PVR Ltd. Wins Tax Battle: ITAT Upholds Capital Receipt Status of Subsidies, deletes disallowances on Expenses & MAT Additions [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, upheld the order of the Commissioner of Income-tax (Appeals) [CIT(A)], which had deleted several additions made by the Assessing Officer against PVR Ltd. for assessment years 2011-12 and 2013-14, and dismissed the revenue's appeals.

The Tribunal affirmed that the entertainment tax subsidy was a capital receipt and that various expenses and provisions were correctly allowed, relying on consistent legal positions established in its own previous orders in the assessee's case and decisions of the Delhi High Court.

The assessee, PVR Ltd., engaged in the business of film exhibition, had its case selected for scrutiny. The Assessing Officer (AO) made several additions, including treating entertainment tax subsidies as revenue, disallowing expenses on leasehold improvements, computing a higher disallowance under section 14A, disallowing bank charges for non-deduction of TDS, and adding back provisions for MAT. The CIT(A) deleted all these additions, and the Revenue subsequently appealed to the ITAT.

On the issue of entertainment tax subsidy (Rs. 17.79 crore) and expenses on leasehold improvements (Rs. 7.01 crore), the assessee's counsel argued that the matters were settled in its favor by previous ITAT orders and a decision of the Delhi High Court in its own case.

The Tribunal found that these issues were 'no longer res integra' and stood covered in favor of the assessee. The CIT(A) had correctly relied on this binding precedent, and the Revenue's grounds on these issues were rejected.

Regarding the disallowance under section 14A (Rs. 58.76 lakh), the Revenue had computed it on all investments of the assessee. The Tribunal, following the CIT(A), held that the disallowance should be restricted only to investments that yielded exempt income, as per Rule 8D and the judgment of the Delhi High Court in Era Infrastructure (India) Ltd.The Tribunal noted that the borrowed funds were from prior years and not linked to the current investments, further supporting the assessee's position.

The ITAT also dismissed the Revenue's appeal on the disallowance of bank charges (Rs. 2.02 crore) under section 40(a)(ia). Following the CBDT Circular 56/2012 and the Delhi High Court's decision in Make My Trip India (P.) Ltd., the Tribunal held that no TDS was deductible on these charges, and the Circular applied retrospectively.

On the issue of additions to book profit for MAT under section 115JB, the Tribunal affirmed the CIT(A)'s decision to delete additions for provisions for gratuity, leave encashment, and bonus, holding them to be statutory and ascertained liabilities, not unascertained ones. The addition of the notional section 14A disallowance for MAT was also rejected as per settled law.

The two-member bench of Shri Anubhav Sharma (Judicial Member) and Shri Krinwant Sahahay (Accountant Member) observed that the CIT(A) had passed reasoned orders, duly supported by binding precedent. The Tribunal dismissed all appeals filed by the Revenue. The Cross Objections filed by the assessee were rendered academic and were also dismissed accordingly.

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