ACIT, CHENNAI V. A.M.Ratnam, CHENNAI

ITA 1738/CHNY/2013

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0645 (ITAT-CHENNAI)
• Duration Of Justice: 8 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 09-09-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained cash credit; Audit objection; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 147; 143(3)

Judgement Text

आयकर अपील य अ धकरण, ‘बी’ यायपीठ, चे नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI ी वी.द ु गा राव, या यक सद य एवं ी जी.मंज ु नाथ, लेखास द य के सम$ BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./I . T. A. No. 1 7 3 6 to 1 7 3 8/ C hn y/ 2 0 1 3 ( नधा रणवष / A s s e ss m en t Yea r s : 20 0 4 - 0 5 t o 20 0 6- 07 ) The Assistant Commissioner of Income Tax, Media Circle-II, Chennai-600 034. V s Mr. A.M. Ratnam 1, Velavan Street, West Kamakoti Nagar, Valasaravakkam, Chennai-600 087. PA N: A D DP R 8 9 7 3 M (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/ Appellant by : Ms. R.Anita, Addl.CIT यथ क ओरसे/Respondent by : Mr. S.Sridhar, Advocate स ु नवाईक तार ख/D a t e o f h e a r i n g : 21.10.2021 घोषणाक तार ख /D a t e o f P r o n o u n c e m e n t : 05.01.2022 आदेश / O R D E R PER G.MANJUNATHA, AM: These three appeals filed by the Revenue are directed against common order passed by the learned Commissioner of Income Tax (Appeals)-VI, Chennai, dated 12.03.2013 and pertain to assessment years 2004-05 to 2006-07. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order. 2 ITA Nos.1736 to 1738/Chny/2013 2. The Revenue has more or less raised common grounds of appeal for all these assessment years, therefore, for the sake of brevity, grounds of appeal filed for the assessment year 2004-05 are reproduced as under:- “1. The order of the learned CIT(A) is contrary to the law and facts of the case. 2. The Id CIT(A) erred in holding that reopening u/s.147 is not valid in law as the assessment is reopened beyond four years and on mere change of opinion; 2.1 The CIT(A) ought to have appreciated the fact that the assessment has been reopened after four years but before six years according to Sec.151(1) of the Act. Hence, the reopening of assessment u/s 147 after four years and before six years is valid in law. 2.2 The Id CIT(A) failed to appreciate the fact that there was tangible material to reopen the assessment u/s.147 since the assessee had claimed the post production expenditure under Rule 9A of the Act. This has been considered to be a tangible material for reopening the assessment u/s 147 of the Act. 2.3 The Id CIT(A) ought to have appreciated the fact that reassessment is well within the provisions of sec.147 and Explanation 1 of sec. 147 of the I T Act clarifies that production of account or other evidences before the AO from which material evidence could with due diligence have been discovered, will not necessarily amount to disclosure within the meaning of the proviso to sec. 147. 2.4 The Id CIT(A) ought to have appreciated the fact that , as per clause(c) of Explanation 2, cases where assessment have earlier been made and there is escapement of income, reopening of assessment can be made to reassess the escaped income. Hence, proceedings are valid as per law, since the assessee had claimed excess amount of expenditure which cannot be allowed under Rule 9A of the Act. 3 ITA Nos.1736 to 1738/Chny/2013 2.5 Reliance is placed on the decision of M/s. Export Credit Guarantee I Corporation of India, 30 Taxman.com.211, wherein the Hon’ble BombayHigh Court held that “ Whether, even in absence of assessees, failure to disclose material facts, where there is complete failure on part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment” 2.6 It is submitted that the decision of the Hon’ble High Court in the case of Consolidated Photo and Finvest Ltd vsACIT(2006) 151 Taxman 41 held that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provision of explanation 1 of Sec 147 of the Act. 2.7 It is submitted that the decision of Delhi High Court n the case of Dalimia Brothers (P) Ltd. Vs. CIT is applicable to the facts of the case wherein it is held that Reassessment proceedings have been initiated after examining and considering the audit note. The note records that the auditor’s scrutiny revealed that the Assessing Officer had asked the assessee to furnish complete details/confirmations in respect of the sundry creditors amounting to Rs. 1,66,37,402/-. Out of the said amount, the assessee could submit confirmations in respect of the creditors amounting to Rs. 1,13,53,344/- and the balance amount of Rs 52,84,058/- remained unconfirmed. This had resulted in under assessment of Rs. 32,97,057/-.This was held to be a factual lapse. 2.9 It is submitted that an assessment can be reopened even if the same is done based on audit objection (irrespective of whether the issue involved is factual or legal). Reliance is placed on the decisions in the following cases viz., CIT Vs PVS Beedies Pvt Limited 1999 103 Taxmann 294 (SC) and Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC). 3. The Id CIT(A) erred in deleting the disallowance made under the head post production expenses amounting to Rs.57.85 lacs; 3.1 The Id CIT(A) failed to appreciated that in para 11 of the CIT(A) order, it could be seen that in respect of the films Boys(Telugu) and Nee Manasu, Naaku Telusu (Telugu) no 4 ITA Nos.1736 to 1738/Chny/2013 income has been admitted by the assessee towards realization of pictures. 3.2 The Id CIT(A) ought to have appreciated the fact that nature of expenditure claimed by the assessee relates to publicity expenses, which are post production expenses and the assessee did not admit an realization from pictures. Hence the assessee did not act as a distributor for the above said two films. 3.3 It is submitted that according to Rule 9B, a producer can claim PostProduction Expenses of the film if he also acts as a distributor for thesefilms. In this case the assessee did not act as a distributor and as per Rule 9A, a producer cannot claim post production expenses; 3.4 The Id CIT(A) ought to have appreciated the fact that film producers are covered by the specific provisions Rule 9A and 9B to claim the expenditure incurred on the production of the films and post production expenses are clearly covered by Rule 9B of the Act. 4. The Id CIT(A) erred in deleting the addition made under Rule 9A(3) to the extent of Rs.64.07 lacs holding that since proceedings u/s.147 is held to be invalid, the addition becomes nullified though it is in accordance with law; 4.2 It is submitted that if proceedings u/s.147 are held to be valid, the addition made on this issue has to be upheld; 5. The Id CIT(A) erred in restricting the addition from 10% to 2% on the resale of set materials; 5.1 The Id CIT(A) ought to have appreciated that part of the materials can be retrieved and others may be sold as scrap which will yield some returns and such yield may also be higher than 10% estimation made by theAO. 5.2 The Id CIT(A) failed to appreciate the fact that restriction of 2% disallowance was not based on any material and the same has been estimated without any basis.” 3. Brief facts of the case are that the assessee is a film producer and assessment of all three concerned assessment 5 ITA Nos.1736 to 1738/Chny/2013 years have been originally completed u/s.143(1) or 143(3) of the Income Tax Act, 1961. The assessment has been subsequently reopened for the reasons recorded, as per which income chargeable to tax had been escaped assessment on account of wrong application of Rule 9A & 9B of Income Tax Rules, 1962, and thus, notices u/s.148 of the Act were issued. The assessee has requested to treat original returns filed by the assessee for all relevant three assessment years as returns filed in response to notices issued u/s.148 of the Income Tax Act, 1961. Subsequently, cases have been taken up for scrutiny and during the course of assessment proceedings, the assessee has objected to reopening of assessments on the ground that reasons recorded by the Assessing Officer for reopening of assessment is based on audit objection and thus, on the basis of audit objection without any independent application of mind, regarding escapement of income, assessments cannot be reopened. The assessee has also contested various issues raised by the Assessing Officer towards disallowance of post production expenses of certain feature films and also additions towards interest on loans and 6 ITA Nos.1736 to 1738/Chny/2013 unexplained cash credit u/s.68 of the Act, towards unsecured loans. 4. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and accordingly, rejected arguments challenging validity of reopening of assessment and held that audit objection is a solid ground for reopening of assessment, because said information constitutes fresh tangible materials and opined that reopening of assessment for all assessment years is valid in view of specific ratio laid down by the Hon'ble Supreme Court in the case of PVS Beedies Pvt. Ltd. 103 taxmann 294 (SC) and also Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC). The Assessing Officer had also made additions towards disallowance of post production expenses of certain feature films on the ground that when the assessee has acted as only producer without exhibiting those films to public, then post production expenses cannot be allowed as deduction, in view of specific procedure followed for computation of expenses under Rule 9A & 9B of Income Tax Rules, 1962. The Assessing Officer had also made 7 ITA Nos.1736 to 1738/Chny/2013 additions towards interest on loans and unsecured loans u/s.68 of the Income Tax Act, 1961. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has challenged reopening of assessment u/s.147 of the Act, for all three assessment years on the ground that when assessment is reopened after four years and within six years from the end of relevant assessment year, then there should be allegation from the Assessing Officer that there is a failure on the part of the assessee to disclose fully and truly all facts necessary for completion of assessment and in absence of any allegation, assessment cannot be reopened. The assessee had also challenged reopening of assessment on the ground that the Assessing Officer had reopened assessments based on the audit objection without any independent application of mind to form reasonable belief of escapement of income and thus, action of the Assessing Officer is nothing but change of opinion, which is not permissible under the Act. The assessee had also challenged additions made by the Assessing Officer towards 8 ITA Nos.1736 to 1738/Chny/2013 post production of expenses of certain feature films disallowed under Rule 9A, additions made towards resale of set materials, addition u/s.68 in respect of unsecured loans and interest on loans taken from M/s. Focus Computers & M/s. Rakesh Sarin and Sons etc. 6. The learned CIT(A), after considering relevant facts and also by taking into account reasons recorded by the Assessing Officer for reopening of assessment for assessment year 2004- 05 has held that the Assessing Officer had reopened assessment for assessment year 2004-05 only on the basis of audit objection without any basis for arriving at reasonable belief of escapement of income on factual material basis. Therefore, he opined that audit objection may constitute a tangible material for reopening of assessment, when it points out factual differences on escapement of income. However, it is not a ground for reopening of assessment on legal issue. Since, the Assessing Officer formed reasonable belief of escapement of income on the basis of wrong application of Rule 9A & 9B of I.T Rules, 1962 , said audit objection cannot be considered as valid ground for reopening of assessment 9 ITA Nos.1736 to 1738/Chny/2013 and thus, opined that reopening of assessment for assessment year 2004-05 is invalid and accordingly, quashed reassessment order passed by the Assessing Officer. However, for assessment years 2005-06 and 2006-07, the learned CIT(A) has upheld reopening of assessment on the ground of original assessments for those two assessment years have been completed u/s.143(1) of the Act, and further, there is tangible material in the form of audit objection for arriving at a reasonable conclusion on escapement of income and thus, in view of the ratio laid down by the Hon'ble Supreme Court in the case of PVS Beedies Pvt.Ltd. (supra) and also Rajesh Jhaveri Stock Brokers (supra), reopening of assessment for assessment years 2005-06 and 2006-07 are valid and thus, rejected arguments taken by the assessee. 7. As regards additions made by the Assessing Officer towards post production expenses, the learned CIT(A) after considering relevant submissions of the assessee held that since the assessee has released Boys (Telugu) and Nee Manasu Naaku Telusu (Telugu) feature films within 90 days and also earned realizations from the pictures. It is incorrect on the 10 ITA Nos.1736 to 1738/Chny/2013 part of the Assessing Officer to apply Rule 9A for computing disallowances in respect of post production expenses. The learned CIT(A) observed that although the Assessing Officer has rightly applied Rule 9A to disallow excess of expenditure over realization from the film, but because assessment proceedings u/s.147 of the Act are held to be void, disallowance also gets nullified and thus, directed the Assessing Officer to delete additions made towards disallowances of production expenses of Kovil, Tamil feature film. As regards additions towards resale of set materials @ 10%, the learned CIT(A) after considering relevant facts has restricted disallowance to 2% of total expenses incurred for set expenses. 8. Insofar as assessment year 2005-06 is concerned, the assessee has incurred a sum of Rs.20,03,118/- towards publicity expenses and cost of film, but because the assessee has not realized any income from 7G Brindabhan Colony (Telugu) feature film, the Assessing Officer has disallowed said amount and added back to total income. The learned CIT(A), after considering relevant facts held that since said film was 11 ITA Nos.1736 to 1738/Chny/2013 released within 90 days from end of financial year, expenditure incurred by the assessee is eligible for deduction under Rule 9A of the Income Tax Rules, 1962 and accordingly, deleted additions made by the Assessing Officer. In respect of disallowance of set expenses, the learned CIT(A) restricted disallowance to 2% of set expenses like in assessment year 2004-05. Insofar as additions made towards disallowance of interest on loan from M/s. Focus Computers amounting to Rs.2,40,000/- and interest paid to Rakesh Sarin & Sons Rs.1,26,000/-, the learned CIT(A) deleted additions made by the Assessing Officer by holding that since there was no disallowance of loan from M/s.Focus Computers in the order for assessment year 2003-04, disallowance of interest in this year is not correct. Likewise, interest paid to M/s. Rakesh Sarin & Sons, when principal amount was accepted in the assessment year 2004-05 as genuine, then no disallowance can be made towards interest expenses. 9. Insofar as assessment year 2006-07, the Assessing Officer has disallowed post production expenses in respect of 12 ITA Nos.1736 to 1738/Chny/2013 film Sivakasi (Tamil) and Ponniyin Selvan (Tamil) feature films on the ground that as a distributor the assessee has exhibited those two films at 4 theaters, hence, @ Rs.1,25,000/- per print, the assessee is entitled to claim a sum of Rs.10 lakhs for 8 prints towards cost of prints and thus, out of total post production expenses at Rs.1,83,56,999/- he has allowed a sum of Rs.10 lakhs for cost of print and balance amount of Rs.1,83,56,999/- has been disallowed. The learned CIT(A) deleted additions made by the Assessing Officer by holding that since the assessee has released and realized revenue from those two feature films, post production expenses is allowable and accordingly, deleted additions made by the Assessing Officer. As regards disallowance of post production expenses of Rs.21,86,649/- in respect of Muddula Koduku (Telugu) feature film, the learned CIT(A) held that even though said expenditure is not deductible under Rule 9A, but same can be allowed as deduction u/s.37(1) of the Act, because said expenditure was incurred for purpose of business of the assessee. Insofar as additions made towards disallowance of unsecured loans and consequent interest u/s.68 of the Act, the 13 ITA Nos.1736 to 1738/Chny/2013 learned CIT(A) deleted additions made by the Assessing Officer by holding that the assessee has filed detailed statement of loans taken, addresses, PAN of creditors etc. However, the Assessing Officer has disallowed loans and consequent interest u/s.68 of the Act, without any reasons and thus, directed the Assessing Officer to delete additions made towards unsecured loans and consequential interest u/s.68 of the Act. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us. 10. The first issue that came up for our consideration from ground no.2.1 to 2.9 of revenue appeal for assessment year 2004-05 is validity of reassessment order passed by the Assessing Officer. 10.1 The learned DR submitted that the learned CIT(A) has erred in not appreciating fact that there was tangible material to reopen the assessment u/s.147 of the Act, since the assessee had claimed post production expenses under Rule 9A of the Act, and thus, reopening of assessment u/s.147 of the Act is 14 ITA Nos.1736 to 1738/Chny/2013 valid. The learned DR further submitted that the learned CIT(A) ought to have appreciated fact that reassessment is well within the provisions of section 147 and Explanation 1 of section 147 of the Income Tax Act, 1961, clarifies that production of account or other evidences before the Assessing Officer from which material evidence could with due diligence have been discovered, will not necessarily amount to disclosure within the meaning of the proviso to section 147 of the Act. The learned DR further referring to the decision of Hon’ble Bombay High Court in the case of M/s. Export Credit Guarantee Corporation of India, 30 Taxman.com.211, argued that even in absence of assessee’s failure to disclose material facts, where there is complete failure on the part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment. The learned DR further referring to decision of Hon’ble Delhi High Court in the case of Dalimia Brothers (P) Ltd. Vs. CIT argued that reassessment proceedings is valid, if such reopening is made on the basis of 15 ITA Nos.1736 to 1738/Chny/2013 audit note. In this regard, the learned DR relied upon the decision of the Hon'ble Supreme Court in the case of PVS Beedies Pvt. Ltd. 103 taxmann 294 (SC) and also Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC). 10.2. The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that admittedly assessment for assessment year 2004-05 has been reopened after a period of four years from the end of relevant assessment year and in such case, proviso to section 147 of the Act applies as per which there should be failure on the part of the assessee to disclose fully and truly all material facts necessary for assessments. In this case, assessment for impugned assessment year was completed u/s.143(3) r.w.s. 147 of the Act, and during the course of assessment proceedings, the assessee has disclosed all facts necessary for completion of assessment. Therefore, reopening of assessment on the basis of audit objection is only a change of opinion which is not permissible. The learned CIT(A) after considering relevant facts 16 ITA Nos.1736 to 1738/Chny/2013 has rightly quashed assessment order and his order should be upheld. 10.3. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the Assessing Officer formed reasonable belief of escapement of income on the basis of audit objection. As per reasons recorded for reopening of assessment, escapement of income was determined by applying Rule 9A & 9B of Income Tax Rules, 1962, which deals with quantification of expenses allowable in case of film producer and distributor. The assessee being film producer, has claimed certain post production expenses. The Assessing Officer formed reasonable belief of escapement of income on the ground that as per Rule 9A, post production expenses cannot be allowed. If you go through reasons recorded by the Assessing Officer to form belief of escapement of income, we find that said reasons were recorded on the basis of audit note which is further strengthened by legal issue of application of Rule 9A & 9B of Income Tax Rules, 1962. It is well settled position of law by decisions of various Courts that audit objection may constitute 17 ITA Nos.1736 to 1738/Chny/2013 fresh tangible material for reopening of assessment, if such audit objection pointing to factual difference on escapement of income. However, if audit objection refers to legal issue, then it cannot be said that said audit objection constitute fresh tangible material for escapement of income, because legal points on which the Assessing Officer needs to deliberate was very much available at the time of assessment and if the Assessing Officer failed to apply correct legal position to the facts of the case, then it cannot be said that there is failure on the part of the assessee to disclose fully and truly all facts necessary for completion of assessments. In this case, assessment has been reopened after a period of four years from the end of relevant assessment year and further, except audit objection, on application of Rule 9A & 9B, there is no tangible material with the Assessing Officer to form reasonable belief of escapement of income. In our considered view, reasons recorded by the Assessing Officer for reopening of assessment is a clear case of change of opinion, which is not permissible under the law. The learned CIT(A) after considering relevant facts has rightly quashed reassessment proceedings for assessment year 2004- 18 ITA Nos.1736 to 1738/Chny/2013 05 and thus, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. 11. The revenue has challenged deletion of additions made by the Assessing Officer towards post production expenses of certain feature films in terms of Rule 9A & 9B of Income Tax Rules, 1962, restriction and estimation of resale value of set materials by way of ground no.3 to 5.2 and challenged findings of the learned CIT(A). But fact of the matter is reassessment order passed by the Assessing Officer is held to be invalid by us in preceding paragraph and thus, grounds taken by the Revenue challenging findings of learned CIT(A) in deletion of addition made by the Assessing Officer becomes academic in nature and hence, ground no.3 to 5.5 of revenue appeal is dismissed as infructuous. 12. In the result, appeal filed by the revenue for assessment year 2004-05 is dismissed. ITA No.1737/Chny/2013: (AY 2005-06): 13. The first issue that came up for consideration from ground No.2 to 2.4 of revenue appeal is deletion of disallowance made 19 ITA Nos.1736 to 1738/Chny/2013 by the Assessing Officer towards post production expenses amounting to Rs. 20.03 lakhs in respect of feature film 7G Brindabhan Colony (Telegu). The Assessing Officer has disallowed post production expenses on the ground that the assessee has acted only as producer, but not a distributor for the film 7G Brindavan Colony (Telugu), which is evident as per financial statement filed by the assessee for relevant assessment year which shows that there is no realization from the above film. Therefore, in terms of Rule 9A & 9B of I.T. Rules, 1962, the Assessing Officer has disallowed post production expenses of feature film 7G Brindabhan Colony for Rs.20,03,118/-. On appeal, the learned CIT(A) has deleted additions made by the Assessing Officer by holding that the film was released within 90 days from end of the financial year and hence, expenditure is eligible for deduction under Rule 9A. 14. The learned DR submitted that the learned CIT(A) failed to appreciate that in para 16 of the learned CIT(A) order, it could be seen that in respect of film 7G Brindavan Colony (Telugu) no income has been admitted by the assessee 20 ITA Nos.1736 to 1738/Chny/2013 towards realization of picture, which clearly shows that the assessee did not act as distributor or exhibitor of the film and thus, post production expenses like cost of print and advertisement of film, after it is certified by the Censor Board is not allowable as deduction. The learned DR further submitted that as per Rule 9B of IT Rules, 1962, a producer can claim post production expenses of a film, if he also acts as distributor for those films. Since, the assessee did not act as distributor, as per Rule 9A, producer cannot claim post production expenses. The learned CIT(A) without appreciating facts deleted additions made by the Assessing Officer and his order should be reversed. 15. The learned AR for the assessee, on the other hand, referring to Rule 9A & 9B of the IT Rules, 1962, submitted that Rule 9A is applicable only in case of producer and Rule 9B is applicable in case of distributor. If the assessee acts as a producer, distributor and exhibitor of feature film, then in respect of post production expenses, Rule 9A & 9B has no application and thus, whatever expenditure incurred by the assessee for publicity and other expenses is allowable u/s.37(1) 21 ITA Nos.1736 to 1738/Chny/2013 of the Act. The learned CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and his order should be upheld. 16. We have heard both the sides, perused material available on record and gone through orders of the authorities below. The facts borne out from records shows that the assessee acted in the capacity of producer and distributor for some feature films and for some feature films, he acted in the capacity of producer and exhibitor. Rule 9A of the I.T. Rules, 1962, deals with deduction in respect of expenditure on production of feature films, but it does not applies to distributor and exhibitor of feature films. Rule 9B of Income Tax Rules, 1962, deals with deduction in respect of expenditure on acquisition of distribution rights of feature films and hence, it does not applicable to an exhibitor of feature films. In the film industry there are three scenarios. In the first scenario, a person may act as a producer, distributor and exhibitor. In such cases, production expenditure is governed by Rule 9A and post production expenses is not governed by either Rule 9A or 9B of 22 ITA Nos.1736 to 1738/Chny/2013 I.T. Rules, 1962. Therefore, the issue has to be examined in light of capacity of the assessee in which he acted in a particular film. The Assessing Officer has disallowed post production expenses of 7G Brindavan Colony (Telugu) on the ground that the assessee does not act as a distributor and uch finding was recorded on the basis of no realization from pictures. As we have already stated in earlier paragraph of this order, Rule 9A / 9B is applicable only in a case where a person acts in a capacity of producer and distributor. In this case, in respect of 7G Brindavan Colony (Telugu), the assessee seems to have acted as a producer and distributor, because there is no realization from picture, it means he has not acted as an exhibitor. Therefore, post production expenses incurred by the assessee is not governed under rule 9A or 9B of I.T.Rules, 1962. Therefore, deductibility of same needs to be considered u/s.37(1) of the Act as expenditure wholly and exclusively incurred for purpose of business of the assessee. This proposition is supported by decision of the Hon’ble Bombay High Court in the case of Dharma Productions Ltd. Vs CIT (2019) 263 taxmann 583, where it was clearly held that where 23 ITA Nos.1736 to 1738/Chny/2013 the assessee was engaged in business of production and distribution of films, cost of print as well as publicity and advertisement expenses incurred after production as well as certification by censor board, same would not be governed by Rule 9A and hence, same would be allowable as business expenditure u/s.37(1) of the Income Tax Act, 1961. Similar view has been expressed by the Hon’ble Madras High Court in the case of CIT Vs. Prasad Production Pvt. Ltd. (1989) 179 ITR 147. Therefore, we are of the considered view that the Assessing Officer has erred in disallowing post production expenses by invoking Rule 9A & 9B of I.T. Rules, 1962. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. 17. The next issue that came up for our consideration from ground no.3 to 3.2 of revenue appeal is additions towards estimation of income from resale of set materials. The Assessing Officer has estimated 10% of cost of set materials as 24 ITA Nos.1736 to 1738/Chny/2013 realization from resale and accordingly, made addition of Rs.14,61,468/-. The learned CIT(A) has restricted additions to 2% of set expenses. 18. Having heard both the sides and considered relevant materials available on record, we find that although both the authorities have taken different rate for estimation of income from resale of set materials, but none of them have given any reasons for adopting said rate. Although, the Assessing Officer has adopted 10% cost of set materials as resale value, but no reason was given and further, not brought on record any comparable cases of similar nature. At the same time, though learned CIT(A) has restricted addition to 2% of cost of set materials as resale value, but has not given any valid reason. Even before us, both the parties have failed to file necessary details, to adopt a particular rate for estimation of income from resale of set materials. Therefore, considering facts and circumstances of the case and also to settle dispute between the parties, we deem it appropriate to estimate 5% total cost incurred for set materials as realization from resale. Hence, we 25 ITA Nos.1736 to 1738/Chny/2013 direct the Assessing Officer to estimate 5% of total cost incurred for set materials for estimation of income on resale. 19. The next issue that came up for our consideration from ground no.4 to 5.3 of revenue appeal is deletion of additions made towards estimation of interest on loans from M/s. Focus Computers and M/s. Rakesh Sarin & Sons. The Assessing Officer has made addition of Rs.2,40,000/- towards interest on loans form M/s. Focus Computers on the ground that when the assessee was not able to prove loan taken form said party, same has been treated as unexplained cash credit and added back to total income for the assessment year 2003-04. Since, the assessee has paid interest for the impugned assessment year on said loan, the Assessing Officer has disallowed and added back to total income. Similarly, the Assessing Officer has disallowed interest amounting to Rs.1,26,000/- in respect of sum of Rs.7 lakhs being difference in opening balance as per confirmation received from M/s. Rakesh Sarin & Sons and Mr. Rakesh. On appeal, the learned CIT(A) has deleted additions made by the Assessing Officer by holding that when no addition 26 ITA Nos.1736 to 1738/Chny/2013 was made towards loans, question of making addition of interest on said loan does not arise. 20. We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no clarity in the facts brought out by the Assessing Officer in respect of disallowance of loan from M/s. Focus Computers in assessment year 2003-04. Similarly, there is no clarity in respect of difference in loan claimed to have been received from M/s. Rakesh Sarin & Sons. Similarly, the learned CIT(A) has also deleted additions made by the Assessing Officer without recording any factual finding as to whether addition was made for said loan in assessment year 2003-04 or not. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer to ascertain correct facts with regard to loans taken from the above two parties and consequent interest paid for impugned assessment year. Hence, we set aside the issue to the file of the Assessing Officer and direct him to reconsider the issue afresh, after providing reasonable opportunity of hearing to the assessee. 27 ITA Nos.1736 to 1738/Chny/2013 21. In the result, appeal filed by the Revenue for assessment year 2005-06 is partly allowed for statistical purposes. ITA No.1738/Chny/2013 (A.Y. 2006-07): 22. The first issue that came up for our consideration from ground no. 2 to 2.4 of revenue appeal is deletion of disallowance made towards post production expenses amounting to Rs.21.86 lakhs in respect of feature film Mudhula Kodukku (Telugu). An identical issue has been considered by us in ITA No.1737/Chny/2013 for assessment year 2005-06. The reasons given by us in preceding paragraph No.15 shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue. 23. The next issue that came up for our consideration from ground no. 3 to 3.4 of revenue appeal is disallowance of post production expenses in respect of feature films Sivakasi (Tamil) and Ponniyin Selvan (Tamil) amounting to Rs.1,73,56,999/-.An identical issue has been considered by us in ITA No.1737/Chny/2013 for assessment year 2005-06. The 28 ITA Nos.1736 to 1738/Chny/2013 reasons given by us in preceding paragraph No.15, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue. 24. The next issue that came up for our consideration from ground no. 4 to 4.2 of revenue appeal is restriction of additions towards resale of set materials. An identical issue has been considered by us in ITA No.1737/Chny/2013 for assessment year 2005-06. The reasons given by us in preceding paragraph No.17, shall mutatis mutandis apply to this appeal, as well. Therefore, for similar reasons, we direct the Assessing Officer to estimate 5% of total cost incurred for set materials as income from resale of set materials. 25. The next issue that came up for our consideration from ground no. 5 to 5.3 of revenue appeal is deletion of additions made towards unsecured loans amounting to Rs.9.53 crores and consequent interest thereon at Rs.1.75 crores. The Assessing Officer has made addition towards unsecured loans and consequent interest thereon for want of evidence. 29 ITA Nos.1736 to 1738/Chny/2013 According to the Assessing Officer, although a specific show cause notice was issued calling upon for various details, the assessee has failed to file any evidence to prove identity of the party, genuineness of transaction and creditworthiness of parties, except objecting reopening of assessment. Therefore, the Assessing Officer has made addition towards unsecured loan for want of evidence. The learned CIT(A) has deleted additions made by the Assessing Officer by holding that the assessee has furnished statement of loans taken, addresses, PAN of creditors etc. along with return of income. 26. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no clarity on the issue of additions made towards unsecured loans in the assessment order. The Assessing Officer has simply stated that for want of evidences he has made additions. Similarly, the learned CIT(A) deleted additions by holding that the assessee has annexed details of loan taken from parties with their addresses and PAN, but such information is not emanating from return of income filed for relevant assessment years. Even before us, both the parties 30 ITA Nos.1736 to 1738/Chny/2013 failed to bring on record relevant materials to justify their claim. Therefore, we are of the considered view that this issue needs to go back to the file of the Assessing Officer for fresh consideration. Hence, we set aside the issue to the file of the Assessing Officer and direct him to reconsider the issue afresh in accordance with law, after providing reasonable opportunity of hearing to the assessee. 27. In the result, appeal filed by the revenue for assessment year 2006-07 is partly allowed for statistical purposes. 28. To sum up, appeal filed by the Revenue for assessment year 2004-05 is dismissed and that of assessment years 2005- 06 & 2006-07 are partly allowed for statistical purposes. Order pronounced in the open court on 5 th January, 2022 Sd/- Sd/- ( वी.द ु गा राव) ( जी. मंज ु नाथ) (V.Durga Rao) ( G.Manjunatha ) #या यक सद&य /Judicial Member लेखा सद&य / Accountant Member चे#नई/Chennai, )दनांक/Dated 5 th January, 2022 DS आदेश क त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आय ु .त (अपील)/CIT(A) 4. आयकर आय ु .त/CIT 5. ,वभागीय त न2ध/DR 6. गाड फाईल/GF.app