ACIT CENT. CIR. - 13, MUMBAI V. M/s. UTV SOFTWARE COMMUNICATIONS LTD., MUMBAI

ITA 6921/MUM/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1454 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 18-05-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 30-11-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Assessee Lawyers: RACH NA AGARWAL
• Keywords: Depreciation; Retrospective amendment; Bad and doubtful debts; Block assessment; Set aside
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI A L GEHLOT, ACCOUNTANT MEMBER I T A NO: 6921/MUM/2005 (ASSESSMENT YEAR: 2002-03) ASSISTANT COMMISSIONER OF INCOME TAX APPELLANT CENTRAL CIRCLE 13, MUMBAI VS M/S UTV SOFTWARE COMMUNICATIONS LTD., MUMBAI RESP ONDENT (PAN: AAACU4122G) I T A NO: 6932/MUM/2005 (ASSESSMENT YEAR: 2002-03) M/S UTV SOFTWARE COMMUNICATIONS LTD., MUMBAI APPE LLANT VS DEPUTY COMMISSIONER OF INCOME TAX RESPONDENT CENTRAL CIRCLE 13, MUMBAI ASSESSEE BY: MS RACHNA AGARWAL REVENUE BY: MR VIRENDRA OJHA O R D E R R V EASWAR, PRESIDENT: THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 2002- 03. THE ASSESSEE IS A CLOSELY HELD COMPANY CARRYIN G ON THE BUSINESS OF PRODUCTION AND SALE OF TELEVISION PROGRAMMES, FE ATURE FILMS, COMMERCIALS, ANIMATION PROGRAMMES, CORPORATE DOCUME NTARIES, DISTRIBUTION OF FEATURE FILMS AND PROVIDING POST PR ODUCTION FACILITIES. THE APPEALS ARISE OUT OF THE ASSESSMENT ORDER PASSED UN DER SECTION 143(3) OF THE INCOME TAX ACT, 1961, BY ORDER DATED 24.03.2005. 2. WE MAY TAKE UP ITA NO: 6921/MUM/2005 WHICH IS FI LED BY THE DEPARTMENT, FOR DISPOSAL FIRST. THE FIRST GROUND I S THAT THE CIT(A) ERRED ITA NO: 6921 & 6932/MUM/2005 2 IN HOLDING THAT THE UNVERIFIABLE PRODUCTION EXPENSE S ARE TO BE DISALLOWED AT THE RATE OF 9% INSTEAD OF 11% AS WORK ED OUT BY THE ASSESSING OFFICER. AT THE TIME OF THE HEARING IT I S POINTED OUT ON BEHALF OF THE ASSESSEE THAT THIS ISSUE IS COVERED BY THE O RDER OF THE TRIBUNAL PASSED ON 25.03.2010 IN THE ASSESSEES OWN CASE IN IT(SS) NOS: 456 AND 454/MUM/2004 (ASSESSMENT YEARS: 01.04.1995 TO 0 4.09.2001). A COPY OF THE SAID ORDER HAS BEEN FILED AND OUR ATTEN TION WAS DRAWN TO PARAGRAPH 19 OF THE SAID ORDER. WE HAVE GONE THROU GH THE SAME. THIS ORDER OF THE TRIBUNAL RELATES TO THE BLOCK ASS ESSMENT PROCEEDINGS OF THE ASSESSEE CONSEQUENT TO A SEARCH. THE TRIBUN AL NOTICED THAT THE DISALLOWANCE CANNOT BE MADE BY AVERAGING THE NUMBER OF SAMPLED PERSONS WHICH WERE UNVERIFIABLE AND THE AMOUNT OF P ERCENTAGE OF THE EXPENDITURE WHICH WAS UNVERIFIABLE AND HELD THAT TH E DISALLOWANCE OF THE PRODUCTION EXPENSES CAN ONLY BE MADE ON THE UNV ERIFIABLE NATURE OF THE AMOUNT INVOLVED. IN THE BLOCK ASSESSMENT PR OCEEDINGS THE UNVERIFIABLE PORTION HAD BEEN TAKEN AT 7% OF THE EX PENSES. SINCE THE FACTS AND CIRCUMSTANCES RELATING TO THE DISALLOWANC E OF THE UNVERIFIABLE PRODUCTION EXPENSES ARE THE SAME FOR THE YEAR NOW B EFORE US, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL CI TED SUPRA, WE HOLD THAT THE DISALLOWANCE TO BE SUSTAINED WOULD BE 7% OF THE PRODUCTION EXPENSES. THE CIT(A) HAS SUSTAINED THE DISALLOWANC E OF 9% AGAINST WHICH THE REVENUE IS IN APPEAL AND WANTS THE RESTOR ATION OF 11% DISALLOWANCE. HOWEVER, THE ASSESSEE IN ITS APPEAL IN ITA NO: 6932/MUM/2005 HAS TAKEN GROUND NO.4 QUESTIONING THE DECISION OF THE CIT(A) TO SUSTAIN 9% DISALLOWANCE OUT OF THE PR ODUCTION EXPENSES. ITA NO: 6921 & 6932/MUM/2005 3 BOTH THE GROUNDS ARE CONNECTED AND RESPECTFULLY FOL LOWING THE EARLIER ORDER OF THE TRIBUNAL, WE HOLD THAT THE DISALLOWANC E SHOULD BE RESTRICTED TO 7% OF THE PRODUCTION EXPENSES. THE R ESULT WOULD BE THAT THE GROUND OF THE DEPARTMENT IS DISMISSED AND GROUN D NO.4 TAKEN BY THE ASSESSEE IN ITS APPEAL IS PARTLY ALLOWED. 3. THE SECOND GROUND IN THE APPEAL IS THAT THE CIT( A) ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO ADD BACK THE PROVISION FOR DOUBTFUL DEBTS WHILE CALCULATING THE BOOK PROFIT UN DER SECTION 115JB. IT WAS FAIRLY STATED ON BEHALF OF THE ASSESSEE THAT TH IS GROUND HAS TO BE ALLOWED IN FAVOUR OF THE REVENUE IN VIEW OF THE RET ROSPECTIVE AMENDMENT MADE TO THE SECTION BY THE FINANCE (NO.2) ACT, 2009 WITH EFFECT FROM 01.04.2001. BY THIS AMENDMENT CLAUSE ( I) WAS INTRODUCED IN EXPLANATION 1 BELOW SECTION 115JB BY WHICH THE B OOK PROFIT WAS TO BE INCREASED BY THE AMOUNT SET ASIDE AS PROVISION F OR DIMINUTION IN THE VALUE OF ANY ASSET. IN THE LIGHT OF THE STATEMENT MADE BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE ON THE BASIS OF THE RETROSPECTIVE AMENDMENT, WE ALLOW THE DEPARTMENTS GROUND. 4. THUS THE DEPARTMENTS APPEAL IS PARTLY ALLOWED. 5. ITA NO: 6932/MUM/2005 IS AN APPEAL BY THE ASSESS EE AND THE FIRST GROUND IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE AMOUNTS WRITTEN OFF BY THE ASSESSEE SUBSEQUENT TO THE SCHEME SANCTIONED BY THE HONBLE BOMBAY HIGH COURT, PERTAI NING TO UNAMORTIZED COSTS OF INVENTORIES OF ANIMATION PROGR AMMES WHICH WERE CONSIDERED NO LONGER REALIZABLE. THE BRIEF FACTS R ELATING TO THIS GROUND MAY BE NOTICED. IN THE RETURN OF INCOME THE ASSESS EE WROTE OFF ITA NO: 6921 & 6932/MUM/2005 4 INVENTORIES OF ANIMATION PROGRAMMES AMOUNTING TO RS .5,20,34,300/-. THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO F URNISH FULL DETAILS OF THE WRITE OFF. THE ASSESSEE FILED COPIES OF AGR EEMENTS IN RESPECT OF SOME PROGRAMMES, PRODUCTION SCHEDULES AND THE REVEN UE EARNED ON SALE OF THE PROGRAMMES. THE AMOUNT WRITTEN OFF REL ATED TO SEVERAL PROGRAMMES THE DETAILS OF WHICH ARE GIVEN IN TABULA R FORM IN PAGE 2 OF THE ASSESSMENT ORDER AND ARE NOT REPRODUCED HERE FO R THE SAKE OF BREVITY. THE ASSESSEE ALSO FURNISHED A COPY OF THE ORDER PASSED BY THE BOMBAY HIGH COURT ON 08.03.2002 PERMITTING THE ASSESSEE TO WRITE OFF THE INVENTORIES AGAINST THE SHARE PREMIUM ACCOU NT. THE ASSESSING OFFICER ON A PERUSAL OF THE AGREEMENTS AND THE CONN ECTED DETAILS FOUND THAT IN SOME CASES THE ASSESSEE HAS REALIZED REVENUE RECEIPTS AFTER THE TELECAST OF THE PROGRAMME AND SUCH RECEIP TS HAVE NOT BEEN ROUTED THROUGH THE PROFIT & LOSS ACCOUNT BUT WERE R EDUCED IN THE BALANCE SHEET FROM THE SHARE PREMIUM ACCOUNT, THAT IN THE CASE OF THE ANIMATION PROGRAMME CALLED KONG THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM THAT THE CONTRACT WAS UNILATERALLY TERMIN ATED BY THE OVERSEAS PARTY, THAT IN THE CASE OF THE ANIMATION PROGRAMME CALLED DR. DISASTER THE PROGRAMME HAS NOT BEEN SOLD AND THAT IN OTHER C ASES EITHER THE AGREEMENTS WERE NOT FURNISHED OR NO REVENUES WERE E ARNED DURING THE RELEVANT ASSESSMENT YEAR. FOR THESE REASONS THE AS SESSING OFFICER DISALLOWED THE ENTIRE CLAIM OF RS.5,20,34,300/-. 6. ON APPEAL THE ASSESSEE SUBMITTED THAT INVENTORY WRITE OFFS BEING LOSS INCURRED IN AND ARISING OUT OF THE NORMA L BUSINESS ACTIVITIES OF THE ASSESSEE WERE TO BE ALLOWED AS A DEDUCTION F ROM THE PROFITS OF ITA NO: 6921 & 6932/MUM/2005 5 THE BUSINESS. IT WAS ALSO SUBMITTED THAT THE ASSES SEES METHOD OF ACCOUNTING IS IN CONFORMITY WITH ACCOUNTING STANDAR DS 2. IT WAS FURTHER POINTED OUT THAT THE COMPANY HAD ADDED ALL THE OVER HEADS AND INVENTORISED THE ANIMATION PROGRAMMES AND SINCE THE CARRYING AMOUNT OF THE INVENTORIES DID NOT REPRESENT ANY TANGIBLE A SSET AND WERE NOT EXPECTED TO HAVE ANY REALIZABLE VALUES, THE MANAGEM ENT DECIDED TO WRITE OFF THE INVENTORY AS OBSOLETE ON THE GROUND T HAT THE MARKET VALUE WAS EITHER LOWER THAN THE COST OR NIL. IT WAS PLEA DED THAT THE WRITE OFF OF THE INVENTORIES REPRESENTS NORMAL BUSINESS LOSSE S. IT WAS EXPLAINED THAT FILMS, TELEVISION PROGRAMMES OR ANIMATION PROG RAMMES OUTLIVE THEIR VALUE WITHIN A COUPLE OF YEARS AND THAT THE M AXIMUM REALIZATION IS IN THE FIRST YEAR. IT WAS THEREFORE CONTENDED THAT THE AMORTIZATION SHOULD BE MADE OVER A SHORT SPAN OF TIME. SO FAR A S PROJECTS WHICH WERE UNDER SPECIFIC CONTRACT WITH THE CLIENT ARE CO NCERNED, IT WAS SUBMITTED THAT THEY WOULD HAVE NO REALIZABLE VALUE LEFT AFTER COMPLETION OF THE FILMS WHICH WERE TO BE DELIVERED TO THE CLIE NT. 7. THE CIT(A) EXAMINED THE ASSESSEES CONTENTIONS W ITH REFERENCE TO EACH AND EVERY ANIMATION PROGRAMME. HE MADE A P RELIMINARY OBSERVATION THAT THERE IS NO DISPUTE THAT THE METHO D FOLLOWED BY THE ASSESSEE CONFORMS TO AS 2 AND THAT THE ONLY ISSUE I S THE TIME OF THE WRITE OFF AND THE NECESSITY FOR THE SAME WHICH HAVE BEEN QUESTIONED BY THE ASSESSING OFFICER. IN THE CASE OF THE PROGR AMME CALLED FBOFW, THE CIT(A) NOTICED THAT THE ASSESSEE HAD REC OGNIZED REVENUES OF RS.3.04 CRORES FROM SALE OF THE PROGRAM ME AND THIS HAS BEEN OVERLOOKED BY THE ASSESSING OFFICER. HE ACCOR DINGLY ALLOWED THE ITA NO: 6921 & 6932/MUM/2005 6 WRITE OFF OF RS.2.00 CRORES AGAINST WHICH THERE IS NO APPEAL BY THE REVENUE. HOWEVER, THE WRITE OFF IN THE CASE OF THE OTHER PROGRAMMES WAS NOT ALLOWED AND THE CIT(A) AGREED WITH THE ASSE SSING OFFICER THAT THEY SHOULD BE DISALLOWED. IN THE CASE OF KONG, TH E CIT(A) NOTICED THAT THE ASSESSEE COULD NOT SUBSTANTIATE WITH DOCUM ENTARY EVIDENCE THAT THE CONTRACT WAS TERMINATED UNILATERALLY BY TH E OVERSEAS PARTY AS CLAIMED. IN THE CASE OF DR. DISASTER, THE CIT(A) H ELD ON A PERUSAL OF THE AGREEMENT THAT THE WRITE OFF WAS PREMATURE SINC E ONLY TWO YEARS HAVE PASSED AND THE AGREEMENT WAS STILL IN FORCE AN D THAT THE ASSESSEE HAD INCURRED ADDITIONAL COSTS IN THE IMMED IATELY PRECEDING YEAR. HE ALSO FOUND THE ASSESSEES CONTENTION THAT NO REVENUES WERE EARNED SINCE INCEPTION AND WERE NOT EXPECTED TO BE EARNED, TO BE UNACCEPTABLE. AS REGARDS THE PROGRAMME BY NAME KIN G, HE FOUND THAT THE ASSESSEE HAS WRITTEN OFF THE ENTIRE COST OF PRO DUCTION IN THE YEAR OF PRODUCTION ITSELF. THE ASSESSEES PLEA WAS THAT TH E PROGRAMME WAS NOT EXPECTED TO BE SOLD BUT THIS DID NOT IMPRESS TH E CIT(A). AS REGARDS THE PROGRAMME ME & ME TOO, THE ASSESSEE HAD POINTED OUT THAT THE PROGRAMME COULD NOT BE SOLD EVEN THOUGH SOME PARTIE S SHOWED INITIAL INTEREST. THIS CONTENTION WAS NOT FOUND ACCEPTABLE AND THE CIT(A) HELD THAT THE WRITE OFF WAS PREMATURE. FINALLY, IN THE CASE OF THE PROGRAMMES CALLED UTV TOONS SHOWREEL AND WEBSITE, T HE ASSESSEES CONTENTION WAS THAT THESE COULD NOT BE SOLD BUT THE CONTENTION WAS REJECTED SINCE THE CIT(A) FOUND THAT THE WRITE OFF WAS MADE TWO YEARS AFTER THE PRODUCTION. THUS, OUT OF THE TOTAL DISAL LOWANCE OF ITA NO: 6921 & 6932/MUM/2005 7 RS.5,20,34,300/- THE CIT(A) ALLOWED RS.2.00 CRORES AND DISALLOWED THE BALANCE OF RS.3,20,34,300/-, AGAINST WHICH THE ASSE SSEE IS IN APPEAL. 8. THE MAIN CONTENTION OF THE LEARNED REPRESENTATIV E FOR THE ASSESSEE BEFORE US WAS THAT THERE WAS NOTHING WRONG WITH THE TIMING OF THE WRITE OFF SINCE NO TANGIBLE ASSET REMAINED W ITH THE ASSESSEE AND THE AMOUNTS WRITTEN OFF MERELY REPRESENTED THE OVER RUN OF THE COSTS IN EXCESS OF THE REVENUES. OUR ATTENTION WAS DRAWN TO PAGE 57 OF THE PAPER BOOK, WHICH CONTAINS THE ANNUAL ACCOUNTS AND OUR ATTENTION WAS DRAWN TO NOTE NO. (II) UNDER THE HEAD INVENTORIES . THE SAID NOTE IS AS UNDER: - (II) COMPLETED ANIMATION PROGRAMMES ARE STATED AT THE LOWER OF UNAMORTISED COST OR ESTIMATED NET REALIZABLE VALUE. UNAMORTISED COST OF THE COMPLETED ANIMATION PROGRAMMES COMPRISE PRODUCTION COSTS, DIRECT OVERHEADS AND A PORTION OF INDIRECT OVERHEADS ATTRIBUTABLE TO INDIVIDUAL PROGRAMMES, AS REDUCED BY THE ACCUMULATED AMORTISATION ON AN INDIVIDUAL PROGRAMME BASIS. THE COSTS ARE AMORTISED EQUALLY OVER A PERIOD OF FIVE YEARS FROM THE END OF THE YEAR OF PRODUCTION OF THE PROGRAMME. REVENUE FORECASTS FOR ANIMATION PROGRAMMES ARE CONTINUALLY REVIEWED BY MANAGEMENT AND REVISED AT EACH PERIOD-END OR WHEN WARRANTED BY CHANGING CONDITIONS. WHEN ESTIMATES OF TOTAL REVENUES INDICATE THAT AN ANIMATION PROGRAMME WILL RESULT IN AN ULTIMATE LOSS, ADDITIONAL AMORTISATION IS PROVIDED TO RECOGNIZE SUCH LOSS CURRENTLY. IT IS SUBMITTED THAT THE METHOD OF WRITE OFF FOLLOW ED BY THE ASSESSEE CONFORMS TO ACCOUNTING STANDARDS 2 AND SINCE THERE ARE ADEQUATE INTERNAL CHECKS SUCH AS CONTINUOUS REVIEW BY THE MA NAGEMENT, THE ITA NO: 6921 & 6932/MUM/2005 8 BONA FIDE OF THE DECISION TO WRITE OFF THE INVENTOR IES IN THE YEAR UNDER APPEAL SHOULD NOT BE DOUBTED. 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT THERE IS NO EVIDENCE OF ANY REVIEW H AVING BEEN DONE BY THE ASSESSEE AS CLAIMED BY IT AND THAT IN ANY CASE IT HAS TO BE ESTABLISHED BY THE ASSESSEE THAT THE WRITE OFF WAS BONA FIDE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS UNABLE TO S UBSTANTIATE THE CLAIM THAT THE WRITE OFF WAS PROPERLY MADE. HE, TH EREFORE, CONTENDED THAT THE DISALLOWANCE WAS JUSTIFIED. 10. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. THE ASSESSEE HAS FURNISHED THE REASON S FOR THE WRITE OFF IN A CONSOLIDATED MANNER AT PAGES 41 TO 43 OF THE P APER BOOK. THE BONA FIDE OF THE WRITE OFF AND THE APPLICATION OF T HE MIND BEFORE THE AMOUNTS WERE WRITTEN OFF CANNOT BE DOUBTED IN THE L IGHT OF THE BOARD RESOLUTION DATED 11.10.2001 AUTHORISING THE WRITE O FF. A COPY OF THE BOARD RESOLUTION IS AT PAGES 1 AND 2 OF THE PAPER B OOK FILED BY THE ASSESSEE. THE RESOLUTION SHOWS THAT ON AMALGAMAT ION OF UTV NET SOLUTIONS LTD. WITH THE ASSESSEE COMPANY AND UNDER THE SCHEME OF ARRANGEMENT FOR WRITING OFF THE INVESTMENTS OF THE COMPANY AGAINST THE SHARE PREMIUM ACCOUNT, IT WAS RESOLVED TO WRITE OFF THE INVENTORY AMOUNTING TO RS.625 LAKHS IN THE BOOKS OF ACCOUNT F OR THE YEAR ENDED 31.03.2002. THE SCHEME OF ARRANGEMENT UNDER WHICH THE ASSESSEE WAS PERMITTED BY THE BOMBAY HIGH COURT TO WRITE OFF THE INVENTORIES AGAINST THE SHARE PREMIUM ACCOUNT IS ALSO FILED IN THE PAPER BOOK. THE ACCOUNTING ENTRIES ARE AT PAGE 25 OF THE PAPER BOOK. THE ITA NO: 6921 & 6932/MUM/2005 9 NARRATION IN THE JOURNAL ENTRIES SHOWS THAT THE WRI TE OFF WAS BEING MADE AS PER THE SCHEME OF ARRANGEMENT WITH UTV NET SOLUT IONS LTD. SANCTIONED BY THE BOMBAY HIGH COURT. THE CIT(A) HA S EXAMINED EACH AND EVERY ANIMATION PROGRAMME. IN RESPECT OF THE PROGRAMME KONG, THE ASSESSEE HAD FAILED TO SUBSTANTIATE ITS C LAIM WITH ANY DOCUMENTARY EVIDENCE THAT THE CONTRACT TO PRODUCE 1 0 EPISODES OF THE PROGRAMME WAS UNILATERALLY TERMINATED BY THE OVERSE AS PARTY AFTER THE ASSESSEE HAD PRODUCED 3 EPISODES. THE ASSESSEES A NSWER TO THIS IS THAT HAD THE CONTRACT BEEN IN EXISTENCE THE ENTIRE REVENUES WOULD HAVE COME IN THE FINANCIAL YEAR OR SUNDRY DEBTORS WOULD HAVE BEEN SHOWN. IT IS ALSO STATED THAT AFTER 3 EPISODES THE REMAINI NG EPISODES WERE NOT COMPLETED BECAUSE THE CONTRACT WAS TERMINATED. THE ASSESSEES PLEA CAN BE ACCEPTED IF IT WAS ABLE TO PRODUCE EVIDENCE TO SHOW THAT THE CONTRACT WAS UNILATERALLY TERMINATED BY THE OVERSEA S PARTY. WE DO NOT THINK THAT IT WOULD HAVE BEEN VERY DIFFICULT FOR TH E ASSESSEE TO PRODUCE EVIDENCE TO THAT EFFECT. CERTAINLY THERE MUST BE S OME INTIMATION FROM THE OVERSEAS PARTY THAT THE CONTRACT WAS BEING UNIL ATERALLY TERMINATED. THEREFORE, WE ARE UNABLE TO FIND FAULT WITH THE DEC ISION TAKEN BY THE INCOME TAX AUTHORITIES THAT IN THE ABSENCE OF ANY E VIDENCE TO SHOW THAT THE OVERSEAS PARTY UNILATERALLY TERMINATED THE CONTRACT, THE WRITE OFF CANNOT BE ALLOWED MERELY BECAUSE THERE WERE NO REVE NUES SHOWN BY THE ASSESSEE OR THAT THE WRITE OFF WAS IN CONFORMIT Y WITH AS 2. 11. SO FAR AS THE PROGRAMME CALLED DR. DISASTER IS CONCERNED, THE SAME WAS COMPLETED IN THE YEAR ENDED 31.03.2001, I. E. THE EARLIER YEAR. NO REVENUES WERE EARNED IN THE PRESENT YEAR. THE ASSESSEE ITA NO: 6921 & 6932/MUM/2005 10 WAS ABLE TO PRODUCE THE AGREEMENT BEFORE THE ASSESS ING OFFICER FROM WHICH IT WAS GATHERED THAT THE CONTRACT WAS NOT TER MINATED. THE ONLY REASON FOR WRITING OFF THE AMOUNT OF RS.52,79,056/- IS THAT THERE WERE NO REVENUES EARNED IN THE CURRENT YEAR. THE CIT(A) HAS FOUND THAT THE AGREEMENT WITH THE OVERSEAS PARTY WAS STILL IN EFFE CT AND THE PROGRAMME IS YET TO BE TELECAST. HE HAS THEREFORE HELD THAT IT IS PREMATURE TO WRITE OFF THE PROGRAMME. HE HAS ALSO FOUND THAT ADDITIONAL COSTS WERE INCURRED IN THE IMMEDIATELY P RECEDING FINANCIAL YEAR. IN THE LIGHT OF THE FINDINGS OF THE CIT(A) I T IS DIFFICULT TO ACCEPT THE ASSESSEES PLEA THAT MERELY BECAUSE NO REVENUES WER E EARNED SINCE INCEPTION, THE AMOUNT SHOULD BE WRITTEN OFF IN THIS YEAR. THE POSSIBILITY OF THE PROGRAMME GENERATING SOME INCOME IN THE YEAR S TO COME CANNOT BE TOTALLY RULED OUT. WE ARE SATISFIED THAT THE CIT(A) WAS RIGHT IN HOLDING THAT THE WRITE OFF WAS PREMATURE. 12. AS REGARDS THE PROGRAMME CALLED KING, THE ASSES SEE WAS NOT ABLE TO FURNISH A COPY OF THE AGREEMENT BEFORE THE ASSESSING OFFICER. BEFORE THE CIT(A) IT WAS STATED BY THE ASSESSEE THA T IT COULD FIND NO BUYER FOR THE PROGRAMME DESPITE BEST EFFORTS AND DU E TO SLOW DOWN IN DOMESTIC MARKETS THE MANAGEMENT DECIDED TO WRITE OF F THE PRODUCTION COSTS INSTEAD OF CARRYING THEM AS INVENTORY. THE C IT(A) REJECTED THE ASSESSEES SUBMISSION. HE FOUND THAT THE ASSESSEE HAD WRITTEN OFF THE ENTIRE COSTS IN THE SAME YEAR IN WHICH THE PROGRAMM E WAS PRODUCED. HAVING REGARD TO THE FACTS BROUGHT ON RECORD AND TH E NATURE OF THE SUBMISSIONS MADE BEFORE THE CIT(A) AND BEFORE US, W E ARE INCLINED TO ITA NO: 6921 & 6932/MUM/2005 11 AGREE WITH THE FINDING OF THE CIT(A) THAT THE WRITE OFF IS PREMATURE AND CANNOT BE ALLOWED. 13. IN THE CASE OF THE PROGRAMME CALLED ME & ME TOO , IT IS SEEN THAT IT WAS PRODUCED DURING THE YEAR ENDED 31.03.19 99 AT A COST OF RS.87,76,004/-. ADDITIONAL COSTS WERE INCURRED IN THE NEXT TWO FINANCIAL YEARS. THE ASSESSEE WROTE OFF RS.21,35,342/- WHICH WAS NOT ALLOWED BY THE ASSESSING OFFICER SINCE THE ASSESSEE DID NOT FURNISH ANY AGREEMENT AND NO REVENUES WERE EARNED DURING THE RE LEVANT PERIOD. THE CIT(A) DID NOT AGREE WITH THE ASSESSEES SUBMIS SION THAT THE PROGRAMME COULD NOT BE SOLD AND EVEN THOUGH INITIAL LY SOME INTEREST WAS SHOWN BY SOME PARTIES, THE ASSESSEE WAS EVENTUA LLY UNABLE TO SELL THE SAME. WE ARE, HOWEVER, UNABLE TO UPHOLD T HE FINDING OF THE CIT(A) BECAUSE THE ASSESSEE HAS WRITTEN OFF ONLY RS .21,35,342/- OUT OF THE TOTAL COSTS OF PRODUCTION. FURTHER THERE IS NO FINDING THAT THE ASSESSEES PLEA THAT THE PROGRAMME COULD NOT BE SOL D IS NOT CORRECT. IN THIS VIEW OF THE MATTER WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF RS.21,35,342/- RELATING TO THE WRITE OFF O F THE PROGRAMME ME & ME TOO. 14. THE OTHER TWO PROGRAMMES ARE UTV TOONS SHOWREEL AND WEBSITE. CONSIDERING THAT THESE ARE SMALL ANIMATIO N PROGRAMMES AND THE AMOUNTS WRITTEN OF WERE ONLY RS.24,610/- AND RS .20,050/-, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE WRITE OFF . THE GROUND IS THUS PARTLY ALLOWED. 15. THE SECOND GROUND IS AGAINST THE DISALLOWANCE O F THE WRITE OFF OF IRRECOVERABLE LOANS AND ADVANCES INCLUDING LOANS TO EMPLOYEES WHO ITA NO: 6921 & 6932/MUM/2005 12 HAD LEFT THE EMPLOYMENT. THE AMOUNT DISALLOWED IS RS.21,78,000/-. FROM THE DETAILS FILED BY THE ASSESSEE THE ASSESSIN G OFFICER HELD THAT THE AMOUNTS WRITTEN OFF DID NOT REPRESENT MONEY LEN T IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LENDING. HE THEREFORE DISALLOWED THE CLAIM UNDER SECTION 36(2)(I) OF THE ACT. THE DISALLOWANCE WAS CONFIRMED BY THE CIT(A). BEFORE T HE CIT(A) IT WAS PLEADED THAT THE ADVANCES BECAME IRRECOVERABLE BECA USE EITHER THE EMPLOYEE LEFT OR THE SUPPLIER HAD DEFAULTED. THE C IT(A, HOWEVER, SUSTAINED THE DISALLOWANCE. AFTER CONSIDERING THE FACTS AND THE RIVAL CONTENTIONS WE ARE UNABLE TO FIND FAULT WITH THE AC TION OF THE DEPARTMENTAL AUTHORITIES. THE ASSESSEE HAS NOT EST ABLISHED BEFORE US THAT THE LOANS OR ADVANCES BECAME IRRECOVERABLE IN THE YEAR OF ACCOUNT. WE ARE AWARE THAT THE CLAIM IS NOT MADE A S BAD DEBT BUT IT CAN BE MADE ONLY AS BUSINESS LOSS BUT EVEN SO THE B URDEN IS ON THE ASSESSEE TO ESTABLISH HOW SUCH A LARGE AMOUNT BECAM E IRRECOVERABLE IN THE YEAR UNDER APPEAL. MERE FURNISHING OF THE D ETAILS OF THE AMOUNTS ADVANCED TO VARIOUS EMPLOYEES WILL NOT ESTABLISH TH E ASSESSEES CLAIM FOR DEDUCTION. THE ADVANCES MAY BE IN THE NORMAL C OURSE OF THE BUSINESS BUT IT IS FOR THE ASSESSEE TO SHOW THAT TH EY BECAME IRRECOVERABLE IN THE YEAR OF ACCOUNT. IN THE ABSEN CE OF ANY EVIDENCE TO THIS EFFECT WE UPHOLD THE DISALLOWANCE AND DISMISS THE GROUND. 16. GROUND NO.3 RELATES TO THE DISALLOWANCE OF STAM P DUTY OF RS.3,25,782/-. THIS AMOUNT REPRESENTS THE COST OF STAMPS AFFIXED ON SHARE TRANSFER FORMS WHICH ARE LODGED WITH THE ASSE SSEE. THE STAMP DUTY ON SHARE TRANSFER WAS 0.5% OF THE VALUE OF THE SHARES IN ITA NO: 6921 & 6932/MUM/2005 13 MAHARASHTRA AND WITHOUT PAYMENT OF THE SAME THE SHA RES CANNOT BE TRANSFERRED. IT IS THE STATE AUTHORITIES WHO AFFIX THE STAMPS ON THE TRANSFER FORMS AND NO OTHER PRIVATE PERSON CAN DO S O AND, THEREFORE, NO OTHER EVIDENCE FOR PAYMENT OF THE COST OF STAMPS IS NECESSARY. WE ACCEPT THE ASSESSEES SUBMISSION AND DELETE THE DIS ALLOWANCE. THE GROUND IS ALLOWED. 17. GROUND NO.4 IS DIRECTED AGAINST THE DISALLOWANC E OF PRODUCTION EXPENSES BASED ON A PERCENTAGE OF THE EXPENSES. TH IS GROUND HAS ALREADY BEEN CONSIDERED WHILE DEALING WITH GROUND N O.1 IN THE DEPARTMENTS APPEAL. FOR THE REASONS STATED THEREI N THE DISALLOWANCE IS RESTRICTED TO 7% AND THE GROUND IS PARTLY ALLOWE D. 18. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE 2010. SD/- SD/- (A L GEHLOT) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 18 TH JUNE 2010 SALDANHA COPY TO: 1. M/S UTV SOFTWARE COMMUNICATIONS LTD. PARIJAT HOUSE, 1076, DR E MOSES ROAD WORLI NAKA, MUMBAI 400 018 2. ACIT / DCIT, CENTRAL CIRCLE 13 3. CIT-CENTRAL IV 4. CIT(A)-CENTRAL VII 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI