ICONIC CHANDRAKANT PRODUCTIONS P. LTD, MUMBAI V. ACIT 16(1), MUMBAI

ITA 1111/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1413 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 17-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHOUDHARY ARUNKUMAR
• Keywords: Capital asset; Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI R AJESH KUMAR, ACCOUNTANT MEMBER ITA NO.1111/M/2017 ASSESSMENT YEAR: 2012-13 M/S. ICONIC CHANDRAKANT PRODUCTION P. LTD., 201-B, VENTURA, HIRANANDANI BUSINESS PARK CENTRAL AVENUE, POWAI, MUMBAI-400 076 PAN: AABCC5497P VS. ACIT 16(1), 467 AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI DEVENDRA JAIN, A.R. REVENUE BY : SHRI CHOUDHARY ARUNKUMAR, D.R. DATE OF HEARING : 06.09.2018 DATE OF PRONOUNCEMENT :14.11.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 19.12.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF A.O. OF DISALLOWI NG INTEREST OF RS. 24,42,526/- ON BANK OVERDRAFT APPLYING RULE 9A AND NOT RESTRICTING THE DISALLOWANCE TO RS.9,25,763/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF A.O. OF DISALLOWI NG RS. 1,06,754/- UNDER PRIOR PERIOD EXPENSES. ITA NO.1111/M/2017 M/S. ICONIC CHANDRAKANT PRODUCTION P. LTD. 2 3. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND V IDE LETTER DATED 27.08.18 WHICH IS REPRODUCED AS UNDER: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN UPHOLDING DISALLOWANCE OF RS. 24,42,526/-BY MAKING SOME PROPORTIONATE WORKING OUT OF TOTAL INTEREST PAID ON FUNDS BORROWED FOR GENERAL BUSINESS PURPOSE BY WRONGLY INVOKING RULE 9A OF THE INCOME TAX RULES, 1962. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED R ETURN OF INCOME ON 30.09.12 DECLARING AN INCOME OF RS.1,99,6 8,710/-. THEREAFTER, THE RETURN WAS REVISED ON 05.02.13 DECL ARING AN INCOME OF RS.80,28,310/- WHICH WAS PROCESSED UNDER SECTION 143(1). THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS CHARGED TO THE P & L ACCOUNT INTEREST ON LOAN WHICH ALSO PERTAINS TO COST OF PRODUCTION OF F ILM SHOWN AS WIP AND ACCORDINGLY THE AO ISSUED A SHOW CAUSE NOTI CE AS TO WHY THE PROPORTIONATE INTEREST ON THE LOAN ON THE S AID WIP SHOULD NOT BE ADDED BACK TO THE INCOME OF THE ASSES SEE WHICH WAS REPLIED BY THE REPRESENTATIVE OF THE ASSESSEE S UBMITTING THAT IN ORDER TO CARRY OUT DAY TO DAY ACTIVITIES, THE AS SESSEE HAD TAKEN OVERDRAFT FACILITY FROM THE BANK OF MAHARASHT RA. DURING THE YEAR ASSESSEE ALSO AVAILED FIRST OVERDRAFT OR G OT CREDIT FROM SARRASWAT BANK. THE ASSESSEE SUBMITTED THAT DURING F.Y. 2011- 12 THE ASSESSEE HAS TAKEN A LOAN OF RS.25.89 CR. FO R ITS WORKING CAPITAL REQUIREMENTS AND THE INTEREST EXPENSES OF RS.1.07 CR. WERE CHARGED TO THE P & L ACCOUNT. IT WAS STATED T HAT THE ASSESSEE IS ENGAGED IN THE PRODUCTION OF FILM AND S ERIALS AND DURING THE YEAR UNDER CONSIDERATION TWO PROJECTS WE RE UNDER CONSTRUCTION AND THE EXPENSES INCURRED IN CONNECTIO N WITH THE SAID PROJECTS WERE SHOWN AS WIP AT THE YEAR END NA MELY SHIVAJI (SERIAL) AND AJINTHA EK PREMKAHANI (MOVIE). ACCORD ING TO THE AO ITA NO.1111/M/2017 M/S. ICONIC CHANDRAKANT PRODUCTION P. LTD. 3 SINCE THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE SPECIFIC QUERY RAISED UPON THE ASSESSEE, THE AO INVOKING RU LE 9A HELD THAT THE COST INCURRED TO MAKE A FILM CAN ONLY BE C LAIMED AS AN EXPENDITURE ONLY IN THE YEAR OF RELEASE OF THE FILM . ACCORDING TO THE AO AS THE FILM IS NOT RELEASED, THE COST CAN NO T BE TREATED AS THE COST OF THE PRODUCTION AND CHARGED TO THE PROF IT AND LOSS ACCOUNT BUT HAS TO BE INCLUDED IN THE CLOSING WIP AND ACCORDINGLY A DISALLOWANCE WAS WORKED OUT AT RS.24, 42,526/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) CON FIRMED THE ADDITION BY OBSERVING THAT ASSESSEE HAS NOT FURNISH ED THE COMPLETE DETAILS AND FULL FACTS EITHER BEFORE THE A O OR BEFORE THE LD. CIT(A) AND ACCORDINGLY JUSTIFIED THE PROPORTION ATE DISALLOWANCE OF INTEREST EXPENDITURE BY THE AO. 6. THE LD. A.R. VEHEMENTLY SUBMITTED THAT NO DISALL OWANCE WAS MADE IN THE EARLIER YEARS UNDER RULE 9A OF THE INCOME TAX RULES TOWARDS THE INTEREST. THE LD. A.R. DREW OUR ATTENTION TO THE COPY OF SANCTIONED LETTER OF LOAN PLACED AT PAG E NO.8 & 9 OF THE PAPER BOOK SUBMITTING THEREIN THAT THE LOAN WAS BORROWED FOR GENERAL BUSINESS PURPOSES AS WORKING CAPITAL AN D WAS NOT RAISED SPECIFICALLY FOR ANY OTHER PURPOSE/PROJECT. THE LD. A.R. SUBMITTED THAT SINCE THE LOAN WAS TAKEN FOR THE NOR MAL RUNNING AND MAINTENANCE OF THE BUSINESS OF THE ASSESSEE NO DISALLOWANCE IS CALLED FOR AND THEREFORE CONFIRMATI ON OF DISALLOWANCE OF RS. 24,42,526/- DESERVED TO BE DELE TED. IN SUPPORT OF HIS ARGUMENTS THE LD. A.R. REFERRED TO A COUPLE OF DECISIONS WHICH ARE AS UNDER: ITA NO.1111/M/2017 M/S. ICONIC CHANDRAKANT PRODUCTION P. LTD. 4 1. FIROZ NADIADWALA VS. ADDITIONAL COMMISSIONER OF INCOME-TAX (2013) 35 TAXMANN.COM 89 (MUMBAI-TRIB) 2. TAPARIA TOOLS LTD. VS. JOINT CIT (2015) 372 ITR 605 (SC) 7. THE LD. D.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT THE INTERES T WHICH IS PROPORTIONATE TO THE WORK IN PROGRESS QUA THE PROJE CTS NOT COMPLETED AND RELEASED AS SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS IN THE YEAR UNDER CONSIDERATION HAS TO BE TRANSFERRED TO THE WIP TILL THE FILM/SERIAL ARE R ELEASED IN THE MARKET AND THEREFORE THE ORDER OF CIT(A) DESERVED TO BE UPHELD. 8. HAVING HEARD THE RIVAL SUBMISSIONS AND AFTER PER USING THE RELEVANT MATERIAL, WE FIND THAT THE ASSESSEE HAS BO RROWED MONEY FROM THE BANK AND CHARGED TO THE P & L ACCOUNT A SU M OF RS.1,07,35,283/- COMPRISING INTEREST AND PROCESSING FEE AND STAMP DUTY ETC. ACCORDING TO THE AO SINCE THE ASSE SSEE HAS SHOWN THE FILM/ SERIAL UNDER PRODUCTION AS WIP, TH EREFORE THE INTEREST PROPORTIONATE TO THE WIP REPRESENTING THE COST OF PRODUCTION OF SERIAL/ FILM PENDING THE RELEASE HAS TO BE ADDED TO THE COST OF WIP AND EXCLUDED FROM THE INTEREST CHAR GED RS.24,42,526/-DURING THE YEAR WAS DISALLOWED ACCORD INGLY. THE LD. CIT(A) AFFIRMED THE SAME BY HOLDING THAT THE FU LL FACTS WERE NOT FURNISHED BY THE ASSESSEE BEFORE THE AUTHORITIE S BELOW. AFTER EXAMINING THE FACTS OF THE CASE CAREFULLY, WE FIND THAT THE LOAN HAS BEEN TAKEN AS A WORKING CAPITAL FOR DAY TO DAY MAINTENANCE AND RUNNING OF THE BUSINESS AND NOT FOR ANY SPECIFI C PURPOSES AS IS CLEAR FROM THE SANCTIONED LETTER OF THE LOAN FILED AT PAGE NO.8 & 9 OF THE PAPER BOOK. WE ALSO FIND THAT NO DISALLOWANCE WAS MADE IN THE EARLIER YEAR IN RESPECT INTEREST WH ERE THE ITA NO.1111/M/2017 M/S. ICONIC CHANDRAKANT PRODUCTION P. LTD. 5 ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE A CT. EVEN IF WE PRESUME FOR A MOMENT THAT THE INTEREST IS FOR PR ODUCTION OF FILMS/SERIALS WHICH ARE UNDER PRODUCTION EVEN THEN THIS INTEREST HAS TO BE ALLOWED TO THE ASSESSEE AS THE SAME IS TR EATED AS STOCK IN TRADE BY THE ASSESSEE AND NOT A CAPITAL ASSET IN THE BOOKS OF ACCOUNTS. MOREOVER, RULE 9A IS NOT APPLICABLE TO T HE PRESENT CASE AS THE SAID SECTION DEALS WITH THE DEDUCTION I N RESPECT OF COST OF FILM RELEASED AND COMPUTATION OF PROFIT AND GAIN THERE FROM. IN THE PRESENT CASE BEFORE US THE LOAN WAS B ORROWED FOR THE PURPOSE OF GENERAL RUNNING AND OPERATION OF THE BUSINESS OF THE ASSESSEE AND THEREFORE WE ARE OF THE VIEW THAT THIS HAS TO BE ALLOWED. EVEN IN THE EARLIER YEAR NO SUCH DISALLOW ANCE WAS MADE BY THE AO. IN THIS CASE, THE FUNDS WERE AVAIL ED BY THE ASSESSEE FOR GENERAL BUSINESS PURPOSES AND NOT FOR THE PURPOSE OF PRODUCTION OF ANY FILM OR SERIAL AND THEREFORE I T HAS TO BE ALLOWED AS DEDUCTION IN THE CURRENT YEAR. ACCORDIN GLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO ALLOW THE DEDUCTION. 9. THE ISSUE RAISED IN GROUND NO.2 IS AGAINST THE C ONFIRMATION OF DISALLOWANCE OF RS.1,06,754/- AS PRIOR PERIOD EX PENSES. 10. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS CLAIMED RS.1,06,754/- UNDER THE HEAD PRIOR PERIOD EXPENSES. ACCORDING TO THE AO THE SAID EXPENDITURE CONSTITUTE D PRIOR PERIOD EXPENSE AND NOT ALLOWABLE UNDER THE ACT. 11. THE LD. CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS NOT EXPLAINED AS TO H OW THE EXPENSES WERE TO BE INCURRED DURING THE YEAR. ITA NO.1111/M/2017 M/S. ICONIC CHANDRAKANT PRODUCTION P. LTD. 6 12. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSIN G THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ISSUE IS REQUIRED TO BE EXAMINED TO ASCERTAIN WHETHER THE EXPENSES WERE CRYSTALLIZED DURING THE YEAR OR NOT. ACCORDINGLY WE RESTORE THI S ISSUE BACK TO THE FILE OF THE AO TO ASCERTAIN WHETHER THE SAME W ERE CRYSTALLIZED DURING THE YEAR AS THE VEHEMENT ARGUME NT OF THE LD. A.R. WAS THAT THESE EXPENSES WERE CRYSTALLIZED DURI NG THE YEAR. NEEDLESS TO SAY THAT IF THE CRYSTALLIZATION HAS TAK EN PLACE DURING THE YEAR, THESE ARE TO BE ALLOWED AS REVENUE EXPENS ES IN THE CURRENT YEAR. THE AO IS DIRECTED TO DECIDE IN THE L IGHT OF THE OUR ABOVE OBSERVATION. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICALLY PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 14.11.2018. SD/- SD/- ( C.N. PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED:14.11.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.