Direct Tax

Report No.1 of 2019 - Performance Audit on Assessment of Assessees in Entertainment Sector, Union Government, Department of Revenue - Direct Taxes

Date on which Report Tabled:
Mon 08 Jul, 2019
Date of sending the report to Government
Wed 13 Feb, 2019
Government Type
Union Department
Direct Tax
Sector Taxes and Duties


Entertainment sector consists of different segments such as television, radio, music, event management, films, animation and visual effects, broadcasting, sports and amusement etc.  This sector has witnessed a strong growth in the last five years making it one of the fastest growing sectors in India.

The PA report covers the scrutiny assessments completed during the financial years 2013-14 to 2016-17. Audit checked 6516 assessment records (approx. 50 per cent) with assessed income of Rs.47979.44 crore. Audit noticed 726 mistakes (approx. 11 per cent of the audited sample) concerning systemic and compliance issues involving tax effect of Rs.2267.82 crore. 

Useful information of the assessee was not shared amongst different charges of Income Tax Department (ITD). Despite specific film circles/wards in dedicated units, sufficient efforts were not made by the ITD to assess them in the designated circles/wards. Surveys, were not conducted at all in some states. 

Verification of the expenses on account of production cost paid to foreign line producers was not done. Verification of the incentive/subsidy received from Foreign Governments was not done. Inter-related parties of the entertainment sector were following different accounting methods, impacting proper cross verification of transactions.  There was no monitoring mechanism to examine the details of revenue earned from overflow and from various movie rights by the film producers.

There was lack of uniformity in applying provisions of withholding tax in respect of foreign line producers. There was no uniformity in allowance of franchisee fee, paid by Indian Premier League (IPL) to Board of Control for Cricket in India (BCCI).   Submission of Form 52A was not monitored and production cost disclosed by film producer in Form 52A was not properly verified.

Additions made by the assessing officers on ad hoc basis by applying varying percentage ranging from five per cent to 20 per cent despite the grounds of additions were same. Provisions related to allowances of deductions/expenses/set off and carry forward of losses/ MAT etc. were not followed correctly.

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