Commissioner of Income Tax vs Madathil Brothers

R. Balasubramanian, J.—The appeal stands admitted on the following substantial question of law:

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue and, therefore, the Commissioner could not have revised the same u/s 263?

Exercising power, u/s 263 of the Income Tax Act the Commissioner of Income Tax had set aside the order of the Assessing Officer. That order of the Commissioner of Income Tax was reversed by the Income Tax Appellate Tribunal. Hence, the Revenue is before this Court u/s 260A of the Income Tax Act. The assessment order shows that during the year 1987-88, one of the units of the assessee had purchased the negative rights of two feature films, for a consideration of Rs. 5,76,000 and Rs. 12,01,000 on August 22, 1986, and October 7, 1986, respectively. The assessment year concerned in this case is 1987-88. Under Sub-rule (4) of Rule 9B of the Income Tax Rules, the coats of acquisition of a film by an assessee during the previous year can be allowed to be carried forward for the next year, if the assessee does not exploit the said film during that year or does not sell the rights of exhibition of the film.

In other words, if there is no exploitation by the assessee and if he does not sell the rights of exhibition of the film, then, no deduction shall be allowed in respect of the cost of acquisition of the film, in computing the profits and gains of the previous year, in which year, the feature film was acquired. However, the sub-rule referred to above provides that the entire cost of acquisition shall be carried forward to the next year and allowed as deduction in that year.

Before the Assessing Officer, the assessee had claimed that he had exploited the film and had received a sum of Rs. 1,26,000 on such exploitation. The Assessing Officer did not accept that exploitation and receipt. However, he had allowed the cost of acquisition of the film to be carried forward to the next accounting year. Exercising suo motu revisional power, the Commissioner of Income Tax found that the purchase itself is not genuine ; there was no delivery of films ; there is no exploitation whatsoever and, therefore, the carry forward allowed by the Assessing Officer is erroneous in law and prejudicial to the Revenue.

In our considered opinion, the Commissioner of Income Tax had arrived at such a conclusion only on the basis that the vendor of the film is the sister concern of the assessee. This cannot be a reason at all, in our considered opinion. Merely because the sale is by a concern to another concern, which is its sister concern, it would not necessarily follow that the sale is not genuine. There is no finding by the Commissioner of Income Tax that in the books of account of the assessee neither the sale is reflected nor the payment is recorded. Taking these facts alone into account, the Income Tax Appellate Tribunal had reversed the order of the Commissioner of Income Tax passed u/s 263 of the Income Tax Act. Consequently, agreeing with the reasons given by the Income Tax Appellate Tribunal that there is no basis at all for the finding arrived at by the Commissioner of Income Tax exercising power u/s 263 of the Income Tax Act, the question of law raised is answered in favour of the assessee and against the Revenue. The tax case appeal stands disposed of accordingly.