MEGA BOLLOYWOOD P.LTD, MUMBAI V. ACIT CEN CIR 21, MUMBAI

ITA 3377/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9965 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DARSHANI GOHILDR
• Section: 143(3); 28

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL DBENCH M UMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER & R AVISH SOOD, JUDICIAL MEMBER ./I.T.A./3377/MUM/2016, /ASSESSMENT YEAR: 2005-06 M/S. MEGA BOLLYWOOD PVT.LTD. THE PLAZA, 11 TH FLOOR, 55, GAMDEVI MUMBAI-400 007. PAN:AAACY 0507 D VS. DCIT-CENTRAL CIRCLE-3(3) 19 TH FLOOR, AIR INDIA BUILDING MUMBAI-400 021. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI DARSHANI GOHIL-DR ASSESSEE BY: SHRI PURUSHOTTAM KUMAR / DATE OF HEARING: 21/12//2017 / DATE OF PRONOUNCEMENT: 12/03/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA,AM - CHALLENGING THE ORDER DATED 29/04/2016 OF THE CIT(A )-51, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,A WORLD-RIGHT-CONTR OLLER OF VARIOUS FILMS AND FINANCER OF FILMS,FILED ITS RETURN OF INCOME ON 31/10/2005,DECL ARING LOSS OF RS.1.38 CRORES.THE ASSESS- ING OFFICER(AO)COMPLETED THE ASSESSMENT ON 19/12/20 07 U/S. 143(3) OF THE ACT,DETERMINING ITS INCOME AT RS.61.57 LAKHS. 2. IT WAS BROUGHT TO OUR NOTICE THAT THE MATTER HAS TR AVELLED TO THE TRIBUNAL FOR THE SECOND TIME, THAT IN THE FIRST ROUND OF LITIGATION THE ISSUE OF ADDITION OF RS. 2 CRORES TO THE INCOME OF THE ASSESSEE WAS RESTORED BACK TO THE FILE OF THE AO FO R FRESH ADJUDICATION BY THE TRIBUNAL (ITA/6180/MUM/08,DTD. 16.11.2009),THAT IN THE SECON D ROUND THE AO AGAIN ADDED THE SAME AMOUNT WHILE COMPLETING THE ASSESSMENT,THAT THE FAA CONFIRMED THE ADDITION,THAT THE AO ALSO INITIATED THE PENALTY PROCEEDINGS INVOKING THE PROVISIONS OF SECTION 271(1)(C)OF THE ACT,THAT HE LEVIED A PENALTY OF RS.73,18,500/- VID E HIS ORDER DATED 28/03/2014,THAT THE FAA UPHELD THE PENALTY ORDER OF THE AO,THAT IN THE QUAN TUM APPEAL THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION MAD E BY THE AO AND CONFIRMED BY THE FAA(ITA/2822/MUM/2012 DTD.26/08/2016). 3377/MUM/16 -M/S. MEGA BOLLYWOOD PVT.LTD. 2 3. AFTER CONSIDERING THE PARAGRAPH 8 OF THE SAID ORDER ,IT IS CLEAR THAT THE QUANTUM APPEAL STANDS DECIDED IN FAVOUR OF THE ASSESSEE.WE ARE REPRODUCIN G THE RELEVANT PARAGRAPH AND IT READS AS UNDER: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORDS AS PLACED BEFORE US INCLUDING THE ORDERS OF THE AUTHOR ITIES BELOW AND VARIOUS CIRCULARS AND DECISIONS RELIED BY THE LD COUNSEL OF THE ASSESSEE. THE ASSESSEE ENTERED INTO AN AGREEMENT OF FINANCING DATED 18.09.1999 WITH M/S BMB PRODUCTIONS FOR LENDING MONEY FOR THE PRODUCTION OF A FILM HUM TUMHARE HAIN SANAM WHICH WAS UNDER PRODUCTION AT THE TIME OF ADVANCING MONEY AND THE MONEY WAS ADVANCED ACCORDINGLY DURING THE VARIOUS STAGES OF PRODUCTION. COPY OF THE AGREEMENT IS PLACED AT PAGE 89 TO 100 O F THE PAPER BOOK. UPON PERUSAL OF THE SAID AGREEMENT IT IS CLEAR THAT THIS WAS AGREEMENT TO FI NANCE THE PRODUCTION OF FILM SPECIFYING THE VARIOUS TERMS AND CONDITIONS OF FINANCING, MODALITI ES OF REPAYMENT, AND SECURITY GIVEN TO SAFEGUARD THE MONEY LENT. CLAUSE NO. 1 PROVIDES FOR THE VARIOUS RIGHTS GIVEN TO THE ASSESSEE AS WORLDWIDE CONTROLLER SUCH AS SALE OF DISTRIBUTION R IGHTS INCLUDING COPYRIGHTS, RIGHT FOR EXPLOITATION OF FILM BY DISTRIBUTION, EXHIBITION IN CINEMA, TV, SATELLITE RIGHTS , VIDEO RIGHTS AND THERE SUCH AS DVD DUBBING ETC. CLAUSES NO 6 TO 9 PROVIDED FOR THE SHARING OF REVENUE BETWEEN THE ASSESSEE AND BMB PRODUCTIONS, RIGHTS AS WORLDWIDE CONTROLLER AND REPAYMENT AND SECURITY OF MONEY ADVANCED AND ALSO THE COURSE TO BE FOLLOWED IN THE EVENT OF DEFAULT IN HONOURING THE COMMITMENTS UNDER THE AGREEMENT. IT I S ABUNDANTLY CLEAR FROM THE ABOVE THAT THE RIGHTS WERE GIVEN TO THE ASSESSEE ONLY AS FINAN CER TO SECURE THE REPAYMENT OF MONEY ADVANCED BY SHARING THE REVENUE FROM THE FILM AS PR OVIDED IN THE CLAUSE 6 AND NO WHERE THE ASSESSEE WAS GIVEN EXCLUSIVE AND ABSOLUTE RIGHTS OF OWNERSHIP AND RIGHT TO RECEIVE THE 100 REVENUE FROM THE FILM. THUS ONE THING IS VERY CLEAR THAT THE ASSESSEE WAS NOT THE EXCLUSIVE AND ABSOLUTE OWNER OF THE RIGHTS BUT A MECHANISM WAS DE VISED TO MAKE THE REPAYMENT OF THE LOAN TAKEN FROM THE ASSESSEE. WE ALSO FIND THAT THE ASSE SSEE RECEIVED THE SHARE OF REVENUES FROM THE FILM AND ADJUSTED THE SAME TOWARDS THE ADVANCE RECOVERABLE. ON 8.11.2002 THE ASSESSEE GRANTED A LICENSE OF EXCLUSIVE NON STANDARD TELEVI SION AND PAY PER VIEW RIGHTS TO SET INDIA PVT. LTD. FOR A CONSIDERATION OF RS.2.20 CROR E UNDER TRIPARTITE AGREEMENT BETWEEN ASSESSEE, BMB PRODUCTIONS AND SET INDIA PVT LTD. TH E ENTIRE AMOUNT WAS OFFERED BY THE ASSESSEE TO TAXATION BY CREDITING THE INCOME IN THE PROFIT AND LOSS ACCOUNT AND WAS NOT CREDITED TO ADVANCE RECOVERABLE. AS ON 1.4.2004 THE ADVANCE OUTSTANDING WAS RS. 4,26,97,250/-. WHEN THE ADVANCE WAS NOT RECOVERED T HROUGH THE MODES AS MENTIONED IN THE AGREEMENT DATED 18.09.1999, THEN THE ASSESSEE PURCH ASED THE RIGHTS IN FILMS ON PERPETUAL BASIS FOR A CONSIDERATION OF RS. 2.00 ON THE BELIEF THAT IF THE CIRCUMSTANCES TURNS FAVOURABLE THE FILM MAY FETCH REVENUES IN FUTURE AND CHARGED THE SAME T O THE PROFIT AND LOSS ACCOUNT BUT VALUED THE STOCK AT NIL AT THE YEAR END. THE LD. AR SUBMIT TED THAT THERE WAS HARDLY ANY VALUE OF THE STOCK AND THUS SAME WAS VALUED AT NIL. WE ALSO FIND THAT IN THE SUBSEQUENT YEARS I.E A.Y. 2007-08 AND 2008-09 THE GOOD AMOUNT OF RECEIPTS/INC OMES WERE RECEIVED FROM DISTRIBUTION OF FILM AND ACCORDINGLY OFFERED FOR TAX IN THOSE YEAR. FROM THE ABOVE IT IS CLEAR THAT THE PAYMENT OF RS. 2.00 CR IS NOT A PRIOR PERIOD EXPENSES NOR T HE ASSESSEE WAS OWNER OF THE EXCLUSIVE RIGHTS OF THE FILMS IN TERMS OF AGREEMENT DATED 18. 09.1999 AND THEREFORE THE CONCLUSIONS AS DRAWN BY THE CIT(A) IS NOT CORRECT TO THIS EXTENT. FROM THE FACTS OF THE CASE IT IS CLEAR THAT THE ASSESSEE HAS PURCHASED THE RIGHTS IN AY 2005-06 FOR RS. 2.00 CR AS CORROBORATED BY THE FACT THAT IN THE ASSESSMENT YEARS 2007-08 AND 2008-09 TH E ASSESSEE RECEIVED INCOME FROM DISTRIBUTION OF FILMS AND OFFERED THE SAME TO THE I NCOME TAX. WE FIND MERIT IN THE ARGUMENT OF THE ASSESSEE THAT THE ADVANCE GIVEN TO BMB PRODUCTI ONS WAS A TRADING ADVANCE GIVEN IN THE ORDINARY COURSE OF BUSINESS AND THE SAME WAS AN ALL OWABLE BUSINESS LOSS IF WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND WE ARE NOT IN AGREEMENT WITH THE CIT(A) THAT THE WHOLE EXERCISE WAS UNDERTAKEN TO NEUTRALISE THE INCOME RS. 2.20 RECEIV ED FROM SET INDIA PVT LTD WHICH OFFERED TO TAX IN AY 2003-04. MOREOVER THE CASE OF THE ASSE SSEE IS ALSO SUPPORTED BY THE DECISIONS REFERRED AND RELIED BY THE LD AR.THE HON'BLE HIGH C OURT OF ANDHRA PRADESH IN THE CASE OF P. SATYANARAYANA V. COMMISSIONER OF INCOME-TAX (SUPRA) HAS HELD THAT WHERE A FILM DISTRIBUTOR ADVANCED CERTAIN AMOUNTS TO THE PRODUCER OF A FILM FOR THE PURPOSE OF PRODUCTION OF THE 3377/MUM/16 -M/S. MEGA BOLLYWOOD PVT.LTD. 3 MOTION PICTURE UNDER AN AGREEMENT WHICH PROVIDED FO R REALIZATION OF THE AMOUNT ADVANCED BY HIM AFTER EXHIBITION OF FILMS AND THE SAME COULD NO T BE REALIZED IN FULL OUT OF THE COLLECTIONS THROUGH EXHIBITION OF SUCH FILMS, AND BY AN AGREEME NT THE DISTRIBUTOR AGREES TO TAKE A PART OF THE AMOUNT FROM THE PRODUCER AND WRITES OFF THE BAL ANCE, THE LOSS ARISING TO THE DISTRIBUTOR THEREBY IS A TRADING LOSS INCURRED IN THE COURSE OF BUSINESS AND INCIDENTAL THERETO AND HENCE HE IS ENTITLED TO DEDUCTION UNDER S. 28 OF THE I.T. AC T, 1961. THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF COMMISSIONER OF INCOME-TAX V. SETHU A F ILM DISTRIBUTORS (SUPRA ) HAS HELD THAT THE TRIBUNAL'S FINDING THAT THE ASSESSEE HAD ADVANCED M ONEYS IN THE COURSE OF MONEY-LENDING BUSINESS WAS BASED ON VALID MATERIALS; (II) THAT ONCE IT WAS FOUND THAT THE ASSESSEE HAD B EEN ENGAGED IN THE COMMERCIAL BUSINESS ACTIVITY OF ADVANCING MONEYS TO VARIOUS PR ODUCERS, AS FILM FINANCIER, APART FROM THE BUSINESS OF DISTRIBUTION OF PICTURES, THE ADVANCES WERE SO GIVEN ONLY IN THE NATURE OF LENDING MONEYS FOR INTEREST AND THE LOSS, IF ANY, HAD OCCURRED INCIDENTALLY TO THE BUSINESS AND, THEREFORE, IT WAS ALLOWABLE AS BU SINESS LOSS. THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF COM MISSIONER OF INCOME-TAX V. CRESCENT FILMS (P.) LTD(SUPRA) HELD THAT, IN THE INSTANT CAS E, THE SUM OF RS. 7,50, 000 PAID BY THE DISTRIBUTOR WOULD HAVE BEEN LOST TO THE ASSESSEE, H AD THE PICTURE NOT BEEN COMPLETED. IN ORDER TO ENSURE THAT THE PICTURE WAS COMPLETED, THE ASSES SEE HAD AGREED TO LEND MONEY AND THAT LENDING WAS A SEPARATE TRANSACTION AND WAS NOT PART OF THE DISTRIBUTION ARRANGEMENT. THE MONEY SO LENT HAVING BECOME IRRECOVERABLE BY REASON OF THE PICTURE FAILING AT THE BOX OFFICE AND THE PRODUCER BEING UNABLE TO REPAY HIS DEBTS, T HE MONEY SO LOST TO THE ASSESSEE WAS RIGHTLY HELD BY THE COMMISSIONER AND THE TRIBUNAL TO BE A T RADING LOSS. THE HON'BLE SUPREME COURT IN THE CASE OF BADRIDAS D AGA V. COMMISSIONER OF INCOME(SUPRA) HELD THAT WHEN A CLAIM IS MADE FOR A DEDUCTION FOR WHICH THERE IS NO SPECIFIC PROVISION UNDER SECTION 10(2), WHETHER IT IS ADMISSIBLE OR NOT WILL DEPEND ON WHETHER, HAVING REGARD TO ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES , IT CAN BE SAID TO ARISE OUT OF THE CARRYING ON OF THE BUSINESS AND BE INCIDENTAL TO IT. THE LOS S FOR WHICH A DEDUCTION IS CLAIMED MUST BE ONE THAT SPRINGS DIRECTLY FROM THE CARRYING ON OF T HE BUSINESS AND IS INCIDENTAL TO IT, AND NOT ANY LOSS SUSTAINED BY THE ASSESSEE EVEN IF IT HAS S OME CONNECTION WITH HIS BUSINESS. IF THAT IS ESTABLISHED, THEN THE DEDUCTION MUST BE ALLOWED, PR OVIDED THAT THERE IS NO PROVISION AGAINST IT, EXPRESS OR IMPLIED, IN THE ACT. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF T. J. LALVANI V. COMMISSIONER OF INCOME-TAX HAS HELD THAT THE TRIBUNAL CONCLUSION THAT THE LOAN TRANSACTION WAS NOT IN THE COURSE OF THE ASSESSEE 'S BUSINESS WAS NOT CORRECT. THE TWO CIRCU MSTANCES MENTIONED BY THE TRIBUNAL WERE NOT SUFFICIENT TO WARRANT SUCH A CONCLUSION. THERE WAS, THEREFORE, NO EVIDENCE FOR THE FINDING RECORDED BY THE TRIBUNAL THAT THE LOSS IN QUESTION HAD NOT BEEN INCURRED BY THE ASSESSEE IN THE COURSE OF HIS BUSINESS SO AS TO BE DEDUCTIBLE UNDER THE PROVISIONS OF THE INDIAN INCOME-TAX ACT; AND IT IS NOT NECESSARY THAT IN ORDER THAT AN EXPENDITURE SHOULD BE IN CONNECTION WITH THE CARRYING OUT OF A BUSINESS OR INCIDENTAL TO IT, IT MUST BE NECESSARILY REFERABLE TO ANY SPECIFIC OR DIRECT TRANSACTION IN THE COURSE OF THE CARRYING ON OF THE BUSINESS. THE FINANCING BY THE ASSESSEE OF THE BUSINESS OF LOOKMANJI AND OF ALL IT S IMPORT OF GOODS ON LOOKMANJI'S LICENCES WAS AN ACTIVITY OF THE ASSESSEE IN THE COURSE OF HI S BUSINESS AND THE LOSS ARISING ON THE LOAN, THEREFORE, WAS A LOSS, WHICH HAD OCCURRED IN CONNEC TION WITH THE BUSINESS OF THE ASSESSEE AND INCIDENTAL TO IT AND WAS, THEREFRE, CLAIMABLE BY T HE ASSESSEE AS A DEDUCTION. THOUGH IT WAS DIFFICULT TO TREAT IT AS COMING UNDER SECTION 10(2) (XV), IT WAS CLAIMABLE BOTH AS A TRADING LOSS UNDER SECTION 10(1) OR AS A DEBT OF THE BUSINESS WH ICH HAD BECOME IRRECOVERABLE UNDER SECTION 10(2)(XI). CONSIDERING THE ABOVE,WE ARE OF THE OPINION,THAT TH E ORDER IMPOSING PENALTY U/S. 271 (1)(C)OF THE ACT WOULD NOT SURVIVE.EFFECTIVE GROUND OF APPEA L IS DECIDED IN FAVOUR OF THE ASSESSEE. 3377/MUM/16 -M/S. MEGA BOLLYWOOD PVT.LTD. 4 AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH,2018. 01 , 2018 SD/- SD/- ( (( ( /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 12.03.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR D BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.