M/s Padmalaya Telefilms Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle 13(1), Hyderabad

ITA 359/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69774 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVINDRA SAI
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business income; Depreciation; Opportunity of being heard; Bad and doubtful debts; Assessment record; Revised return; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 139(5); 147; 37; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 584/HYD/12 & 359/HYD/12 ASSESSMENT YEAR 2003-04 & 2007-08 M/S. PADMALAYA TELEFILMS LTD., -V- DCIT, CIR- 13(1), HYDERABAD. WARD-6(3), HYDERABAD. PAN: AABCP9095Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P.MURALIMOHAN RAO RESPONDENT BY SHRI RAVINDRA SAI DATE OF HEARING 26-06-2013 DATE OF PRONOUNCEMENT 13-09-2013 ORDER PER SAKTIJIT DEY, J.M: BOTH THESE APPEALS OF THE ASSESSEE ARE DIRECTED A GAINST SEPARATE ORDERS OF CIT PASSED U/S 263 OF THE ACT FOR THE ASS ESSMENT YEARS 2003-04 AND 2007-08. SINCE THESE APPEALS PERTAIN TO THE SAME ASSESSEE, THESE ARE TAKEN UP TOGETHER AND DISPOSED OF BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.359/HYD/12 ASSESSMENT YEAR 2007-08 :- 2. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PRODUCTION, SALE AND TELECAST OF TE LEFILMS, FILMS, 2D, 3D AND ANIMATION WORKS. FOR THE IMPUGNED ASSESS MENT YEAR 2 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. THE ASSESSEE FILED IS RETURN OF INCOME ON 31-10-200 7 DECLARING NET LOSS OF RS.36,81,65,294. THE ASSESSING OFFICE R COMPLETED THE ASSESSMENT VIDE ASSESSMENT ORDER DATED 31-`12- 2009 PASSED U/S 143(3) BY ASSESSING THE LOSS AT RS.18,71 ,41,160/-. THE CIT WHILE EXAMINING THE ASSESSMENT RECORDS IN EXERCISE OF POWER U/S 263 OF THE ACT FELT THAT THE ASSESSMENT O RDER PASSED WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF R EVENUE. HE THEREFORE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSE E ON 30-11- 2011 PROPOSING TO REVISE THE ASSESSMENT ORDER ON TH E FOLLOWING ISSUES:- (I) AS SEEN FROM PAGE-19 OF THE ANNUAL REPORT, PRO FIT AND LOSS ACCOUNT OF THE YEAR ENDING AS ON 31-3-2007 THE AMOUNTS TOWARDS BAD DEBTS AND ADVANCES WRITTEN OFF ARE CREATED AS A PROVISION TO THE EXTENT OF RS.65443 AN D RS.56494 (IN THOUSANDS). SINCE PROVISION MADE TOWA RDS BAD DEBTS AND ADVANCES WRITTEN OFF IS NOT AN ALLOWA BLE EXPENDITURE, THE ASSESSING OFFICER OUGHT TO HAVE DISALLOWED THE SAME. SINCE THE AMOUNTS ARE NOT WRI TTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE SAME ARE NOT ADMISSIBLE. (II) REPORT U/S 44AB HAS ALSO NOT BEEN BROUGHT ON R ECORD AND HENCE, NO ENQUIRY IS CONDUCTED INTO THE DISALLO WABLE AS PER AUDIT REPORT. 3. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE AUTHO RISED REPRESENTATIVE FOR THE ASSESSEE APPEARED AND SUBMIT TED THAT THE BAD DEBTS AND ADVANCES WRITTEN OFF ARE ALLOWABLE E XPENSES AS SUCH WRITE OFF WAS DONE AFTER RECEIVING AUTHORISATI ON BY WAY OF RESOLUTION PASSED BY THE AUDIT COMMITTEE. IT WAS F URTHER SUBMITTED THAT AT THE TIME OF ASSESSMENT PROCEEDING ALL THE 3 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. DETAILS WERE PRODUCED BEFORE THE ASSESSING OFFICER INCLUDING THE LIST OF PERSONS WHOSE ACCOUNTS WERE WRITTEN OFF. IT WAS SUBMITTED THAT SINCE THE ASSESSING OFFICER PASSED T HE ASSESSMENT ORDER AFTER CONSIDERING ALL THE DETAILS BROUGHT ON RECORD, THE PROCEEDING INITIATED U/S 263 NEEDS TO BE DROPPED. THE CIT ALSO CALLED UPON THE AUDITORS TO SUBMIT THE AUDIT REPORT . THE AUDITORS SUBMITTED THE P & L ACCOUNT AND THE BALANCE SHEET A S PER AUDIT REPORT U/S 44AB OF THE ACT. 4. THE CIT ON CONSIDERING THE PROVISIONS CONTAINED U/S 36(1)(VII) OF THE ACT WAS OF THE VIEW THAT ONLY TH OSE SUMS WHICH HAVE BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOU NTS OF THE ASSESSEE FOR THE RELEVANT PREVIOUS YEAR WOULD BE A LLOWABLE AS DEDUCTION. HOWEVER, THE ACCOUNTS WRITTEN OFF SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN TH E ACCOUNTS OF THE ASSESSEE. HE FURTHER REFERRING TO THE ANNUAL REPORT OF HE ASSESSEE FOR THE FINANCIAL YEAR 2006-07 NOTED THAT THE ASSESSEE HAS ONLY MADE A PROVISION FOR BAD DEBTS AND ADVANCE S WRITTEN OFF BUT THEY ARE NOT ACTUALLY WRITTEN OFF IN THE ACCOUN TS OF THE ASSESSEE. THIS IS ALSO FURTHER CONFIRMED IN ANNUA L REPORT UNDER THE COMPANIES LAW AS WELL AS AUDIT REPORT U/S 44AB OF THE ACT. HE FURTHER NOTED THAT DURING THE ASSESSMENT PROCEED INGS, THE ASSESSEE INSTEAD OF SUBMITTING THE CERTIFIED AUDIT REPORT AND AUDITED STATEMENT OF ACCOUNTS HAD SUBMITTED COMPU TERISED STATEMENTS AND ON THE BASIS OF THOSE STATEMENTS THE CLAIM MADE WAS WRONGLY ALLOWED BY THE ASSESSING OFFICER. T HE CIT FURTHER OBSERVED THAT THE ASSESSEE COULD NOT EXPLAIN BEFORE HIM AS TO HOW THE ANNUAL REPORT UNDER THE COMPANIES LAW AS WE LL AS IN THE STATEMENT PREPARED U/S 44AB OF THE ACT BY THE AUDIT ORS, THESE AMOUNTS HAVE NOT BEEN SHOWN AS WRITTEN OFF. HE TH EREFORE CONCLUDED THAT THE PRINT OUTS SUBMITTED BEFORE THE ASSESSING 4 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. OFFICER WERE NOT GENUINE DOCUMENT AND RELIEF GRANTE D BY THE ASSESSING OFFICER RENDERED THE ASSESSMENT ORDER ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE FUR THER NOTED THAT THE ASSESSEE HAS NOT REVISED THE AUDIT REPORT U/S 4 4AB OF THE ACT OR COMPANY LAW AUDITED U/S 44AB OF THE ACT TO SHOW THAT THE AMOUNTS IN DISPUTE WERE ACTUALLY WRITTEN OFF. ON T HE AFORESAID BASIS, THE CIT HELD THE ASSESSMENT ORDER PASSED T O BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF REVENUE AND ENHANCED HE ASSESSMENT BY ADDING THE AMOUNTS OF RS.5,64,42,802/ - AND RS.6,54,93,526/- BEING THE AMOUNTS WRITTEN OFF AS B AD DEBTS AND ADVANCES AND DETERMINED THE NET LOSS AT RS.6,52,04, 832. BEING AGGRIEVED OF THE ORDER PASSED U/S 263 OF THE ACT B Y THE CIT, THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING AS MANY AS 14 GROUNDS. 5. THE GROUNDS RAISED ARE NOT PRECISE AND ARGUMENTA TIVE. BE THAT AS IT MAY, THE LEARNED AUTHORISED REPRESENTATI VE FOR THE ASSESSEE REITERATING THE STAND TAKEN BEFORE THE CIT SUBMITTED BEFORE US THAT THE ASSESSING OFFICER WHILE COMPLETI NG THE ASSESSMENT ORDER U/S 143(3) OF THE ACT HAD EXAMINED ALL THE DETAILS PRODUCED BY THE ASSESSEE IN COURSE OF THE A SSESSMENT PROCEEDINGS WITH REGARD TO THE BAD DEBTS AND ADVANC ES WRITTEN OFF AND ONLY AFTER DUE APPLICATION OF MIND HE HAS P ASSED THE ASSESSMENT ORDER ALLOWING THE SAME. THE LEARNED AU THORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD ACTUALLY WRITTEN OFF THE BAD DEBTS AND ADVANCES IN ITS BOOKS OF ACCOUNTS AND AS SUCH THEY ARE ALLOWABLE AS EXPEND ITURE U/S 36(1)(VII) OF THE ACT. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, HAS SUBMITTED BEFORE US THAT THE AMOUNTS IN D ISPUTE WERE NOT ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS O F THE ASSESSEE. 5 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. HE SUBMITTED THAT AS PER ASSESSEES CLAIM THE AMOUN TS WERE WRITTEN OFF AS PER AUDIT COMMITTEE RESOLUTION WHICH CANNOT BE THE SAME AS ACTUALLY WRITING OFF IN ACCOUNTS OF THE DEB TORS IN THE BOOKS OF THE ASSESSEE. IT WAS FURTHER SUBMITTED B Y THE LEARNED DR THAT THE PROFIT AND LOSS A/C, BALANCE-SHEET AS PER 44AB TAX AUDIT REPORT, ANNUAL REPORT INDICATE THAT ONLY PROV ISION WAS MADE AND THESE WERE NOT ACTUALLY WRITTEN OFF IN THE ACCO UNTS. HE THEREFORE SUBMITTED THAT THE ASSESSING OFFICER COMM ITTED A GROSS ERROR BY ALLOWING THE CLAIM ONLY ON THE BASIS OF SO ME COMPUTER PRINT OUTS PRODUCED BEFORE HIM. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE PART IES AND PERUSED ORDERS OF THE REVENUE AUTHORITIES AS WELL A S MATERIAL ON RECORD. SECTION 36(1)(VII) OF THE ACT ALLOWS DEDUC TION OF BAD DEBTS IF IT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. HOWEVER, THE EXPLA NATION TO SECTION 36(1)(VII) OF THE ACT MAKES IT CLEAR THAT A NY BAD DEBTS OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE AC COUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR DOUBTF UL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE. AUDITED PROFIT & L OSS A/C FOR THE FINANCIAL YEAR 2006-07 RELEVANT TO THE ASSESSMENT Y EAR UNDER DISPUTE SHOWS THE AMOUNTS OF RS.6,54,93,526/- AND RS.5,64,42,802 AS PROVISION FOR BAD DEBTS AND ADVAN CES WRITTEN OFF RESPECTIVELY. THEREFORE, CONSIDERED IN THE CON TEXT OF THE PROVISION CONTAINED U/S 36(1)(VII) OF THE ACT IF TH E BAD DEBTS AND ADVANCES WRITTEN OFF ARE ONLY PROVISIONS BUT ARE NO T ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS THEN NO DEDUCT ION CAN BE ALLOWED. HOWEVER, IT IS THE CONTENTION OF THE LEAR NED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE BAD DEBTS AND ADVANCES ARE ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE AFORESAID SUBMISSIONS OF THE PARTIES , WE REMIT THE 6 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WH O SHALL VERIFY WHETHER THE BAD DEBTS AND ADVANCES WERE ACTUALLY WR ITTEN OFF IN THE ACCOUNTS OF THE DEBTORS APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IF ON VERIFICATION, IT IS FOUND TO B E ACTUALLY WRITTEN OFF AND IT IS NOT SIMPLY A PROVISION MADE THEN THE DEDUCTION U/S 36(1)(VII) CAN BE ALLOWED. 8. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.584/HYD/12 ASSESSMENT YEAR 2003-04 :- 9. BRIEFLY, THE FACTS ARE, A SURVEY OPERATION U/S 1 33A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSES SEE ON 22-8- 2003. DURING SURVEY OPERATION, CERTAIN INCRIMINATIN G MATERIAL WAS FOUND AND IMPOUNDED. SUBSEQUENT TO THE SURVEY OPER ATION THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGN ED ASSESSMENT YEAR 2003-04 ON 1-12-2003 DECLARING A TOTAL INCOME OF RS.15,53,62,001/-. THE RETURN WAS INITIALLY PROCES SED U/S 143(1) OF THE ACT ON 28-4-2004. HOWEVER, SUBSEQUENTLY DU RING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED A REVISED RETURN DECLARING INCOME OF RS.4,02,01,747/-. THE A SSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 29-3-2006 DE TERMINING THE TOTAL INCOME AT RS.20,49,50,000/-. THE ASSESSE E THEREAFTER FILED A PETITION U/S 154 OF THE ACT BEFORE THE ASSE SSING OFFICER CONTENDING THAT THE CLAIMS MADE IN THE REVISED RETU RN WERE NOT CONSIDERED BY THE ASSESSING OFFICER WHILE COMPLETIN G THE ASSESSMENT U/S 143(3) OF THE ACT. THE ASSESSING O FFICER HOWEVER REJECTED THE APPLICATION MADE U/S 154 OF TH E ACT BY OBSERVING THAT ALL CLAIMS MADE BY THE ASSESSEE HAVE BEEN DULY CONSIDERED. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER PASSED BEFORE THE CIT(A). 7 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. 10. THE CIT(A) HAVING CONFIRMED THE ASSESSMENT MADE , THE ASSESSEE PREFERRED AN APPEAL BEFORE INCOME-TAX APPE LLATE TRIBUNAL. BEFORE THE TRIBUNAL, THE ASSESSEE RAISED SPECIFIC GROUNDS WITH REGARD TO NON CONSIDERATION OF CLAIM M ADE TOWARDS DEDUCTION ON ACCOUNT OF REDUNDANT ANIMATION PROJECT S WIP AND REDUNDANT SOFTWARE WIP AMOUNTING TO RS.2,48,83,969/ - AND RS.2,49,09,786 RESPECTIVELY. THE INCOME-TAX APPELL ATE TRIBUNAL IN ITA NOS. 783 AND 784/HYD/2012 DATED 11-7-2008 IN ACCEPTING THE CONTENTIONS OF THE ASSESSEE THAT THE CLAIM MADE IN THE REVISED RETURN TOWARDS CLAIMING THE AFORESAID DEDUC TIONS HAVE NOT AT ALL BEEN CONSIDERED BY THE ASSESSING OFFICER WHI LE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT REMITTED THE M ATTER BACK TO THE FILE OF THE AO. 11. PURSUANT TO THE DIRECTION OF THE INCOME-TAX APP ELLATE TRIBUNAL AS AFORESAID THE ASSESSING OFFICER AGAIN T OOK UP ASSESSMENT PROCEEDINGS. IN COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THERE IS DIFFER ENCE BETWEEN THE DEDUCTIONS CLAIMED IN THE REVISED RETURN AND THE F IGURE SUBMITTED BEFORE THE INCOME-TAX APPELLATE TRIBUNAL, ASKED THE ASSESSEE TO RECONCILE THE DIFFERENCE. AFTER CONSIDERING THE SU BMISSIONS OF THE ASSESSEE IN THIS REGARD, THE ASSESSING OFFICER OBSE RVED THAT THE AMOUNT OF RS.4,08,49,962/- AND CLAIMED UNDER THE R EPAIRS AND REPLACEMENTS RELATING TO COMPUTER HARDWARE AND SOF TWARE. IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT THIS AMOUNT HAS BEEN CAPITALISED AND DEPRECIATION ALLOWED. HEN CE, THE ASSESSEE IS NOT ENTITLED TO RE-ALLOCATE THE SAME AM OUNT TO OTHER HEADS AND CLAIM DEDUCTION AGAIN. HENCE, HE WAS OF THE VIEW THAT THE DEDUCTION TO THE EXTENT OF AMOUNTS CLAIMED IN THE REVISED RETURN IS ONLY REQUIRED TO BE CONSIDERED IN THE 8 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. REASSESSMENT PROCEEDINGS AS PER THE DIRECTION OF TH E INCOME-TAX APPELLATE TRIBUNAL. 12. SO FAR AS THE DEDUCTION CLAIMED TOWARDS REDUND ANT ANIMATION PROJECTS WIP AND REDUNDANT SOFTWARE WIP, THE ASSESSING OFFICER NOTED THE CONTENTION OF THE ASSES SEE TO THE EFFECT THAT THE COMPANY HAD STARTED ANIMATION PROJE CTS IN 2D WITH THE INTENTION TO ENTRUSTING THE RIGHTS FOR CERTAIN PERIOD OR TELECAST ON THEIR OWN IN TELEVISION CHANNELS INTERNATIONALLY IN ALL THE LANGUAGES. HOWEVER, AFTER PRODUCING SOME EPISODES, THE PROJECTS COULD NOT BE CONTINUED FOR WANT OF PROPER RESPONSE FROM THE CHANNELS. EVEN THE PRODUCED EPISODES COULD NOT BE TELECASTED TO FINANCIAL IMPLICATIONS. IN VIEW OF THE ABOVE, THES E PROJECTS HAVE BEEN ABANDONED. AS THE EXPENDITURE INCURRED ON THE SE PROJECTS IS IN THE NATURE OF PRODUCTION EXPENSES AND THE SAM E IS TO BE CLAIMED DURING THE YEAR IN WHICH THESE EPISODES HAV E BEEN TELECASTED. SINCE THESE PROJECT S HAVE BEEN ABANDON ED, THE EXPENDITURE WHICH IS IN THE NATURE OF PRODUCTION EX PENSES IS CLAIMED U/S 37 OF THE ACT DURING THE YEAR IN WHICH THESE AMOUNTS HAVE BEEN RESOLVED TO BE WRITTEN OFF. IT WAS FURTH ER CONTENDED BY THE ASSESSEE THAT THE DEDUCTION OF THESE AMOUNTS WE RE CLAIMED IN REVISED RETURN IN VIEW OF THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS TO WRITE OFF THESE AMOUNTS DURING THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. THE ASSES SING OFFICER HOWEVER NOTICING THAT THESE AMOUNTS WERE NOT ACTUAL LY WRITTEN OFF AND DEBITED TO PROFIT J& LOSS A/C DURING THE PREVIO US YEAR RELEVANT TO THE ASSESSMENT YEAR BUT HAS BEEN WRITTEN OFF AND DEBITED TO THE PROFIT & LOSS A/C DURING THE YEAR 2004-05 ASKED THE ASSESSEE TO EXPLAIN. 13. THE ASSESSEE IN ITS REPLY SUBMITTED THAT THES E AMOUNTS HAVE BEEN WRITTEN OFF AS THE PROJECTS WERE NOT VIA BLE. THE 9 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. BOARD OF THE DIRECTORS OF THE COMPANY HAD TAKEN A D ECISION AFTER CAREFUL STUDY ABOUT THE FEASIBILITY OF THE PROJECTS . THE BOARD HAS PASSED A RESOLUTION TO THIS EFFECT IN THEIR MEETING HELD ON 30 TH JANUARY, 2003. ALL THE ENTRIES IN THE BOOKS OF A CCOUNTS IN THE FINANCIAL YEAR 2002-03 ARE PASSED ON 31-3-2003. HO WEVER, AT THE TIME OF FILING THE RETURN OF INCOME ORIGINALLY MIST AKENLY THE DEDUCTION WAS NOT CLAIMED. DUE TO THESE REASONS, T HE REVISED RETURN OF INCOME WAS FILED CLAIMING THE DEDUCTION. IN RESPECT OF REDUNDANT SOFTWARE WIP ALSO, SIMILAR EXPLANATION WA S OFFERED BY THE ASSESSEE. THE ASSESSING OFFICER AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE DEDUCTION C LAIMED TOWARDS REDUNDANT ANIMATION PROJECTS WIP AND REDUND ANT SOFTWARE WIP AMOUNTING TO RS.2,48,83,969/- AND RS.2 ,49,09,786 RESPECTIVELY AND COMPLETED HE ASSESSMENT ACCORDINGL Y. 14. THE CIT IN EXERCISE OF HIS POWERS U/S 263 WHIL E EXAMINING THE ASSESSMENT RECORDS OF THE IMPUGNED ASSESSMENT Y EAR FELT THAT THE ASSESSMENT ORDER DATED 31-12-2009 PASSED U/S 143(3) READ WITH SECTION 254 OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ISSUED A SHOW CAUSE NOTICE AS UNDER: THE ASSESSMENT WAS REDONE AS THE SAME WAS SET ASID E BY THE HON'BLE ITAT. THE HON'BLE TRIBUNAL HAS ONLY ORDERED THAT THE AO SHOULD CONSID ER THE CASE OF ASSESSEE ON MERITS AND ACCORDINGLY SET ASIDE THE ASSESSMENT TO BE REDONE IN ACCORDANCE WITH LAW. THE AO WHILE COMPLETING THE ASSESSMENT HAS ALLOWED THE CLAIM OF THE ASSESSEE WITH REGARD TO THE ISSUE OF REDUNDANT ANIM ATION PROJECTS WIP. IT IS STATED THAT THE PROJECT DID NOT SEE THE LIGHT OF THE DAY. IT IS SUBMITTED THAT THE EXPENDITURE RELATING TO THE ABAN DONED PROJECTS WERE NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT AND SEPA RATE SET OF ACCOUNTS ARE STATED TO HAVE BEEN MAINTAINED. HOWEVER, THE ASSESS EE HAS NOT SHOWN ANY BUSINESS INCOME ON THE ABANDONED PROJECTS NOR T HE ASSESSEE HAS OFFERED ANY REALIZATION OF SCRAP VALUE. HENCE, THE EXPENDITURE OF RS. 2,48,83,969/- CLAIMED U/S 37 SHOULD HAVE BEEN DISALLOWED AS CAPITAL / CAPITAL WORK IN PROGRESS. 10 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. ON SIMILAR GROUNDS AS STATED ABOVE, THE ASSESSEE HA S CLAIMED RS.2,49,09,786/- TOWARDS REDUNDANT SOFTWARE WIP. TH E SAME NEEDS BE DISALLOWED AND IS REQUIRED TO BE TREATED AS CAPI TAL/CAPITAL WORK PROGRESS AS THE CASE MAY BE. ACCORDING TO COMPANY LAW, THE ANNUAL REPORT HAS BEE N PREPARED A SUBMITTED TO REGISTRAR OF COMPANIES. THE ENTRIES RE LATING TO WRITING OFF CERTAIN ADVANCES, WORK IN PROGRESS, BAD DEBTS ETC., COULD NOT HAVE BE MADE RETROSPECTIVELY IN THE BOOKS OF THE COMPANY. H ENCE, THE EXPENDITURES / DEDUCTION COULD NOT HAVE BEEN ALSO CLAIMED FOR THE INCOME- TAX PURPOSES. THIS ASPECT HAS BEEN OVERLOOKED BY TH E ASSESSING OFFICER. FURTHER, THE LETTER OF SRI G V. NARASIMHA RAO, EXECUTIVE DIRECTOR STA. THAT THESE EXPENDITURES WERE WRITTEN OFF IN THE NEX T YEAR (COPY OF THE LET ENCLOSED HEREWITH). THIS IS IN CONTRADICTION TO THE STATEMENT OF 1 ASSESSEE IN HIS LETTER DATED 11.12.2009. GIVEN THESE FACTS, THERE WAS CASE TO ALLOW THE ABOVE SUMS. AUDIT WAS COMPLETED U/ S. 44AB AND REPORT SUBMITTED FROM N. G. RAO ASSOCIATES. THIS REPORT DOES NOT SPEAK OF ANY WRITE OFF ON ACCOUNT OF B DEBTS / ADVANCES OR WRITE OFF UNDER THE HEADS REDUNDANT ANIMATION PROJECTS WIP AND REDUNDANT SOFTWARE WIP. GIVEN THE ABOVE SITUATION, THE ENTIRE DEDUCTION CLAIMED TO THE EXTENT OF RS.2.48 C RORES AND RS.2.49 CRORES OUGHT TO HAVE BEEN DISALLOWED BY THE AO AS THEY ARE NOT ADMISSIBLE MERITS. SINCE THE RELIEF GRANTED UNDER THE ABOVE TWO HEADS IS NOT IN ACCORDANCE WITH LAW, THE ORDER OF THE AO IS PREJUDICIAL AS WEL L AS ERRONEOUS TO T INTERESTS OF REVENUE. HENCE, IT IS PROPOSED TO SET ASIDE OR ENHANCE THE ASSESSMENT U/S 263 OF THE I T ACT, 1961. 14. THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOT ICE ISSUED BY THE CIT SUBMITTED THAT IN THE ORIGINAL ASSESSMEN T, THE ASSESSING OFFICER AFTER MAKING NECESSARY ENQUIRY AN D CONSIDERING THE ISSUE BY PROPER APPLICATION OF MIND HAS ALLOWED THE EXPENDITURE, HENCE, ASSESSMENT ORDER CANNOT BE SAID TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE . IT WAS SUBMITTED THAT SINCE THE ASSESSING OFFICER HAS TAKE N ONE OUT OF THE TWO POSSIBLE VIEWS, THE CIT SHOULD NOT HAVE RE VISED THE ASSESSMENT ORDER U/S 263 OF THE ACT. IN THIS CONTE XT, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE RELIED U PON THE DECISION OF HONBLE SUPREME COURT IN CASE OF MALABA R INDUSTRIAL 11 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. COMPANY LTD. (243 ITR 83). IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT AS PER THE ORDER PASSED /S 154 OF THE ACT ON 25-9-2006 BY THE ASSESS ING OFFICER, THE MATTER WAS CONSIDERED IN THE ORIGINAL ASSESSMEN T ITSELF. HE FURTHER POINTED OUT THAT THE TRIBUNAL HAD ASKED THE ASSESSING OFFICER TO RE-EXAMINE THE ISSUE, HENCE THE ORDER PA SSED IN COMPLIANCE TO THE DIRECTIONS OF THE TRIBUNAL CANNOT BE SUBJECTED TO PROCEEDINGS U/S 263 OF THE ACT. IT WAS FURTHER CONTENDED THAT THE EXPENDITURES IN DISPUTE WERE CLAIMED UNDER THE HEAD PRODUCTION EXPENDITURE AND SHOULD HAVE BEEN DEALT WITH AS PRODUCTION EXPENDITURE WHICH IS COVERED BY THE EARL IER ORDER OF THE TRIBUNAL WHEREIN THE TRIBUNAL HAS OBSERVED THAT ONLY 0.5% OF THE EXPENSES CAN BE DISALLOWED. IN SUM AND SUBSTAN CE THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE EXPENDITURE IN QUESTION HAVING BEEN ALLOWED BY THE ASSESSING OFFICER AFTER PROPER APPLICATION OF MIND, SHOULD N OT BE SUBJECTED TO PROCEEDINGS U/S 263 OF THE ACT AS NO OTHER ADDI TIONAL INFORMATION IS BROUGHT ON RECORD. 15. THE CIT AFTER CONSIDERING THE SUBMISSIONS OF T HE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE WAS OF T HE VIEW THAT THEY ARE NOT TENABLE. THE CIT OBSERVED THAT THE ASS ESSMENT ORDER CLEARLY SHOWS THAT THE ASSESSING OFFICER SHOULD NOT HAVE ALLOWED THE EXPENDITURE CLAIM UNDER REDUNDANT ANIMATION PRO JECTS WIP AND REDUNDANT SOFTWARE WIP IN THE IMPUGNED ASSESSME NT YEAR AS THESE EXPENDERS WERE WRITTEN OFF IN THE SUBSEQUENT FINANCIAL YEAR AND THEY WERE NEVER WRITTEN OFF AND DEBITED TO THE P & L A/C IN THE IMPUGNED ASSESSMENT YEAR. THE CIT FURTHER HE LD THAT THE EXPENDITURE CLAIMED IS CAPITAL IN NATURE AS THEY AR E EXPENDED IN NEW PROJECTS. THE ASSESSEE NEVER DEBITED THEM IN P ROFIT & LOSS A/C AND HENCE THEY ARE NOT ADMISSIBLE EVEN IF IT IS ASSUMED THAT 12 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. THEY WERE CLAIMED IN THE YEAR UNDER CONSIDERATION. THE CIT WAS OF THE VIEW SINCE THE ASSESSING OFFICER HAS NEVER E XAMINED THE TRUE NATURE OF THE EXPENDITURE CLAIM I.E., WHETHER CAPITAL OR REVENUE, THERE IS PREJUDICE IN THE ORDER OF THE ASS ESSING OFFICER. IN THIS CONTEXT, THE CIT RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF DALMIA PVT. LTD., IN WRIT PET ITION CIVIL NO.6205 OF 2010 DATED 26-9-2011 AND CIT VS. ADDL. C IT VS. M/S. NAMDARI SEEDS IN ITA NOS. 1282/2006 (KARNATAKA HIGH COURT 2011-TIOL-876-HC-KAR-IT. HE FURTHER HELD THAT O NCE THE REPORT U/S 44AB ALONG WITH STATEMENT AND ANNUAL REP ORT UNDER COMPANY LAW ARE FILED, THEY ARE TO BE TAKEN AS CORR ECT AND GENUINE AND THERE IS NO SCOPE TO WRITE OFF RETROSPE CTIVELY IGNORING THESE DOCUMENTS AND FRESH CLAIMS MADE BEFORE THE AS SESSING OFFICER. MOREOVER, BY CHANGING OPINION CLAIMS CANN OT BE MADE IN THE REVISED RETURN AND ONLY WHEN THERE IS OMISSION OR FAILURE AND THAT TOO WHICH IS BONAFIDE IN NATURE A CLAIM CAN BE MADE THROUGH REVISED RETURN WHICH CAN BE ENTERTAINED BY THE ASSE SSING OFFICER. HE FURTHER OBSERVED THAT REVISED RETURN CANNOT BE V ALID IF IT IS BEYOND THE TIME LIMIT PRESCRIBED U/S 139(5). HE FU RTHER OBSERVED THAT SINCE THE INCOME-TAX APPELLATE TRIBUNAL DIRECT ED THAT THE CLAIM SHOULD BE DECIDED IN ACCORDANCE WITH LAW, THE ASSESSING OFFICER SHOULD NOT HAVE IGNORED THE PROVISIONS UNDE R SECTION 139(5) AND ALLOWED THE RELIEF. THE CIT FURTHER HE LD THAT THE CLAIM MADE BY THE ASSESSEE THAT ONLY 0.5% FROM THE PRODUCTION EXPENDITURE SHOULD HAVE BEEN DISALLOWED AS PER THE DIRECTION OF THE TRIBUNAL IS ALSO TENABLE AS THE TRIBUNAL HAS NO T ISSUED ANY SUCH DIRECTION WITH REGARD TO REDUNDANT ANIMATION PROJECTS WIP AND REDUNDANT SOFTWARE WIP. 16. THE CIT FURTHER OBSERVED THAT THE ASSESSING O FFICER HAS OBTAINED CONFIRMED AUDIT REPORTS FILED UNDER THE C OMPANY LAW 13 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. FROM THE REGISTRAR OF COMPANIES AND PLACED THEM ON RECORD AND THESE EXPENDITURES/DEDUCTIONS ARE NOT WRITTEN OFF, NO REVISED AUDIT REPORTS ARE EVER FILED. HE FURTHER OBSERVED THAT THE CLAIMS MADE THROUGH REVISED RETURNS ARE NOT ADMISSIBLE U /S 139(5) AND AS THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO CONSIDER THE CASE ON MERITS AND IN ACCORDANCE WITH LAW, THERE IS NO REASON WHY THE ASSESSING OFFICER SHOULD HAVE ALLOWED THE E XPENDITURE CLAMED AS THEY ARE PURELY IN THE NATURE OF CAPITAL EXPENDITURE. THE CIT FURTHER OBSERVED THAT THE ENTIRE EXERCISE WAS DONE ONLY BECAUSE THERE WERE HUGE LOSSES IN ASSESSMENT YEAR 2 004-05 AND THERE WAS NO SAVING OF TAX IN THAT YEAR. THE CAPIT AL EXPENDITURE IS SOUGHT TO BE CLAIMED AS REVENUE EXPENDITURE BY S HIFTING BACKWARDS TO EARLIER YEAR 2003-04 WHEREIN THERE WAS POSITIVE INCOME MERELY TO CLAIM HUGE REFUND OF OVER 2 CRORES . THE CIT FURTHER HELD THAT WHEN THE ASSESSEE AGREED TO THE A SSESSMENT AND DID NOT PREFER APPEAL BEFORE THE CIT (A) IN THE FIRST ROUND, IT COULD NOT HAVE PREFERRED APPEAL BEFORE THE TRIBUNAL BY FILING ADDITIONAL GROUND ON FACTUAL ISSUES. THE DEPARTMEN T HAS THEREFORE FILED MISC. APPLICATION BEFORE THE TRIBUN AL SEEKING RECTIFICATION OF THE APPEAL ORDER. THE CIT FINALLY CAME TO A CONCLUSION THAT THE EXPENDITURE CLAIM ALLOWED BEING IN THE NATURE OF CAPITAL EXPENDITURE IS NOT ALLOWABLE AND BY ALLO WING SUCH EXPENDITURE, THE ASSESSMENT ORDER PASSED IS ERRONEO US AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE CIT THEREFORE ENHANCED THE INCOME DETERMINED BY THE ASSESSING OFF ICER BY AN AMOUNT OF RS.4,97,93,755/- AND DETERMINED THE TOTAL INCOME AT RS.22,01,13,585. THE ASSESSEE BEING AGGRIEVED OF S UCH ORDER PREFERRED AN APPEAL BEFORE US. 14 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. 17. AT THE TIME OF HEARING OF APPEAL, THE ASSESSEE MOVED A PETITION SEEKING PERMISSION TO RAISE THE FOLLOWING ADDITIONAL GROUNDS:- 12. THE LD. CIT-I, HYDERABAD ERRED IN PASSING THE ORDE R U/S 263 ON 7-3-2012 WITHOUT APPRECIATING THAT THE COMMISSIONER IS HAVING NO JURISDICTION U/S 263 OF T HE ACT TO REVISE AN ASSESSMENT ORDER WHICH HAS BEEN SUBJEC T- MATTER OF APPEAL BEFORE CIT (A). 13. THE LD. CIT-I, HYDERABAD OUGHT TO HAVE APPRECIA TED THAT THE TIME LIMIT FOR FILING OF RETURN OF INCOME U/S 139(5) IS NOT APPLICABLE FOR THE RETURN F INCOME FILED IN RESPONSE TO NOTICE U/S 148. 14. THE LD CIT-I, HYDERABAD 3ERRED IN PLACING CERTA IN PARAS IN HIS ORDER ON RECORD WHICH ARE UNWARRANTED AND WHICH MAY PLEASE BE DELETED. 15. THE ASSESSEE MAY ADD, ALTER OR MODIFY OR SUBSTI TUTE ANY OTHER POINTS TO THE GROUNDS OF APPEAL AT ANY TI ME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 18. GROUND NO.15 IS GENERAL IN NATURE, HENCE NO A DJUDICATION IS REQUIRED. 19. IN GROUND NO.14, THE ASSESSEE HAS ASSAILED CERT AIN OBSERVATIONS MADE BY THE CIT IN HIS ORDER WHICH ACC ORDING TO THE ASSESSEE IS UNWARRANTED AND SOUGHT FOR DELETING THE SAME. SINCE THE ISSUE RAISED IN THE AFORESAID GROUND IS NOT NEC ESSARY AND RELEVANT FOR ADJUDICATING THE ISSUE IN DISPUTE, THE RE IS NO NEED TO DECIDE THE AFORESAID GROUND AND ACCORDINGLY WE DISM ISS THE SAME. 15 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. 20. IN GROUND NO.12, THE ASSESSEE HAS RAISED A LEGA L ISSUE WITH REGARD TO THE FACT THAT SINCE THE CIT (A) HAS ISSU ED A NOTICE FOR ENHANCEMENT ON THE IDENTICAL ISSUE ON WHICH THE CI T HAS INVOKED THE JURISDICTION U/S 263 OF THE ACT CAN BE INVOKED WHICH IS SUBJECT MATTER OF APPEAL. HOWEVER, THE AFORESAID CONTENTIO N OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE IS NOT ACCEPTABLE. ON A PERUSAL OF FACTS ON RECORD, WE F IND THAT THOUGH THE CIT (A) HAS ISSUED A SHOW CAUSE NOTICE FOR ENHA NCEMENT OF INCOME IN RESPECT OF DEDUCTION CLAIMED WITH REGARD TO REDUNDANT ANIMATION PROJECTS WIP AND REDUNDANT SOFTWARE WIP A MOUNTING TO RS.2,48,83,969/- AND RS.2,49,09,786, BUT THE SAM E WAS NOT DECIDED BY THE CIT (A) WHEN THE CIT INVOKED JURIS DICTION U/S 263 AND FINALLY PASSED THE ORDER. IN THAT VIEW OF THE MATTER, THE CIT WAS COMPETENT TO INVOKE THE JURISDICTION U/S 26 3 OF THE ACT. THE RESTRICTION FOR INVOKING THE JURISDICTION U/S 263 OF THE ACT WOULD ONLY APPLY TO SUCH ISSUES WHICH WERE SUBJECT MATTER OF APPEAL BEFORE THE CIT (A) AND DECIDED IN APPEAL OR DER. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THE ISSUE IN DISPUTE WAS DECIDED BY THE CIT (A) BEF ORE THE REVISION ORDER WAS PASSED. IN AFORESAID VIEW OF TH E MATTER, THE GROUND RAISED CANNOT BE ENTERTAINED AND ACCORDINGLY DISMISSED. 21. THE ISSUE RAISED IN GROUND NO.13, SINCE THE SAM E S INTERRELATED TO THE MAIN GROUNDS RAISED, IT WILL BE DEALT WITH WHILE DECIDING THE MAIN GROUNDS. 22. NOW REVERTING BACK TO THE MERITS OF THE ADDITIO N MADE BY THE CIT IT IS TO BE SEEN FROM PERUSAL OF THE ORDER PASSED BY HIM THAT, HE HAS CONSIDERED THE ASSESSMENT ORDER PASSED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE ON THE GROUND THAT THE ASSESSING OFFICER HAS ALLOWED THE D EDUCTION CLAIMED IN THE REVISED RETURN IN RESPECT OF REDUNDA NT ANIMATION 16 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. PROJECTS WIP AND REDUNDANT SOFTWARE WIP WHILE COMPL ETING THE ASSESSMENT U/S 143(3) OF THE ACT. ACCORDING TO THE CIT THE EXPENDITURE SHOULD NOT HAVE BEEN ALLOWED BY THE ASS ESSING OFFICER AS THEY ARE IN THE NATURE OF CAPITAL EXPEND ITURE. IN THIS CONTEXT, WE HAVE TO OBSERVE THAT WHEN THE APPEAL AR ISING OUT OF THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT CAME UP FOR CONSIDERATION BEFORE THE INCOME-TAX APPELLAT E TRIBUNAL IN ITA NOS. 783 AND 784/HYD/2007 RELATING TO ASSESSMEN T YEARS 2003-04 AND 2004-05 THE ASSESSEE RAISED ADDITIONAL GROUND RELATING TO THE DEDUCTION CLAIMED IN THE REVISED R ETURN IN RESPECT OF REDUNDANT ANIMATION PROJECTS WIP AND REDUNDANT S OFTWARE WIP. THE TRIBUNAL AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSI NG OFFICER WITH THE FOLLOWING OBSERVATIONS: 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR TH E ASSESSEE THAT THE ASSESSEE HAS DULY MADE THE AFORESAID CLAIM S THROUGH THE REVISED RETURN. HOWEVER, THE ASSESSING OFFICER WITHOUT DISCUSSING THE SAME, HAS PASSED THE IMPUGNE D ASSESSMENT ORDER, THOUGH HE HAS MENTIONED IN THE OR DER U/S 154 DATED 25 TH SEPT. 2006 THAT THE ABOVE CLAIMS HAVE BEEN DULY CONSIDERED DURING THE ASSESSMENT PROCEEDI NGS. IN THE ISSUES, WE ARE OF THE VIEW THAT IN THE INTER ESTS OF JUSTICE, THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT, AND RESTORE THESE ISSUES TO THE FILE OF THE ASSESSING O FFICER WHO SHALL DECIDE THE SAME AFRESH AND ACCORDING TO LAW A FTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ACCORDINGLY THE GROUNDS TAKEN BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE S. 17 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. 23. IN THE REASSESSMENT PROCEEDINGS IN COMPLIANCE T O THE DIRECTIONS OF THE INCOME-TAX APPELLATE TRIBUNAL, TH E ASSESSING OFFICER TOOK UP THE ISSUES WITH REGARD TO CLAIM MAD E IN THE REVISED RETURN IN RESPECT OF REDUNDANT ANIMATION PR OJECTS WIP AND REDUNDANT SOFTWARE WIP AND MADE NECESSARY ENQU IRY WITH THE ASSESSEE. A PERUSAL OF THE ASSESSMENT ORDER D ATED 31-12- 2009 PASSED U/S 143(3) READ WITH SECTION 254 OF THE ACT WOULD CLEARLY REVEAL THE FACT THAT THE ASSESSING OFFICER HAS DULY CONSIDERED THE ISSUES WITH REGARD TO REDUNDANT ANI MATION PROJECTS WIP AND REDUNDANT SOFTWARE WIP BY ELABORAT ELY DISCUSSING THE ISSUE IN ASSESSMENT ORDER. ONLY AFTE R CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND THOROUGHL Y APPLYING HIS MIND TO THE FACTS ON RECORD, HE HAS ALLOWED THE CLAIM OF THE ASSESSEE BY TREATING THEM AS REVENUE EXPENDITURE. THE CIT THEREFORE IS NOT JUSTIFIED IN HOLDING THE ASSESSMEN T ORDER PASSED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ONLY BECAUSE IN HIS VIEW THE EXPENDITURE CLAIMED IS CAPI TAL IN NATURE. WHEN THE ASSESSING OFFICER HAS DEALT WITH THE ISSUE IN COMPLIANCE WITH THE DIRECTION OF THE TRIBUNAL AND AFTER PROPER APPLICATION OF MIND HAS ARRIVED AT A PARTICULAR CONCLUSION, IT CAN NOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE ONLY BECAUSE IT IS NOT ACCEPTABLE TO THE CIT. IT IS AL SO A FACT ON RECORD THAT THE ASSESSEE HAS SPECIFICALLY CONTENDED BEFORE THE ASSESSING OFFICER THAT ALL THE ENTRIES WITH REGARD TO THESE TWO CLAIMS RELATING TO FINANCIAL YEAR 2002-03 WERE PASS ED ON 31-3- 2003 AND THE ASSESSEE FILED A REVISED RETURN FOR TH E IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICER HAVING ALLO WED THE CLAIM AFTER VERIFYING THE FACT, IT CANNOT BE SAID THAT TH E ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IT IS ALSO A FACT THAT THE DEDUCTIONS CLAIMED HAVE BEEN S HOWN AS WORK IN PROGRESS (WIP). THE CIT ALSO DOES NOT DISPUTE TH IS FACT. 18 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. THEREFORE WHEN THE EXPENDITURE CLAIMED RELATES TO W IP, IT CANNOT BE HELD TO BE CAPITAL IN NATURE AS THEY RELATE TO T HE IMPUGNED ASSESSMENT YEAR. FURTHERMORE, WHEN THE ASSESSING O FFICER AFTER CONSIDERING THE FACTS AND APPLYING HIS MIND HAS TAK EN ONE OF THE POSSIBLE VIEW BY TREATING THE EXPENDITURE CLAIMED A S A REVENUE EXPENDITURE ONLY BECAUSE ACCORDING TO THE CIT, IT I S IN THE NATURE OF CAPITAL EXPENDITURE, THE ASSESSMENT ORDER CANNO T BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF RE VENUE. FURTHERMORE, THE CIT HAS PUT MUCH EMPHASIS ON THE F ACT THAT THE ASSESSEE HAD FILED THE REVISED RETURN BEYOND THE PE RIOD PRESCRIBED U/S 139(5) OF THE ACT AND HENCE IT CANNO T BE A VALID RETURN AND THEREFORE SHOULD NOT HAVE BEEN CONSIDERE D BY THE ASSESSING OFFICER. HE HAS FURTHER OBSERVED THAT TH E MISC. APPLICATION FILED BY THE DEPARTMENT IN THIS REGARD HAS BEEN PENDING BEFORE THE TRIBUNAL. HOWEVER, ON PERUSAL O F FACTS ON RECORD, IT IS SEEN THAT THE TRIBUNAL HAS DISMISSED THE M.A. FILED BY THE DEPARTMENT RAISING THE ISSUE OF FILING OF REVIS ED RETURN BEYOND THE PERIOD PRESCRIBED U/S 139(5) OF THE ACT VIDE ITS ORDER DATED 15-10-2012 PASSED IN M.A NOS. 18/HYD/10 & 37/ HYD/10 ARISING OUT OF ITA NOS. 783 AND 784/HYD/2007 HOLDIN G AS UNDER 19. AFTER HEARING THE PARTIES AND PERUSING THE RECO RD, WE FIND FROM THE ORDER OF THE TRIBUNAL AT PARA 14 THAT THE ASSESSEE HAS FILED REVISED RETURNED FOR AY 2003-04 ON 29 TH MARCH, 2004 ALONG WITH REVISED COMPUTATION OF INCOME, APPEARING AT PA GES 12-14 OF THE ASSESSEES PAPER BOOK. HOWEVER, THE AO WITHOUT CONSIDERING THE SAME HAS COMPLETED THE ASSESSMENT ON 29/03/2006 U/S 143(3) READ WITH SECTION 147 OF THE ACT. HE FURTHER SUBMITTED THAT ON AN APPLICATION FILED BY THE ASSESSEE U/S 154 OF THE ACT, THE AO PASSED AN ORDER U/S 154 DATED 25 TH SEPTEMBER, 2006 APPEARING AT PAGE 9 OF THE ASSESSEES PAPER BOOK. THE TRIBUNAL TOOK INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE THAT T HE AO HAS NOT 19 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. CONSIDERED THE REVISED RETURN WHEREIN THE CLAIMS RE LATING TO ANIMATION PROJECTS WIP OF RS. 4,06,12,414/-, SOFTWA RE UNDER PRODUCTION WIP OF RS. 4,98,19,571/-, NON-COLLECTABL E LOANS AND ADVANCES OF RS. 3,25,64,086/- AND BAD DEBTS OF RS. 1,33,49,823/- HAVE BEEN MADE. THE TRIBUNAL IN THE INTEREST OF JU STICE RESTORED THE ISSUES BACK TO THE FILE OF THE AO AND THE TRIBU NAL ALSO OBSERVED THAT SAME WAS NOT OBJECTED TO BY THE LEARNED DR. T HE TRIBUNAL AFTER CONSIDERING THE RIVAL SUBMISSIONS FOUND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AO WI THOUT DISCUSSING THE CLAIMS MADE IN THE REVISED RETURN HA S PASSED ASSESSMENT ORDER. THE TRIBUNAL ALSO OBSERVED THE AO HAS NEVERTHELESS MENTIONED IN THE ORDER U/S 154 DATED 2 5 TH SEPTEMBER, 2006 THAT THE ABOVE CLAIMS HAVE BEEN DUL Y CONSIDERED DURING THE ASSESSMENT PROCEEDINGS. THE TRIBUNAL IN THE ABSENCE OF SPEAKING ORDER PASSED BY THE AO REMITTED THE MATTER BACK TO THE FILE OF THE AO IN THE INTEREST OF JUSTICE TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. 20. WE ARE OF THE OPINION THAT THE TRIBUNAL HAS COR RECTLY BROUGHT OUT THE FACTS IN ITS ORDER AND AFTER ANALYZING THE ISSUE SET ASIDE THE SAME TO THE FILE OF THE AO. 21. THE ORDER U/S 154 DATED 25 TH SEPTEMBER, 2006 APPEARING AT PAGE 9 OF THE PAPER BOOK READS AS FOLLOWS:- II. REGARDING THE ISSUES, CLAIMS UNDER THE HEADS BA D DEBTS WRITTEN OFF, SOFTWARE UNDER PRODUCTION AND ANIMATIO N PROJECTS IT IS TO BE STATED THAT THE ORDER U/S 143(3) DT. 29/03/20 06 FOR THE YEAR WAS PASSED AFTER TAKING INTO CONSIDERATION ALL THE FACTS PUT FORTH REGARDING THE ABOVE ISSUES WERE CONSIDERED DURING T HE ASSESSMENT PROCEEDINGS AND THE ABOVE ORDER WAS FINA LIZED. THE ASSESSEES CLAIM U/S 154 IS, THEREFORE, REJECTED AS NOT ENTERTAINABLE. 22. WE FIND FROM THE ARGUMENT OF THE PETITIONER TH AT THE REVISED RETURN SUBMITTED ON 29/03/2006 IS BEYOND THE TIME L IMIT PRESCRIBED UNDER SECTION 139(5) OF THE ACT AND, HEN CE, THE SAME IS TO BE TREATED AS INVALID RETURN AND NO COGNIZANCE C AN BE GIVEN TO 20 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. THE ABOVE RETURN AND HENCE THAT THE AO HAS DULY CON SIDERED AND ALLEGED THE SAME AS RETURN FILED OUT OF TIME IS NOT CORRECT IN AS MUCH AS THE ORDER U/S 154 CLEARLY STATES THAT THE O RDER U/S 143 DATED 29/03/2006 FOR THE YEAR UNDER CONSIDERATION W AS PASSED AFTER TAKING INTO CONSIDERATION ALL THE FACTS PUTFO RTH REGARDING THE ABOVE ISSUES, WHICH WERE CONSIDERED DURING THE ASSE SSMENT PROCEEDINGS AND THE ORDER WAS FINALIZED, WHICH COUL D NOT BE THE CASE IF THE RETURNS WERE TREATED AS NON-EST. 23. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE O PINION THAT THE ORDER PASSED BY THE ITAT IS CORRECT AND THE M.A . FILED BY THE REVENUE IS HEREBY DISMISSED. 24. IN VIEW OF THE AFORESAID ORDER PASSED BY THE TR IBUNAL, THE FINDING OF THE CIT TO THE EFFECT THAT THE CLAIM MAD E IN THE REVISED RETURN SHOULD NOT HAVE BEEN CONSIDERED BY THE ASSES SING OFFICER AS IT WAS FILED BEYOND THE TIME PRESCRIBED U/S 139( 5) DOES NOT HOLD MUCH WATER. LAW IS WELL SETTLED BY THE HONBL E SUPREME COURT IN CASE OF MALABAR INDUSTRIES VS. CIT (243 IT R 83) THAT ANY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER PASSED BY THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF REVENUE. THE HONBLE SUPREME COURT FURTHER HELD THAT WHEN TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HA S TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT B E TREATED AS PREJUDICIAL TO THE INTERESTS OF REVENUE UNLESS VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IN THE FACTS OF THE P RESENT CASE, IT IS VERY MUCH EVIDENT FROM RECORD THAT THE ASSESSING OF FICER HAS TAKEN THE DECISION IN COMPLIANCE WITH THE DIRECTIO NS OF THE INCOME-TAX APPELLATE TRIBUNAL WITH REGARD TO THE CL AIM MADE IN THE REVISED RETURN IN RESPECT OF REDUNDANT ANIMA TION PROJECTS WIP AND REDUNDANT SOFTWARE WIP BY HOLDING IT TO BE A REVENUE EXPENDITURE. ONLY BECAUSE THE VIEW ADOPTED BY THE ASSESSING OFFICER IS NOT ACCEPTABLE TO THE CIT, ACCORDING TO WHOM IT IS 21 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. CAPITAL IN NATURE, IT CANNOT BE SAID THAT THE ASSES SMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. IN SUCH VIEW OF THE MATTER, WE HOLD THAT THE ASSESSMENT ORD ER PASSED IN THE FACTS OF THE PRESENT CASE, CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HENCE, EX ERCISE OF JURISDICTION U/S 263 OF THE ACT CANNOT BE SUSTAINED . ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE CIT. THEREFOR E, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 25. IN THE RESULT, ITA NO.359/HYD/12 IS ALLOWED FOR STATISTICAL PURPOSES AND ITANO.584/HYD/12 IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 13-9-2013. SD/- ( CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 13 TH SEPT. 2013 COPY TO:- 1) C/O P. MURALI & CO., CAS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2) DCIT, CIR-13(1), HYDERABAD. 3) CIT-1, HYDERABAD. 4.THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERA BAD. JMR* 22 ITA NO. 584 AND 359 OF 2012 PADMALAYA TELEFILMS., HYD. *