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CBDT Direction to AO Verification in Entertainment industry

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CBDT Guidance for AO on Verification of Expenses in Entertainment Sector

Following the Comptroller and Auditor General Performance Audit Report No. 1 of 2019, CBDT observed inconsistencies in how Assessing Officers handled pre-operative and production-related expenses in the entertainment industry. Similar cases were being assessed differently, leading to a lack of uniformity in taxation.

Directions issued by Central Board of Direct Taxes, Ministry of Finance, GOI, on Issues Directions on Verification of Expenses in the Entertainment Sector dated October 21, 2025, refer to No. F.No.225/215/2018/ITA-II. The Objective of this Direction To ensure Uniform application of the Income Tax Act and rules for Consistency in assessments across entertainment industry taxpayers and transparency and compliance with statutory reporting requirements

Principal chief commissioners ensure uniform verification of expenses claimed by taxpayers

CBDT has directed all principal chief commissioners of income tax to ensure uniform verification of expenses claimed by taxpayers engaged in the entertainment sector, which includes television, radio, film production, event management, music and broadcasting, sports, and animation. Following Verification Guidelines issued hereunder:

Pre-operative Expenses: Must be examined with reference to actual commencement of business. & Allowable for amortization under Section 32D only after verifying business commencement.
Feature Film Production Expenses: Form No. 52A must be filed within 30 days from the end of the financial year or completion of the film, whichever is earlier. & Must disclose start and completion dates of production. & Payments exceeding ₹50,000 to any individual involved.
Deduction of production & distribution expenses related to Rules of AOs to verify claims meticulously. Officers to verify deductions under Rule 9A and Rule 9B of the Income Tax Rules, 1962. These rules govern the treatment of expenses incurred by film producers and distributors.

- Rule 9A: Producers can claim a deduction for the cost of production if the rights are sold or the film is commercially exhibited by the producer.
- Rule 9B: Distributors can claim a deduction for the acquisition of distribution rights.
In case any future verification is required, AOs are to verify disclosures against books of accounts. Moreover, action is required.
- All principal chief commissioners are to circulate this guidance to officers in their jurisdiction.
- Aim: Uniform assessment practices and alignment with audit recommendations.
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