Income Tax Appellate Tribunal - Mumbai
Zee Telefilms Ltd, Mumbai vs Department Of Income Tax on 23 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "G", MUMBAI
Before Shri R.S.Syal, AM and Shri D.K.Agarwal, JM
ITA No.2233/Mum/2010 : Asst. Year 1998-99
ITA No.2574/Mum/2008 : Asst. Year 2003-2004
ITA No.2575/Mum/2008 : Asst. Year 2004-2005
ITA No.2236/Mum/2010 : Asst. Year 2004-2005
The Asstt.Commissioner of Income-tax M/s.Zee Entertainment Enterprises Ltd
Circle 11(1) (earlier known as Zee Telefilms Ltd.)
Mumbai. Continental Building
Vs.
135 Dr.A.B.Road, Worli
Mumbai - 400 018.
PAN : AAACZ0243R.
(Appellant) (Respondent)
ITA No.2213/Mum/2010 : Asst. Year 1998-99
ITA No.2634/Mum/2008 : Asst. Year 2003-2004
ITA No.2635/Mum/2008 : Asst. Year 2004-2005
M/s.Zee Entertainment Enterprises Ltd The Asstt.Commissioner of Income-tax
(earlier known as Zee Telefilms Ltd.) Circle 11(1)
Continental Building Mumbai.
Vs.
135 Dr.A.B.Road, Worli
Mumbai - 400 018.
(Appellant) (Respondent)
Revenue by : Shri Pavan Ved (CIT-DR)
Assessee by : Dr.K.Shivaram
Date of Hearing : 21.12.2011 Date of Pronouncement : 23.12.2011
ORDER
Per Bench :
This batch of seven appeals comprising of 3 by the assessee and 4 by the Revenue relate to assessment years 1998-99, 2003-2004 and 2004-2005. Since some of the issues raised herein are common, we are therefore, disposing them off by this consolidated order for the sake of convenience.2 ITA Nos.2233/Mum/2010 & Ors.
M/s.Zee Entertainment Enterprises Limited.
Assessment Year 1998-99
2. The only issue raised in the assessee's appeal is against the confirmation of disallowance of `37,47,495 out of balance written off including advances given for development of music albums abandoned. Briefly stated the facts of this ground are that the assessee claimed deduction of bad debts towards the following amounts in the original assessment order passed u/s 143(3) on 05.02.2001:-
(i) Album - Mohini Singh Project `1,37,515
(ii) Album - Pushpanjali Project ` 18,587
(iii) Aabha Film Production No.2 ` 10,00,000
(iv) Album - Vikas Bhalla Project ` 73,133
(v) Ateet - Cine communications ` 23,00,000
3. The Assessing Officer did not consider such debts as bad debts eligible for deduction under sections 36(1)(vii) because no amount was treated as income in respect thereof in earlier years. On being called upon to explain as to why the deduction should not be denied on this count, the assessee contended that the while engaged in the business of music cassettes production and sale, it gave advances to various parties for production of music albums and spent certain amounts on development of music. These projects were abandoned halfway hence the expenditure incurred thereon was written off. It was also claimed that the amount in question was business loss and not bad debt. Not convinced, the Assessing Officer made addition. The matter travelled to the Tribunal, which restored this issue to the A.O. for a fresh decision. Again in the fresh proceedings before the A.O. giving effect to the Tribunal order, the assessee reiterated the submissions that the advances were given towards certain projects which could not be finished and has to be abandoned hence it was claimed that the expenditure should be considered as loss u/s 37. Not convinced with the assessee's submission, the A.O. made addition, which came to be upheld in the first appeal by holding that it was a capital loss.
3 ITA Nos.2233/Mum/2010 & Ors.M/s.Zee Entertainment Enterprises Limited.
4. After considering the rival submissions and perusing the relevant material on record it is seen that the Hon'ble jurisdictional High Court in CIT Vs. Mukta Arts Pvt. Ltd. vide its judgment dated 25th August, 2008 in Income Tax Appeal No.584 of 2001 considered a question whether the Tribunal was justified in holding that the cost of production of the abandoned film "Devaa" was trading loss. The learned Counsel on behalf of the Revenue conceded before the Hon'ble High Court that no question of law was involved and the appeal itself was misconceived in view of the fact that the film in question was admittedly not released and hence it was stock-in-trade and there was no question of the same being capital asset. The learned A.R. has placed on record a copy of this judgment available on page no.166 of the paper book. Another judgment dated 29th August, 2011 of the Hon'ble jurisdictional High Court in CIT Vs. Indian Rare Earth Ltd. in Income Tax Appeal No.1950 of 2009 has been filed holding that the expenses relating to two projects which were abandoned due to certain reasons were liable to be considered as revenue loss as the assessee's nature of business of mining of ore incorporated the exploration activities. In B.Nagi Reddy Vs. CIT [(1993) 199 ITR 451 (Mad.)], the Hon'ble Madras High Court has held that any sum incurred by the assessee in production of two films which were subsequently abandoned was to be allowed as deduction.
5. Adverting to the facts of the instant case it is noticed that the assessee incurred the above expenditure for the production of music albums which were abandoned due to commercial expediency as going ahead with such projects would have entailed further cost without any equivalent market. In the light of the afore-noted judgments it is clear that the amount in question cannot be considered as capital loss but has to be allowed as deduction as revenue loss. This ground is, therefore, allowed.
4 ITA Nos.2233/Mum/2010 & Ors.M/s.Zee Entertainment Enterprises Limited.
6. The Revenue has raised following two grounds in its appeal:-
"1. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in directing to consider the commission income from space selling earned by the assessee as core business income and the same has not be reduced from profits and gains of business for the purpose of deduction u/s 80HHC?
2. Whether on the facts and in the circumstances of the case and in law the CIT(A) was justified in holding that 90% of the net commission and not 90% of the gross commission as held by the Assessing Officer is to be reduced from business income for computing the profit of business u/s 80HHC of the Income-tax Act."
7. Both the sides are in agreement that the facts and circumstances of these grounds are similar to those considered and decided by the Tribunal in assessee's own case in the immediately succeeding year i.e. assessment year 1999-2000. Copy of the said order dated 23.03.2011 in ITA No.2234/Mum/2010 has been placed on record.
8. On the perusal of the said order it is observed that the Tribunal has restored these matters to the file of A.O. for taking a fresh decision in the light of the observations made in the earlier part of the order. In view of the admission by both the sides that the facts and circumstances of these two grounds raised in the instant appeal are mutatis mutandis similar to those already considered and decided by the Tribunal, respectfully following the precedent, we set aside the impugned order on this issue and restore the matter to the file of A.O. for taking a fresh decision in accordance with the guidelines laid down by the Tribunal in the afore-noted order.
9. In the result, the assessee's appeal is allowed and the departmental appeal is allowed for statistical purposes.
5 ITA Nos.2233/Mum/2010 & Ors.M/s.Zee Entertainment Enterprises Limited.
Assessment Year 2003-2004
10. First ground of the assessee's appeal is against the confirmation of disallowance u/s 43B on account of delayed payment of ESIC
11. After considering the rival submissions and perusing the relevant material on record it is noticed from the orders of the authorities below that the assessee deposited the amount in question in exchequer before the due date for filing of return of income u/s 139(1) of the Act. The Special Bench in Bharti Shipyard Ltd. Vs. DCIT ITA No.2404/Mum/2009 vide its order dated 9th September, 2011, has held that if employees' share of contribution is paid before the due date for filing of return u/s 139(1) of the Act, then no disallowance can be made. Respectfully following the precedent, we order for the deletion of this disallowance upheld in the first appeal. This ground is allowed.
12. Ground no.2(i) is against the computation of deduction u/s 80HHF. The only issue is as to whether interest income earned by the assessee should be considered as falling under the head "Profits and gains of business or profession" or "Income from other sources" and the resulting consequence being 90% of such interest income should be deducted or not. From the ground it is apparent that the learned CIT(A) refused to adjudicate on the issue on the ground that the CIT had already passed order u/s 263 by directing the A.O. to assess the interest income under the head "Income from other sources".
13. After considering the rival submissions and perusing the relevant material on record it is observed that the order passed by the learned. CIT u/s 263 for the assessment year under consideration came up for adjudication before the Tribunal in ITA No.265/Mum/2008. Copy of the tribunal order is available at pages 104 onwards of the paper book. Vide para 13 of the said 6 ITA Nos.2233/Mum/2010 & Ors. M/s.Zee Entertainment Enterprises Limited.
order it has been held that the interest income is to be considered under the head "Profits and gains of business or profession" and resultantly the action of the A.O. by reducing 90% of the interest income has been upheld. The learned A.R. has submitted that this order was assailed before the Hon'ble High Court, which has approved the same. In view of these facts it becomes abundantly clear that the interest income under the present circumstances needs to be considered under the head "Profits and gains of business or profession" and accordingly 90% of the same is to be reduced. This ground is, therefore, allowed.
14. Ground no.2(ii) is against directing that 90% of ` 3,65,70,160 being the components of `Miscellaneous income' be deducted from the profits of the business. From the assessment order it is observed that the A.O. has not dealt with this issue at all inasmuch as there is no discussion about the components of such Miscellaneous income. Unless the composition of miscellaneous income is taken into consideration, no decision can be rendered as to whether the same should be deducted from the profits of the business or not. Under such circumstances we set aside the impugned order and restore the matter to the file of A.O. for passing a speaking order on this issue as per law after allowing a reasonable opportunity of being heard to the assessee.
15. The Revenue has filed the following revised ground in its appeal:-
"On the facts and in the circumstances of the case and in law, the CIT(A) was not justified in holding that 90% of interest should have been reduced from the profits of business for the purpose of computation of deduction u/s 80HHF of the I.T.Act, 1961 as against the order u/s 263 of the I.T.Act wherein it is held that 100% of the gross interest should have been reduced from the profits of business and it should have been taxed under the head "Income from Other Sources"."7 ITA Nos.2233/Mum/2010 & Ors.
M/s.Zee Entertainment Enterprises Limited.
16. It is observed that the only issue is about the decision as to whether interest income should be considered as falling under the head "Profits and gains of business or profession" or "Income from other sources". We have noticed above that the Tribunal in its order against the one passed by the CIT u/s 263 has held that the interest income is to be considered as falling under the head "Profits and gains of business or profession". In that view of the matter this ground deserves to be decided in favour of the assessee. Accordingly this ground is dismissed.
17. In the result, the appeal of the Revenue is dismissed and that of the assessee is partly allowed.
Assessment Year 2004-2005
18. Ground no.1 of the assessee's appeal is against the confirmation of disallowance of `36,400 being 20% of `1,82,000 paid for urgent medical treatment of staff on demand by hospital u/s 40A(3) of the Act. The Assessing Officer made the disallowance u/s 40A(3) on the ground that the expenditure was incurred in cash and it was not covered under Rule 6DD. The learned CIT(A) upheld the assessment order on this issue.
19. After considering the rival submissions and perusing the relevant material on record it is fairly admitted by the learned A.R. that the payment made under the instant circumstance is not covered under any of the clauses of Rule 6DD. In such a situation there is no question of allowing any deduction on this issue, as such allowability will amount to violation of section 40A(3). This ground is, therefore, dismissed.
20. Ground no.2 is against confirmation of disallowance of `56,09,117 being irrecoverable business advance written off and claimed u/s 37 of the Act. Both 8 ITA Nos.2233/Mum/2010 & Ors. M/s.Zee Entertainment Enterprises Limited.
the sides are in agreement that the facts and circumstances of this ground are similar to those for assessment year 1998-99. While disposing of the appeal of the assessee for assessment year 1998-99 above, we have decided this issue in assessee's favour. In view of the admitted similarity of the facts, we allow this ground of appeal.
21. Ground no.3(i) is against the computation of deduction u/s 80HHF on the interest income which ground is similar to ground no.2(i) of assessment year 2003-2004. In view of the similarity of the facts of this ground with those of assessment year 2003-2004 decided above, we overturn the impugned order on this issue. This ground is allowed.
22. Ground no.3(ii) is against the direction to deduction 90% of miscellaneous income amounting to `4,54,41,094. Again it has been admitted by both the sides that the facts and circumstances of this ground are similar to those of ground no.2(ii) of assessment year 2003-2004. While deciding this ground for assessment year 2003-2004 we have set aside the impugned order and restored the matter to the file of A.O. for taking a fresh decision. Following the view taken hereinabove, we set aside the impugned order and direct the Assessing Officer to decide it afresh as per law after allowing a reasonable opportunity of being heard to the assessee.
23. In the result, the appeal of the Revenue is dismissed and that of the assessee is partly allowed.
ITA No.2236/Mum/201024. This appeal by the Revenue against the deletion of penalty imposed by the A.O. u/s 271(1)(c) in relation to assessment year 2004-2005. Briefly stated the facts of the case are that the Assessing Officer imposed penalty in respect of 9 ITA Nos.2233/Mum/2010 & Ors. M/s.Zee Entertainment Enterprises Limited.
addition made by him towards irrecoverable advance amounting to `56,09,117. The learned CIT(A) deleted the penalty by holding that there was no willful concealment despite the fact he had sustained the addition in quantum proceedings. While disposing off the assessee's appeal in quantum proceedings we have decided this issue in assessee's favour thereby deleting the addition. In that view of the matter there remains no foundation for imposing any penalty on this issue. We, therefore, uphold the impugned order on this issue.
15. In the result, the appeal is dismissed.
Order pronounced on this 23rd day of December, 2011.
Sd/- Sd/-
(D.K.Agarwal) (R.S.Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai : 23rd December, 2011.
Devdas*
Sd/-
(R.K.Panda)
AM (Nominated)
Copy to :
1. The Appellant.
2. The Respondent.
3. The CIT concerned
4. The CIT(A)-III, Mumbai.
5. The DR/ITAT, Mumbai.
6. Guard File.
TRUE COPY.
By Order
Assistant Registrar, ITAT, Mumbai.