Service Expenses Towards abandoned Film not to be Disallowed: ITAT [Read Order]

The Income Tax Appellate Tribunal(ITAT), Mumbai Bench, has recently, in an appeal filed before it, held that service expenses incurred towards abandoned film shall not be disallowed.

The aforesaid observation was made by the Tribunal when an appeal was filed before it by the appellant Steller Films Pvt. Ltd, challenging the correctness of the order dated 15th July 2019, passed by the learned CIT(A), in the matter of assessment under section 143(3) of the Income Tax Act 1961, for the assessment year 2013-14.

The ground of the assessee’s appeal being the question as to the CIT(A) was justified in confirming the action of the A.O, in disallowing the legal fees of Rs. 2,286,520 paid to the retainer advocates firm for taking care of litigation, with out appreciating the fact that these expenditures were incurred exclusively for the purpose of its routine business, the Tribunal consisting of Rahul Chaudhary, the Judicial Member and Pramod Kumar, the Vice President, observed as follows:

“We find that the only reason for impugned disallowance was that film was not released during the year, and as such interest was capitalized. However, once the film was eventually an abandoned project and was never released for public exhibition, the very basis of disallowance ceases to hold good in law”.

Thus, allowing the assessee’s appeal, the Bench ruled:

“The entire project has turned out to be a dud project, and has come to an unsuccessful end. In this situation, and bearing in mind the fact that interest expenses have been incurred wholly and exclusively for the purpose of business, we deem it fit and proper to delete this disallowance of Rs. 1,57,50,000”.

To Read the full text of the Order CLICK HERE

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