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M/s VIP Exhibitors Versus ACIT, Mumbai

2015 (10) TMI 2253 - ITAT MUMBAI

Validity of reopening of assessment - escapement of income has taken place as wrongly invoking provisions of section 32(1)(ii) instead of allowing calculation to be done with Rule 9B - Held that:- Coming to the merits of the case, without prejudice to the reopening, we find that the assessee offered income from the film "Dil Ne Jisa Apna Kaha" in the return of income filed and the Assessing Officer has reassessed the income with reference to that transactions by invoking section 32(1)(ii) of the .....

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ribution has given rights of distribution to the assessee. In such situation, film was released on commercial basis and exhibited for more than 90 days before the end of previous year, the entire cost of acquisition of the film shall be allowed as a deduction while computing the profits and gains of such previous year. In this case M/s Sohail Khan sold the rights to the assessee in certain areas and undisputedly film has been released on commercial basis atleast for 90 days before the end of the .....

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and the total cost incurred including cost of print and publicity is ₹ 2,39,30,039/-. After deducting the revenue realized, the net loss from the film of ₹ 84,021,740/- (Rs. 1,55,27,299/- (-) ₹ 2,39,30,039/-) was rightly debited in the P&L Account. - Decided in favour of assessee. - ITA No. 1848/Mum/2014 - Dated:- 30-9-2015 - Shailendra Kumar Yadav, JM And Ramit Kochar, AM For the Petitioner : Dr Prayag Jha & Shri Prateek Jha For the Respondent : Shri Abani Kanta Nayak ORDE .....

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f law. 3) The Learned CIT(A) erred in law in confirming the additions made by AO in the order passed u/s 143(3) rws 147 of Income Tax Act, 1961. 4) The Learned CIT( ) ought to follow the provisions of Income Tax Act, 1961 read with Income Tax Rules, 1962 and compute the income correctly instead of computing income in a unlawful manner by incorrectly allowing depreciation on film distribution rights acquired instead of following the provisions of Rule 9B of Income Tax Rules, 1962. All the grounds .....

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come Tax Act, 1961 read with Rule 9B of Income Tax Rules, 1962." 3. Facts of the case are that the assessee is engaged in the business of exhibition and distribution of films. The assessee filed its return of income for the year on 31-10-2005 declaring net loss of ₹ 37,61,626/-. Assessment was initially completed u/s 143(3) of the Income Tax Act, 1961 on 21-03-2012 determining total income at Rs. 'nil'. Subsequently, the case was reopened by issue of notice u/s 148 of the Act .....

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ribution rights of the said film for a period of five years. The receipts from the said film were spread for five years and the entire receipts were not received by the assessee in the previous year under consideration. According to the Assessing Officer as per the provisions of section 32(1)(ii) read with Rule 5 of the Income Tax Rules, 1962, the distribution rights being intangible asset is eligible for depreciation @ 25% only and not the entire expenses incurred, hence, an amount of ₹ 4 .....

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of Rule 9B has clearly held that admissibility of deduction proportionate to the income earned/ collections made during the year in which deduction is sought is the right method of calculation of profits failing which the true profits may get distorted. Even in the present case, I find that the appellant has not fully credited the amount on exhibition of the film or for the rights of exhibition. It has also not taken credit for the value of the unexplained exploitation rights which was consider .....

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nied the benefit of depreciation as allowed u/s 32 of the Act. Accordingly, ground No. 2 titled (b) is dismissed." 4. Before us, the ld. Authorised Representative of the assessee submitted that the assessee is in the business of distribution of films in Bombay Circuit which encompasses areas of Maharashtra, Gujarat, Goa and partly Karnataka. During the year under consideration, the assessee acquired distribution rights of Bombay Circuit of the film "Dil Ne Jise Apna Kaha" for a pe .....

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sions of Income Tax Act, 1961 read with Income Tax Rules, 1962 and compute the income correctly instead of computing income in a unlawful manner by incorrectly allowing depreciation on film distribution rights acquired instead of following the provisions of Rule 9B of Income Tax Rules, 1962. The income was correctly assessed u/s. 143(3) and the reassessment proceedings commenced was bad in law and that too based on Audit Objections. Therefore the CIT(A) ought to have held the reopening bad in la .....

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s areas of Maharashtra, Gujarat, Goa and partly Karnataka. During the year under consideration, the assessee acquired distribution rights of Bombay Circuit of the film "Dil Ne Jise Apna Kaha" for a period of five years from M/s Sohail Khan Production for a consideration of ₹ 1.81 crores. The above film was released for exhibition on 10-09-2004. Meantime, the assessee incurred expenses for on-print and publicity etc. of ₹ 58,30,039/-. Thus the assessee incurred total cost of .....

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I.T. Rules, 1962 are concerned with calculation of income on release of film by distributor. As per the provisions of Rule- 9B, which are applicable to the assessee, the film was released on 10-09-2004 which is undisputedly 90 days prior to 31st March, 2005 and the total cost incurred including cost of print and publicity is ₹ 2,39,30,039/-. After deducting the revenue realized, the net loss from the film of ₹ 84,02,740/- (Rs. 1,55,27,299/- (-) ₹ 2,39,30,039/-) was debited in .....

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IT - 16(2) and audit was conducted by the audit party of the department and came to the conclusion that such rights acquired of the film are to be classified as 'intangible rights' which is subjected to depreciation as per section 32(10(ii) of the I.T. Act. The provisions of section 32(1)(ii) r.w. Rule 5 of the Income tax Rules which reads as under :- "Intangible assets such as knowhow, pattern, to copy right, trademarks, licences, franchises or any business or commercial rights of .....

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e hearing the assessee filed letters, inter alia, stated that the assessment was done in the case of the assessee u/s 143(3) of the Act was correct in law and invoking of section 147 is unlawful. However, the Assessing Officer decided to allow depreciation @25% on the cost of acquisition of film of ₹ 1.81 crores i.e ₹ 45,25,000/- and disallowed a sum of ₹ 1,35,75,000/- (Rs. 1,81,00,000/(-) ₹ 45,25,000/-) and added to the total income determining the total income at ₹ .....

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nd accepted the returned loss and assessed assessee to same figure of loss. The Audit party was of the view that escapement of income has taken place as wrongly invoking provisions of section 32(1)(ii) instead of allowing calculation to be done with Rule 9B. Coming to the merits of the case, without prejudice to the reopening, we find that the assessee offered income from the film "Dil Ne Jisa Apna Kaha" in the return of income filed and the Assessing Officer has reassessed the income .....

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or the same in Rule 9B. These Rules have to be followed and not general principles of accountancy. For the sake of convenience, Rule 9B is reproduced below:- "In computing the profits and gains of the business of distribution of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film distributor), the deduction in respect of the cost of acquisition of a feature film shall be allowed in accordance with sub-rule (2) to sub-rule (4) .....

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basis, the minimum amount guaranteed not being - the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film and the expenditure incurred by him in connection with the advertisement of the film. Where a feature film is acquired by the film distributor in any previous year and in such previous year the film distributor sells all rights of exhibition of the film, the entire cost of acquisition of the film shall be allowed as a deduction in com .....

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