TMI Blog2022 (1) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... ilm 7G Brindabhan Colony (Telegu) - AO disallowed post production expenses on the ground that the assessee has acted only as producer, but not a distributor for the film 7G Brindavan Colony (Telugu), which is evident as per financial statement filed by the assessee for relevant assessment year which shows that there is no realization from the above film - HELD THAT:- As we have already stated in earlier paragraph of this order, Rule 9A / 9B is applicable only in a case where a person acts in a capacity of producer and distributor. In this case, in respect of 7G Brindavan Colony (Telugu), the assessee seems to have acted as a producer and distributor, because there is no realization from picture, it means he has not acted as an exhibitor. Therefore, post production expenses incurred by the assessee is not governed under rule 9A or 9B of I.T.Rules, 1962. Therefore, deductibility of same needs to be considered u/s.37(1) of the Act as expenditure wholly and exclusively incurred for purpose of business of the assessee. This proposition is supported by decision of the Hon ble Bombay High Court in the case of Dharma Productions Ltd. [ 2019 (3) TMI 1271 - BOMBAY HIGH COURT] where it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to ascertain correct facts with regard to loans taken from the above two parties and consequent interest paid for impugned assessment year. Hence, we set aside the issue to the file of the Assessing Officer and direct him to reconsider the issue afresh, after providing reasonable opportunity of hearing to the assessee. Additions made towards unsecured loans - HELD THAT:- There is no clarity on the issue of additions made towards unsecured loans in the assessment order. The Assessing Officer has simply stated that for want of evidences he has made additions. Similarly, the learned CIT(A) deleted additions by holding that the assessee has annexed details of loan taken from parties with their addresses and PAN, but such information is not emanating from return of income filed for relevant assessment years. Even before us, both the parties failed to bring on record relevant materials to justify their claim. Therefore, we are of the considered view that this issue needs to go back to the file of the Assessing Officer for fresh consideration. - I.T.A. No.1736 to 1738/Chny/2013 - - - Dated:- 5-1-2022 - Shri V.Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of M/s. Export Credit Guarantee I Corporation of India, 30 Taxman.com.211, wherein the Hon ble BombayHigh Court held that Whether, even in absence of assessees, failure to disclose material facts, where there is complete failure on part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment 2.6 It is submitted that the decision of the Hon ble High Court in the case of Consolidated Photo and Finvest Ltd vsACIT(2006) 151 Taxman 41 held that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provision of explanation 1 of Sec 147 of the Act. 2.7 It is submitted that the decision of Delhi High Court n the case of Dalimia Brothers (P) Ltd. Vs. CIT is applicable to the facts of the case wherein it is held that Reassessment proceedings have been initiated after examining and considering the audit note. The note records that the auditor s scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made on this issue has to be upheld; 5. The Id CIT(A) erred in restricting the addition from 10% to 2% on the resale of set materials; 5.1 The Id CIT(A) ought to have appreciated that part of the materials can be retrieved and others may be sold as scrap which will yield some returns and such yield may also be higher than 10% estimation made by theAO. 5.2 The Id CIT(A) failed to appreciate the fact that restriction of 2% disallowance was not based on any material and the same has been estimated without any basis. 3. Brief facts of the case are that the assessee is a film producer and assessment of all three concerned assessment years have been originally completed u/s.143(1) or 143(3) of the Income Tax Act, 1961. The assessment has been subsequently reopened for the reasons recorded, as per which income chargeable to tax had been escaped assessment on account of wrong application of Rule 9A 9B of Income Tax Rules, 1962, and thus, notices u/s.148 of the Act were issued. The assessee has requested to treat original returns filed by the assessee for all relevant three assessment years as returns filed in response to notices issued u/s.148 of the Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment cannot be reopened. The assessee had also challenged reopening of assessment on the ground that the Assessing Officer had reopened assessments based on the audit objection without any independent application of mind to form reasonable belief of escapement of income and thus, action of the Assessing Officer is nothing but change of opinion, which is not permissible under the Act. The assessee had also challenged additions made by the Assessing Officer towards post production of expenses of certain feature films disallowed under Rule 9A, additions made towards resale of set materials, addition u/s.68 in respect of unsecured loans and interest on loans taken from M/s. Focus Computers M/s. Rakesh Sarin and Sons etc. 6. The learned CIT(A), after considering relevant facts and also by taking into account reasons recorded by the Assessing Officer for reopening of assessment for assessment year 2004-05 has held that the Assessing Officer had reopened assessment for assessment year 2004-05 only on the basis of audit objection without any basis for arriving at reasonable belief of escapement of income on factual material basis. Therefore, he opined that audit objection may co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 20,03,118/- towards publicity expenses and cost of film, but because the assessee has not realized any income from 7G Brindabhan Colony (Telugu) feature film, the Assessing Officer has disallowed said amount and added back to total income. The learned CIT(A), after considering relevant facts held that since said film was released within 90 days from end of financial year, expenditure incurred by the assessee is eligible for deduction under Rule 9A of the Income Tax Rules, 1962 and accordingly, deleted additions made by the Assessing Officer. In respect of disallowance of set expenses, the learned CIT(A) restricted disallowance to 2% of set expenses like in assessment year 2004-05. Insofar as additions made towards disallowance of interest on loan from M/s. Focus Computers amounting to ₹ 2,40,000/- and interest paid to Rakesh Sarin Sons ₹ 1,26,000/-, the learned CIT(A) deleted additions made by the Assessing Officer by holding that since there was no disallowance of loan from M/s.Focus Computers in the order for assessment year 2003-04, disallowance of interest in this year is not correct. Likewise, interest paid to M/s. Rakesh Sarin Sons, when principal amount w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, and thus, reopening of assessment u/s.147 of the Act is valid. The learned DR further submitted that the learned CIT(A) ought to have appreciated fact that reassessment is well within the provisions of section 147 and Explanation 1 of section 147 of the Income Tax Act, 1961, clarifies that production of account or other evidences before the Assessing Officer from which material evidence could with due diligence have been discovered, will not necessarily amount to disclosure within the meaning of the proviso to section 147 of the Act. The learned DR further referring to the decision of Hon ble Bombay High Court in the case of M/s. Export Credit Guarantee Corporation of India, 30 Taxman.com.211, argued that even in absence of assessee s failure to disclose material facts, where there is complete failure on the part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment. The learned DR further referring to decision of Hon ble Delhi High Court in the case of Dalimia Brothers (P) Ltd. Vs. CIT argue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al difference on escapement of income. However, if audit objection refers to legal issue, then it cannot be said that said audit objection constitute fresh tangible material for escapement of income, because legal points on which the Assessing Officer needs to deliberate was very much available at the time of assessment and if the Assessing Officer failed to apply correct legal position to the facts of the case, then it cannot be said that there is failure on the part of the assessee to disclose fully and truly all facts necessary for completion of assessments. In this case, assessment has been reopened after a period of four years from the end of relevant assessment year and further, except audit objection, on application of Rule 9A 9B, there is no tangible material with the Assessing Officer to form reasonable belief of escapement of income. In our considered view, reasons recorded by the Assessing Officer for reopening of assessment is a clear case of change of opinion, which is not permissible under the law. The learned CIT(A) after considering relevant facts has rightly quashed reassessment proceedings for assessment year 2004-05 and thus, we are inclined to uphold findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Board is not allowable as deduction. The learned DR further submitted that as per Rule 9B of IT Rules, 1962, a producer can claim post production expenses of a film, if he also acts as distributor for those films. Since, the assessee did not act as distributor, as per Rule 9A, producer cannot claim post production expenses. The learned CIT(A) without appreciating facts deleted additions made by the Assessing Officer and his order should be reversed. 15. The learned AR for the assessee, on the other hand, referring to Rule 9A 9B of the IT Rules, 1962, submitted that Rule 9A is applicable only in case of producer and Rule 9B is applicable in case of distributor. If the assessee acts as a producer, distributor and exhibitor of feature film, then in respect of post production expenses, Rule 9A 9B has no application and thus, whatever expenditure incurred by the assessee for publicity and other expenses is allowable u/s.37(1) of the Act. The learned CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and his order should be upheld. 16. We have heard both the sides, perused material available on record and gone through orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.37(1) of the Income Tax Act, 1961. Similar view has been expressed by the Hon ble Madras High Court in the case of CIT Vs. Prasad Production Pvt. Ltd. (1989) 179 ITR 147. Therefore, we are of the considered view that the Assessing Officer has erred in disallowing post production expenses by invoking Rule 9A 9B of I.T. Rules, 1962. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. 17. The next issue that came up for our consideration from ground no.3 to 3.2 of revenue appeal is additions towards estimation of income from resale of set materials. The Assessing Officer has estimated 10% of cost of set materials as realization from resale and accordingly, made addition of ₹ 14,61,468/-. The learned CIT(A) has restricted additions to 2% of set expenses. 18. Having heard both the sides and considered relevant materials available on record, we find that although both the authorities have taken different rate for estimation of income from resale of set materials, but none of them have given any reasons for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milarly, the learned CIT(A) has also deleted additions made by the Assessing Officer without recording any factual finding as to whether addition was made for said loan in assessment year 2003-04 or not. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer to ascertain correct facts with regard to loans taken from the above two parties and consequent interest paid for impugned assessment year. Hence, we set aside the issue to the file of the Assessing Officer and direct him to reconsider the issue afresh, after providing reasonable opportunity of hearing to the assessee. 21. In the result, appeal filed by the Revenue for assessment year 2005-06 is partly allowed for statistical purposes. ITA No.1738/Chny/2013 (A.Y. 2006-07): 22. The first issue that came up for our consideration from ground no. 2 to 2.4 of revenue appeal is deletion of disallowance made towards post production expenses amounting to ₹ 21.86 lakhs in respect of feature film Mudhula Kodukku (Telugu). An identical issue has been considered by us in ITA No.1737/Chny/2013 for assessment year 2005-06. The reasons given by us in preceding paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no clarity on the issue of additions made towards unsecured loans in the assessment order. The Assessing Officer has simply stated that for want of evidences he has made additions. Similarly, the learned CIT(A) deleted additions by holding that the assessee has annexed details of loan taken from parties with their addresses and PAN, but such information is not emanating from return of income filed for relevant assessment years. Even before us, both the parties failed to bring on record relevant materials to justify their claim. Therefore, we are of the considered view that this issue needs to go back to the file of the Assessing Officer for fresh consideration. Hence, we set aside the issue to the file of the Assessing Officer and direct him to reconsider the issue afresh in accordance with law, after providing reasonable opportunity of hearing to the assessee. 27. In the result, appeal filed by the revenue for assessment year 2006-07 is partly allowed for statistical purposes. 28. To sum up, appeal filed by the Revenue for assessment year 2004-05 is dismissed and that of assessment years 2005-06 2006-07 are partly allowed for statistical purposes. Order pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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