The Central Board of Direct Taxes (CBDT) has issued detailed instructions to all Principal Chief Commissioners of Income Tax across the country in light of the Comptroller and Auditor General's (C&AG) Performance Audit Report No. 1 of 2019 on the "Assessment of Assessees in the Entertainment Sector."
The audit highlighted a lack of uniformity among Assessing Officers (AOs) in allowing pre-operative expenses despite similar factual conditions across cases. To ensure consistency and transparency in assessments, the CBDT has now directed tax officials to examine expenses specific to the nature of businesses operating within the entertainment industry.
Text of the Notification is as follows
Kind reference is invited to Comptroller & Auditor General (C&AG)'s Performance Audit report No.1 of 2019 on "Assessment of assessees in entertainment sector and 51st Public Accounts Committee (PAC) report of 17th Lok Sabha. At para 3.4 of the C&AG's Performance audit report No.1 of 2019 on "Assessment of assessees in entertainment sector", it was pointed out that there was no uniformity in allowing pre-operative expenses by the Assessing Officers (AOs) despite the facts and circumstances being similar in nature indicating inconsistent approach adopted by Assessing Officers in similar cases.
The entertainment sector consists of different segments under its fold such as television, radio, music, event management, films, animation and visual effects, broadcasting, sports and amusement etc. Therefore, expenses incurred by various segments of the entertainment sector may be examined on a case-to-case basis specific to the nature of business undertaken by assessees. Some of the issues (non-exhaustive) in respect to such expenses are suggested for examination by AOs as under:
2.1 Pre-operative expenses:
These expenses are generally incurred before commencement of businesses (pre-operative expenses), which may be examined w.r.t. actual commencement of its businesses of assessees engaged in the entertainment sector under the provisions of section 32D of the Income-tax Act, 1961 for allowance of such pre-operative expenses for amortisation under that section.
2.2 Declaration of expenses of feature film:
(a) Assessees involved in the production of feature films are required to furnish Form No. 52A, within thirty days from the end of the financial year or within thirty days from the date of completion of film whichever is earlier.
(b) In this Form No. 52A, these entities are required to disclose details regarding the date on which the production of the film was started and date of completion of the film and details of payments of over Rs.50,000 (in aggregate to any person) made by the producer of the film or due from him to each person engaged in the production of the film as employee or otherwise.
(c) The Assessing Officer may verify the submission of Form No. 52A and expenses claimed in books of account of these entities. A penalty u/s 272A of the Act for failure to furnish Form No. 52A within the prescribed time may also be considered by the AOs.
2.3. Expenses incurred on production of feature films:
(a) During the assessment of entities engaged in the production of feature film, the deduction in respect of expenditure on production of feature films may be verified and allowed as per Rule 9A of the Income-tax Rules, 1962 (the Rules).
(b) As per Rule 9A of the Rules, the cost of production of a feature film may be allowed as deduction while computing profits and gains from business in the case of producer of a film in various scenarios which inter-alia include sale of all rights of exhibition of the film, or exhibition of film on commercial basis by film producer himself, subject to other conditions specified in that rule.
(c) Similarly, the deduction in respect of expenditure incurred on the acquisition of distribution rights of feature films may be examined and allowed as per Rule 9B of the Rules in the case of a distributor of the film.
The above may be brought to the notice of all officers posted in your region.
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