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TMI Blog2015 (8) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... or without proving any escapement of income. The reasons given for doing so are wrong, contrary to the facts of the case and against the provisions of law. (c) The Ld CIT (A) / AO erred in law and facts in re-opening of the assessment and re-assessment u/s 147 of the Act on the basis of reasons recorded which states that depreciation is allowable @ 25% on film rights, while as per Accounting Policy amortization has been done by the assessee over 60 months or license period i.e. 20% p.a. for years, higher than claim made by assessee, which proves no escapement of income. The reasons given for doing so are wrong, contrary to the facts of the case and against the provisions of law. (d) The Ld CIT (A) / AO are not justified in disturbing the settled assessment without any reason solely on the basis of change of opinion. They ought to have accepted the consistent accounting policies followed by the appellant and the industry for years. 2. (i) The Ld CIT (A) / AO erred in law and acts in treating the TV programs and film rights as intangible assets, in media industry and disallowing entire cost allowing on depreciation only. (ii) The Ld CIT (A) erred in law and facts in upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued notice u/s 148 of the Act giving reasons recorded as under: "The assessee during the year had acquired program / films rights of Rs. 99,05,07,680/-. And the same was debited to P & L Account under the head operational expenses. Since, the film rights are an intangible asset, one fourth of the same ie Rs. 24,76,26,920/- can only be allowed. That has resulted in underassessment of income of Rs. 74,28,80,760/-." 4. After considering the submissions of the assessee, which are extracted and placed in para 7.1 of the assessment order, AO proceeded to make addition of Rs. 74,28,80,760/- as per the discussion given in paras 7.2 and 7.3 of the re-assessment order and the same are extracted as under: "7.2. The reply of the assessee has been considered however the same is not acceptable for the reasons that the program / films rights are intangible rights are deserves to be amortized ¼ of the total expenditure. As per Rule 9(A)(1) of the IT Rule. Envisage that in computing the profits and gains of the business of production of feature films carried on by a person, the deduction in respect of cost of the cost of production of feature film shall be allowed. Further deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion etc. However, being current assets, the said intangibles were considered by the assessee as current assets and are either debited fully or amortized over the year depending on the accounting policy of the assessee. Otherwise, Assessing Officer took a stand that the said assets constitutes intangible rights, being capital in nature, the provisions of section 32(ii) of the Act applies accordingly. Therefore, the claim made by the assessee was not allowed. However, this is the first time that the Assessing Officer disturbed the method of accounting followed in this regard on the issue of News / TV / Film rights. Eventually, the AO made re-assessment vide his order dated 17.2.2014 and made addition of Rs. 74,28,80,760/-. Relevant discussion is available in para 7.2 and 7.3 of the said order and they are already extracted in para 4 of this order. The total income of the assessee is determined at Rs. 140,06,54,710/- in the re-assessment. Aggrieved with the above, assessee filed an appeal before the CIT (A) with legal grounds questioning the validity of the re-assessment. Ground nos. 1 and 2 of the Grounds of Appeal before the CIT (A) relates to the said legal issue. 8. During the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee consistently following the method of accounting in matters of programs and film rights and inventories. The said Item No.7 is extracted as under: "7. Programs / Film Rights and inventories: a. Program / Film Rights. Program / Film Rights are stated at the lower of net cost (cost minus accumulated amortization / impairment) or realizable value. Where the realizable value on the basis of its useful economic life is less than its carrying amount, the difference is expensed as impairment. i. Cost of news / current affairs / chat chows / events etc are fully expensed. ii. Programs [other than (i) above] are amortized over three years from the year and related program is telecast. iii. Film rights are amortized on a straight-line basis over the license period or 60 months from the date of purchase whichever is shorter. b. Inventories of tapes are valued at lower of cost or estimated net realisable value. Cost is taken on first-in-first-out (FIFO) basis." 10. Thus, it is the contention of the assessee that the assessee has followed method of accounting in matters of treating the News / TV / Film Rights as „current assets‟ and valuation thereon. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Aroni Commercials Ltd vs. DCIT [WP NO.137 of 2014 -362 ITR 403 (Bom) In this case, in para 14, the Hon'ble Bombay High Court has noted that there was a specific query and a reply was given by the assessee and therefore, reassessment on the same issue amounted to a change of opinion. The Department argued that there. was no formation of opinion since the same was not referred in the assessment order (bottom of page 17). The High Court rejected this contention by holding that once a query is raised and reply is given, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is not necessary that an assessment order should contain reference and / or discussion to disclose its satisfaction in respect of the query raised. If an assessing officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceedings even where he is satisfied, then, it would be impossible for the assessing officer to complete all the assessments which are required to be scrutinised by him under section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re: (1) brought forward depreciation pertaining to AY 1997-98 and 1999-2000 could not be set off against income of AY 2009-10 since 8 years had elapsed (2) claim of deduction of bad debts written off was incorrect and (3) incorrect claim of lower of the unabsorbed depreciation and brought forward business loss (para 9). The High Court in para 15 noted the Department's contention that the issues involved in the reassessment proceedings were never examined by the AO and that the AO without looking into the issues allowed the claim of the assessee, which is not permissible. The High Court in para 18 held that the entire approach of the Revenue was misconceived. The assessment order had obviously taken into account the aspect of depreciation. Perusal of the assessment order revealed that all relevant documents and details as called for were filed. It was further recorded in the assessment order that the details filed with the return of income and during the assessment proceedings were scrutinised (this is also stated by the AO in the present assessee's case - please refer page 33 of paper book, para 7). There did not appear to be any tangible material/reason for the AO to reo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that no specific query was raised by the Aa during the original assessment proceedings on the question of application of section 68 of the Act. The High Court struck down the reassessment proceedings holding that there was no lack of disclosure or suppression of any material facts. All queries of the AO were answered. Thus, there was no tangible reason for reopening the assessment. (v) Maharashtra Airport Development Co. Ltd. Vs. DCIT (2013) 35 Taxmann.com 591 (Mum Tribunal) In this case, the assessment for AY 2005-06 was reopened within four years on the grounds that (1) the expenditure debited to profit and loss account amounting to Rs. 1,37,06,149 constituted pre-operative expenses (2) direct and other income of Rs. 37,27,107 constituted income from other sources (para 3). In para 10, the Tribunal noted that during the course of the assessment proceedings, the assessee was asked to submit the details of nature of business activity carried out, which was replied by the assessee by stating that the company was engaged in the infrastructure and development activities. This explanation was also elaborated by filing another submission. The Tribunal noted that the assessee had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been erroneously allowed. Thus the High Court concluded that there was no material or information based on which the AO could form a reasonable belief that income chargeable to tax had escaped assessment and that the re-openings were based purely on a change of opinion. In the present case also, the method of accounting has been consistently followed for a number of years in past and is also accepted in scrutiny assessments but is now sought to be rejected without any tangible material purely on the basis of a change of opinion. (vii) CIT vs Amitabh Bachchan 349 ITR 76 (Bombay) In this case the return of income for AY 2002-03 was filed on 13.10.2002. Thereafter on 31.03.2002 (sic) the return was revised claiming expenses @ 30% ad hoc. When the officer asked for the substantiation of the expenses the claim was withdrawn. A notice u/s 148 was issued on 05.04.2006 on the ground that expenses @ 30% which were sought to be claimed on adhoc basis were incurred out of undisclosed source which require further verification under the provisions of Section 69. The High Court confirmed the Tribunal's finding that reassessment was invalid since no new material had come to the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee, as explained hereinafter. (i) Dr. Amin Pathology laboratory vs JeIT (252 ITR 673) (Bombay) In this case the reassessment proceedings for AY 1994-95 were initiated vide a notice u/s 148 issued on 14.03.2001 i.e. beyond a period of 4 years from the end of the relevant asst. year. The present case is not of the same kind. Be that as it may, the High Court in arriving at the conclusion that the reassessment proceedings were properly initiated noted that the assessing office overlooked an amount of 6,70,758 which represented unpaid purchases. Since there was a failure to disclose the unpaid purchases the assessee firm had suppressed the income to that extent. There is no allegation of any kind of suppression of any particulars in the present case. Moreover the High Court has relied on the decision of Hon'ble Gujarat High Court in Praful Chunilal Patel vs M. J. Makwana {236 ITR 832).This decision has been specifically dissented from in the Full Bench decision of Delhi High Court in the case of Kelvinator {256 ITR L), which in turn has been affirmed by Hon'ble Supreme Court in 320 ITR 561. Therefore the decision of the Gujarat High Court in Praful Pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned it was held that there was no legal necessity that the materials referred to in Section 147 should be fresh material collected subsequent to the conclusion of the original asst. proceedings. In the present case there is no material whatsoever, existing or new, and therefore the decision is distinguishable. (v) Export Credit Guarantee Corp. Of India Ltd. Vs Add!. CIT (30 taxmann.com 211) (Bombay) In this case the asst. for the asst. year 2006-07 was sought to be re-opened within 4 years vide a notice dt. 24.03.2011 issued u/s 148. The high Court held that there was tangible material on the basis of which the asst. was sought to be re-opened. For instance the High Court pointed out that during the year in question there was change in accounting policy as a result of which the provision for estimated recovery in respect of claims paid and outstanding for recoveries for a period of 3 years or more as on the balance sheet date was estimated at Rs. 100 for each claim in substitution of individual assessment/estimate made earlier which had the effect of the existing provision being written off by about Rs. 20 Crore in the revenue account and reducing the profit of the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eappraisal of the facts the case. When, however, a new fact comes into picture, and there is a change in the factual matrix of the case consequent thereto, it cannot be said to be a review, which predicates examining the same factual matrix, which may lead to a view either in the agreement or in modification of that formed earlier. It is well settled that even one fact can change the whole complexion and lead to a change of opinion formed in the absence of such facts or its consideration (refer Padmasundara Rao (Decd) vs. State of Tamil Nadu 225 ITR 147 (Se). This would not amount to a mere change of opinion but a fresh opinion in light and consideration of the new emerging position." It is submitted that in the present case, there is no such fresh material. Rather, the AO has reopened the completed assessment on the basis of reappraisal of the material available on record. Therefore, on the basis of the principle laid down by the Hon'ble Tribunal in the decision relied upon by the Learned DR, it should be held that the reassessment proceedings are invalid. As directed by the Hon'ble Tribunal, the present submissions are confined to the validity of reassessment proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne No.7 provides for the method of valuation of the programs and the film rights, the pasts of the inventory. The contents of the said „Note No.7‟ is very clear as to how the TV Programs and Film Rights are amortized, and the AO is aware of these facts during the time of regular assessment. Therefore, AO raised the said questions with the view to make disallowance on account of amortization of the inventories, if any, and also to deny the deduction claimed by the assessee. Otherwise, we find no other reason for raising such question in the regular assessment. Therefore, it is unavoidable inference that the said issue raised in Q.No.11 is akin to the issue raised in the reasons recorded before issuance of notice u/s 148 of the Act. Hence, the AO applied his mind to the issue raised in the reasons recorded by him before the re-assessment proceedings are initiated. Of course, the language used by the AO in the reasons recorded is in different, but, otherwise, the issue raised is identical to the one which was already examined by the AO in the regular assessment on which an opinion is formed. When the Q.No. 11 relating to the method of valuation of inventories is raised, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (rounded off) while the News and non-fiction were completely amortized by debiting to the P & L Account whereas the TV Programs and Film Rights were differently amortized over a period of time depending upon the agreement and the nature and potential of the TV Programs and Film Rights. The total such amortization under these three heads works out to Rs. 76.41 Crs (rounded off) and the same is accounted on scientific basis without treating them as current assets with the facility of amortization and not by naming them as intangible assets claiming depreciation. 20. During the proceedings before us, Ld Counsel for the assessee supported the accounting method of the assessee in this regard and submitted that the „News items‟ do not have long life and they are not fit for repeated broadcasting and therefore, News and the non-fiction items have to be amortized in toto in the year of acquisition and use. Therefore, considering the same this part of the purchases of News items and non-fiction items are rightly debited to the P & L Account under the head „operational cost‟. The decision based on a scientific analysis and therefore, the decisions of the AO and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current asset‟. Relying on the above definition, Ld DR for the Revenue submitted that News / non-fictional items, TV Programs, Film Rights did not constantly flow in and out for the assessee. In fact, assessee uses these TV Programs / Film Rights as bait for attracting the advertisements and Television Rating Point (TRP) rates. In that sense, the said rights do not constitute current assets. Therefore, these items constitute intangible assets, which are eligible for depreciation and therefore, the amortization adopted by the assessee should dismissed as done by the Revenue Authorities during the assessment as well as first appellate proceedings. 23. During rebuttal time, Ld Counsel for the assessee filed a copy of the order of the ITAT, Chennai Bench in the case of ACIT vs. M/s. Sun TV Networks Ltd in ITA Nos.1515 to 1520/Mds/2013 for the AYs 2004-05 to 2009-10, dated 31.10.2013 and submitted that the issue of amortization of TV Programs and Film Rights was approved in the said order vide paras 8 and 9 of the said Tribunal‟s order. The said paras read as under: "8. Now, we take up the common issue involved in all the appeals. The assessee is in the business of running ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction expenses, consumable and media expenses by treating them as intangible assets u/s 32(1)(ii) has been dealt in detail by the CIT (A) in his order dated 23.2.2013 relevant to the AY 2006-07 and 2007-08. We fully agree with the detailed findings and the reasoning given by the CIT (A) in his order allowing this ground of appeal of the assessee. For the sake of brevity, we are not reproducing the finding of the CIT (A) in accordance with the judgment of the Hon‟ble Supreme Court of India in the case of CIT vs. K.Y. Pillah & Sons reported as 63 ITR 411 subsequently followed by the Hon‟ble Delhi High Court in the case of CIT vs. Global Vantedge (P) Ltd reported as 354 ITR 21 (Del). The Ld DR has not been able to controvert the well reasoned order of the CIT (A) on the issue. Accordingly, the findings of the CIT (A) on the issue are affirmed and this ground of appeal of the Revenue in respect of all the AYs is dismissed." 24. Further, on the issue of allowability of the claim on the news items / non-fictional items, Ld Counsel for the assessee also brought our attention to the judgment of the Hon‟ble Delhi High Court in the case of CIT vs. Television Eighteen I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is a settled issue at the level of Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd (supra) that the claims of the assessee relating to news / non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as „intangible assets‟ for the purpose of invoking the provisions of section 32(ii) of the Act. We rely on the above referred Delhi High Court‟s Judgment in the case of Television Eighteen India Ltd (supra). Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act, without any sustainable reasoning. Therefore, considering all the points mentioned above, we are of the firm opinion that the decision of the AO/CIT(A) is unsustainable legally. Hence, the assessee is entitled to claim the purchases of news items/non fictional items as an allowable expenditure. ..... 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