ITO 13(2)-3, MUMBAI V. NITIN P. MAVANI, MUMBAI

ITA 624/MUM/2010

• Counselvise Citation: 62419914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 15-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MAYAK
• Assessee Lawyers: DINESH R SHAH
• Keywords: Business income; Commercial expediency
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER I T A NO: 624/MUM/2010 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER 13(2)-3, MUMBAI APPELLANT VS SHRI NITIN P MAVANI, MUMBAI RESPONDENT (PAN: AABPM5489Q) APPELLANT BY: MR A K MAYAK RESPONDENT BY: MR DINESH R SHAH O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE REVENUE. THE ASSESSMENT YEAR IS 2006-07. THE RESPONDENT-ASSESSEE IS AN INDIVIDUAL. HE IS THE PROPRIETOR OF THREE CONCERNS : - (1) M/S DEEPAK ARTS, WHICH IS ENGAGED IN THE PRODUCTION OF FILMS AND TV SERIALS; (2) M/S DAJ CORPORATION, ENGAGED IN LOTTERY TICKETS BUSINESS; AND (3) M/S DHANLOTT, ALSO ENGAGED IN THE LOTTERY TICKETS BUSINESS. 2. IN THE RETURN THE ASSESSEE SHOWED LOSS OF ` 18,76,552/- FROM M/S DEEPAK ARTS. IN SUPPORT OF THE RETURN THE ASSE SSEE FURNISHED ALL THE RELEVANT DETAILS. FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF M/S DEEPAK ARTS, THE ASSESSING OFFICER F OUND THAT THE LOSS AROSE ON ACCOUNT OF THE WRITE OFF OF THE COST OF PRODUCTION OF ` 31,98,892/- IN RESPECT OF THE TV SERIAL TITLED RAJ A BHARTUHARI. THE ITA NO: 624/MUM/2010 2 ASSESSEE WAS ASKED TO SUBSTANTIATE THE WRITE OFF. THE ASSESSEE STATED IN RESPONSE THAT THE PRODUCTION OF THE TV SE RIAL WAS STARTED IN THE YEAR 1995 AND EXPENSES WERE INCURRED IN RESP ECT OF THE SAME. AFTER THE PRODUCTION WAS COMPLETED THE ASSES SEE APPROACHED SEVERAL TV CHANNELS INCLUDING DOORDARSHA N FOR TELECASTING THE SAME BUT DID NOT MEET WITH ANY POSI TIVE RESPONSE. FINALLY IN THE YEAR 2005, DOORDARSHAN REJECTED THE SERIAL, APPARENTLY WITHOUT ANY EXPLANATION. BY THAT TIME, IT WAS STAT ED, THAT THE SERIAL HAD BECOME OLD AND STALE AND THEREFORE THE ASSESSEE WAS NOT ABLE TO OFFER IT TO ANY OTHER CHANNEL. THE ASSESSEE FUR THER EXPLAINED THAT ALL THE EXPENSES INCURRED ON THE PRODUCTION OF THE TV SERIAL WERE SHOWN AS COST OF PRODUCTION AND WHEN DOORDARSHAN RE JECTED THE ASSESSEES OFFER IN THE YEAR 2005, AND THERE WERE N O PROSPECTS OF THE OTHER TV CHANNELS ACCEPTING THE SAME FOR TELECA STING, THE ASSESSEE, ON GROUNDS OF COMMERCIAL EXPEDIENCY, CONS IDERED IT PROPER TO WRITE OFF THE AGGREGATE COST OF PRODUCTIO N OF ` 31,98,892/- AS A LOSS INCIDENTAL TO THE BUSINESS AND ACCORDINGL Y WROTE OFF THE AMOUNT IN THE ACCOUNTS FOR THE YEAR ENDED 31.03.200 6. THE ASSESSEE, ON THIS BASIS, CLAIMED THAT THE LOSS WAS ALLOWABLE IN THE ASSESSMENT. 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES EXPLANATION. ACCORDING TO HIM RULE 9A OF THE INCOM E TAX RULES WAS APPLICABLE, UNDER WHICH THE COST OF PRODUCTION WAS REQUIRED TO BE AMORTIZED IN THE YEAR IN WHICH THE PRODUCTION OF THE SERIAL WAS COMPLETED. THE AMORTIZED AMOUNT, ACCORDING TO THE ASSESSING OFFICER, CAN BE SET OFF ONLY AGAINST THE INCOME FRO M THE SERIAL. ITA NO: 624/MUM/2010 3 SINCE THE ASSESSEE HAD CAPITALIZED THE COST OF PROD UCTION IN THE YEAR 1995-96, THE SAME CANNOT BE CONVERTED AS LOSS FOR THE YEAR UNDER APPEAL. IN THIS VIEW OF THE MATTER THE ASSES SING OFFICER REJECTED THE ASSESSEES CLAIM. 4. ON APPEAL, THE ASSESSEE SUBMITTED DETAILED STATE MENT OF FACTS BEFORE THE CIT(A) AND ALSO RELIED ON THE JUDG MENT OF THE MADRAS HIGH COURT IN THE CASE OF B NAGI REDDY VS. C IT (1993) 199 ITR 451 (MAD) AND THAT OF THE DELHI HIGH COURT IN C IT VS. HOTLINE TELETUBE & COMPONENTS LTD. (2008) 175 TAXMAN 286 (D EL). THE ATTENTION OF THE CIT(A) WAS ALSO DRAWN TO THE ORDER OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. EXCEL PRODUCTIONS (1992) 44 TTJ (COCH) 201. THE CIT(A) ACCEPTED THE ASSESSEES CONTENTION BASED ON THE AFORESAID DECISIONS AND DIR ECTED THE ASSESSING OFFICER TO ALLOW THE LOSS AS A DEDUCTION. 5. IT IS AGAINST THE AFORESAID DECISION OF THE CIT( A) THAT THE REVENUE HAS COME IN APPEAL BEFORE US. THE CONTENTI ON OF THE LEARNED DR WAS THAT THE AMOUNT WAS NOT ALLOWABLE AS A LOSS NOR WAS IT ALLOWABLE AS BAD DEBT. HE SUBMITTED THAT TH ERE WAS A POSSIBILITY OF THE TV CHANNELS ACCEPTING THE TELE-F ILM FOR TELECASTING AND THEREFORE IT WAS PREMATURE FOR THE ASSESSEE TO WRITE OFF THE COST OF PRODUCTION IN THE YEAR UNDER APPEAL. HE CONTEND ED THAT IN ANY CASE RULE 9A OF THE INCOME TAX RULES WAS RIGHTLY IN VOKED BY THE ASSESSING OFFICER, UNDER WHICH THE COST OF PRODUCTI ON CAN BE AMORTIZED ONLY AGAINST THE RECEIPTS FROM THE FILM. THE LEARNED DR ALSO SOUGHT TO DISTINGUISH THE JUDGMENT OF THE MADR AS HIGH COURT (SUPRA) ON THE GROUND THAT IN THE SAID CASE, THE AS SESSEE HAD ITA NO: 624/MUM/2010 4 ABANDONED THE PROJECT MIDWAY WHEREAS IN THE CASE BE FORE US THE ASSESSEE DID NOT ABANDON THE PROJECT BUT COMPLETED THE SAME, THOUGH THERE WERE NO TAKERS FOR THE TELE-SERIAL. O N THE BASIS OF THESE SUBMISSIONS HE CONTENDED THAT THE DISALLOWANC E OF THE LOSS SHOULD BE RESTORED. 6. ON THE OTHER HAND, THE LEARNED REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT RULE 9A OF THE INCOME TAX R ULES WAS NOT APPLICABLE TO THE PRESENT CASE BECAUSE THE ASSESSEE HEREIN WAS UNABLE TO COMMERCIALLY EXPLOIT THE TV SERIAL PRODUC ED BY HIM AND WAS NOT IN RECEIPT OF ANY MONIES ON THAT ACCOUNT AG AINST WHICH THE COST OF PRODUCTION COULD BE AMORTIZED AND THEREFORE IT WAS THAT THE LOSS WAS BEING CLAIMED ON GENERAL PRINCIPLES. HE S UBMITTED THAT RULE 9A DOES NOT PROVIDE FOR THE SITUATION ARISING IN THE PRESENT CASE AND IN ANY CASE THE SAID RULE CANNOT OVERRIDE THE INCOME TAX ACT. HE FURTHER SUBMITTED THAT IF AT ALL THE RULE IS APPLICABLE, THEN WHAT IS APPLICABLE IS ONLY CLAUSE (B) OF SUB-RULE ( 6) WHICH SAYS THAT IF THE ASSESSING OFFICER IS OF OPINION THAT HAVING REG ARD TO THE FACTS AND CIRCUMSTANCES OF ANY CASE, IT IS NOT PRACTICABL E TO APPLY THE PROVISIONS OF THE RULE TO THE CASE, HE MAY ALLOW DE DUCTION IN RESPECT OF THE COST OF PRODUCTION OF THE FILM IN SU CH OTHER MANNER AS HE MAY DEEM SUITABLE. IT IS CONTENDED THAT HAVING REGARD TO THIS SPECIFIC PROVISION, THERE IS NO BAR TO ALLOWING THE LOSS UNDER GENERAL PRINCIPLES OF COMMERCIAL EXPEDIENCY. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS. THE ASSESSEE HAS INCURRED THE COST OF PRODUCTION OF ` 31,98,892/- IN THE FOLLOWING MANNER: - ITA NO: 624/MUM/2010 5 F.Y. A.Y. 1994-95 1995-96 ` 6,56,467.50 1995-96 1996-97 ` 7,85,697.72 1996-97 1997-98 ` 12,76,443.35 1997-98 1998-99 ` 1,45,098.00 1998-99 1999-2000 ` 2,51,215.00 1999-2000 2000-2001 ` 28,406.00 2001-2002 2002-2003 ` 25,565.00 2002-2003 2003-2004 ` 5,000.00 2003-2004 2004-2005 ` 25,000.00 BALANCE TOWARDS DOORDARSHAN TIME SLOT FEES 2005-2006 ` 10,000.00 ` 31,98,892.00 HAVING COMPLETED THE SERIAL BY INCURRING THE AFORES AID EXPENDITURE, THE ASSESSEE WAS UNABLE TO EXPLOIT THE TELE-SERIAL BECAUSE NEITHER DOORDARSHAN NOR THE OTHER TV CHANNELS WOULD ACCEPT THE SAME FOR TELECASTING. A PERUSAL OF THE DETAILS OF THE YEAR- WISE INCURRING OF THE COST OF PRODUCTION SHOWS THAT THE MAJOR ITEMS OF EX PENDITURE HAD BEEN INCURRED BY THE FINANCIAL YEAR 1998-99 AND THE REAFTER THE SERIAL WENT INTO LIMBO SINCE NO TV CHANNEL, INCLUDING DOOR DARSHAN, WAS PREPARED TO ACCEPT IT FOR TELECASTING. THUS ATLEAS T FOR A PERIOD OF SIX YEARS THE ASSESSEE COULD NOT EXPLOIT THE SERIAL AND A PERIOD OF SIX YEARS IS A REASONABLY LONG PERIOD SO AS TO CAUSE AP PREHENSION IN THE ASSESSEES MIND THAT THERE WAS NO FURTHER PROSP ECT OF THE SERIAL BEING COMMERCIALLY EXPLOITED. IT SEEMS TO US THAT IT WAS ON THIS BASIS, ADDED BY THE FACT THAT DOORDARSHAN OFFICIALL Y REJECTED THE ASSESSEES OFFER IN THE YEAR 2005, THAT THE ASSESSE E THOUGHT OF WRITING OFF THE COST OF PRODUCTION IN THE ACCOUNTS FOR THE YEAR UNDER APPEAL. IN SUCH MATTERS, WE ARE OF THE VIEW THAT T HE ASSESSEES DECISION SHOULD BE RESPECTED IN THE ABSENCE OF ANY STRONG REASONS ITA NO: 624/MUM/2010 6 TO TAKE A CONTRARY VIEW, BECAUSE THE BUSINESSMAN IS THE BEST PERSON TO DECIDE AS TO WHETHER HE CAN EXPLOIT HIS S TOCK OR NOT. THE RELIANCE PLACED BY THE ASSESSING OFFICER ON RULE 9A SEEMS TO US TO BE MISPLACED BECAUSE THE VARIOUS SUB-RULES SPEAK OF THE PROCEDURE FOR AMORTIZATION OF THE COST OF PRODUCTION AGAINST THE RECEIPTS ARISING OUT OF COMMERCIAL EXPLOITATION OF THE FILM. WE ARE ASSUMING THAT THE SAID RULE ALSO APPLIES TO A TV SERIAL BECAUSE IT CO VERS FEATURE FILMS, AN EXPRESSION WHICH IS NOT DEFINED. BE THAT AS IT MAY, THE RULE IS NOT APPLICABLE TO THE PRESENT CASE BECAUSE THE ASSE SSEE WAS UNABLE TO COMMERCIALLY EXPLOIT THE SERIAL. FURTHER , AS RIGHTLY POINTED OUT ON BEHALF OF THE ASSESSEE, THERE MAY BE A CASE WHERE IT IS NOT PRACTICABLE TO APPLY THE PROVISIONS OF THE RULE TO A PARTICULAR CASE, IN WHICH CASE THE COST OF PRODUCTION OF THE FILM MA Y BE ALLOWED BY THE ASSESSING OFFICER IN SUCH OTHER MANNER AS HE MA Y DEEM SUITABLE. THIS IS THE PURPORT OF CLAUSE (B) OF SUB -RULE (6). IN ANY CASE, IF THE RULE IS NOT APPLICABLE FOR ANY REASON, IT DOES NOT FOLLOW THAT THE ASSESSEES CLAIM CANNOT BE ENTERTAINED AT ALL SINCE THE RULE CANNOT OVERRIDE THE ACT AND UNDER THE ACT A LO SS INCIDENTAL TO THE BUSINESS IS ALLOWABLE ON GENERAL PRINCIPLES UND ER SECTION 28 OF THE ACT. IF ANY AUTHORITY IS NEEDED, REFERENCE MAY BE MADE TO THE JUDGMENTS OF THE SUPREME COURT IN THE CASE OF BADRI DAS DAGA VS. CIT (1958) 34 ITR 10 (SC) AND RAMCHANDAR SHIVNARAYA N VS. CIT (1978) 111 ITR 263 (SC). THE JUDGMENT OF THE MADRA S HIGH COURT (SUPRA) ALSO SUPPORTS THE ASSESSEES CLAIM NOTWITHS TANDING THE FACT THAT IN THAT CASE THE PROJECT WAS ABANDONED MIDWAY AND WAS NOT COMPLETED. ITA NO: 624/MUM/2010 7 8. AT OUR INSTANCE THE ASSESSEE HAS FILED ITS PROFI T AND LOSS ACCOUNT AND BALANCE SHEET FOR SEVERAL YEARS STARTIN G FROM THE YEAR ENDED 31.03.1995, FROM WHICH WE FIND THAT IN THE YE AR ENDED 31.03.2005 THE ASSESSEE HAS PRODUCED AND SOLD A TV SERIAL CALLED EK AUR AMAR PREMM. WE HAD CALLED FOR THESE DETAI LS TO ASCERTAIN WHETHER THE ASSESSEE HAD TOTALLY ABANDONED HIS FILM PRODUCTION BUSINESS OR HE WAS STILL CONTINUING THE SAME. AS T HE ACCOUNTS FOR THE YEAR ENDED 31.03.2005 SHOW THE ASSESSEE DID DIS CLOSE BUSINESS RECEIPTS OF ` 25,21,000/- IN RESPECT OF EK AUR AMAR PREMM. FOR THE SAME YEAR HE HAS ALSO DISCLOSED DIS TRIBUTORSHIP RECEIPTS IN RESPECT OF THE FILM MUGHAL-E-AZAM (COL OUR) TO THE EXTENT OF ` 18,49,375/-. THEREFORE, THE CLAIM OF LOSS ON ACCOU NT OF WRITE OFF OF THE COST OF PRODUCTION OF THE TV SERIA L RAJA BHARTUHARI CANNOT BE DEFEATED EVEN ON THE GROUND THAT THE ASSE SSEE HAS STOPPED CARRYING ON THE BUSINESS OF PRODUCTION / DI STRIBUTION OF FILMS. 9. FOR THE AFORESAID REASONS WE AFFIRM THE DECISION OF THE CIT(A). WE WISH THE CIT(A) HAD GIVEN SOME REASONS FOR HIS DECISION. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH APRIL 2011. SD/- SD/- (RAJENDRA SINGH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 15 TH APRIL 2011 SALDANHA ITA NO: 624/MUM/2010 8 COPY TO: 1. SHRI NITIN P MAVANI 6, HARESH CHAMBERS 313/319, SAMUEL STREET, MUMBAI 400 003 2. ITO 13(2)-3, MUMBAI 3. CIT-13, MUMBAI 4. CIT(A)-24, MUMBAI 5. DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI