ITO 9(1)(4), MUMBAI V. UNIVERSAL ARTS LTD ( FORMERLY GOLDMINES MEDIA LTD), MUMBAI

ITA 1289/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3115 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH RANJAN
• Keywords: Business income; Depreciation; Cost of acquisition

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI RAMIT KOCHAR, AM , I.T.A. NO.1288 & 1289/MUM/2012 ( / ASSESSMENT YEARS : 2008-09 & 2007-08 INCOME TAX OFFICER 9(1)(4), R. NO. 224, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. M/S UNIVERSAL ARTS LTD., (FORMERLY GOLDMINES MEDIA LTD.), M.G. ROAD, GOREGAON (W), MUMBAI 400 062. PAN : AACCG4664P ( ! / APPELLANT ) .. ( '#! RESPONDENT ) A PPELLANT BY SHRI RAJESH RANJAN R E SPONDENT BY : SHRI VIPUL JOSHI $ %&' ( / DATE OF HEARING : 15-9-2015 )*+, &' ( / DATE OF PRONOUNCEMENT :30.09.2015 [ O R D E R PER SHAILENDRA KUMAR YADAV, J.M. : THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE ON FOLLOWING GROUND. SINCE COMMON ISSUE IS INVOLVED IN THESE ITA NOS. 1288 & 1289M/12 2 APPEALS WITH DIFFERENCE IN AMOUNT, THE SAME HAVE BE EN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FOLLOWING GROUND RAISED BY THE REVENUE FOR A .Y. 2008-09:- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN HOLDING THAT THE ASSESSEE IS NOT REQUIRED TO FOLLOW THE METHOD OF VALUATION PRESCRIBED U/R 9B OF I.T. RULE, 1962 AND THEREBY DELETING THE ADDITION MADE AS A RESULT OF DISALLOWANCE OF EXCESS COST CLAIMED OF RS. 27,52,935/-. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING O FFICER OBSERVED THAT THE ASSESSEE IS FOLLOWING CONSERVATIV E METHOD OF ACCOUNTING FOR VALUATION OF CLOSING STOCK. THE FILM S PURCHASED ARE SHOWN AT COST IF THE SAME ARE SOLD IN THE YEAR, THE PROFIT OR LOSS ON THE SAME IS RECORDED. IN RESPECT OF UNSO LD FILMS, THE SAME IS CARRIED FORWARD AS STOCK AT PURCHASE CO ST IN THE NEXT FINANCIAL YEAR. HE OBSERVED THAT AS THE ASSESS EE IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF RIGHTS O F FEATURE FILMS, RULE 9B OF THE INCOME-TAX RULES, 1962 IS ATT RACTED IN THIS CASE. RULE 9B OF THE INCOME-TAX RULES SPECIFIE S THE DEDUCTION THAT IS TO BE ALLOWED IN RESPECT OF COST OF ITA NOS. 1288 & 1289M/12 3 ACQUISITION OF A FEATURE FILM FOR COMPUTING THE PRO FITS AND GAINS OF THE BUSINESS OF DISTRIBUTION OF FEATURE FI LMS. REFERRING TO SUB RULE 4 & 5 OF RULE 9B, THE ASSESSING OFFICER DISALLOWED THE EXCESS COST OF RS. 27,52,935/-. THE MATTER CARR IED BEFORE THE FIRST APPELLATE AUTHORITY IN APPEAL AND AFTER C ONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE, THE CIT(A) GRANTED RELIEF TO THE ASSESSEE. AGGRIEVED, THE REV ENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. CONTENDED THAT THE CIT(A) WAS NOT J USTIFIED IN HOLDING THAT THE ASSESSEE IS NOT REQUIRED TO FOL LOW THE METHOD OF VALUATION PRESCRIBED UNDER RULE 9B OF THE INCOME TAX RULES, 1962 AND THEREBY THE CIT(A) WAS NOT JUST IFIED IN DELETING THE ADDITION MADE AS A RESULT OF EXCESS CO ST CLAIMED OF RS. 27,52,935/- AND ACCORDINGLY PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING O FFICER BE RESTORED. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE STRONGLY SUPPORTED T HE ORDER OF CIT(A). 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE I S ENGAGED IN SALE OF T.V. SERIAL, EDITING AND FILM SOFTWARE D EVELOPMENT. THE STAND OF THE ASSESSEE HAS BEEN THAT IT IS BUYIN G SATELLITE/TV TELECASTING RIGHTS OF THE MOVIE AND TH AT THE ITA NOS. 1288 & 1289M/12 4 PURCHASE OF MOVIES IS NOT FOR THEATRE RELEASE AND T HUS RULE 9B OF THE INCOME TAX RULES, 1962 IS NOT APPLICABLE. IT IS NOT IN DISPUTE THAT THE ASSESEE HAS BEEN VALUING THE CL OSING STOCK OF MOVIES AT COST FOR PAST MANY YEARS AND IN ASSESS MENT YEARS 2007-08 AND 2008-09, THE VALUATION METHOD HAS BEEN CHALLENGED BY THE CONCERNED ASSESSING OFFICER. IF T HE METHOD FOLLOWED BY THE ASSESSEE IS ACCEPTED, THE LOSS CLAI MED IN ASSESSMENT YEARS 2007-08 AND 2008-09 IS AS UNDER;- A.Y. 2007-08 RS. 10,17,210/- A.Y. 2008-09 RS. 18,22,482/- IN CASE, THE RULE 9B OF THE I.T. RULES IS APPLICABL E, THE FOLLOWING POSITION IN RESPECT OF VALUATION OF CLOSI NG STOCK WOULD EMERGE. 5.1. IN TERMS OF SUB RULE 2 TO RULE 9B, IF THE FILM IS RELEASED AT LEAST 90 DAYS BEFORE THE END OF PREVIOUS YEAR, ENTI RE COST OF ACQUISITION IS TO BE ALLOWED IN THAT YEAR. IN TERMS OF SUB RULE 3 TO RULE 9B IF THE FILM PURCHASED IS NOT RELEASED LEAST 90 DAYS BEFORE THE END OF PREVIOUS YEAR BUT AMOUNT REALIZED ON SAL E OF RIGHTS DURING PREVIOUS YEAR, IS LESS THAN COST PRICE, THE AMOUNT REALIZED WOULD BE ALLOWED AS REDUCTION AND THE BALANCE COST OF ACQUISITION IS TO BE CARRIED FORWARD TO NEXT YEAR. IN TERMS OF SUB RULE 4 TO RULE 9B IF THE FILM PURCHASED IS NOT RELEASED OR SOLD DU RING PREVIOUS YEAR, ENTIRE COST OF ACQUISITION IS TO BE CARRIED F ORWARD ALLOWED IN NEXT YEAR. IN TERMS OF SUB RULE 5 TO RULE 9B THE AM OUNT REALIZED ITA NOS. 1288 & 1289M/12 5 ON SALE DURING PREVIOUS YEAR, SHOULD BE CREDITED IN THE BOOKS OF ACCOUNT. FROM ABOVE, IT IS CLEAR THAT THE COST TO B E ALLOWED DURING THE YEAR DEPENDS UPON THE CLOSING STOCK OF THE PREV IOUS YEAR, PURCHASES DURING THE YEAR AND THE VALUATION OF THE CLOSING STOCK WOULD BE DICTATED BY SUB RULE 2 & 3. FROM THE ASSES SMENT ORDER, IT APPEARS THAT THE ASSESSING OFFICER HAS MISCONSTR UED THE PROVISIONS OF RULE 9B AND HAS NOT APPLIED SUB RULE 2,3 PROPERLY. IN FACT IGNORED SUB RULE 4 COMPLETELY AND DID NOT A LLOW THE CLOSING STOCK OF THE PREVIOUS YEAR OF UNSOLD FILMS WHICH I S TO BE ALLOWED AS DEDUCTION IRRESPECTIVE OF SALE OR NOT. IN CASE, THE CORRECT ADJUSTMENTS ARE MADE TO OPENING AND CLOSING STOCK A S PER RULE 9B, THE COMPUTATION OF NET PROFIT IS AS UNDER:- TOTAL SALES 7075000 LESS: TOTAL COST OF SALES OPENING STOCK OF A.Y. 2007-08 TO BE ALLOWED. 7501000 CURRENT YEARS PURCHASE AGAINST WHICH SALES HAVE BEEN MADE 2795000 (10296000) GROSS LOSS (3221000) ADD: OTHER INCOME 213977 BETA CHARGES DISALLOWED IN ASST. ORDER 172935 (2834088) LESS: EXPENDITURE CLAIMED ADMINISTRATIVE EXPENSES 3266813 DEPRECIATION 193467 (3460280) NET LOSS (6294368) THUS, INSTEAD OF LOSS OF RS. 18,22,482/- CLAIMED BY THE ASSESSEE IN THE RETURN, LOSS OF RS. 62,94,368/- HAV E TO BE ALLOWED AS PER RULE 9B. WE FIND THAT AS PER THE COS T OF ACQUISITION, CLOSING STOCK ADJUSTMENT IN PAST YEAR S CLOSING STOCK MAY LEAD TO ALLOWING HIGHER LOSSES IN THE INS TANT ITA NOS. 1288 & 1289M/12 6 ASSESSMENT YEAR. THE METHOD FOLLOWED BY THE ASSESSE E IS ENDORSED AND THE ADDITION MADE BY THE ASSESSING OFF ICER WAS RIGHTLY DELETED BY THE CIT(A) IN THE ASSESSMENT YEA R I.E 2007- 08. THIS FACTUAL LEGAL FINDING NEEDS NO INTERFERENC E FROM OUR SIDE. WE UPHOLD THE SAME. 6. SIMILAR ISSUE AROSE IN OTHER APPEAL WHEREIN THE FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, THE ORDER OF CIT(A) IS UPHELD. 7. IN THE RESULT, APPEALS FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2015. &)*+, -$ . . *&/% SD/- SD/- (RAMIT KOCHAR) (SHAILAENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R 0% MUMBAI; -$ DATED 12234256 $ R.K. , EX SR. PS ITA NOS. 1288 & 1289M/12 7 ! ' #$%& ' &$ COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. 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