As far as the ground regarding dis- allowance of expenditure by CIT(A) under Rule 9A of the Act enhancing the assessment, it was observed that the  CIT(A) had proposed to enhance the dis­allowance of expenditure on account of publicity of film and advertisement thereof as per Rule 9A. It was observed that in the present case the movie was released on 29th April 2005 which is at the beginning of the previous year and much prior to 90 days before end of the year and, therefore, as per Rule 9A, the entire case of production should be allowed as deduction. It was observed that the film was released for exhibition on commercial basis at the beginning of the previous year and as per Rule 9A of the Act, the entire cost of production is allowable deduction. The CIT(A) has enhanced the dis­allowance by invoking Rule 9A in respect of amount of Rs.41,43,240/­ on account of positive films and a sum of Rs.2,26,30,328/­ on account of advertisement and publicity.  The reason for dis­allowance by the CIT(A) is that the advertisement/ publicity expenses is not part of cost of production and, therefore, is not allowable as per Rule 9A. The Tribunal relied upon the decision of Madras High Court in case of CIT Vs. Prasad Production Pvt. Ltd. and in view of the said decision as well as decision of co­ordinate Bench of the Tribunal in Mukta Arts Pvt.Ltd, the Tribunal was pleased to hold that the expenses incurred in respect of  preparation of positive prints as well as advertisement and publicity are allowable and accordingly addition enhance by CIT(A) is deleted.

14. The Tribunal in the aforesaid order further held that in view ofthe finding on the issue of enhancement of dis­allowance on account of advertisement and publicity expenses in the quantum appeal, the benefit against such dis­allowance does not survive. Accordingly, penalty arrived at under Section 271(1)(c) is deleted and the quantum appeal of the assessee is partly allowed and the penalty appeal of the assessee is allowed.

15. Present appeals are preferred against the order passed by the Tribunal. The question of law raised in these appeals have already referred to hereinabove.

16. Learned counsel Mr.Chhotaray appearing for the Appellant- Revenue submitted that the order passed by the Tribunal is erroneous. He submitted that the order is contrary to law as well as documents on record. He submitted that findings given by Assessing Officer as well as appellate authority required no interference. He submitted that as far as issue about deleting the addition of Rs.1,51,80,116/­ made by Assessing Officer and confirmed by CIT(A) on the ground that assessee could not provide any evidence in support of the claim of services received by RCEPL without the assessee adducing any new evidence, is not justifiable and the Tribunal has completely erred in allowing the appeal of  the assessee on the said issue. He submitted that there was absolutely no evidence to justify the claim of the assessee. He further submitted that as far as other issues raised by the assessee, there is cogent reason and findings assigned by the Assessing Officer as well as CIT(A) and the same did not call for any interference by the appellate authority. He submitted that the order deleting penalty is erroneous and contrary to well established principles of law. He further submitted that the Tribunal has failed to interpret the provisions of Section 37(1) of the Act and Rule 9A of the Rules  in its right perspective and true meaning. He submitted that the Tribunal erred in deleting the addition of Rs.1,51,80,116/­ on account of services rendered without adducing any new evidence. He submitted that in the facts and circumstances of the case and in law, the Tribunal had committed mistake in deleting the addition of Rs.41,43,240/­ on account of positive films and a sum of Rs.2,26,30,328/­ on account of advertisement and publicity as  these expenditures were not part of cost of production made by CIT(A) by invoking Rule 9A of Rules. He submitted that the decision of the Tribunal is not acceptable as the agreement in question was not registered. The assessee did not provide any evidence with regard to services rendered and equipments hired as provided in the agreement for joint production of movie. The mis­match in the bills were not explained and there was no independent evidence to substantiate the claim of expenditure incurred for the purpose of business. He submitted that the decision relied upon  by the Tribunal was not identical to the issue involved in the assessee’s case. He submitted that in view of the submissions and the evidence on record, the question of law as enumerated by the Appellant may be framed and the appeal be admitted on the said questions of law.

17. We have perused the orders passed by Assessing Officer dated 29th December 2008, by CIT (A) dated 20th May 2013 under Section 271(1)(c) and the impugned order passed by the Tribunal dated 18th September 2013 along with Revenue’s appeals. We find that as far as the question decided by the Tribunal with regard to deleting the addition of Rs.41,43,240/­ on account of expenditure incurred for positive prints and addition of Rs.2,26,30,328/­ on account of expenditure incurred for positive prints and expenditure incurred in connection with advertisement and publicity,  these expenditures were not part of cost of production of the film under the provisions of Rule 9A of the Rules, requires consideration and Appeal No.1140 of 2014 deserves to be admitted on the said issue. Similarly, the issue raised in Appeal No.1144 of 2014 is related to the aforesaid issue and hence deserves consideration by admitting the said appeal on the question of law enumerated in clause 6.1 of the said appeal.

18. We find that the Tribunal has given cogent reasons in respect to the other issues including aspect of deleting the addition of Rs.1,51,80,116/­ made by the Assessing Officer and confirmed by CIT(A). The Tribunal has given plausible reasons in the impugned judgment, which does not require interference. It is categorically observed that existence of agreement between the parties has not been disputed by the authorities but the payment in question has been disallowed on account that no service was rendered by RCEPL and consequently it was held that the expenditure was not for the purpose of business. It was observed that the assessee company is owned by Mr.Karan Johar and RCEPL is owned by Mr.Shahrukh Khan. Both are known personalities of Indian film industry. The authorities have not disputed the fact of providing services by Mr.Shahrukh Khan in the production and marketing of the film `Kaal’. The film was released under joint banner of Karan Johar and Shahrukh Khan which itself is an material aspect of marketing and publicity of the film. Undisputedly, Mr.Shahrukh Khan has performed in the title song of the film and for which no  separate payment has been made by the assessee. Further, it is evident from the terms and conditions of the agreement that RCEPL shall provide necessary contribution in the field of concept, characterization, dialogue, music, theme etc. in the production of the film. Thus, functions are creative in nature and require personal and professional expertise and, therefore, the confirmation of the party regarding rendering of the services itself is a material evidence.  If the parties to the agreement admitted the role and function of creative work in the film, then, in the absence of any contrary material, the confirmation cannot be doubted. It is further submitted that the Assessing Officer and the  CIT(A) have placed much reliance on the fact that the services are required by Mr. Shahrukh Khan and not by RCEPL. The Tribunal disagreed with the said view on the ground that the services are creative in nature and demand personal expertise and talent which could be rendered by somebody on behalf of the company. Therefore, when no separate  payment was made or alleged to have been made to Mr. Shahrukh Khan for the services rendered and when the parties have confirmed that, all the services are rendered under the agreement, then only inference can be drawn from the given facts and circumstances is that the services rendered by Mr.Shahrukh Khan are on behalf of RCEPL and under  the contractual obligation. It is further observed that apart from the services of creativity, the assessee also claimed that RCEPL provided the cinematographic equipment for the production of the film. It is to be noted that the equipments are essential and inevitable for production of the film. There cannot be a case that the assessee has not used the equipment in production of the film. One important aspect of the matter is that the assessee has not booked  any expenditure in respect of the hire charges of these very equipments. Hence the claim cannot be termed as bogus claim. The assessee has given the comparative chart of the equipment hire charges of various films and contended that the hire charges are very less in comparison to the other film. It is further observed that from the chart, it is clear that higher charges of the equipments of film `Kaal’ is less in comparison to other films. This fact has not been disputed by the Revenue. It was further observed that the assessee has produced the confirmation of RCEPL in that regard and no finding has been given that the confirmation is false. The assessee filed bills of transportation of equipments issued in  the name of RCEPL. Even otherwise, the Assessing Officer has not given any finding that the bills are bogus. The Tribunal, therefore, came to the conclusion that the assessee has established that the payment has been made as per agreement between the parties and against the services provided by RCEPL and hence it is allowable under Section  37(1) of the Act. The other findings of the Tribunal also do not call for interference. They cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. The appeal is dismissed to this extent. However, as stated above, we are inclined to admit the appeals on the issue as enumerated hereinabove.

19. Mr.Chhotaray had placed reliance upon the decisions of Supreme Court of India in the case of Commissioner of Income Tax, West Bengal Vs. Durga Prasad More reported in 1971­ITR­Vol.82­ 540 and Sumati Dayal Vs. Commissioner of Income Tax reported in 1995­ITR­Vol.214­801. We have perused the observations of Apex Court in the said decisions. The said decisions are not applicable in the facts and circumstances of present case.

20. In view of the aforesaid circumstances, we pass following order :

(a) Income Tax Appeal No.1140 of 2014 is admitted on the following substantial question of law :

“6.3 Whether, on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal was justified in deleting the addition of Rs.41,43,240/­ on account of expenditure incurred for positive prints and addition of Rs.2,26,30,328/­ on account of expenditure incurred for positive prints and expenditure incurred in connection with advertisement as these expenditures were not part of the cost of production of the film under the provision of Rule 9A of the Rules? “

(b) Income Tax Appeal No.1144 of 2014 is admitted on the following substantial question of law :

“6.1 Whether on the facts and in, the circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the penalty of Rs.90,11,984/­ levied by the learned CIT(A) under Section 281(1)(c) of the Income Tax Act, 1961?”

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