M/s RGV Film Factory Limited, Hyderabad V. DCIT, Cir-13(1), Hyderabad

ITA 1733/HYD/2012

• Counselvise Citation: 173322514 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KONDA RAMESH
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business expenditure; Additional evidence; Revenue expenditure
• Section: 143(3); 37(1); 28

Judgement Text

ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1733/HYD/2012 (ASSESSMENT YEAR: 2008-09) M/S. RGV FILM FACTORY LTD HYDERABAD PAN: AADCR 1361 H VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 13(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO FOR REVENUE : SHRI KONDA RAMESH, DR DATE OF HEARING : 1 0 .09 .2015 DATE OF PRONOUNCEMENT : 23 .09. 2015 O R D E R PER SMT.P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR A.Y 2008-09. IN THIS APPEAL, ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT (A) I N CONFIRMING THE DISALLOWANCES MADE BY THE AO U/S 37(1) OF THE I.T. ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, WHICH IS ENGAGED IN THE BUSINESS OF FILM PRODUCTION FILED ITS RETURN OF INCOME FOR A.Y 2008-09 ON 7.10.2008 DECLA RING A LOSS OF RS.7,15,46,975. THE SAME WAS PROCESSED ON 14.08. 2009 RESULTING IN A REFUND OF RS.21,37,030. SUBSEQUENTLY , THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY U/S 143(3) OF THE I.T. ACT AND VARIOUS DETAILS REGARDING ASSESSEES CLAIM U/S 37(1) WERE CALLED FOR. ASSESSEE FILED THE REQUIRED DETAILS AND ON PERUSAL OF ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 2 OF 11 THE SAME, THE AO OBSERVED THAT THE ASSESSEE HAS CLA IMED AS EXPENSES INCURRED TOWARDS NEW PROJECTS (VCL H.O) OF RS.7,75,04,457, (RGV H.O) RS.1,62,94,834 AND RS.3,0 7,26,744 TOWARDS THE COST OF PRODUCTION OF FILM SHABARI. S IMILARLY, HE OBSERVED THAT THE ASSESSEE HAS OFFERED INCOME OF RS .29,508 AND RS.16,45,984 FROM VCL HO. HE, THEREFORE, OBSERVED T HAT THERE IS NO CO-RELATION BETWEEN THE HUGE EXPENDITURE BOOKED UNDER THE EXPENSES FOR THE NEW PROJECTS (VCL HO) AND RGV HO A ND THE INCOMES REPORTED AGAINST THE SAME HEADS WHICH ARE V ERY MEAGRE AMOUNTS OF RS.29,508 AND RS.16,45,984. HE OBSERVED THAT UNLESS THE EXPENDITURE RELATED TO THE INCOMES FROM PICTURES WHICH ARE RELEASED IN THE YEAR UNDER CONSIDERATION, NEITHER INCOME, NOR EXPENDITURE CAN BE REPORTED AS PER THE PROVISIONS OF RULE 9A OF THE I.T. ACT. HE OBSERVED THAT DURING TH E RELEVANT PERIOD, THE ONLY PICTURES OF THE ASSESSEE WHICH WER E RELEASED ARE SHOLAY ON 31.08.2007, BADLA ALIAS DARLING ON 7.9.20 07 AND SHIVA ON 15.09.2007. THEREFORE, ACCORDING TO HIM, E XCEPT THE INCOME AND THE EXPENDITURE PERTAINING TO THESE THRE E FILMS, NOTHING ELSE CAN ENTER THE PROFIT & LOSS A/C UNDER THE PROVISIONS OF RULE 9A OF THE ACT. HE, THEREFORE, ASKED THE ASS ESSEE TO SHOW CAUSE AS TO WHY THE HUGE LOSS PERTAINING TO NEW PRO JECTS SHOULD NOT BE DISALLOWED. HE FURTHER OBSERVED THAT THE LOS S OF RS.3,07,26,744 PERTAINING TO THE FILM SHABARI WAS ALSO WRONGLY CLAIMED AS EXPENDITURE OF THE RELEVANT A.Y. HE OBSE RVED THAT THE ASSESSEE HAS FILED A LETTER DATED 27.12.2010 WHICH IS TOTALLY SILENT ON THE ISSUE OF DISALLOWANCE OF THE EXPENDIT URE PERTAINING TO UNRELEASED PICTURES, BUT ARE UNDER PRODUCTION AN D NOT COMPLETED. HE, THEREFORE, HELD THAT BOTH THE INCOME S AND ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 3 OF 11 EXPENDITURE ARE TO BE IGNORED AND HE ACCORDINGLY BR OUGHT THE DISALLOWED EXPENDITURE TO TAX AS INCOME OF THE ASSE SSEE. 3. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE C IT (A) ALONGWITH ADDITIONAL EVIDENCE ON THE ISSUE. THE CIT (A) CALLED FOR A REMAND REPORT FROM THE AO AFTER VERIFICATION OF T HE ADDITIONAL EVIDENCE. AO, VIDE LETTER DATED 9.12.2012, FILED T HE REMAND REPORT AND AFTER CONSIDERING THE SAME, THE CIT (A) DIRECTED THE AO TO VERIFY THE EXPENDITURE CLAIMED AGAINST RGV HO OF RS.1,62,94,834 AND ALSO AS TO WHAT WAS THE TITLE OF THE PICTURE AND WHETHER IT WAS RELEASED THREE MONTHS BEFORE THE END OF THE RELEVANT FINANCIAL YEAR AND OTHER RELEVANT DETAILS AND TO ALLOW THE EXPENDITURE, IF ALL THE CONDITIONS UNDER RULE 9A AR E ASTISFIED. WITH REGARD TO THE DISALLOWANCE OF EXPENSES OF OTHE R TWO FILMS, THE CIT (A) CONFIRMED THE ORDER OF THE AO. AGGRIEVE D, ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSEE HAS INV ESTED MONEY AND HAS INCURRED EXPENDITURE IN PRODUCTION OF TWO M OVIES, IT HOWEVER, FOUND THEM TO BE UNVIABLE AND THEREFORE, H AS ABANDONED THE SAID MOVIES MID-WAY. HE SUBMITTED THA T THE FILM PRODUCTION WAS THE BUSINESS OF THE ASSESSEE AND THE REFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE EVEN ON ABANDO NED MOVIES IS ALSO BUSINESS EXPENDITURE ALLOWABLE U/S 37(1) OF THE I.T. ACT. AS REGARDS THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE MOVIE SHABARI, IT WAS SUBMITTED THAT THE MOVIE WA S UNDER PRODUCTION AND THEREFORE, THE AMOUNT OF EXPENDITURE INCURRED FOR THE INCOMPLETE PROJECT WAS SHOWN AS WORK IN PROGRE SS AND TO ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 4 OF 11 THAT EXTENT THE AMOUNT DEBITED TO THE P&L A/C HAS A LSO BEEN CREDITED TO THE P&L A/C AND HENCE THE EXPENDITURE T O THE EXTENT OF RS.3,07,26,744 HAS NOT BEEN CLAIMED BY THE ASSES SEE. HE SUBMITTED THAT ALL THE DETAILS OF THE EXPENSES INCU RRED BY THE ASSESSEE ON THE ABANDONED PROJECTS AS WELL AS THE M OVIE SHABARI HAVE BEEN FURNISHED BEFORE THE AO AND THE CIT (A) BUT THE AUTHORITIES BELOW HAVE ERRONEOUSLY HELD THAT TH E ASSESSEE HAS NOT FILED THE DETAILS. HE SUBMITTED THAT WHERE ALL THE DETAILS OF THE MOVIE SHABARI WERE BEFORE THE AO AND THE C IT (A) AND THE ASSESSEE ALSO SATISFIES THE CONDITIONS MENTIONED UN DER RULE 9A, THERE WAS NO OCCASION FOR THE CIT (A) TO REMAND THE ISSUE BACK TO THE FILE OF THE AO FOR RE-VERIFICATION. THUS, ACCOR DING TO HIM THE ORDER OF THE CIT (A) IS ERRONEOUS AND THEREFORE, AC CORDING TO HIM THE ORDERS OF THE AUTHORITIES BELOW ARE TO BE SET A SIDE. 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED T HAT THE BURDEN IS ON THE ASSESSEE TO PROVE THAT THE ASSESSE E HAS INCURRED THE EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND SINCE THE ASSESSEE HAS FAILED T O SUBSTANTIATE HIS CLAIM, THE AUTHORITIES BELOW ARE JUSTIFIED IN M AKING THE DISALLOWANCES. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE DISALLOWANCES MADE BY THE AO ARE OF THE EXPENSES INCURRED BY THE ASSESSEE ON TWO ABANDONED PROJECTS AND ALSO ON THE PROJECT SHABARI ON THE GROUND THA T THE CONDITIONS PRESCRIBED UNDER RULE 9A ARE NOT FULFILL ED. AS REGARDS THE FIRST TWO DISALLOWANCES I.E. EXPENDITURE INCURR ED ON PROJECTS ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 5 OF 11 WHICH WERE SUBSEQUENTLY ABANDAONED AS REDUNDANT, WE FIND THAT THE GENUINESS OF THE EXPENDITURE HAS NOT BEEN DOUBT ED BY THE AUTHORITIES BELOW AND THE ONLY REASON FOR MAKING TH E DISALLOWANCES IS THAT THE CONDITIONS PRESCRIBED UND ER RULE 9A ARE NOT FULFILLED. FOR THE SAKE OF CONVENIENCE AND READY REFERENCE, THE PROVISIONS OF RULE 9A ARE REPRODUCED HEREUNDER: 9A. [(1) IN COMPUTING THE PROFITS AND GAINS OF THE BU SINESS OF PRODUCTION OF FEATURE FILMS CARRIED ON BY A PERSON (THE PERSON CA RRYING ON SUCH BUSINESS HEREAFTER IN THIS RULE REFERRED TO AS FILM PRODUCER ), THE DEDUCTION IN RESPECT OF THE COST OF PRODUCTION OF A FEATURE FILM CERTIFIED FOR RELEASE BY THE BOARD OF FILM CENSORS IN A PREVIOUS YEAR SHALL BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2) TO SUB-RULE (4). EXPLANATION : IN THIS RULE, (I) BOARD OF FILM CENSORS MEANS THE BOARD OF FILM CEN SORS CONSTITUTED UNDER THE CINEMATOGRAPH ACT, 1952 (37 OF 1952); (II) COST OF PRODUCTION, IN RELATION TO A FEATURE FILM , MEANS THE EXPENDITURE INCURRED ON THE PRODUCTION OF THE FILM, NOT BEING ( A ) THE EXPENDITURE INCURRED FOR THE PREPARATION OF THE POSITIVE PRINTS OF THE FILM; AND ( B ) THE EXPENDITURE INCURRED IN CONNECTION WITH THE ADVERTI SEMENT OF THE FILM AFTER IT IS CERTIFIED FOR RELEASE BY THE BOARD OF FILM CENSORS:] PROVIDED THAT THE COST OF PRODUCTION OF A FEATURE FILM, SHA LL BE REDUCED BY THE SUBSIDY RECEIVED BY THE FILM PRODUCER UNDER ANY SCH EME FRAMED BY THE GOVERNMENT, WHERE SUCH AMOUNT OF SUBSIDY HAS NOT BE EN INCLUDED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR ANY ASSESSMENT YEAR.] (2) WHERE A 29 [***] FEATURE FILM IS CERTIFIED FOR RELEASE BY THE BOARD OF FILM CENSORS IN ANY PREVIOUS YEAR AND IN SUCH PREVIOUS Y EAR, (A) THE FILM PRODUCER SELLS ALL RIGHTS OF EXHIBITION OF THE FILM, THE ENTIRE COST OF PRODUCTION OF THE FILM SHALL BE ALLOWED AS A DEDUCT ION IN COMPUTING THE PRO FITS AND GAINS OF SUCH PREVIOUS YEAR; OR (B) THE FILM PRODUCER ( I ) HIMSELF EXHIBITS THE FILM ON A COMMERCIAL BASIS IN ALL OR SOME OF THE AREAS; OR (II) SELLS THE RIGHTS OF EXHIBITION OF THE FILM IN RESPE CT OF SOME OF THE AREAS; OR (III) HIMSE LF EXHIBITS THE FILM ON A COMMERCIAL BASIS IN CERTA IN AREAS AND SELLS THE RIGHTS OF EXHIBITION OF THE FILM IN RESPE CT OF ALL OR SOME OF THE REMAINING AREAS, AND THE FILM IS RELEASED FOR EXHIBITION ON A COMMER CIAL BASIS AT LEAST 30 [NINETY] DAYS BEFORE THE END OF SUCH PREVIOUS YEAR, THE ENTIRE COST OF ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 6 OF 11 PRODUCTION OF THE FILM SHALL BE ALLOWED AS A DEDUCT ION IN COMPUTING THE PROFITS AND GAINS OF SUCH PREVIOUS YEAR. (3) WHERE A FEATURE FILM IS CERTIFIED FOR RELEASE B Y THE BOARD OF FILM CENSORS IN ANY PREVIOUS YEAR AND IN SUCH PREVIOUS YEAR, THE FILM PRODUCER ( A ) HIMSELF EXHIBITS THE FILM ON A COMMERCIAL BASIS IN ALL OR SOME OF THE AREAS; OR (B) SELLS THE RIGHTS OF EXHIBITION OF THE FILM IN RESPE CT OF SOME OF THE AREAS; OR ( C ) HIMSELF EXHIBITS THE FILM ON A COMMERCIAL BASIS IN CERTAIN AREAS AND SELLS THE RIGHTS OF EXHIBITION OF THE FILM IN RESPECT OF ALL OR SOME OF THE REMAINING AREAS, AND THE FILM IS NOT RELEASED FOR EXHIBITION ON A CO MMERCIAL BASIS AT LEAST [NINETY] DAYS BEFORE THE END OF SUCH PREVIOUS YEAR, THE COST OF PRODUCTION OF THE FILM IN SO FAR AS IT DOES NOT EXCEED THE AMOUNT REALISED BY THE FILM PRODUCER BY EXHIBITING THE FILM ON A COMMERCIAL BAS IS OR THE AMOUNT FOR WHICH THE RIGHTS OF EXHIBITION ARE SOLD OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS REALISED BY THE FILM PRODUCER BY EXHIBI TING THE FILM AND BY THE SALE OF THE RIGHTS OF EXHIBITION, SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE PROFITS AND GAINS OF SUCH PREVIOUS YEAR; AND TH E BALANCE, IF ANY, SHALL BE CARRIED FORWARD TO THE NEXT FOLLOWING PREVIOUS YEAR AND ALLOWED AS A DEDUCTION IN THAT YEAR. (4) WHERE, DURING THE PREVIOUS YEAR IN WHICH A FEA TURE FILM IS CERTIFIED FOR RELEASE BY THE BOARD OF FILM CENSORS, THE FILM PROD UCER DOES NOT HIMSELF EXHIBIT THE FILM ON A COMMERCIAL BASIS OR DOES NOT SELL THE RIGHTS OF EXHIBITION OF THE FILM, NO DEDUCTION SHALL BE ALLOWED IN RESPE CT OF THE COST OF PRODUCTION OF THE FILM IN COMPUTING THE PROFITS AND GAINS OF S UCH PREVIOUS YEAR; AND THE ENTIRE COST OF PRODUCTION OF THE FILM SHALL BE CARR IED FORWARD TO THE NEXT FOLLOWING PREVIOUS YEAR AND ALLOWED AS A DEDUCTION IN THAT YEAR. [(5)] NOTWITHSTANDING ANYTHING CONTAINED IN THE FOR EGOING PROVISIONS OF THIS RULE, THE DEDUCTION UNDER THIS RULE SHALL NOT BE AL LOWED UNLESS, ( A ) IN A CASE WHERE THE FILM PRODUCER ( I ) HAS HIMSELF EXHIBITED THE FEATURE FILM ON A COMMERC IAL BASIS; OR (II) HAS SOLD THE RIGHTS OF EXHIBITION OF THE FEATURE FI LM; OR 35 [( III ) HAS HIMSELF EXHIBITED THE FEATURE FILM ON A COMMERC IAL BASIS IN SOME AREAS AND HAS SOLD THE RIGHTS OF EXHIBITION OF THE FEATURE FILM IN RESPECT OF ALL OR SOME OF THE REMAINING AREAS,] THE AMOUNT REALISED BY EXHIBITING THE FILM, OR THE AM OUNT FOR WHICH THE RIGHTS OF EXHIBITION HAVE BEEN SOLD OR, AS THE CASE MAY BE , THE AGGREGATE OF SUCH AMOUNTS, IS CREDITED IN THE BOOKS OF ACCOUNT MAINTA INED BY HIM IN RESPECT OF THE YEAR IN WHICH THE DEDUCTION IS ADMISSIBLE; ( B ) IN A CASE WHERE THE FILM PRODUCER HAS TRANSFERRED THE RIGHTS OF EXHIBITION O F THE FEATURE FILM ON A MINIMUM GUARANTEE BASIS, THE MINIMUM AMOUNT GUARANTEED AND THE AMOUNT, IF ANY, RECEIVED OR DUE IN EXCESS OF THE GUARANTEED AMOUNT OR WHERE THE FILM PRODUCER FOLLOW S CASH SYSTEM OF ACCOUNTING, THE AMOUNT RECEIVED TOWARDS THE MINIMUM GUARANTEE AND THE AMOUNT, IF ANY, RECEIVED IN EXCESS OF THE GUARANTEE D AMOUNT, ARE CREDITED IN ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 7 OF 11 THE BOOKS OF ACCOUNT MAINTAINED BY HIM IN RESPECT O F THE YEAR IN WHICH THE DEDUCTION IS ADMISSIBLE. [(6)] WHERE THE 37 [ASSESSING OFFICER] IS OF OPINION THAT [( A )] THE RIGHTS OF EXHIBITION OF THE FEATURE FILM HAVE B EEN TRANSFERRED BY THE FILM PRODUCER BY A MODE NOT COVERED BY THE PROVISIONS OF THIS RULE; OR [(B)] HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF ANY CASE, IT IS NOT PRACTICABLE TO APPLY THE PROVISIONS OF THIS RULE TO SUCH CASE, DEDUCTION IN RESPECT OF THE COST OF PRODUCTION OF T HE FILM MAY BE ALLOWED BY THE [ASSESSING OFFICER] IN SUCH OTHER MANNER AS HE MAY DEEM SUITABLE. [(7)] FOR THE PURPOSES OF THIS RULE, ( I ) THE SALE OF THE RIGHTS OF EXHIBITION OF A FEATURE F ILM INCLUDES THE LEASE OF SUCH RIGHTS OR THEIR TRANSFER ON A MINIMUM GUARANTEE BAS IS; (II) THE RIGHTS OF EXHIBITION OF A FEAT URE FILM SHALL BE DEEMED TO HAVE BEEN SOLD ONLY ON THE DATE WHEN THE POSITIVE PRINTS OF THE FI LM ARE DELIVERED BY THE FILM PRODUCER TO THE PURCHASER OF SUCH RIGHTS OR WHERE I N TERMS OF THE AGREEMENT BETWEEN THE FILM PRODUCER AND THE FILM DISTRIBUTOR AS DEF INED IN RULE 9B, THE POSITIVE PRINTS ARE TO BE MADE BY THE FILM DISTRIBU TOR, THE DATE ON WHICH THE NEGATIVE OF THE FILM IS DELIVERED BY THE FILM PRODU CER TO THE FILM DISTRIBUTOR. 7. ON A BARE PERUSAL OF THE ABOVE RULE, WE FIND THA T THE SAID RULE IS APPLICABLE TO COMPUTATION OF INCOME ON THE FILMS RELEASED AFTER CERTIFICATION BY THE BOARD OF FILM CENSORS. I N THE CASE BEFORE US, THE EXPENDITURE ON PRODUCTION OF FEATURE FILMS IS ON ACCOUNT OF TWO FILMS WHICH HAVE BEEN ABANDONED AS R EDUNDANT AND THEREFORE, THERE IS NO QUESTION OF CERTIFICATIO N FOR RELEASE OR THE RELEASE THEREAFTER. THEREFORE, THE PROVISIONS O F RULE 9A WOULD NOT APPLY TO THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED UPON THE DECISION OF THE COORDINATE BENC HES OF THIS TRIBUNAL IN THE CASE OF TEJA CINEMA VS. DCIT IN ITA NO.806/HYD/2014 DATED 16.09.2014 AND ALSO THE DECIS ION OF THE TRIBUNAL AT MUMBAI IN THE CASE OF A.K. FILMS (P) LT D IN ITA NO.5980/MUM/2012 (REPORTED IN 2014, 41 TAXMANN.512 (MUM.TRIB) SUPPORT OF THIS CONTENTION. WE FIND THAT BOTH OF THESE DECISIONS, THE COORDINATE BENCHES OF THIS TRIBUNAL HAS HELD THAT THE EXPENDITURE INCURRED IN SO FAR AS THE FILMS WHI CH IS ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 8 OF 11 ABANDONED HALF WAY IS REVENUE EXPENDITURE AND HAS T O BE ALLOWED AS SUCH. ONE OF US I.E. ACCOUNTANT MEMBER I S A SIGNATORY TO THE DECISION OF THIS TRIBUNAL IN THE CASE OF TEJ A CINEMA, WHEREIN SIMILAR DECISION WAS TAKEN BY FOLLOWING THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS . PRASAD PRODUCTIONS (P) LTD (179 ITR 147), WHEREIN IT WAS H ELD THAT EVEN IF EXPENDITURE RELATING TO POSITIVE PRINTS IS NOT A LLOWABLE UNDER RULE 9A, THE SAME CAN BE ALLOWED U/S 37(1) OF THE A CT AS IT IS INCURRED IN CONNECTION WITH THE BUSINESS OF FILM PR ODUCTION. THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT, WH ICH WAS REPRODUCED AT PARA 7 OF THE ORDER OF THE ITAT IS AL SO REPRODUCED HEREUNDER FOR READY REFERENCE: 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WE LL AS OTHER MATERIALS ON RECORD. AS IS EVIDENT FROM THE ORDER O F THE CIT(A), HE DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESS EE ONLY ON THE GROUND THAT EXPENDITURE TOWARDS POSITIVE PRINTS AND ADVERTISEMENT CANNOT BE CONSIDERED AS COST OF PRODU CTION IN VIEW OF BAR IMPOSED UNDER RULE 9A OF THE ACT . HOWEVER, AS WOULD BE EVIDENT FROM THE OBSERVATION MADE BY THE L EARNED CIT(A), HE DOES NOT DISPUTE THE FACT THAT ASSESSEE IS ELIGIBLE TO SET OFF OF LOSS RS. 87,46,786 OF P-6 AGAINST THE PR OFIT OF P-5 AMOUNTING TO RS. 51,00,888. IN THIS CONTEXT WE REFE R TO THE OBSERVATION OF THE LEARNED CIT(A) IN PARA 7.3 OF HI S ORDER, WHICH IS EXTRACTED HEREIN FOR THE SAKE OF CLARITY. ' 7.3 I AGREE WITH THE CONTENTIONS OF THE APPELLANT T HAT AS PER RULE 9A, IT HAD CORRECTLY CARRIED FORWARD LOSS OF RS. 2,09,9 8,862 TO THE NEXT PREVIOUS YEAR I.E. F.Y. 2008-09 (AY 2009-10). I ALS O AGREE WITH THE CONTENTIONS OF THE APPELLANT THAT AS PER SECTION 70 , IT WAS ENTITLED TO SET OFF LOSS OF ANY SOURCE AGAINST INCOME FROM ANY OTHE R SOURCE UNDER THE SAME HEAD AND THE APPELLANT WAS CORRECT IN SET OFF OF BALANCE LOSS OF RS. 87,46,787 OF P-6 AGAINST THE PROFIT OF FILM 'CH ANDAMAMA' (P-5) OF RS. 51,00,888.' HOWEVER, THOUGH, THE CIT(A) MAY BE CORRECT IN HOLDI NG THAT EXPENDITURE TOWARDS POSITIVE PRINTS AND ADVERTISEME NT CANNOT BE CONSIDERED TOWARDS COST OF PRODUCTION AS PER RUL E 9A, HE HAS FAILED TO EXAMINE ASSESSEE'S CLAIM U/S 37(1) OF THE ACT. IN ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 9 OF 11 THIS CONTEXT, IT IS TO BE NOTED THAT HON'BLE MADRAS HIGH COURT IN CASE OF CIT VS. PRASAD PRODUCTIONS PVT. LTD. (SUPRA ) HAS HELD THAT EVEN IF EXPENDITURE RELATING TO POSITIVE PRINT S ETC., IS NOT ALLOWABLE UNDER RULE 9A, BUT, THE SAME CAN BE ALLOW ED U/S 37(1) OF THE ACT, AS IT IS INCURRED IN CONNECTION WITH TH E BUSINESS. THE RELEVANT OBSERVATION OF THE HIGH COURT IS EXTRACTED HEREUNDER FOR CONVENIENCE: '9. ONLY DURING THE COURSE OF THE PENDENCY OF THE A PPEAL BEFORE THE AAC, THE ASSESSEE EXERCISED AN OPTION AS PER R. 9A OF THE RULES AND UNDER EXPLN.(II)(A) TO R. 9A(1) OF THE RULES, THE E XPENDITURE INCURRED FOR THE PREPARATION OF THE POSITIVE PRINTS OF THE F ILM COULD NOT BE INCLUDED WITHIN THE EXPRESSION 'COST OF PRODUCTION' . IT IS FOR THIS REASON THAT SUCH EXPENDITURE IS CHARACTERIZED AS PO ST-PRODUCTION EXPENDITURE. ORDINARILY, ALL EXPENDITURE INCURRED O N THE PRODUCTION OF A FILM WOULD BE ITS COST OF PRODUCTION, BUT THAT WO ULD EXCLUDE THE EXPENDITURE INCURRED FOR THE PREPARATION OF THE POS ITIVE PRINTS OF THE FILM SO PRODUCED. THE PURPOSE OF OBTAINING POSITIVE PRINTS IS TO EXHIBIT THE FILM PRODUCED WHICH IS A STAGE AFTER THE COMPLE TION OF THE PRODUCTION. IN ANY GIVEN CASE, A PERSON CARRYING ON BUSINESS IN THE PRODUCTION OF FEATURE FILMS MAY PRODUCE A FILM, BUT FOR A VARIETY OF REASONS, HE MAY NOT BE IN A POSITION TO EXHIBIT IT BY OBTAINING POSITIVE PRINTS. HAVING PRODUCED A FILM, THE PERSON CARRYING ON THE BUSINESS OF PRODUCTION OF FEATURE FILMS MAY EITHER KEEP THEM WI THOUT EXHIBITION OR EVEN PART WITH THEM WITHOUT MAKING ARRANGEMENTS FOR THEIR EXHIBITION. IT CANNOT, THEREFORE, BE ASSUMED THAT IN ALL CASES OF PRODUCTION OF A FILM, THE PRODUCER MUST NECESSARILY OBTAIN THE POS ITIVE PRINTS OF THE FILM AS WELL. IN OTHER WORDS, IF A PERSON CARRIES O N THE BUSINESS OF PRODUCTION OF FILMS, HE MAY NOT ONLY PRODUCE THE FI LMS BUT ALSO PREPARE THE POSITIVE PRINTS FOR THE PURPOSE OF EXHI BITION OR HE MAY NOT TAKE STEPS FOR THE EXHIBITION OF THE FILM HAVING PR ODUCED IT. THE PRODUCTION AND EXHIBITION OF A FEATURE FILM CONSTIT UTES TWO DISTINCT AND SEPARATE STAGES AND WHILE THE FORMER WOULD TAKE IN ALL ACTIVITIES WHICH CULMINATE IN THE PRODUCTION OF A FEATURE FILM THE L ATTER CONTEMPLATES A STAGE SUBSEQUENT TO THE COMPLETION OF THE PRODUCTIO N OF THE FILM, VIZ., EXHIBITION OF THE FILM PRODUCED. VIEWED THUS, ANY E XPENDITURE INCURRED IN CONNECTION WITH THE PREPARATION OF THE POSITIVE PRINTS FOR PURPOSES OF EXHIBITION WOULD REALLY BE POST-PRODUCT ION EXPENSES AND ALSO AN ITEM OF EXPENDITURE IN RELATION TO THE BUSI NESS OF PRODUCTION AND EXHIBITION OF FEATURE FILMS AND WOULD, THEREFOR E, QUALIFY FOR DEDUCTION AS EXPENDITURE LAID OUT OR EXPENDED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. WE HAVE NOT BEEN R EFERRED TO ANY PROVISION IN THE ACT OR THE RULES DISALLOWING SUCH EXPENDITURE AS AN ITEM OF BUSINESS EXPENDITURE FOR THE PURPOSE OF S. 37 OF THE ACT. THOUGH LEARNED COUNSEL FOR THE REVENUE PLACED CONSI DERABLE RELIANCE UPON THE DECISION IN CIT VS. CARBORUNDUM UNIVERSAL LTD . (SUPRA), WE ARE OF THE VIEW THAT THAT DECISION DOES NOT IN ANY MANNER ASSIST THE REVENUE. IN THAT CASE, THE ASSESSEE CLAIMED DEDUCTI ON OF A CERTAIN ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 10 OF 11 AMOUNT IN THE COMPUTATION OF ITS PROFITS AND GAINS OF THE BUSINESS BY WAY OF CONTRIBUTION TO THE SUPERANNUATION FUND OF I TS FOREIGN COLLABORATORS AND THAT CLAIM WAS DISALLOWED BY THE AUTHORITIES BELOW. HOWEVER, THE TRIBUNAL HELD THAT THOUGH THAT AMOUNT WAS NOT AN ALLOWABLE DEDUCTION UNDER S. 36(1)(IV) OF THE ACT AS THE CONTRIBUTION WAS NOT TO A RECOGNIZED PROVIDENT FUND OR TO AN APP ROVED SUPERANNUATION FUND NOR COULD BE ALLOWED UNDER S. 3 7 OF THE ACT, THE PAYMENT WAS ALLOWABLE UNDER S. 28 OF THE ACT. ON A REFERENCE, IT WAS HELD THAT THE NATURE OF PAYMENT BEING ONE DESCRIBED IN S. 36(1)(IV) OF THE ACT AND AS IT COULD NOT BE DEDUCTED UNDER THAT SECTION, IT CANNOT BE HELD TO BE DEDUCTIBLE UNDER S. 28 OF THE ACT ON GENERAL PRINCIPLES IN ARRIVING AT THE TRUE PROFITS AND GAINS OF THE BUSIN ESS IN A COMMERCIAL SENSE. IN THE VIEW WE HAVE TAKEN THAT THE EXPENDITU RE INCURRED IN CONNECTION WITH THE OBTAINING OF POSITIVE PRINTS IS REALLY IN THE NATURE OF POST-PRODUCTION EXPENDITURE AND THAT THERE IS NO PROVISION IN THE ACT OR THE RULES OBLIGING THE AUTHORITIES TO DISALLOW S UCH EXPENDITURE, THE CLAIM OF THE ASSESSEE THAT SUCH EXPENDITURE WOULD F ALL UNDER S. 37 OF THE ACT IS, IN OUR VIEW, WELL- FOUNDED. WE, THEREFO RE, ANSWER THE SECOND QUESTION REFERRED TO US IN THE AFFIRMATIVE A ND AGAINST THE REVENUE.' THE SAME VIEW HAS BEEN EXPRESSED BY DIFFERENT BENCH ES OF THE TRIBUNAL IN THE DECISIONS CITED BY THE LEARNED AR. IT IS NOT DISPUTED EITHER BY THE AO OR BY THE CIT(A) THAT ASS ESSEE HAS INCURRED THE EXPENDITURE IN CONNECTION WITH THE BUS INESS OF PRODUCTION OF FILM. THEREFORE, APPLYING THE RATIO L AID DOWN BY THE HON'BLE MADRAS HIGH COURT AS WELL AS THE DECISI ONS OF THE TRIBUNAL, WE ALLOW ASSESSEE'S CLAIM THAT THE EXPEND ITURE INCURRED IS TO BE ALLOWED U/S 37 OF THE ACT, EVEN T HOUGH IT MAY NOT BE ALLOWABLE UNDER RULE 9A. FURTHER, ASSESSEE I S ALSO ELIGIBLE TO SET OFF THE EXPENDITURE INCURRED AGAINS T PROFIT OF P-5 UNDER SECTION 70(1) OF THE ACT. ACCORDINGLY, WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE AND DIRECT THE AO TO DELETE THE ADDITIONS MADE. 8. AS THE DECISION OF THE COORDINATE BENCH IS ON S IMILAR SET OF FACTS, WE, RESPECTFULLY FOLLOWING THE SAME, ALLOW T HE ASSESSEES GROUND OF APPEAL AS FAR AS THE CLAIM OF EXPENDITURE ON ABANDONED FILMS IS CONCERNED. AS REGARDS THE CIT (A )S DIRECTIONS TO THE AO TO VERIFY WHETHER THE CONDITIONS PRESCRIB ED UNDER RULE 9A ARE SATISFIED IN THE CASE OF FILM SHABARI, WE FI ND THAT THE SAID MOVIE WAS RELEASED SUBSEQUENTLY AND THEREFORE, PROV ISIONS OF RULE 9A ARE VERY MUCH APPLICABLE. HOWEVER, THE ASSE SSEE HAS ITA NO.1733 OF 2012 RGV FILM FACTORY LTD HYDERABAD PAGE 11 OF 11 SHOWN THE EXPENDITURE INCURRED TOWARDS THE FILM SH ABARI, AS HIS CLOSING STOCK OF THE RELEVANT FINANCIAL YEAR AN D HAS NOT CLAIMED IT AS EXPENDITURE. WHEN THERE IS NO CLAIM, THERE CAN BE NO DISALLOWANCE OF THE SAME. IN VIEW OF THE SAME, A SSESSEES GROUND OF APPEAL IS ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL IS TREATRED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2015. S D/ - S D/ - (B. RAMAKOTAIAH) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 23 RD SEPTEMBER, 2015. VNODAN/SPS COPY TO: 1. P. MURALI & CO. CAS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500082 2. DY. COMMISSIONER OF INCOME TAX, CIRCLE 8(1), C BLOC K, IT TOWERS, AC GUARDS, HYDERABAD 3. CIT (A)-II HYDERABAD 4. CIT-1 HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER