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Judgment
PER BRAJESH KUMAR SINGH, AM,
These two cross appeals filed by the Revenue (ITA No.- 557/Del/2025) and Assessee (ITA No.- 5330/Del/2024) are directed against the order dated 06.11.2024 of the National Faceless Appeal Centre, (NFAC) Delhi, [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the assessment order dated 22.04.2021 passed under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) by the National e-Assessment Centre, Delhi (NeAC) (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2018-19. These two cross appeals were heard together and are being disposed of by way of this common order for the sake of convenience and brevity.
First, we take up the Revenue’s appeal in ITA No. 557/Del/2025 for A.Y. 2018-19.
Brief facts of the case: During the year under consideration the assessee company had filed its return of income declaring total income at Rs. NIL and Business Loss at Rs. 8,17,68,522/-. The AO noted that the during the year the assessee company was engaged in the business of operation of ships for which it was operating ships for the purpose of drilling in offshore for the purpose of exploration of mineral oil. It was further noted by the AO that the vessels were operated under contract with ONGC and assessee was claiming income from shipping for seeking tonnage tax benefits and the assessee company was claiming deduction u/s 33AC from assessment year 1993-94. The AO further noted that apart from aforesaid business of operation of shipping the assessee was also engaged in the business of providing infrastructure facilities at New Mangalore Port Trust in the unit Indian Port Warehousing Company and also operating Jakhu Ropeway at Shimla under PPP with H.P. government.
Issue relating to Disallowance on income from shipping unit: This is a legacy issue and the AO noted that this issue came up for the first time in A.Y. 2006-07. The dispute is with respect the claim of the assessee for claiming an amount of Rs. 232,88,10,662/- from shipping business under tonnage tax benefits and while working out income as per provision of section 15JB of the Act has claimed income exempt for MAT of Rs. 233,00,99,477/- by reducing booked profits of shipping income from MAT. According to the AO, the assessee claimed the benefits of tonnage tax scheme under the relevant provisions of the Act but did not submit the approval / certificate for exercising the options for tonnage tax scheme. Further, the above claim of the assessee was rejected as the AO did not accept the assessee to be owner of ship/ vessels engaged in drilling operations and held that in terms of Section 115VD, Deep Sea Matdrills were not qualifying ships for the purposes of chapter XX-G of I.T. Act. The relevant extract of the conclusion drawn by the AO in the assessment order is reproduced as under:
“In view of the above, the submission of the assessee is not acceptable. The income claimed as exempt of Rs. 2,32,88,10,662/- in the computation of income under normal provision as well as for calculation of book profit as per MAT u/s 115-VI of the Act of Rs. 2,33,00,99,477/-, is accordingly not allowed to the assessee and an addition of Rs. 2,32,88,10,662/- under normal provisions and Rs. 2,33,00,99,477/- under MAT is made on this account.
(Disallowance of Rs. 2,32,88,10,662/- under normal provisions and Rs. 2,33,00,99,477/- under MAT).”
The above dispute has been decided by the Hon’ble Delhi High Court in assessee’s favour in assessee’s own case by a common order dated 08.11.2012 in ITA No.- 1395/2010 and 1289/2011 for A.Y. 2006-07 and 2007-08.
The fact that the issue has been decided in favour of the assessee has also been accepted by the AO, and the relevant extract of the assessment order is reproduced below:
“ The issue of claim of the income as per Tonnage system is old and has been dealt with in previous years. The facts are that in the AY 2006-07, the assessee made an application in form no. 65 for exercising option for Tonnage Tax Scheme under section 115VP/115VR of the Income Tax Act, 1961. The then Addl. Commissioner of Income Tax rejected the application of the assessee on the ground that the assessee's ship "Deepsea Matdrill" is not a ship but a "Drilling Rig" which is not covered under the definition of qualifying ships as the same is an offshore installation. It was also held that the ship was not registered under the Merchant Shipping Act, 1958 and assessee's main object of business was not carrying on the business of the operation of the ships. It was also seen that the assessee did not have the license which was to be issued by the Director General of Shipping under section 407 of Merchant Shipping Act, 1958. On this issue the assessee preferred an appeal before Ld. CIT (A) who vide order dated 16.3.2007 in appeal no. 44/2006-07 allowed the appeal of assessee and directed the AO to consider the Rigs as 'qualifying ships' under section 115VD of the Income Tax Act and allow its application for exercising option for Tonnage Tax scheme u/s 115VP/115VR of the Act. Aggrieved with the order of Ld. CIT(A), the Revenue preferred an appeal before Hon'ble ITAT who has however vide order dated 20.11.2009 in ITA по. 2979/Del of 2007 dismissed the appeal of Revenue. The revenue further preferred an appeal before Hon'ble Delhi Court against the order of Hon'ble ITAT. The Delhi High Court vide order dated 08.11.2012 in ITA No. 1289/2011 dismissed the appeal of the revenue. Similar treatment was given for A.Y. 2007-08. The department has filed SLP before Hon'ble Supreme Court against the Delhi High Court Order for A.Y. 2006-07 & 2007-08 and the appeal is pending before Hon'ble Supreme Court. Further, departmental appeal in HC for AY 2008-09 (ITA 1165/2018) order date 26.10.2018, 2009-10 (ITA 1179/2018) & 2010-11(1234/2018) HC order dated 01.11.2018 has been disposed off by Hon'ble High Court as both party Revenue as well as assessee agreed to follow the ruling of Supreme Court for AY 2006-07 & 2007-08 as and when appeal will be decided in Supreme Court. The addition on this issue has also been made in AY 2011-12, 2012-13, 2013-14, 2014-15 & 2016-17 also.” (emphasis supplied by us)
In this regard, the Ld. CIT(A), by following the orders of the Hon’ble High Court and the Tribunal, deleted the aforesaid addition for the present assessment year also. The relevant extract of the order of the Ld. CIT(A) is reproduced below:
“5.6.2The appellant, during the appellate proceedings on the decision of the Hon'ble Delhi High Court in case of the appellant itself the initial assessment years 2006-07 and 2007-08 and subsequent orders of the Hon'ble ITAT, Hon'ble High Court and Ld. CIT(Appeals) for subsequent assessment years 2008-09 to 2016-17. 5.6.3 Submission of the appellant and the observations of the Assessing Officer have been perused. It is seen that in the order dated 04.08.2023 of the Hon'ble ITAT, Delhi in the appellant's own case in ITA No. 1303/Del/2022 and 902/Del/2022, the Hon'ble ITAT has held as follows: 7. We find that this issue is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in assessee's own case in ITA 1305/2010 dated 08.11.2012. For the sake of convenience, the entire order is reproduced hereunder …. …. 8. Moreover, the ITAT, in assessee's own case in ITA No 6872/Del/2018 and in ITA No. 5375/D/2013 for AYs 2015-16 and 2016-17 respectively, vide order dated 25.11.2022, had decided the very same issue in favour of the assessee. Respectfully following the same, the grounds No.2(1) raised by the Revenue is dismissed. As far as applicability of Tonnage Tax while computing the book profit us 115JB is concerned, we find that the provisions of section 115V0 specifically provides that the book profit or loss derived from the activities of the Tonnage Tax Company referred to in section 115VI(1) shall be excluded from the book profit of the company for the purpose of section 115JB of the Act. Hence, ground No. 2(2) raised by the Revenue is dismissed 5.6.4 Further, it is seen from the appellate order date 25.03.2022 of the CIT(Appeals), NATIONAL FACELESS APPEAL CENTRE (NFAC) in Appeal No. CIT (A), Delhi-5/10394/2019-20 in the case of the appellant for the assessment year 2017-18, the following has been held: In the CIT(A)'s order related to the appellant for A.Y. 2016-17, this issue has been discussed by him as under: "5.9 As mentioned above, it has been held that income of assessee is taxable under provisions of section of Chapter XIIG of the Act and since income of shipping unit is exempt u/s 115V-I of the Act, in view of section 115V-O of the Act, same is liable to be excluded from the computation of book profit under section 115JB of the Act. 5.10 Accordingly, looking to the similarity in the facts and circumstances of this case and following the judgment by Hon'ble Delhi High Court in the case of appellant, I have no reason to differ with the findings of my predecessor with respect to the deletion of addition of Rs. 94, 05, 22,492/on MAT provisions and thus, this addition deserve to be deleted. Appeal is allowed on this issue." Following my predecessor, I hereby allow ground 3 in favour of the appellant. 5.6.5 Therefore, following the judicial discipline as well as the decision of the Hon'ble jurisdictional High Court and the jurisdictional ITAT in the case of the appellant itself, I direct the Assessing Officer to delete the addition of Rs.232,88,10,662/- made by disallowing the claim of assessee under tonnage tax scheme. This ground, thus, is allowed. Since Ground No. 6 has been allowed, the corresponding ground 7 becomes infructuous. Hence, the said ground no. 7 is not separately adjudicated upon.”
Aggrieved with the said order, the Revenue is in appeal before us on the following ground of appeal:
“1.Whether on the facts and circumstance of the fact, the CIT(A) erred in deleting the disallowance of Rs. 2,32,88,10,662/-on account of tonnage tax benefits?
2.Whether on the facts and in law, the CIT(A) has erred by ignoring the fact that the assessee's Ship "DeepseaMatdrill" is not a ship but a drilling rig which is not covered under the definition of qualifying ships as the same is an offshore installation. The assessee did not have the license which was to be issued by the Director General of Shipping under section 407 of Merchant Shipping Act, 1958.”
The Ld. CIT(DR) relied upon the order of the AO and the grounds of appeal.
On the other hand, the Ld. Sr. AR relied upon the order of the Ld. CIT(A) and the binding precedents as laid down by the Hon’ble Delhi High Court in assessee’s own case as referred in the chart in the case law compilation submitted by the assessee, which is reproduced below:
We have heard both the parties and perused the material available on record. As noted above, this issue is a legacy issue and the issue is decided in favour of the assessee by the jurisdictional Delhi High Court in assessee’s own case in ITA No.-1395/2010 and 1289/2011, where it was held that revenue's contentions that the vessel is nothing but "offshore installations” was rejected. The same view was also followed by the Tribunal in its subsequent orders. The Co-ordinate Bench of the Tribunal by common order dated 31.01.2022 in ITA No.- 1001& 1002/Del/2016 and 276/Del/2017 for A.Y. 2012-13, 2013-14 and 2014-15, wherein in ITA No. 1001/Del/2017 (Revenue’s appeal) the Tribunal dismissed the appeal of the Revenue. The relevant extract of the said order is reproduced as under:
“11.Grounds of appeal number.7 (a) (b) and (c) relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs.62,55,82,919/- made by the A.O. by disallowing the claim of exemption in tonnage tax system. After hearing both the sides, we find that identical issue had come-up before the Tribunal in assessee's own case in A.Y. 2008-09. We find the Tribunal vide ITA.No.4392/Del./2011 order dated 11.05.2018 has decided the issue by observing as under:
“2.6.We have considered the rival arguments made by both the sides and perused the material available on record. We find that the issue has been decided in favour of the assessee by the Hon'ble Jurisdictional High Court in assessee's own case vide ITA No. 1395/2010 and ITA No. 1289/2011 order dated 08.11.2012 by observing as under :-
"7.In the facts of this case the vessels were consistently registered under Section 407 of the Merchant Shipping Act and had a valid certificate which was produced for consideration by the appellate authority who sought remand report. It is also not disputed that the vessel is a qualifying ship for sea in terms of clause (a) of Section 115VD. The question as to whether it amounted to "off shore installations" was gone into in considerable detail by the Tribunal. The Tribunal noticed that unlike in the case of off-shore installations which are stationed at one place, the very nature of the activity in which the assessee engaged is to carry out operations in different places; necessarily, at least for a short duration the vessel has to be stationed at one place. In these circumstances, Revenue's contentions that the vessel is nothing but "offshore installations" has no merit, in the case of Matdrills of die kind put to use by the assessee. 8. For these reasons the Court is of the opinion that the reasoning and findings of the Appellate Commissioner and the Tribunal cannot be found fault with. The substantial question of law is therefore answered in favour of the assessee and against the Revenue. The appeals are consequently dismissed."
2.7Since the learned CIT (Appeals) while deciding the issue in favour of the assessee has followed the decision of the Tribunal in assessee's own case as well as the decision of Hon'ble Jurisdictional High Court, therefore, in absence of any contrary to our notice by the learned material brought Departmental Representative, we find no infirmity in the order of the learned CIT (Appeals) allowing the ground raised by the assessee. The ground raised by the Revenue is accordingly dismissed."
11.2.Following the order, the Tribunal dismissed similar ground raised by the Revenue in A.Ys. 2009-10 and 2010-11. Since the issue had already been decided by the Hon'ble Jurisdictional Delhi High Court, therefore, in absence of any contrary material brought to our notice by the Revenue, we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of Rs.62,55,82,919/-made by the A.O. by disallowing the claim of exemption under tonnage tax system. Grounds of appeal numbers.7(a) (b) and (c) of the Revenue on this issue is accordingly dismissed.”
(emphasis supplied by us)
For the present assessment year also, the assessee has filed the necessary certificate issued u/s 407 of the Merchant Shipping Act, 1958 issued by DG Shipping for the period 20.04.2017 to 31.05.2017 and from 01.06.2017 to 31.03.2017 placed at page no. 169 & 170 of the Paper Book. Since the issue had already been decided by the Hon'ble Jurisdictional Delhi High Court in favour of the assessee as discussed above, therefore, in absence of any contrary material brought to our notice by the Revenue, we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of Rs. 232,88,10,662/- made by the A.O. by disallowing the claim of exemption under tonnage tax system. Grounds of appeal numbers 1 and 2 of the Revenue, on this issue is accordingly dismissed.
In the result, appeal of the Revenue is dismissed.
Now we take assessee’s appeal in ITA No.- 5330/Del/2024
ITA No.- 5330/Del/2024-Assessee’s appeal for A.Y. 2018-19
The AO noted that the assessee company had claimed exceptional items in ‘other expenses’ in the P & L account at Rs. 2,85,59,327/- on the production of Feature film “Maufza”. The AO after considering the explanation of the assessee disallowed the above claim of the assessee amounting to Rs. 2,85,59,327/-. The relevant discussion in the assessment order is reproduced as under:
“ (iv). Expenses claimed as an exceptional item
It is seen that the assessee company has claimed exceptional items in other expenses in the P & L account at Rs. 2,85,59,327/- The assessee company was asked to furnish complete details and explain with proper justification of allowability of this expense with evidence.
The assessee company submitted that
It would be seen that details of expenditure relates to M/s Jagson entertainment company a division of M/s Jagson international Ltd, which was engaged in the production of Feature Films The assessee developers a film which was released on 6th October 2017 by the name of Muafza. According to Rule 9A and 9B, the expenditure incurred was required to be deducted against the film released and so the same was claimed during the year in concern i.e the date lying in this Financial Year. The total expenditure amounting to Rs. 3. 24, 17, 557.97/- as may be shown in the details enclosed which relates to various heads Against this expenditure assessee has also adjusted income earned from Reliance short Term Fund of Rs 5.00 Lac and other short term capital gain of Rs. 53,89,496/- which amounted to Rs. 58,89,496/- and so the figure shown as expenditure is Rs. 2,86,59,327/-as mentioned at Sr. No. 2 and expenditure of Rs. 3,24,17,558/- has been claimed as mentioned at Sr. No. 1
You have also asked about the justification of allowability of these expenses. It is submitted that Rule 9A and 9B have been introduced in IT (7th amendment) Rules, 1976 which was held to be not ultra vires in V. Verghese vs DCIT(Kar) (210 ITR 526). According to this sub-Rule II, where a feature film is certified for release from the Board of Film Censors in any previous year and in such previous years either the producer sells the right of exhibition of the film or exhibits the film itself, the entire cost of production shall be allowed as a deduction Due to his whole of the expenditure is required to be deducted during the year as Film was released on 6th October 2017
The explanation of the assessee company has been considered and found not acceptable. The assessee company has not provided complete details of other provisions and also failed to explain with corroborative evidence on record to substantiate that the said expenses has accrued only during the current assessment year. Since the said expenses has not incurred by the assessee company in the year under consideration, expenditure claimed of prior period as an exceptional items in the P & L account to the tune of Rs. 2,86,59,327/- is not allowed.
(Disallowance: 2,86,59,327/-)
Vide reply dated 19.04.2021, which is in compliance to the show cause notice, the assesse company has expressed that expenditure are claimed in view of section 9A & 9B of the IT Act.
Perusal of details furnished, it is seen that:
a. A feature film named " Maufza" is certified on dated 05.04.2014 for release from the Board of Film Censors while assessee company is claiming released date on 06.10.2017.
b. The assessee company has not disclosed income earned on account of sells the right of exhibition of the film or exhibits the film itself by the producer in the year under consideration in which entire cost of production including advertisement expenses of Rs. 3,43,220/- which is not part of the cost of production, as an expenditure has been claimed.
In view of above facts and circumstances of the case, reply filed by the assessee company is not accepted.
Penalty proceedings u/s 274 r.w.s. 270A of the IT Act, 1961 is hereby initiated separately for under reported of income which is in consequence of misreporting therefore.”
Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee. The relevant extract of the said order is reproduced as under:
“5.5.2The appellant stated in his written submission as follows
Ground No. 5 is against the disallowance made of Rs. 2,86.59,327/- on account of expenses incurred in developing the film "Muavza" which was exhibited on commercial basis by the producer and the film is released for exhibition on commercial basis on 06.10.2017. It is submitted that the said expenditure relates to M/s Jagson Entertainment Company (A division of Jagson International Ltd.) which is engaged in the production of films
5.5.3Reference has been made to Rule 9A of the Income Tax Rules, 1962. Sub-rule (4) of Rule 8A, referred to by the appellant is as follows
(4)Where, during the previous year in which a feature film is certified for release by the Board of Film Censors, the film producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year, and the entire cost of production of the film shall be caried forward to the next following previous year and allowed as a deduction in that year.
5.5.4Facts of the appellant's case reveals that Mis Jagson International Ltd., a division of the appellant company was engaged in the production of Feature Films. The assessee developed a film which was released on 6th October 2017 by the name of 'Muafza. Rule 9A(4), on a plain reading, reveals that it puts restriction on claim of deduction; and states that no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year if the film producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film. Admittedly, the appellant has declared the revenue of Rs. 31,20,000/- in the year ending on 31.03.2019. While on one hand the appellant claims that the film was commercially exhibited on 06.10.2017 i.e., more than 90 days before the end of the year, and hence, all expenditure incurred in earlier years has to be claimed in the year in concern only i.e., the impugned AY, at the same time the revenue generated from the film, whatever amount it may be, is accounted in the subsequent financial year. This is self-contradictory and against the intention of legislation.
5.5.5Perusal of the relevant rules makes the intention of legislation very clear. The intention is, expenditure incurred in connection with production of a film is to be claimed in the year in which the revenue from the said film has been generated, i.e.. the year in which it is commercially exhibited, if the date of release is more 90 days prior to the end of the financial year. In the case of the appellant, the film was commercially exhibited on 06.10.2017, i.e., more than 90 days ahead of 31.03.2018: but the revenue was considered for the financial year 2018-19. The stand of the appellant is therefore contradictory to the legislative intent. Following the legislation intent, therefore, the expenditure is required to be claimed for the financial year 2018-19. This contradiction disentitles the appellant from the claim of deduction. Hence, I am inclined to reject the contention of the appellant and sustain the disallowance made by the Assessing Officer.. This ground is dismissed.”
(emphasis supplied by us)
Aggrieved with the said order, the assessee has filed an appeal before us, on the following ground of appeal:
“1.That Ld. CIT(A), NFAC Delhi has erred in law as well as on facts in sustaining the disallowance of Rs. 2,86,59,327/- on account of expenses incurred in developing the film Muavzaa released on 06.10.2017.”
The Ld. AR reiterated its submissions made before the Ld. CIT(A) and submitted that the matter may be restored to the file of the AO to give the assessee one more opportunity to explain its position in terms of Rule 9A & 9B of the IT Rules, 1962. The relevant extract of the said submission before the Ld. CIT(A) is reproduced as under:
“…………..4.5. Ground No. 5 is against the disallowance made of Rs. 2,86,59,327/- on account of expenses incurred in developing the film "Muavza" which was exhibited on commercial basis by the producer and the film is released for exhibition on commercial basis on 06.10.2017. It is submitted that the said expenditure relates to M/s Jagson Entertainment Company (A division of Jagson International Ltd.) which is engaged in the production of films. It is submitted that in this connection it is necessary to reproduce Rule 9A of the Income Tax Rules, 1962.
"9A. [(1) In computing the profits and gains of the business of production of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film producer), 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 shall be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4). ……….
It is submitted that at Pg 9 of the assessment order the Ld. AO has not accepted the claim because the assessee company has not provided the complete details of the other provisions. During the course of assessment proceeding Rule 9A and 9B were brought to the notice of the AO that for the expenditure to be claimed in developing the film, the entire cost is allowable as deduction in the year in which film was released 1.e., FY 2017-18 relevant to AY 2018-19 as film was commercially exhibited on 06.10.2017. Thus, the expenditure is required to be claimed in the year in concern only. The Ld. AO has not accepted the plea on the ground that assessee co. has not provided complete details of other provisions and could not substantiate that said expense has accrued only during the current assessment year. Since the said expense has not been incurred by the asseessee co. in the year under consideration, the expenditure claimed of prior period as an exceptional item in the P/L account to the tune of Rs 2,86,59,327/- is required to be allowed in the year in concern only.
The AO further at Pg 10 gave reasoning that expenditure has been incurred but has not allowed the claim on the ground that
a. A feature film name "Mauvza" is certified on dated 05.04.2014 for release from the board of film sensors while assessee coompany is claiming release date on 06.10.2017.
b. The assessee co. has not disclosed income earned on account of sells the rights of exhibition of the film or exhibits the film itself by the producer in the year under consideration in which entire cost of production including advertisement expenses of Rs. 3,43,220 which is not part of the cost of production, as an expenditure has been claimed.
It is submitted that the AO perhaps was not aware that in the film line the cost of film incurred cannot be claimed in the year in which expenditure was incurred even if film is certified for release by the board of film sensors. The expenditure has to be allowed in accordance with provisions of Sub-Rule 2 to 4 as stated in Sub-Rule of Rule 9A which is applicable for "deduction in of expenditure on production of films"
It is submitted that Sub Rule 2 is applicable when film is certified and producer was able to sell to set its rights in that previous year itself or could exhibit commercially himself at least 90 days before the end of such previous year.
Sub Rule 3 of Rule 9A gave another situation where feature film is certified but the film could not be exhibited on commercial basis before 90 days of the end of the previous year. In such cases the cost to the extent of amount realized entered in the books of the accounts only could be allowed is the Previous Year and the balance is required to be carried forward to be allowed in the next following previous year and allowed as deduction in that year.
In Sub Rule 4 of Rule 9A feature film is certified but neither the film producer himself exhibits the film on commercial basis nor does not sell the rights of the exhibition of the film, no deduction shall be allowed in respect of cost of production of the film in computing the profits and gains of such previous year (i.e., in the year in which feature film is certified for release by the board of film sensors) and the entire cost of production of the film shall be carried forward to the next following previous year and allowed as a deduction in that year i.e., in the year in which it is commercially exhibited. Since, the date on which film was commercially exhibited was 06.10.2017 i.e., more than 90 days before the end of the year, all expenditure incurred in earlier years has to be claimed in the year in concern only i.e., the impugned AY. It is necessary to submit that assessee has already declared the revenue of Rs. 31,20,000/- in the year ending on 31.03.2019 relevant to AY 19-20 after selling the rights to M/s Zee Entertainment Enterprise Ltd. Copy of agreement dated 16.11.2018 is enclosed for your kind perusal and information at pages 39 to 61. Since the film was totally flop the payment earned by the theater was negligible and theatre also incurred loss due to which no income could be earned on account of exhibiting the film but music was found to be nice and so Zee Entertainment bought the right and assessee has settled at Rs 31,20,000. Apart from this assessee could not earned any income out of exhibiting the film.
It is submitted that the Ld. AO was unable to understand that in accordance with Sub Rule 4 assessee company was unable to claim any expenditure on cost of production of film in the year in which feature film was certified as the same was not exhibited on commercial basis nor any rights have been sold in that Previous Year as stated in Sub Rule 2 to 4. The expenditure could not be contained in that previous year as no amount was realized in any other Previous year i.e., FY 2012-13 to 2016-17. The amount was realized only in FY 17-18 which is clearly depicted in the books of accounts when the film was commercially exhibited by the producer himself in F.Y. 2017-18 relevant to AY 2018-19.
It is submitted that the both the dates are relevant i.e.. feature film has to be certified for release by the board of film sensor and the date on which film is release on commercial basis. Rule 9A entitles the producer to claim the cost of production of film only when film is exhibited on commercial basis.
In the present case film is certified for release from the Board of Film Censors on 05.04.2014 but the film was commercially exhibited on the release date i... 06.10.2017 the relevant fact is evident with this written submission for your kind reference at Pg 33 to 35. on the internet itself. Copy obtained from google depicting the release date is also enclosed
Thus, the cost of production of the films has to be allowed in such previous year when the producer sells the right of commercial basis for exhibition of the film or exhibits the film itself. In the present case the entire cost of production shall be allowed as a deduction as the said film was released on 06.10.2017 which is relevant to financial year 2017-18 and assessment year 2018-19 and therefore the said expenditure was rightly claimed by the assessee during the assessment year in concern. Though there is no dispute on the incurring the expenditure on production of the film by the AO, however the details of expenditure along with all the ledger accounts were enclosed at PB Pages 441 to 550 for your kind perusal. In the aforesaid circumstances it is humbly prayed that whole of the expenditure incurred during the FY's 2012-13 to 17-18 before the date when film was incurred.”
In this regard, the assessee referred to page no. 150 & 197 of the Paper Book, wherein ready reference for release and release date is mentioned, which according to the assessee is 05.04.2014 and 06.10.2017 respectively. The AO also noted that the feature film named " Maufza" was certified on dated 05.04.2014 for release from the Board of Film Censors while assessee company is claiming the released date on 06.10.2017.
The Ld. CIT(DR) supported the orders of the authorities below.
We have heard both the parties and perused the material available on record. The AO disallowed the claim of the assessee on the ground that the assessee did not provide the complete details of the claim made. The Ld. CIT(A) confirmed the action of the AO on the ground that perusal of the relevant rules makes the intention of legislation very clear. The Ld. CIT(A) observed that the intention is that expenditure incurred in connection with production of a film is to be claimed in the year in which the revenue from the said film has been generated, i.e., the year in which it is commercially exhibited, if the date of release is more 90 days prior to the end of the financial year. The Ld. CIT(A) further observed that in the case of the assessee, the film was commercially exhibited on 06.10.2017, i.e., more than 90 days ahead of 31.03.2018; but the revenue was considered for the financial year 2018-19 and accordingly the stand of the assessee was therefore contradictory to the legislative intent. The Ld. CIT(A) observed that following the legislation intent, the expenditure was required to be claimed for the financial year 2018-19 relevant to Assessment Year 2019-20 and this contradiction disentitles the assessee from the claim of deduction during the present assessment year i.e. 2018-19. Accordingly, the Ld. CIT(A) rejected the contention of the assessee and sustained the disallowance made by the Assessing Officer.
On the other hand, the assessee had submitted before the Ld. CIT(A) that the expenditure could not be contained in the F.Y. 2013-14 when the film was certified for release, as no amount was realized in any other Previous year i.e., FY 2012-13 to 2016-17 and the amount was realized only in FY 17-18 which was clearly depicted in the books of accounts when the film was commercially exhibited by the producer himself in F.Y. 2017-18 relevant to AY 2018-19. The Ld. CIT(A) has not commented on the above claim of the assessee. The relevant submissions of the assessee before the Ld. CIT(A) are reproduced once again for ready reference:
“…… It is submitted that the Ld. AO was unable to understand that in accordance with Sub Rule 4 assessee company was unable to claim any expenditure on cost of production of film in the year in which feature film was certified as the same was not exhibited on commercial basis nor any rights have been sold in that Previous Year as stated in Sub Rule 2 to 4. The expenditure could not be contained in that previous year as no amount was realized in any other Previous year i.e., FY 2012-13 to 2016-17. The amount was realized only in FY 17-18 which is clearly depicted in the books of accounts when the film was commercially exhibited by the producer himself in F.Y. 2017-18 relevant to AY 2018-19.”
(emphasis supplied by us)
Therefore, in view of the counter claim made by the assessee and the contrary findings given by the Ld. CIT(A) regarding the realization of amount upon the release of the film “Maufza” the matter requires factual verification. Further, in this regard, there is also a dispute regarding the release date of the feature film as per the assessee and the AO as discussed above, which also needs verification in terms of Rule 9A and 9B of the I.T. Rules, 1962.
Therefore, we set aside the order of the Ld. CIT(A) and remit the matter to the file to the AO for fresh adjudication of the claim of the assessee for the allowance of expenses amounting to Rs. 2,86,59,327/- claimed during the year by the assessee after examining the necessary evidences in terms of provision of Rule 9A & 9B of the I.T. Rules, 1962 and in accordance with law. Further, the assessee will also be at liberty to furnish any details / evidence in support of his claim. The ground no. 1 filed by the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
To sum up, appeal filed by the Revenue (ITA No.- 557/Del/2025) is dismissed and appeal filed by the Assessee (ITA No.- 5330/Del/2024) is allowed for statistical purposes.