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Zee Media Corporation Limited Versus Dy. Commissioner of Income Tax, Circle 7 (3) , Mumbai

2015 (8) TMI 612 - ITAT MUMBAI

Reopening of assessment - Held that:- On the arguments relating to the existence of new or tangible material for the AO before initiating the re-assessment proceedings, we find from the reasons that it is not the case of Revenue that AO has any such tangible material on the incorrectness of the claim of amortization of the inventories of programs / films or the method of valuation thereof. In the preceding paragraphs, we have extracted ratios of various case laws in the form of the assessee on t .....

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nd it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon'ble Delhi High Court in the case of Television Eighteen India Ltd (2014 (5) TMI 588 - DELHI HIGH COURT ) .....

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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 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. Accordingly, we direct the AO to delete the relevant addition.- Decided in favour of assessee.

On the debits rela .....

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al of Chennai Bench in the case of M/s Sun TV Networks Ltd (2013 (10) TMI 1290 - ITAT CHENNAI). We have also extracted the relevant paragraphs and already placed in this order above. We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal wherein the issue was decided in favour of the assessee and rejected the AO‟s proposal to invoke the provisions of section 32(ii) of the Act in respect of the above programs/rights. As such, th .....

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y the CIT (A) in the impugned order is required to be reversed. - Decided in favour of assessee. - I.T.A. No. 1590/M/2015 - Dated:- 12-8-2015 - SHRI D. KARUNAKARA RAO AND SHRI AMIT SHUKLA, JJ. For The Appellant : Shri Neeraj Seth For The Respondent : Smt. Padmaja, CIT - DR ORDER PER D. KARUNAKARA RAO, AM: This appeal filed by the assessee on 17.3.2015 is against the order of the CIT (A)-14, Mumbai dated 27.1.2015 for the assessment year 2008-2009. 2. In this appeal, assessee raised the following .....

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dy on the record of the department and without bringing any fresh material / evidence on record and / 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 Pol .....

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d 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 the disallowance made by AO by treating entire purchases including TV program, News to be intangible assets as against reasons recorded which proposed to treat only film rights as intangible asset. The Ld .....

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that prima facie the appellant has not challenged that film rights are intangible assets, which is contrary to the facts of the case as the assessee has challenged the same vide ground no.3 and also made submissions before the Ld CIT (A). (ii) that the appellant has stated that entire cost of the films should have been allowed as expenses as per Rule 9A, while assessee categorically submitted that Rule 9A is not applicable to the facts of the case but total cost of production of film is allowed .....

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es. Assessee filed the return of income originally on 29.10.2008 for the AY 2008-09 declaring the total income of ₹ 65,37,28,370/-. Subsequently, the said return of income was revised by declaring the total income of ₹ 65,75,90,650/-. Assessment was completed u/s 143(3) of the Act on 10.12.2010 and the assessed income was determined at ₹ 65,88,02,777/-. Against the said order of the AO, assessee went on appeal to the CIT (A). After considering the submissions of the assessee, C .....

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he same ie ₹ 24,76,26,920/- can only be allowed. That has resulted in underassessment of income of ₹ 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 acceptabl .....

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its and gains of the business of distribution of feature films carried on by a person as per Rule 9B of IT Rules. Thus, if assessee is engaged in the business of TV broadcasting, cost of acquisition of programs / film rights is required to be treated as intangible asset and only on forth of cost (ie 25% as per IT) is allowable. Accounting Standard 26 also defines the programs / films rights as intangible assets especially for the broadcaster. 7.3. In view of the Rule 9(A)(1) of the IT Rule, the .....

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order of the CIT (A), assessee is in appeal with the above referred grounds. Ground wise adjudication is given in the succeeding paragraphs of this order. 6. Ground no.1 relates to the validity of re-assessment u/s 147 of the Act. In principle, assessee argues in the grounds that an opinion was formed by the AO at time of regular assessment on the issue raised in the reasons recorded for re-opening of the assessment ie film rights‟ are intangible rights‟ and only ¼th of the to .....

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see relied on the contents of Note No.7 of the notes to the financial statements. 7. As seen from the para 4 above, CIT (A) has not adjudicated the assessee‟s arguments relating to the intangible nature of such rights, depreciable nature of such intangible rights and allowability of depreciation 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 .....

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dition of ₹ 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 ₹ 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 .....

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nts. Absence of any tangible / new material was also referred. However, the CIT (A) dismissed the said legal grounds without giving any sustainable reasons. The contents of paras 3.2; 3.3 and 3.4 of the impugned order are relevant in this regard. On merits of addition again, the CIT (A) confirmed the addition made by the AO. Aggrieved with the said order of the CIT (A), assessee filed this appeal and raised the said legal ground questioning the validity of the reopening and the re-assessment. 9. .....

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assessee brought our attention to the financial statements placed at page 5 of the paper book (schedule-7) and submitted that the current assets of the assessee constitute 76,40,90,908/- and these are basically program and film rights figuring in the inventories. Further, bringing our attention to page 6 of the paper book (schedule 11), Ld Counsel for the assessee submitted that ₹ 99,05,07,680/- is the total purchase / acquisition of the programs on film rights. Ld Counsel for the assesse .....

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nventories. 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 tha .....

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/ TV / Film Rights as current assets‟ and valuation thereon. Further, Ld Counsel for the assessee mentioned that Assessing Officer examined the above method of accounting during the regular assessment and formed an opinion. For this, the questionnaire dated 25.8.2010 issued by the Assessing Officer is relevant. Bringing our attention to Item Nos. 5 and 11 of the said questionnaire, Ld Counsel for the assessee submitted that the Assessing Officer examined the nature of the business of the a .....

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the paper book, read as under: 11. Details of program / film rights enclosed. Detailed note on inventory valuation is given at Note 7 to the financial statement. 12. Further, bringing our attention to the table at page 21 to 28 of the paper book, Ld Counsel for the assessee submitted that the same constitutes break-up of purchase / acquisition of program and film rights amounting to ₹ 99,05,07,680/-. Further, he also brought our attention to the copy of the tax audit report, which is file .....

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lm rights and TV rights‟ as currents assets‟. Consequently, no addition was made by the AO in the regular assessment. Thus, issue of notice u/s 148 of the Act for re-assessing these current assets as intangible capital rights of the assessee, constitutes a change of opinion‟, which is not permitted in law. For this proposition, Ld Counsel for the assessee filed number of precedents and some of the details are as follows: (i) Aroni Commercials Ltd vs. DCIT [WP NO.137 of 2014 -36 .....

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aised 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 t .....

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rtment that the basis of the audit report was the interpretation / inference drawn by the auditors from the accounts submitted by the petitioner to the Department during the course of the assessment proceedings. The reasons as indicated in the audit report were similar to the reasons as set out in the grounds for reopening the assessment by the AO. The High Court noted that the audit report nor the ground for reopening assessment disclosed any tangible material for the purpose of reopening the a .....

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e in the present case since the AO in reopening the assessment has simply drawn an inference / opinion on the material already on record and considered during the assessment proceedings. It is submitted that the view of the AO in the present case that the program / film rights are intangible assets is an inference / opinion on material already in existence to which his attention has been repeatedly drawn in the course of the original assessment proceedings, as explained above. (ii) Plus Paper Fo .....

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asons for issuance of the notice were: (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 .....

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ng 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 reopen the assessment proceedings. In para 19, the High Court distinguished its decision in Export Credit and Guarantee Corporation of India Ltd. (relied upon by the DR in the present case) on the ground that in that case there was a specific finding that there existed .....

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hts, though assets, were not intangible assets eligible for depreciation as the Company had merely purchased future right to receive income. The High Court held that all material was disclosed by the assessee and therefore the reassessment proceedings on the aforementioned ground constituted a change of opinion. It may be noted that even though a specific query was not raised during the course of the original assessment proceedings on the issue whether the asset management rights were eligible f .....

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he relevant details and examining them, whereas the case before the High Court was a "one-off" transaction of acquisition of asset management rights. (iv) Alliance Space Pvt. Ltd. Vs. ITO 58 Taxmann.com 112 (Bom) In this case, the original assessment proceedings for AY 2009-10 were completed under section 143(3) on 22nd March 2014 after enquiry into various aspects of share capital and share premium issued during the year. On 29th March 2014, i.e., within a week a notice under section .....

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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 ₹ 1,37,06,149 constituted pre-operative expenses (2) direct and other income of ₹ 37,27,107 constituted income from other sources (para 3). In para 10, the Tribunal noted that during the course of the ass .....

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tangible material which worked out as a "live wire" to the AO to form an opinion or create a reason to believe that there was concealment of income. It was also obvious from the reasons that the basis of reopening was essentially the product of perusal of assessment records (as is the position in the present case). In these circumstances, the reassessment proceedings were held to be invalid. It is respectfully submitted that the Tribunal on a proper appreciation of the nature of busine .....

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case, the assessment for AY 1997-98, 1999-2000, 2000-01 and 2002-03 were sought to be reopened by a notice dated 30th March 2004. The assessee carried on business of cotton ginning and pressing from its four factories located at various places in Maharashtra. The head office was situated at Bombay. The returns for the aforesaid asst. Years were processed and accepted u/s 143(1)(a). The assessee claimed expenditure incurred at the head office at Bombay to be set of against other income. The re-a .....

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High Court in para 15 gave weightage to the fact that for several decades the expenses incurred at the Bombay office had been consistently allowed in the regular assessments and there was no material on record to show that in past the expenditure has 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 o .....

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n 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 of the AO so as to lead to a reasonable belief that inc .....

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rt held that the reassessment proceedings were invalid. In the present case also, the subject matter namely program/film rights was under consideration during the original asst. Proceedings. The present case stands on a much stronger footing since not only the factum of incurring of expenses on acquisition of program/film rights but also their categorization as inventory/current asset and valuation / amortisation policy has been repeatedly brought to the notice of the AD. In view of the above. i .....

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d the notice u/s 148 of the Act. To start with the argument, Ld DR for the Revenue relied on the following decisions. (i) Dr. Amin Pathology Laboratory vs. JCIT (252 ITR 673) (Bombay) (ii) Fateh Chand Charitable Trust vs. CIT (357 ITR 604) (Allahabad) (iii) Innovative Foods Ltd vs. Union of India (356 ITR 389) (Kerala) (iv) Sri Sakthi Textiles Ltd vs. JCIT (340 ITR 144) (Kerala)\ (v) Export Credit Guarantee Corporation of India vs. Addl.CIT (30 taxmann.com 211) (Bombay) (vi) DCIT vs. Tivoli Inve .....

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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 t .....

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Gujarat High Court in Praful Patel's case as well as Amin's case insofar as it relies on the Gujarat decision stand overruled. (ii) Fateh Chand Charitable Trust vs CIT (357 ITR 604)(Allahabad) In this case in the original asst. proceedings the financial capacity of the donor to donate a sum of ₹ 1.55 Crores was not properly enquired into. Subsequently the dept. on making enquiries got material on the above issue against the assessee. The High Court held that it could not be said t .....

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ia (356 ITR 389) (Kerala) In this case the asst. for AY 2007-08 was sought to be re-opened on the ground that various disallowable items were not disallowed in the tax computation. The High Court relied on Rajesh Zaveri's case (295 ITR 500) which was rendered in the context of an asst. originally completed u/s 143 (1) and came to the conclusion that if the AO himself has committed a mistake or omission in the asst. completed by him what the statute visualises is reconsideration and revision .....

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ITR 144) (Kerala) In this case the assessee was engaged in the manufacture of textiles. Certain amounts spent on replacement of assets and towards conversion of material were allowed in earlier asst. years as revenue expenditure. The High Court at para 22 held that notices u/s 148 issued for AY 1991-92 and 1992-93 were wholly without jurisdiction as they were issued beyond a period of 4 years. As far as AY 1993-94 is concerned it was held that there was no legal necessity that the materials refe .....

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s 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 ₹ 100 for each claim in substitution of individual assessment/estimate made earlier which had the effect of th .....

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scaped assessment and held that the answer was in affirmative. The High Court also noted that there was no application of mind to the relevant facts by the Aa during the course of the original asst in so far as the other issues are concerned. Therefore the High Court held that the Aa had tangible material before him and the reassessment proceedings were valid. It is submitted that this decision "is completely distinguishable since there was a significant event which occurred during the year .....

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ny material cannot but be regarded as change of opinion. As noted earlier the Hon'ble Bombay High Court in the case of Plus Paper Food Pac Ltd. Vs ITO (57 taxmnn.com 467) has held that in the case of Export Credit Guarantee Corp. there was specific finding that there existed tangible material and reason to re-open the assessment. (vi) DCIl vs Tivoli Investment & Trading Co. (P) Ltd. - ITA No. 7713/Mum-2012 and CO No. 32/Mum-2014 In this case the Tribunal upheld the reopening on the groun .....

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the first appellate authority itself, it would be reappraisal 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 .....

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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 proceedings only. The Appellant craves leave to make further submissions on merits of the matter, if need be. 15. We have heard both the parties on the issue of validity of reassessment proceedings and perused the orders of the Revenue, the correspondence .....

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of the AO, the same are extracted as follows: 5. Please submit a detailed note on nature business carrying on by your and modus operandi of the business. 11. Please submit details of inventories and basis of valuation. 15.2. From the above Q.Nos.5 and 11 raised by the AO in the regular assessment, we find while Q.No.5 is on the nature of the business‟; Q.No. 11 is directly on the inventory‟ and method of their valuation ie TV Programs and Film Rights. These details were submitted by .....

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od of valuation to the inventories of TV Programs and Film Rights together with the above questions and answers raised by the Assessing Officer during the regular assessment, suggest that the AO is directly on the issue of inventories‟ and their method of accounting. 16. Further, we have put a question to ourselves on the original intention of the AO in raising such queries in the questionnaire. In our opinion, though the above queries, the AO wants to examine the correctness on the treatm .....

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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 .....

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ments. The same is referred by the assessee in the reply to the said Q.No. 11. The said Note No.7 was already extracted and elaborated in para 8 of this order, which is self-contained and the programs are amortized (TV Programs) for three years from the year the program is telecasted whereas the Film Rights are amortized on a straight line basis over the license period or 60 months from the date whichever is short. When this information is already and particularly available to the AO in the regu .....

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of Revenue that AO has any such tangible material on the incorrectness of the claim of amortization of the inventories of programs / films or the method of valuation thereof. In the preceding paragraphs, we have extracted ratios of various case laws in the form of the assessee on the requirement of tangible / new material. On these arguments of the Ld Counsel for the assessee also, the Revenue fails. The proceedings initiated by the AO are unsustainable in law. Accordingly, Ground no.1 raised by .....

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ovides the details of manner of amortization. 19. On perusal of said page 49, we find the opening balance of these items works out to ₹ 48.42 Crs (rounded off); total purchases amounting to ₹ 99.05 Crs (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 Rig .....

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t 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 CIT (A) are required to be reversed on these claims relating to the News / non-fiction ite .....

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dispute. Considering the set principle of consistency, the conclusions drawn by the AO and the CIT (A) are also required to be reversed. Bringing our attention to the provisions of Rule 9A & B of the IT Rules, 1962, Ld Counsel for the assessee submitted that the said Rules relate to the manufacturers and distributors only. Therefore, the reliance by the Revenue Authorities on these Rules is misplaced. Further, referring to the Accounting Standard (AS) 26, relating to the intangible assets, L .....

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ue submitted that the definition to the intangible assets‟ vide para 6.1 of the said AS-26, the expression an intangible asset is an identifiable non-monetary asset........held for use in .............. supply of .......and services......... and it covers the TV Programs and Film Rights. Therefore, the provisions of AS-26 should apply in full. Further, bringing our attention to the definition current assets‟, Ld DR submitted that the current asset is defined as an asset such as recei .....

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es 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 file .....

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channels. These channels telecast films, serials etc through satellite channels. The rights over these films are purchased from the producers of the respective films for broadcasting through satellite television. These rights come with an embargo that he films shall not be broadcasted or aired for a specified period from the date of release in theatres depending upon the success at the box office and other factors. Till the time, such films are broadcasted; they are to be treated as stock-in-tr .....

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Whatever income is earned from the subsequent telecasts is offered as income without claiming any expenditure. The assessee also generates revenue from broadcasting serials through satellite channels. The assessee gets revenue from production and broadcasting serials on the lines of feature films, the rights of broadcasting such serials are also treated as stock in trade till the time they are aired and the expenses are debited to the Profit and Loss account. The assessee treats the films and th .....

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s and serials and they do not expire on the date of first telecast as contemplated by the assessee. The rights are intangible assets within the meaning of Explanation (iii) to section 32 and do not fall within the purview of section 37(1). The assessee is entitled to claim depreciation on same. 9. The issue of amortization of cost of movie and serial rights, programme production expenses, consumable and media expenses by treating them as intangible assets u/s 32(1)(ii) has been dealt in detail b .....

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ourt 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 H .....

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eing a possible source of revenue could not justify their inclusion in the capital stream. Furthermore, the expenditure, i.e., 10 per cent. ₹ 88,83,128/- was a part of the entire total expenditure incurred by the assessee which was concededly treated as revenue, even otherwise. 24.1. Thus, it is the claim of the assessee that all the claims of the assessee are allowable on merits too in view of the covered nature of the items. 25. We have heard both the parties and perused the orders of th .....

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ogram and the film rights constitutes current assets‟, which are amortised over the years and the period of such amortization is given in the said Note. Per contra, the case of the revenue on these issues is that these items constitute intangible depreciable capital assets‟ and provisions of section 32 of the Act apply. Considering the same, we shall now undertake to discuss the item wise adjudication as follows. a. On the debits relating to the purchases of the News items: Regarding .....

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e 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 ass .....

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