Entertainment tax subsidies granted as incentives for constructing cinema infrastructure are capital receipts and do not reduce the cost of assets for depreciation purposess, provided they are not linked to specific capital assets; further, no disallowance under S. 14A is permissible in the absence of exempt income.

O R D E R

Per Rahul Chaudhary, Judicial Member:

1. The present appeal preferred by the Revenue is directed against the Order, dated 05/03/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 23/03/2025, passed under Section 143(3)of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’],for the Assessment Year 2012-2013.

2. There is a delay of 469 days in filing the present appeal before the Tribunal. When the appeal was taken up for hearing Learned Authorized Representative for the Revenue appearing before us submitted that the delay in filing the present appeal be condoned and in this regard reliance was placed upon the application seeking condonation of delay in filing the appeal. We note that the delay in filing the appeal was occasioned on account of delay in the transfer of case records. Therefore, accepting the explanation given by the Revenue to be bonafide and reasonable, we hold that in the present case the Revenue was prevented by sufficient cause from filing the appeal before the Tribunal within the prescribed time. Accordingly, we condoned the delay of 469 days in filing the appeal and proceed to adjudicate the grounds raised on merits.

3. The Revenue has raised following grounds of appeal:

“1. Entertainment Tax incentive treated as revenue receipt Rs.10,85,67,741/-

(i) The Ld. AO erred in law and facts in treating the Entertainment Tax Incentive received by the assessee in accordance with the state wise Multiplex Policy as revenue in nature against capital receipt claimed by the assessee. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law.

(ii) The Ld. AO ought to have allowed Entertainment Tax Incentive as capital receipt being subsidy related to for promotion of construction of new multiplexes granted by the States to encourage the entrepreneurs for construction of highly capital incentive new multiplexes in order to give boost to tourism sector and to generate employment opportunities, as held by higher authorities in earlier years.

2. Disallowance of depreciation - Rs.7,43,81,060/-

(i) The Ld. AO erred in law and facts in deducting Entertainment Tax incentive (subsidy) from the opening WDV of Plant and Machinery treating it as cost of assets funded by State Government by way of subsidy. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law.

(ii) The Ld. AO erred in law and facts in disallowing the depreciation on protective basis while arriving at assessed income even though Entertainment Tax is treated as revenue receipt by him. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law.

(iii) The action of the Ld. AO by treating the Entertainment Tax subsidy as revenue receipt at the same time adjusting the subsidy against cost of assets and reducing allowable depreciation is misplaced, wrong and against the provisions of law as he does not have firm judgment and his order is based on assumptions, presumptions and surmises. He being quasi judicial officer ought to have given a firm decision as per law.

3. Disallowance u/s 14A Rs 52,67,428/-

(i) The Ld. AO erred in law and facts in disallowing Rs.46,06,433/- out of interest and Rs.6,60,995/- out of expenses u/s 14A of the Act. The reasons given by him for doing so are wrong, contrary to the facts of the case and against t