M/s Gemini Film Circuit, Hyderabad V. Dy.CIT, Circle - 13(1), Hyderabad

ITA 1368/HYD/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6180 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K PURNACHANDRA RAO
• Assessee Lawyers: ANIL NAIR
• Keywords: Capital asset; Assessment record; Revenue expenditure
• Section: 143(3); 263

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1368/HYD/2014 ASSESSMENT YEAR: 2009-10 M/S GEMINI FILM CIRCUIT, HYDERABAD PAN AAFFG 4152 N VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 13(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL NAIR REVENUE BY : SHRI K. PURNACHANDRA RAO DATE OF HEARING : 23/12/2015 DATE OF PRONOUNCEMENT : 08/01/2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF CIT-I, HYDERABAD DATED 17/02/2014 FOR THE AY 2009-1 0. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE COMPANY CA RRYING ON THE BUSINESS OF PRODUCTION OF MOTION PICTURE FILMS HAS FILED ITS RETURN OF INCOME ON 30/09/2009 ADMITTING LOSS OF RS. 37,56,44 1/-. THE CASE WAS SELECTED FOR REGULAR ASSESSMENT AND ASSESSMENT WAS COMPLETED U/S 143(3) OF INCOME-TAX ACT, 1961 (IN SHORT ACT) AND ACCEPTED THE RETURNED LOSS AS PER THE RETURN OF INCOME. 3. SUBSEQUENTLY, THE LD. CIT WHILE VERIFICATION OF THE ASSESSMENT RECORDS, NOTICED THAT IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME, ASSESSEE HAD REDUCED AN AMOUNT OF RS. 3 CRORES AS COST OF ABANDONED FILM (VARALARU). THE CIT WAS OF T HE VIEW THAT THE COST OF ABANDONED FILM WAS STATED TO BE PICTURE RI GHTS OF THE CINEMATOGRAPHIC FILM VARALARU AND THE FILM RIGHTS WERE CONTRIBUTED AS 2 ITA NO. 1368 /HYD/2014 GEMINI FILM CIRCUIT. CAPITAL BY ONE OF THE PARTNER OF THE FIRM, THE COST OF THE PICTURE RIGHTS REPRESENT CAPITAL ASSETS AND WHEN THE SAME WAS WRIT TEN OFF, IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE. LD. CIT CONSIDER ED THE ASSESSMENT MADE BY THE AO U/S 143(3) AS ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF REVENUE. ALSO, THE LD. CIT HAS NOTED THAT ASSESSEE HAD NOT DEBITED THE EXPENDITURE OF COST OF ABANDONE D FILM (VARALARU) AMOUNTING TO RS. 3 CRORES IN ITS FINAL ACCOUNTS AND ONLY SHOWED AS DEDUCTIBLE EXPENDITURE IN THE COMPUTATION OF INCOME , THE SAME WAS REDUCED EVIDENTLY TO MAKE GOOD THE DISALLOWANCE OF COST OF REMAKE RIGHTS ON THE FILM LAGERAHO MUNNABAI AMOUNTING TO RS. 3 CRORES. ACCORDING TO LD. CIT, THE FILM WAS NOT ABANDONED DU RING THE FY 2008- 09. SINCE THE AO HAD NOT CALLED FOR THE DETAILS OF THE COST OF ABANDONED FILM CONTRIBUTED BY THE PARTNER OF THE FI RM AND TERMS AND CONDITIONS RELATING TO THE SAME AND NOT MADE THE CO RRECTNESS OF THE ABOVE CLAIM, THE CIT SET ASIDE THE ORDER PASSED BY THE AO U/S 143(3) CITING THE ABOVE OBSERVATIONS. 4. AGGRIEVED WITH THE ABOVE ORDER OF LD. CIT, THE A SSESSEE IS IN APPEAL BEFORE US AND HAS RAISED 12 GROUNDS OF APPEA L AND THE SUM AND SUBSTANCE OF WHICH ARE THE ORDER PASSED BY THE LD. CIT IS WITHOUT JURISDICTION AND IS LIABLE TO BE QUASHED. 5. BEFORE US, THE LD. AR SUBMITTED THAT THE CIT HAD INITIATED THE PROCEEDING U/S 263 BASED ON THE OBSERVATION THAT TH E FILM ABANDONMENT HAS NOT DEBITED TO ACCOUNTS AND THE SAM E HAS BEEN CLAIMED ONLY IN THE COMPUTATION OF TOTAL INCOME. IN THIS CONNECTION, HE SUBMITTED THAT THIS CANNOT MAKE ANY DIFFERENCE TO T HE CLAIM OF THE ASSESSEE IN AS MUCH AS THE ALLOWABILITY OF THE CLAI M HAS TO BE DECIDED BASED ON THE PROVISIONS OF LAW AND THE EXIS TENCE OR NOT OF ENTRIES IN THE BOOKS OF ACCOUNT CANNOT BE A DECISIV E OR CONCLUSIVE IN THE MATTER. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KEDARN ATH JUTE MANUFACTURING COMPANY, 1971 AIR 2145. REFERRING TO THE CITS OBSERVATION THAT REMAKE RIGHTS ARE CAPITAL ASSET, L D. AR SUBMITTED THAT 3 ITA NO. 1368 /HYD/2014 GEMINI FILM CIRCUIT. THE PICTURE RIGHTS ARE HELD AS STOCK-IN-TRADE AND ASSESSEE HAS DISCLOSED AS SUCH IN THE BOOKS OF ACCOUNT AND CONSI STENTLY FOLLOWING THE SAME, THEREFORE, IT CANNOT BE CONSIDERED AS CAP ITAL ASSET SINCE THE ASSESSEE IS IN THE BUSINESS OF PRODUCTION AND D ISTRIBUTION OF FILMS AND THE FILM RIGHTS ARE HELD AS STOCK-IN-TRADE. REF ERRING TO THE CITS OBSERVATION THAT FILM RIGHTS ARE CAPITAL ASSET AS T HE SAME WAS CONTRIBUTED AS CAPITAL, LD. AR SUBMITTED THAT THE S AME SHOULD BE TREATED AS REVENUE EXPENDITURE AS THE SAME HAS TO B E CONSIDERED AS PER THE PROVISIONS OF LAW. AS THE ASSESSEE WAS IN T HE BUSINESS OF PRODUCTION AND DISTRIBUTION OF FILMS, IT IS IRRELEV ANT TO CONSIDER THE MODE OF ACQUISITION AS THE REMAKE RIGHTS CONTRIBUTE D AS PART OF CAPITAL CONTRIBUTION BY PARTNER DOES NOT IN ANY WAY CHANGE THE CHARACTER OF THE ASSET IN THE HANDS OF ASSESSEE. 6. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT IN VOKING POWERS U/S 263 BY THE CIT WAS JUSTIFIED IN VIEW OF THE FAC T THAT AO HAS NOT APPLIED HIS MIND IN TREATING THE FILM RIGHTS IN THE BOOKS OF ACCOUNT AND THE ACCOUNTING TREATMENT OF ABANDONMENT OF FILM. HE FURTHER SUBMITTED THAT THE AO HAD COMPLETED THE ASSESSMENT U/S 143(3) WITHOUT EXAMINING THE ABANDONMENT OF FILM IN THE BO OKS OF ACCOUNT AND ACCEPTED THE CLAIM OF ASSESSEE WITHOUT PROPER V ERIFICATION. LD. DR ALSO RELIES ON THE ORDER OF CIT PASSED U/S 263 A ND RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: 1. ITO VS. INDUFLEX PRODUCTS (P) LTD., 280 ITR 1 2. SAINT GOBAIN GLASS INDIA LTD., VS. DCIT, [2015] TAXPUB (DT) 3528 (CHEN-TRIB) 3. KRISHNAM RAJU PENMETSA VS. ITO, 2015 TAXPUB(DT) 3456 (HYD-TRIB) 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE C OUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE DECISIONS CITED. WE ARE OF THE VIEW THAT WE AGREE WITH THE SUBMISSIO NS OF THE LD. AR THAT REMAKE RIGHTS ARE REVENUE IN NATURE AS THE SAM E WAS TREATED IN THE BOOKS OF ACCOUNT AS STOCK-IN-TRADE BY THE ASSES SEE AND ALSO CONSIDRING THE NATURE OF THE BUSINESS OF THE ASSESS EE, VIZ., 4 ITA NO. 1368 /HYD/2014 GEMINI FILM CIRCUIT. PRODUCTION AND DISTRIBUTION OF FILMS. ON THE GRIEVA NCE THAT THE ASSESSEE HAS BROUGHT THE FILM REMAKE RIGHTS AS CAPI TAL CONTRIBUTION FROM ONE OF THE PARTNER, WE OBSERVE THAT INCOMING A SSETS WILL NOT CHANGE THE CHARACTER AS PER THE SOURCE OF CAPITAL O R THE SOURCE OF FINANCE. THE BASIC CHARACTER OF THE ASSETS WILL REM AIN THE SAME AS LONG AS IT HAS THE CHARACTER OF FIXED ASSETS. ON TH E OTHER HAND, THE ASSESSEE HAS CLAIMED THE ABANDONMENT OF FILM, NAMEL Y, VARALARU HAS ABANDONED DURING THE YEAR UNDER CONSIDERATION, BUT, IT HAS CONTINUED TO TREAT THE SAME ASSET AS STOCK-IN-TRADE . ON VERIFICATION WITH THE LD. AR, IT WAS BROUGHT TO OUR NOTICE THAT THE SAME WAS CONTINUED TO BE TREATED AS STOCK-IN-TRADE TILL NOW. IT WAS NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT, BUT, THE ASSESSEE CLAIMS T HAT IT WAS ABANDONED IN THE YEAR UNDER CONSIDERATION. ASSESSEE PROCLAIMS THE ABANDONMENT OF THIS FILM VARALARU ONLY IN THE RET URN OF INCOME WHICH WAS SUBMITTED FOR TAX PURPOSES WHEREAS IT HAS NOT PRODUCED ANY COGENT EVIDENCE FOR THE ABOVE SAID CLAIM OF ABANDON MENT OF FILM. IT IS IMPORTANT TO NOTE THAT THE BOOKS OF ACCOUNT PLAYS S IGNIFICANT ROLE IN COMMUNICATING THE ACTIONS, POLICIES AND ACCOUNTING STANDARDS OF THE ASSESSEE TO THE GENERAL PUBLIC, IN PARTICULAR, TO T HE TAXING AUTHORITIES. THE ASSESSEE CANNOT CLAIM SOMETHING IN THE RETURN O F INCOME AND FOLLOWS SOMETHING IN THE BOOKS OF ACCOUNT. IT IS AP PARENT THAT THE ACTIONS OF THE ASSESSEE ARE INCONSISTENT. IN VIEW O F THE ABOVE OBSERVATIONS, WE ARE OF THE VIEW THAT THE CIT HAS J USTIFIED IN INVOKING POWERS U/S 263 IN SETTING THE ASSESSMENT MADE BY TH E AO U/S 143(3), AS THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF REVENUE. HE IS JUSTIFIED IN GIVING PROPER DIRECT IONS TO AO U/S 263 OF THE ACT. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CI T PASSED U/S 263 OF THE ACT AND DISMISS THE GROUNDS RAISED BY THE AS SESSEE. 5 ITA NO. 1368 /HYD/2014 GEMINI FILM CIRCUIT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 8 TH JANUARY, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 8 TH JANUARY, 2016. COPY TO:- 1) GEMINI FILM CIRCUIT, PLOT NO. 124, ROAD NO . 11, JUBLEE HILLS, HYDERABAD. 2) DCIT, CIRCLE 13(1), AAYAKAR BHAVAN, BASH EERBAGH, HYDERABAD 500 004. 3 CIT - I, HYDERABAD 4) ADDL. CIT, RANGE 13, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD.