SAGAR SARHADI, MUMBAI V. ITO WD 11(1)4, MUMBAI

ITA 6397/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92782 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: DR K SHIVARAM; NEELAM C JADHAV
• Keywords: Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 6397/M/2013 ASSESSMENT YEAR: 2007 - 08 SHRI SAGAR SARHADI, 30/363, SARDAR NAGAR, SION (E), MUMBAI 40 0 022 PAN: AAQPS 1834C VS. INCOME TAX OFFICER, WARD NO.11(1) - 4, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : DR. K. SHIVARAM, D.R. & MISS NEELAM C. JADHAV, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 19.03 .201 5 DATE OF PRONOUNCEMENT : 03.06. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 19.09.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] RELEVANT TO ASSESSMENT YEAR 2007 - 08. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1 THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO LEVYING PENALTY OF RS. 6,98,589/ - U/S 271(L)(C) OF THE ACT ON THE DISALLOWANCE OF REDUCTION OF CLOSING STOCK OF FILM 'CHAUSAR' BY RS. 20,75,425/ - WITHOUT APPRECIATING THAT SUCH REDUCTION WAS REFLECTED IN THE P&L ACCOUNT FILED ALONG WITH THE ROL AND THE SAME WAS ALSO NOTED BY THE LEARNED AO AT THE TIME OF ASSESSMENT PROCEEDINGS, AND HENCE, AS ALL DISCLOSURES WERE MADE BY THE APPELLANT AT THE TIME OF FILING THE ROL, THERE IS NEITHER CONCEALMENT NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HENCE, THE PENALTY OF RS. 6,98,589/ - MAY B E DELE TED. ITA NO.6397/M/2013 SHRI SAGAR SARHADI 2 2 THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO LEVYING PENALTY OF RS. 6,98,589/ - U/S 271(1)(C) OF THE ACT ON THE DISALLOWANCE OF REDUCTION OF CLOSING STOCK OF FILM 'CHAUSAR' BY RS. 20,75,425/ - WITHOUT APPRECIATING THAT ASSESSMENT PROCEEDI NGS AND PENALTY PROCEEDINGS ARE DISTINCT AND SEPARATE AND THAT THE REDUCTION OF CLOSING STOCK WAS SUPPORTED BY LETTER FROM BOOBNA ENTERTAINMENT PRIVATE LIMITED, AND HENCE, PENALTY LEVIED OF RS. 6,98,589 / - MAY BE DELETED. 3. THE LEARNED CIT (A) FAILED TO A PPRECIATE THAT THE APPELLANT'S CASE WAS COVERED BY RULE 9A(6)(B) AND NOT BY RULE 9A(5), AND DURING THE QUANTUM PROCEEDINGS, RULE 9A(6)(B) WAS NOT CONSIDERED, AND IF THE SAME WOULD HAVE BEEN CONSIDERED, NO ADDITION COULD HAVE BEEN MADE, AND HENCE, PENALTY O F RS. 6,98,589/ - MAY BE DELETED. 4. THE LEARNED CIT (A) ERRED IN STATING THAT IN THE CASE OF JOSEPH VALAKUZHY 170 TAXMAN 196, THE SUPREME COURT HELD THAT WHEN IT COMES TO THE ALLOWABILITY OF EXPENSES RELATING TO COST OF PRODUCTION OF A FILM, THE REGULAR P ROVISIONS OF THE INCOME - TAX ACT, 1961 HAVE NO APPLICABILITY, AS IN THIS JUDGEMENT THE SUPREME COURT HAS NOT HELD THIS ANYWHERE. 5 . THE LEARNED CIT (A) FAILED TO APPRECIATE THAT IT COULD NOT BE SAID THAT THERE WAS LOSS TO THE REVENUE BECAUSE IN THE QUANTU M PROCEEDINGS, THE HONOURABLE TRIBUNAL DIRECTED THE AO TO CONSIDER THE INCREASED CLOSING STOCK OF AY 2007 - 08 AS OPENING STOCK FOR AY 2008 - 09, THEREBY, LEADING TO A TIMING DIFFERENCE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, IS ENGAGED IN THE BUSINESS OF PRODUCTION OF TV SERIALS AND FILM FOR P RASAR BHAR TI. THE ASSESSEE HAD PRODUCED THE ART FILM CHAUSAR IN THE FINANCIAL YEAR 2003 - 04 AND HAD CARRIED FORWARD THE SAME AS CLOSING STOCK OF RS. 46,00,425/ - . THE ASSESSEE COULD NOT GE T THE DESIRED PRICE FOR THE SAID ART FILM BECAUSE OF TODAYS TREND OF CORPORATE COMMERCIAL FILMS. THE ASSESSEE GOT AN OFFER OF RS.25 LAKHS FROM BOOBNA ENTERTAINMENT PVT. LTD. VIDE THEIR LETTER DATED 20.03.07 AS CONSIDERATION FOR THE SAID FILM. THE ASSESS EE THEREFORE VALUED THE CLOSING STOCK OF THE FILM CHAUSAR AT RS.25,25,000/ - AGAINST THE OPENING STOCK OF RS.46,00,425/ - AND THEREBY BOOKED THE LOSS OF RS.20,7 5 ,445/ - . THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO), HOWEVER, HELD THAT THE BOOK ING OF ITA NO.6397/M/2013 SHRI SAGAR SARHADI 3 LOSS BY THE ASSESSEE WAS JUST A PAPER TRANSACTION AND THE SAME WAS WITHOUT ANY BASIS. THE AO HELD THAT THIS WAS SIMILAR TO PROVIDING FOR DIMINUTION IN THE VALUE OF ASSET OR INVESTMENT WHICH WAS NOT AN ALLOWABLE EXPENDITURE. THE AO ALSO RELIED ON R ULE 9A(5) OF THE INCOME TAX RULES AND OBSERVED THAT THE ASSESSEE HAD NOT DONE ANY OF THE ACTS AS PROVIDED THEREIN I.E. EXHIBITION OR SALE OF EXHIBITION RIGHTS OF THE FILM TO CLAIM ANY EXPENDITURE. HE THEREFORE HELD THAT THE ASSESSEES CASE DID NOT FALL UN DER THE SPECIFIC PROVISIONS MEANT FOR BOOKING THE EXPENDITURE FOR FILM AND THEREFORE DISALLOWED THE REDUCTION IN THE VALUE OF THE FILM CLAIMED BY THE ASSESSEE. 4. THE LD. CIT(A) ALSO CONFIRMED THE FINDINGS OF THE AO. THE MATTER ULTIMATELY WENT TO THE TRI BUNAL. THE TRIBUNAL ALSO UPHELD THE ORDER OF THE AO. IN THE MEANTIME PENALTY PROCEEDINGS WERE INITIATED BY THE AO AGAINST THE ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF THE FILM CHAUSAR TO THE EXTENT OF RS .20,75,445/ - . IN THE PENALTY PROCEEDINGS BEFORE THE AO, THE ASSESSEE SUBMITTED THAT ALL THE DETAILS RELATING TO THE VALUATION OF THE CLOSING STOCK WAS SUBMITTED IN THE QUANTUM PROCEEDINGS AND THAT THERE WAS NO FURNISHING OF INACCURATE PARTICULARS OF INCOM E OR CONCEALMENT OF INCOME. THE AO, HOWEVER, DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND THEREFORE, HE LEVIED THE IMPUGNED PENALTY. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). 5. THE LD. CIT(A) VID E IMPUGNED ORDER OBSERVED THAT IN CASE OF A FILM PRODUCER THE DEDUCTION OF POST PRODUCTION EXPENDITURE IS AVAILABLE AS PER PROVISIONS OF RULE 9A. THE ASSESSEE HAD SOUGHT TO RIGHT OFF A PORTION OF THE CLOSING STOCK ON THE GROUND THAT MARKET VALUE OF THE FI LM HA D REDUCED WHICH WAS AKIN TO THE CLAIM OF EXPENDITURE. HE FURTHER OBSERVED THAT THE SAID CLAIM WAS MADE BY THE ASSESSEE EVEN THE FILM IN QUESTION HAD NOT BEEN RELEASED. HE ITA NO.6397/M/2013 SHRI SAGAR SARHADI 4 OBSERVED THAT AS PER PROVISIONS OF RULE 9A(5), THE EXPENSES CANNOT BE ALLOWED TILL THE FILM IS RELEASED. HE THEREFORE HELD THAT THE ASSESSEE HAD MADE A WRONG CLAIM WHICH WAS NOT BONAFIDE. HE THEREFORE UPHELD THE PENALTY LEVIED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT. 6. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS STATED TH AT THE ASSESSEE HAD MADE A BONAFIDE CLAIM OF REDUCTION IN CLOSING STOCK. HE HAS FURTHER RELIED UPON THE LETTER OF BOOBNA ENTERTAINMENT PVT. LTD. DATED 20.03.07 WHEREIN THEY HAVE ASSESSED THE MARKET VALUE OF THE FILM AT RS.25 LAKHS. THE LD. A.R. THEREFORE HA S SUBMITTED THAT THE ASSESSEE, ON THE BASIS OF SAID RECORD/LETTER, HAD MADE A BONAFIDE CLAIM OF THE REDUCTION IN THE VALUE OF THE CLOSING STOCK OF THE FILM. THE LD. A.R. HAS FURTHER CONTENDED THAT THE ASSESSEES CASE, EVEN OTHERWISE, WAS COVERED BY RUL E 9A(6)(B). HOWEVER, THE SAID RULE HAD NOT BEEN CONSIDERED BY THE LOWER AUTHORITIES AND EVEN BY THE TRIBUNAL IN THE QUANTUM P ROCEEDINGS. AS PER THE PROVISIONS OF RULE 9A(6)(B), THE ASSESSEES CLAIM WAS GENUINE AND BONAFIDE. HE THEREFORE HAS SUBMITTED TH AT NO PENALTY IS ATTRACTED IN THE ASSESSEES CASE. 7. WE HAVE GONE THROUGH THE PROVISIONS OF RULE 9A(6)(B) WHEREIN IT HAS BEEN PROVIDED THAT WHERE HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE , IT IS NOT PRACTICABLE TO APPLY THE PROVISIONS OF RULE 9A, T HE DEDUCTION IN RESPECT OF THE COST OF THE PRODUCTION OF THE FILM MAY BE ALLOWED BY AO IN SUCH OTHER MANNER AS HE MAY DEEM SUITABLE. A PERUSAL OF THE ABOVE STATED RULE 9A(6)(B) REVEALS THAT IT IS GIVEN AS AN ALTERNATIVE TO RULE 9A AND IS APPLIC ABLE IN CASES WHERE IT IS NOT PRACTICABLE TO APPLY RULE 9A(1) TO (5) IN THE PECULIAR CIRCUMSTANCES OF TH E ASSESSEES CASE. H ENCE , IT CANNOT BE SAID THAT THE ASSESSEE HAD NOT MADE A BONAFIDE CLAIM OF REDUCTION IN CLOSING STOCK I N THE LIGHT OF THE PROVISION S OF RULE 9A(6)(2). WE ACCORDINGLY DO NOT DEEM IT A FIT CASE FOR LEVY ITA NO.6397/M/2013 SHRI SAGAR SARHADI 5 OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE SAME IS ACCORDINGLY ORDERED TO BE DELETED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. ORDER PRO NOUNCED IN THE OPEN COURT ON 03.06. 201 5 . SD/ - SD/ - ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 03.06. 201 5 . * KISHORE , SR. P.S. COP Y TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.