Amitabh Bachchan Corpn. Ltd., Mumbai vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER

आयकर अपील सं./I.T.A. No.5598 /Mum/2004 ( नधा रण वष / Assessment Year : 1999-2000

M/s Amitabh Bachchan बनाम/ Dy. C.I.T. Central Corpn. Ltd., Cir.13, Vs. CTS 40 & 44, S.V. Road, Mumbai. Goregaon, Mumbai - 400 104. थायी ले खा सं . /PAN : AAACA5553D (अपीलाथ /Appellant) .. ( यथ / Respondent)

आयकर अपील सं./I.T.A. No.5708 /Mum/2004 ( नधा रण वष / Assessment Year : 1999-2000

Dy. C.I.T. Central Cir.13, बनाम/ M/s Amitabh Bachchan Room No. 1101, Corpn. Ltd., Vs. 11 t h floor, "Prateeksha" Old CGO Annexe Bldg., North South Road No. Mumbai 400 020. 10, J.V.P.D. Scheme, Juhu, Mumbai 49.

थायी ले खा सं . /PAN : AAACA5553D (अपीलाथ /Appellant) .. ( यथ / Respondent)

Assessee by Shri Hiro Rai & Shri D.J. Thakkar Respondent by : Shri Jitendra Kumar

ु वाई क तार ख / Date of Hearing सन : 03-02-2015 घोषणा क तार ख /Date of Pronouncement : 27.02.2015 [ 2 ITA 5598/M/04 & ITA 5708/M/04

आदे श / O R D E R PER R.C. SHARMA, A.M. :

These are the cross appeals filed by the assessee and Revenue against the order of ld. CIT - VII, Mumbai dated 06-04-2004 for the A.Y. 1999-2000 in the matter of order 143(3) of the Income Tax Act, 1961.

2. Common grounds are involved in both these appeals, therefore, both these appeals were heard together and disposed of by this single consolidated order for the sake of convenience.

3. Rival contentions have been heard and record perused. Facts in brief are that the assessee company is engaged in the business of producing films, TV serials and Audio tapes. During the course of scrutiny assessment, the A.O. disallowed expenditure on account of raw material discarded, miscellaneous expenses, expenses related to manufacturing, production and event management expenses, administrative expenses etc. The ld. CIT(A) deleted part of the disallowance against which Revenue is in appeal before us whereas for the amount of disallowance sustained, assessee is in appeal before us. The assessee has taken following grounds:-

Grounds of appeal by assessee:

"1) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining disallowance of Rs.54,43,439/- on account of raw materials discarded and the reasons assigned by him for doing so are contrary to the facts of the case and provisions of Income Tax Act, 1961, and Rule made thereunder.

2) On the facts 'and in the circumstances of the case and in law, the learned CITCA) erred in sustaining disallowance of Rs.5,OO,000/- on adhoc basis, out of adhoc disallowance of Rs.l0,00,000/- made by the learned AO. from miscellaneous expenses of Rs.28,91,6951-

incurred by the appellant, without taking into consideration the details filed and the nature of expenses so incurred and the reasons assigned 3 ITA 5598/M/04 & ITA 5708/M/04

by him for doing so are contrary to the facts of the case and provisions of Income Tax Act, 1961, and Rules made thereunder.

3) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining disallowance ofRs.25,00,000/- on adhoc basis out of adhoc disallowance of Rs.50,00,OOO/- made by the learned A.O. from expenses of Rs, 6,58,50,190/- under manufacturing, production & event management expenses, without taking into consideration the details filed and the nature of expenses and the reasons assigned by him for doing so are contrary to the facts of the case and provisions of Income Tax Act, 1961 and Rules made thereunder.

4) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining disallowance of Rs.5,OO,OOO/- on adhoc basis out of adhoc disallowance of Rs.I0,OO,OOOI- made by the learned A.O. from expenses of Rs. 52,73,6321- under administrative and selling expenses, without taking into consideration the details filed and the nature of expenses and the reasons assigned by him for doing so are contrary to the facts of the case and provisions of Income Tax Act, 1961 and Rules made thereunder."

Grounds of appeal by Revenue:

"1. On the facts and in the circumstances of the case and in Law, the Ld, IT(A) erred in deleting the additions of Rs. 10 lacs made u/s.40A(3) of the I.T. Act.

2. On the facts and In the circumstances of the case and in Law, the Ld. CIT(A) erred in restricting the disallowance of Rs. 10,00,000/- made out of miscellaneous expenses to 50% thereof without appreciating that the assessee had failed to furnish evidences of any sort in support of its claim for such expenses, either during the assessment proceedings or at remand stage.

3. On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in restricting the disallowance of Rs. 50,00,000/- out of manufacturing, production and event management expenses and Rs. 10 lacs out of administrative and, selling expenses to 50% thereof without appreciating that the assessee had failed to furnish evidences of any sort in support of its claim for such expenses, either during the assessment proceedings or at the remand stage.

4. The order of ld. CIT(A) be set aside and that of the A.O. be restored on the above points."

4 ITA 5598/M/04 & ITA 5708/M/04

4. First grievance of assessee relates to sustaining disallowance of Rs. 54,43,439/- on account of raw materials discarded.

5. We have considered the rival contentions and found that assessee has not furnished any detail with regard to claim of deduction on account of raw material discarded. The ld. CIT(A) has also given opportunity to the assessee during remand proceedings but the assessee could not furnish any detail to the satisfaction of A.O. After considering the remand report, the ld. CIT(A) has confirmed the disallowance vide para 14.5 of his appellate order which has not been controverted by the ld. A.R. by bringing any positive material on record. Accordingly we do not find any reason to interfere with the orders of ld. CIT(A) confirming the disallowance of Rs. 55,43,439/- on account of raw material discarded. Accordingly ground No. 1 of assessee's appeal is dismissed.

6. Ground No. 2 of assessee's and Revenue's appeal pertains to disallowance out of miscellaneous expenses of Rs. 28,91,695/- incurred by the assessee company. The A.O. disallowed an adhoc amount of Rs. 10 lacs out of which Rs. 5 lacs was sustained by the ld. CIT(A. Both assessee and Revenue are in appeal before us.

7. We have heard the rival contention and found that disallowance of Rs. 10 lacs made by A.O. was sustained by the ld. CIT(A) at Rs. 5 lakhs after having following observation:-

"15.3 I have considered the submission and gone through the submissions and books of accounts and vouchers. It is not clearly understood what specific requirement was there from the side of the AO before he could have been satisfied with the genuineness of the expenditure. At the same time it cannot be denied that the corresponding vouchers are not supported with corroborative evidences from the side of the third party in many cases. To that extent those vouchers are self serving and the claim of the assessee in such an eventuality has to be judged from the point of view of reasonability of its claim. Considering the fact that many of the vouchers are self made 5 ITA 5598/M/04 & ITA 5708/M/04

and not independently verifiable on occasion and the reasonability of the claim the disallowance is directed to be restricted to 50% of the disallowed figure. The order can be modified accordingly."

8. We have considered the rival contentions and found from record that out of total claim of Rs. 28.91 lacs on account of miscellaneous expenses, the A.O. has disallowed an adhoc sum of Rs. 10 lacs out of which the ld. CIT(A) has confirmed the disallowance of Rs. 5 lacs. However, while sustaining the disallowance, the ld. CIT(A) observed that the A.O. has not pointed out any specific requirement because of which he has doubted the genuineness of expenditure, therefore, keeping in view the fact that the expenditure was not supported by necessary supporting evidence, the ld. CIT(A) has confirmed the disallowance to 50%. We do not find any infirmity in the order of ld. CIT(A), accordingly, the disallowance of Rs. 5 lacs confirmed by the ld. CIT(A) is hereby upheld. Accordingly ground raised by assessee & Revenue are dismissed.

9. In Revenue's appeal, the first grievance is deletion of addition of Rs. 10 lacs made u/s 40A(3) which was deleted by ld. CIT(A).

10. During the course of assessment, A.O. made a disallowance u/s 40A(3) of the Act which was deleted by the ld. CIT(A) after having following observation:-

"I have heard the submission, gone through the copy of remand report and the rejoinder of the assessee. In the first instance it is not clearly understood as to what evidences really was required by the AO and the same was not produced by the assessee. The tax audit report did not enclose any list of cases where payments in cash was incurred above Rs.20,OOO/ - as is normally enclosed and as has been enclosed even in the case of the assessee in earlier assessment year. Having said so, there being no expenses in cash above Rs. 20,000/- reported by the auditor which would attract mischief of section 40A(3), ordinarily no adverse view would be taken unless the AO has brought on record something in concrete on this issue. The AO not having brought anything on record on this count it would be difficult to sustain the disallowance in such a eventuality. It is also not the case of the A.O. 6 ITA 5598/M/04 & ITA 5708/M/04

that the tax audit report is unreliable. It has been contented by the assessee at the stage of hearing that the cash book was in fact produced before the A.O. at the time of preparation of remand report but somehow A.O. failed to take cognizance of the same and preferred to stick to his earlier position. The assessee's argument that the company had stopped the activities relating to production and accordingly the fact that the cash expenses were not required under the given circumstances merits consideration. Moreover in the original order the AO had held that since in earlier year the assessee had incurred expenditure in cash in excess of Rs.20,OOO/ - for the year also the same would have incurred the expenditure in cash of that order and on that basis had estimated such probable cash expenditure at Rs. 50 lacs. It is needless to mention that such presumption is not backed by any evidence on record. Ironically while preparing the remand report also the A.O. preferred the easier option of sticking to his original stands that there was cash expenditure in excess of Rs. 20000/- and that the disallowance was justified rather than verifying the factual position with the assessee. The assessee had argued that since it is the AO who had quantified such probable expenditure and had made disallowances it was his responsibility to justify the same. The A.O. not having clone that it is not within his competence to make such disallowance Again the assessee had argued that the disallowance as the foregoing fact would show was based on guesswork, presumption, conjecture and surmise which is not permissible. Having said so the assessee had argued that the disallowance need to be deleted. In this connection it is observed that it is a matter of record that AO at no stage had any material on record or any verification report for quantification of probable cash expenditure above Rs. 20,000/- which would be hit by mischief of section 40A(3). Secondly, the tax audit report did not include any list of cases where there was expenditure above Rs. 20,000/- which attracts the provisions of section 40A(3). The A.O. had also not held that the tax audit report was incorrect or has misrepresented fact. Having said so it is needless to mention that the disallowance cannot be sustained on merit and the assessee will be entitled to appropriate relief."

11. We have considered the rival contention and found that a categorical finding has been recorded by the ld. CIT(A) to the effect that at no stage the A.O. had any material on record or any verification report for quantification of probable cash expenditure above Rs. 20,000/- which would be hit by mischief of section 40A(3) of the Act. The ld. CIT(A) further found that even the tax audit report did not include any list of cases where there was expenditure above Rs. 20,000/- which attracts provisions of section 40A(3) of the Act. Since the findings recorded by the ld. CIT(A) has not been controverted by the 7 ITA 5598/M/04 & ITA 5708/M/04

ld. D.R. by bringing any positive material on record, we do not find any reason to interfere with the order of ld. CIT(A) deleting the disallowance made u/s 40A(3) of the Act.

12. Ground No. 3 of assessee's and Revenue's appeal pertains to disallowance of manufacturing expenses incurred by the assessee amounting to Rs.6,58,50,190/-. The A.O. disallowed on adhoc basis amounting to Rs. 50 lacs out of which Rs. 25 lacs was deleted by the ld. CIT(A) Similarly ground No. 4 of assessee's appeal and ground No. 3 of Revenue's appeal pertains disallowance of administrative and selling expenses. The assessee has incurred and debited administrative and selling expenses of Rs. 52,73,632/- out of which the A.O. has disallowed an amount of Rs. 10 lacs on adhoc basis. The ld. CIT(A) sustained the addition to Rs. 5 lacs. Observation of ld. CIT(A) for sustaining 50% of disallowance both in case of manufacturing expenses and administrative expenses was as under:-

"18.5 The assessee in his rejoinder apart from reiterating whatever was stated earlier had further submitted that all the details were produced to the AO at the stage of preparation of remand report and apart from the same the books of accounts were also produced. However the AO refused to take cognizance of the same and has observed that genuineness of such expenditure was not verifiable. In fact the AO did not ask for any further details or any further evidence but preferred the easier option of sticking to his earlier stand of reiterating whatever was stated in his order. He never intended to make the verification of genuineness of expenditure before drawing any adverse inference. Coming to the AO's comment of non-enclosure of Ann.G, it was stated that the AO never asked for it if it was not there before drawing any adverse inference. In other words it means that the AO was not interested to seriously to reexamine the matter before coming to any valid conclusion and somehow wanted to dispose off the matter detriment to the interest of the assessee. Again it was argued that the disallowance which has been made on adhoc basis is based on more on conjecture, surmise and presumption and the same is not permissible.

18.6 I have considered the submission and gone through the submissions and books of accounts and vouchers. It is not clearly understood what specific requirement was there from the side of the AO before he could have been satisfied with the genuineness of the 8 ITA 5598/M/04 & ITA 5708/M/04

expenditure. At the same time it cannot be denied that the corresponding vouchers are not supported with corroborative evidences from the side of the third party in many cases. To that extent those vouchers are self serving and the claim of the assessee in such an eventuality has to be judged from the point of view of reasonability of its claim. Considering the fact that many of the vouchers are self made and not independently verifiable on occasion and the reasonability of the claim the disallowance is directed to be restricted to 50% of the disallowed figures in both the cases. The order can be modified accordingly."

13. It was argued by the ld. A.R that the assessee has filed return at a loss of Rs. 38.33 crores, therefore there is no reason for claiming any bogus expenditure. He further contended that full details of expenditure along with books of account and supporting bills/vouchers were placed before the A.O. during remand proceedings, wherein no specific instance was pointed out by A.O. regarding non-genuineness of expenses or non-availability of supporting bills and vouchers. Accordingly it was submitted that no disallowance should be sustained.

14. On the other hand, the ld. D.R. relied on the order of A.O.

15. We have considered the rival contention and found that the assessee has claimed administrative and selling expenses of Rs. 52.73 lacs. The ld. CIT(A) observed that he has gone through the submission of the assessee as well as books of account and vouchers wherein it was not clear as to what specific requirement was there from the side of the A.O. which pursue him to disallow a sum of Rs. 10 lacs. However, disallowance of Rs. 5 lacs was sustained by the ld. CIT(A) by observing that the proper vouchers were there. However, there was no precise mention of particular expenditure which was not supported by corroborative evidence. Both the A.O. and the ld. CIT(A) have made an adhoc disallowance. We also found from record that during remand proceedings, the assessee has produced all the details along with books of account, bills and vouchers of expenses. However, no mistake was 9 ITA 5598/M/04 & ITA 5708/M/04

pointed out even during the remand proceedings. Just by mentioning that genuineness of expenditure was not verifiable, the A.O. has made an adhoc disallowance. Keeping in view the fact that assessee has filed return of income at a loss of Rs. 58.33 crores, there does not appear to be any valid reason for claiming any bogus expenses. Further neither the A.O. nor the ld. CIT(A) pointed out any expenditure which was not supported by vouchers. Keeping in view totality of the facts and circumstances of the case, we restrict the disallowance to Rs. 2 lacs out of administrative and selling expenses claimed by the assessee.

16. In respect of manufacturing expenses, following the same reasoning given above in para 13, we restrict disallowance out of manufacturing expenses at Rs. 15 lacs.

17. In the result, appeal of the Revenue is dismissed whereas appeal of the assessee is allowed in part.

Order pronounced in the open court on 27-02-2015.

आदे श क घोषणा खल ु े #यायालय म% &दनांकः 27-02-2015 को क गई ।

Sd/- sd/- (I.P. BANSAL) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; &दनांक Dated 27-02-2015 [

व.6न.स./ RK , Sr. PS 10 ITA 5598/M/04 & ITA 5708/M/04

आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु7त(अपील) / The CIT(A) -concerned, Mumbai

4. आयकर आयु7त / CIT --concerned, Mumbai

5. :वभागीय 6त6न<ध, आयकर अपील य अ<धकरण, मुंबई / DR, ITAT, Mumbai H Bench

6. गाड@ फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

स या:पत 6त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai