ACIT 16(1), MUMBAI V. SAJID NADIADWALA, MUMBAI

ITA 7208/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3787 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 03-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SARAVANAN DR
• Assessee Lawyers: R PRASAD RAO
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C.N. P RASAD,JUDICIAL MEMBER ./ITA/7208/MUM/2014, /ASSESSMENT YEAR: 2011-12 ACIT-16(1) ROOM NO.439, AAYAKAR BHAVAN A.K. MARG, MUMBAI-400 020. VS. SHRI SAJID NADIADWALA NADIADWALLA VILLA,OCEAN VIEW, J.P. ROAD, VERSOVA,MUMBAI-400 061. PAN:AAGPS 5417 D ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI J. SARAVANAN-DR ASSESSEE BY: SHRI R. PRASAD RAO / DATE OF HEARING: 04.07.2016 / DATE OF PRONOUNCEMENT: 10.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DTD.18.09.2014 OF THE CIT(A)- 3,MUMBAI, THE AO(ASSESSING OFFICER) HAS FILED THE PRESENT APPEAL.ASSESSEE,AN INDIVIDUAL ,ENGAGED IN THE BUSINESS OF FILM PRODUCTION FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION ON 08.05.2012,DECLARING ITS TOTAL INCOME AT RS.2.35CRORES. THE AO COMPLETED THE ASSES SMENT U/S.143(3)OF THE ACT,ON 26. 11.2013,DETERMINING THE TOTAL INCOME OF THE ASSESSE E AT RS.2.75CRORES.THE SOLITARY GROUND RAISED BY THE AO,IS AS TO WHETHER THE COST OF PRODU CTION OF AN ABANDONED FILM CAN BE TREATED AS A REVENUE EXPENDITURE. 2. DURING THE ASSESSMENT PROCEEDINGS,IT WAS FOUND BY T HE AO THAT THE ASSESSEE HAD WRITTEN OFF A SUM OF RS.42,23,405/- ON ACCOUNT OF COST OF P RODUCTION OF INCOMPLETE/ABANDONED FILM. HE HELD THAT THE COST COULD NOT BE WRITTEN OFF AS A N EXPENSE IN VIEW OF THE PROVISIONS OF RULE 9A OF THE INCOME TAX RULES,1962(RULES).REFERRING TO THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF SADICCHA CHITRA (90CTR135),HE HELD THAT COST OF FILM WAS A CAPITAL ASSET IN THE HANDS OF THE PRODUCER AND THE EXPENDITURE IN CURRED ON ABANDONING THE FILM WOULD BE CAPITAL EXPENDITURE,HENCE TAXABLE. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERR ED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA),WHO DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF AK FILMS PVT. LTD.(ITA/5980 /MUM/2012), WHEREIN IT WAS HELD THAT 7208/MUM/2014SAJJID 2 COST OF AN ABANDONED FEATURE FILM WAS ALLOWABLE AS A REVENUE EXPENDITURE, PROVIDED THE FILM HAS BEEN ABANDONED PERMANENTLY. 4. BEFORE US, THE DEPARTMENT REPRESENTATIVE (DR) SUPPO RTED THE ORDER OF THE AO. THE AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT THE COST OF FILM UNDER PRODUCTION WAS IN THE NATURE OF STOCK-IN-TRADE AS PER RULE 9A OF THE RUL ES,THAT THE SAID ITEM WAS SHOWN IN CURRENT ASSETS IN THE BALANCE SHEET AND AMORTISED IN THE YE AR IN WHICH THE FILM WAS RELEASED, THAT IN CASE IF THE FILM WAS ABANDONED OR SCRAPPED THE SAME WAS ALLOWABLE AS A REVENUE EXPENDITURE WHICH INCLUDED SUNDRY CREDITORS AMOUNTING TO RS.1,9 8,179/-.HE ALSO REFERRED TO THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. VENUS RECORDS AND TAPES P.LTD. (INCOME TAX APPEAL NO.310 OF 2013 DATED 28.01.2015) ,AS WELL AS THE ORDERS OF THE TRIBUNAL IN THE CASES OF M/S.WARNER BROS. PICTURES(I)PVT.LTD .(ITA/4866/MUM/2014,DATED 15.01. 2016 FOR AY 09-10); ABDUL G. NADIADWALA (ITA/2896/MUM/20 11,DT.12.06.2013). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT,WHILE DECIDING THE APPEAL IN THE CASE OF M/S. WARNER BROS. PICTURES (I) PVT. LTD (SUPRA),THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE,THAT THE TRIBUNAL HAD DELETED THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE FAA.THE RELEVANT PORTION OF THE ORDER (SUPRA) READS AS UNDER: 3.3.1 WE HAVE HEARD THE RIVAL CONTENTION AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS, ETC. CITE D. THE ISSUE FOR CONSIDERATION AND ADJUDICATION BEFORE US IS WHETHER, IN THE FACTS AND CIRCUMSTANCE S OF THE CASE AND IN THE LIGHT OF JUDICIAL PRONOUNCEMENTS IN THIS REGARD, THE WRITE OFF OF EXP ENDITURE OF RS. 1,89,49,920/- INCURRED ON ACCOUNT OF ADVANCE FOR PURCHASE OF A FILM SCRIPT FOR PRODUC TION OF AN ABANDONED FILM WAS ALLOWABLE AS REVENUE EXPENDITURE. 3.3.2 WE FIND THAT A SIMILAR ISSUE WAS BEFORE THE H ONBLE HIGH COURT OF BOMBAY IN THE CASE OF M/S VENUS RECORDS AND TAPES PVT. LTD. IN ITA NO. 310/20 13 DT. 28/01/2015, WHERE THE QUESTION FOR CONSIDERATION WAS WHETHER THE COST OF THE ABANDONED FILM WRITTEN OFF WAS REVENUE EXPENDITURE. THE HONBLE COURT DISMISSED REVENUES APPEAL IN THAT CA SE AND HELD IN FAVOUR OF THE ASSESSEE THAT THE COST OF THE ABANDONED FILM WRITTEN OFF WAS REVENUE EXPEN DITURE. IN COMING TO THIS FINDING, THE HONBLE COURT FOLLOWED ITS OWN DECISIONS RENDERED IN CIT VS . RAJESH KHANNA (ITA NO. 3875/2010 DT. 14/09/2011) AND CIT VS. DREAM MERCHANT ENTERPRISES (ITA NO. 4343 & 4252 OF 2010 DT. 20/09/2011). 3.3.3 THE LD. AR HAS ALSO PLACED BEFORE THE BENCH A COPY OF CBDT CIRCULAR NO. 16/2015 DY. 06/10/2015 ( F NO. 279/MISC./140/2015- ITJ, WHEREIN , CONSEQUENT TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN VENUS RECORDS AND TAPES P. LTD .(SUPRA), IT HAS BEEN CLARIFIED THAT RULE 9A OF THE IT RULE, 1962 IS NOT APPLICABLE IN THE CASE OF ABANDONED FEATURE FILMS. THE SAME IS EXTRACTED HEREUNDER:- CIRCULAR NO. 16/2015 F.NO.279/MISC/140/2015-ITJ GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES ****** 7208/MUM/2014SAJJID 3 NEW DELHI, 6TH OCTOBER, 2015 SUBJECT: - NON-APPLICABILITY OF RULE 9A OF THE INCO ME TAX RULES 1962 IN THE CASE OF ABANDONED FEATURE FILMS- THE DEDUCTION IN RESPECT OF THE COST OF PRODUCTION OF A FEATURE FILM CERTIFIED FOR RELEASE BY THE BOARD OF FILM CENSORS IN A PREVIOUS YEAR IS PROVIDED IN RULE 9A OF INCOME TAX RULES, 1962. 2.IN THE CASE OF ABANDONED FILMS, HOWEVER, SINCE CE RTIFICATE OF BOARD OF FILM CENSORS IS NOT RECEIVED, IN SOME CASES NO DEDU CTION WAS ALLOWED BY APPLYING RULE 9A OF THE RULES OR BY TREATING THE EX PENDITURE AS CAPITAL EXPENDITURE. 3.THE MATTER HAS BEEN EXAMINED IN LIGHT OF JUDICIAL DECISIONS ON THIS SUBJECT. THE ORDER OF THE HON. BOMBAY HIGH COURT DA TED 28. 1.15 IN ITA 310 OF 2013 IN THE CASE OF VENUS RECORDS AND TAPES PVT. LTD. ON THIS ISSUE HAS BEEN ACCEPTED AND THE AFORESAID DISPUTED ISSUE HAS NOT BEEN FURTHER CONTESTED. CONSEQUENTLY, IT IS CLARIFIED THAT RULE 9A DOES NOT APPLY TO ABANDONED FEATURE FILMS AND THAT THE EXPENDITURE IN CURRED ON SUCH ABANDONED FEATURE FILMS IS NOT TO BE TREATED AS A C APITAL EXPENDITURE. THE COST OF PRODUCTION OF AN ABANDONED FEATURE FILM, IS TO BE TREATED AS REVENUE EXPENDITURE AND ALLOWED AS PER THE PROVISIONS OF SE CTION 37 OF THE INCOME- TAX ACT. 4.BEING A SETTLED ISSUE, NO APPEALS MAY HENCEFORTH BE FILED ON THIS GROUND BY THE OFFICERS OF THE DEPARTMENT AND APPEALS ALREA DY FILED, IF ANY, ALREADY FILED ON THIS ISSUE BEFORE VARIOUS COURTS/ TRIBUNAL S MAY BE WITHDRAWN/ NOT PRESSED UPON. THIS MAY BE BROUGHT TO THE NOTICE OF ALL OFFICERS CONCERNED. 3.3.4 RESPECTFULLY FOLLOWING THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. VENUS RECORDS AND TAPES P. LTD, (SUPRA) AND IN VIEW OF CBDTS CIRCULAR NO. 16/2015 DT. 06/10/2015(SUPRA), WE HOLD THAT THE WRITTEN OFF EXP ENDITURE OF RS. 1,82,49,920/- INCURRED BY ASSESSEE AS ADVANCE PAID FOR PURCHASE OF A FILM SCRIPT FOR P RODUCTION OF AN ABANDONED FILM IS ALLOWABLE AS REVENUE EXPENDITURE AND ALSO THAT RULE 9A OF THE IT RULES, 1962 HAS NO APPLICABILITY IN THE MATTER. CONSEQUENTLY, THE GROUNDS RAISED BY REVENUE ARE DIS MISSED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIB UNAL,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO . AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST,2016. 10 ,2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 10 .08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 7208/MUM/2014SAJJID 4 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.