CBDT Directs Strict Verification of Expenses in Entertainment Sector
The Central Board of Direct Taxes (CBDT) issued a letter addressing the findings of the Comptroller and Auditor General’s (C&AG) Performance Audit Report on the assessment of assessees in the entertainment sector. The CBDT’s instructions mandate that Assessing Officers (AOs) ensure uniformity and strict adherence to tax rules, specifically concerning the verification and allowance of expenses.
Key Directives to Assessing Officers
- Uniformity in Pre-operative Expenses: The letter addresses the lack of uniformity noted by the C&AG in allowing pre-operative expenses across similar cases in the entertainment sector. AOs are instructed to examine these expenses in light of the actual commencement of business and assess their eligibility for amortisation under Section 32D of the Income-tax Act.
- Verification of Film Production Expenses: For assessees involved in feature film production, AOs must verify:
- The timely submission and accuracy of Form No. 52A, which details payments over ₹50,000 made to persons engaged in the film’s production.
- The proper allowance of production costs and distribution rights expenses according to Rules 9A and 9B of the Income-tax Rules, 1962.
- Penalties for Non-Compliance: The CBDT directed AOs to consider imposing a penalty under Section 272A of the Act for the failure to furnish Form No. 52A within the prescribed time limit.
The instructions aim to improve procedural consistency, eliminate arbitrary assessment practices, and ensure the accurate verification of expenditure within the diverse segments of the entertainment sector (including films, TV, and events).