Commissioner Of Income Tax,Media Circle,Chennai – 600 034 v. Ch. Sekhar (Huf)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 08.03.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI T.C.A.No. 120 of 2014 Commissioner of Income Tax,Media Circle,Chennai – 600 034.... Appellant v. Ch. Sekhar (HUF)No.32, Valmiki Street,Saligramam,Chennai – 600 034PAN : AAQHS 6938 H ... Respondent Appeal preferred under Section 260A of the Income TaxAct, 1745, against the order of the Income Tax AppellateTribunal, Madras, "D" Bench, dated 13.06.2013 inI.T.A.No.745/Mds/2012 for the Assessment Year 2006-2007 asagainst the order of the Commissioner of Income Tax IV,Chennai3[rd] Floor,New Block,Ayankar Bhavan,Nungambakkam,Chennai dated27.03.2012 in PAN NO.AAQHS6938 H for the Assessment Year 2006-2007 as against the order of the Income Tax officer,Media WardIII,chennai dated 29.12.2009 in PAN NO.AAQHS6938 H for theAssessment Year 2006-2007. For Appellant : Mr. M.Swaminathan Senior Standing Counsel and Mrs. V. PushpaFor Respondent : Mr. Sri Niranjani Srinivasan JUDGMENT (Judgment was delivered by M. DURAISWAMY, J.) Challenging the order passed in I.T.A.No.745/Mds/2012 inrespect of the Assessment Year 2006-2007 on the file of theIncome Tax Appellate Tribunal, Chennai,"D" Bench (for brevity,the Tribunal), the Revenue has filed the above appeal.https://hcservices.ecourts.gov.in/hcservices/ 2.1 The assessee filed its return of income for theassessment year 2006-07 belatedly on 13.03.2007 returning aloss of Rs.4,14,575/-. The gross loss for the year wasRs.32,26,125/- against which, the assessee set off short termcapital gain of Rs.28,11,550/-. Subsequently, a notice undersection 148 was issued on 11.4.2008. In response to which,the assessee filed a return of income on 25.8.2009, returninga loss of Rs.4,14,575/- . Thereafter, a notice under section143(2) was issued on 25.8.2009. The assessment was completedon 29.12.2009 under section 143(3) read with section 147determining the total income at Rs. 8,85,425/-. Theassessee has claimed Rs.35 lakhs towards cost of acquisitionof a film, but has paid only Rs. 2 lakhs towards cost ofacquisition of the film. Since the Assessing Officer did notexamine the issue in the light of the scrutiny proceedings,the Commissioner of Income Tax has invoked proceedings undersection 263 to examine the issue. 2.2. At the time of revision proceedings under section263, the Commissioner of Income Tax held that the order of theAssessing Officer was erroneous and prejudicial to theinterest of revenue on this issue, since the AssessingOfficer failed to examine the said issue in the light ofthe provisions of Rule 9B which prescribes the amount ofdeduction to be allowed where the assessee acts as adistributor of film rights. 2.2. At the time of revision proceedings under section263, the Commissioner of Income Tax held that the order of theAssessing Officer was erroneous and prejudicial to theinterest of revenue on this issue, since the AssessingOfficer failed to examine the said issue in the light ofthe provisions of Rule 9B which prescribes the amount ofdeduction to be allowed where the assessee acts as adistributor of film rights. 2.3 According to the Revenue, the assessee can claimonly the amount paid towards the cost of acquisition of filmsand the computation of deduction in respect of expenditure onacquisition of distribution rights of feature films isspecifically prescribed in Rule 9B(1) and sub rule (2) to subrule (4) of the Act. The Commissioner of Income Tax pointedout that the assessee had actually paid Rs.2 lakhs as againstthe cost of acquisition of film "Ninne Cherukunta" at Rs.35lakhs. The assessee had admitted realization formexhibition to the extent of Rs.2,80 lakhs and after adjustingthe purchase cost of Rs.35 lakhs, claimed business loss ofRs.33.20 lakhs. The Commissioner of Income Tax by applyingRule 9B held that the assessee had paid onlyRs.2 lakhs and the same has to be adjusted against therealization amount of Rs.2.80 lakhs and directed the AssessingOfficer to disallow the sum of Rs.33 lakhs.2.4 Aggrieved over the order passed by the Commissionerof Income Tax, the assessee preferred an appeal before theIncome Tax Appellate Tribunal, and the Tribunal by its orderdated 13.06.2013, held that the assessee was followingmercantile system of accounting. Section 43(2) clearlystipulates "paid" means actually paid or incurred according tothe method of accounting upon the basis of which the profitsor gains are computed under the head "Profits and Gains ofBusiness or Profession". In these circumstances, theTribunal held that the order of the Assessing Officer is noterroneous and prejudicial to the interest of revenuewarranting invocation of revisionary powers vested onhttps://hcservices.ecourts.gov.in/hcservices/Commissioner of Income Tax under section 263 of the Act and allowed the appeal filed by the assessee. Aggrieved overthe said order, the Revenue has filed the above appeal. 3. The above appeal was admitted on the followingsubstantial questions of law: “ (i) Whether the Tribunal erred inrelying upon section 43(2) of the Act to allowthe deduction on account of expendituretowards acquisition of distribution rightswithout actual payment, overlooking Explanationto Rule 9B(1) of the Income Tax Rules? (ii) Whether the Tribunal was justified inholding that there is no jurisdictional issueso as to enable the Commissioner of Income Taxto invoke section 263 of the Income Tax Act?” allowed the appeal filed by the assessee. Aggrieved overthe said order, the Revenue has filed the above appeal. 3. The above appeal was admitted on the followingsubstantial questions of law: “ (i) Whether the Tribunal erred inrelying upon section 43(2) of the Act to allowthe deduction on account of expendituretowards acquisition of distribution rightswithout actual payment, overlooking Explanationto Rule 9B(1) of the Income Tax Rules? (ii) Whether the Tribunal was justified inholding that there is no jurisdictional issueso as to enable the Commissioner of Income Taxto invoke section 263 of the Income Tax Act?” 4. On a careful consideration of the materials availableon record and the submissions made by the learned counsel oneither side, it could be seen that as per Explanation toRule 9B, the cost of acquisition means the amount paid by thefilm distributor to film producer under an agreement. In thecase on hand, admittedly, the assessee was followingmercantile system of accounting. Therefore, as per section43(2), the "paid" will include what is incurred as per themethod of accounting followed by the assessee for computingthe income from business. The revenue has not disputedthat the assessee was following the mercantile system.Therefore, the assessee was well within his right to claimthe whole of the sum mentioned in agreement as part of thecost of acquisition. The Assessing Officer had called forthe relevant agreement during the course of originalassessment proceedings and the assessee also submitted thesame before the Assessing Officer. The Assessing Officerduring the course of original assessment proceedings,considered the issues and gave the allowances to the assessee.Revisionary powers were invoked by the Commissioner of IncomeTax based on letter of the Assessing Officer and not based onan independent assimilation of facts. The Tribunal hasrightly observed that the Commissioner of Income Tax was onlytrying to stamp his approval to a change of opinion of theAssessing Officer. The Tribunal has rightly came to theconclusion that the original order of the Assessing Officerdid not suffer from any error which was prejudicial to theinterests of revenue, warranting invocation of revisionarypowers vested on the Commissioner of Income Tax under section263 of the Act. 5. For the reasons stated above, we do not find anymerits in the Appeal. The substantial questions are decidedagainst the Revenue and in favour of the assessee. Hence,the Tax Case Appeal is liable to be dismissed. Accordingly,the same is dismissed. No costs. Sd/- Assistant Registrar(CS) //True Copy// Sub Assistant Registrar Rj TOTHE INCOME TAX APPELLATE TRIBUNAL, CHENNAI,D BENCH 2.THE COMMISSIONER OF INCOME TAX IV,CHENNAI 3 FLOOR,NEWBLOCK,AYANKAR BHAVAN,NUNGAMBAKKAM,CHENNAI3.THE INCOME TAX OFFICER,MEDIA WARD III,CHENNAI +1cc to Mr.G.Baskaran , Advocate SR.No. 14625 +1cc to Mr.M.Swaminathan, Advocate SR.No. 15064T.C.A.No. 120 of 2014A.SK(31.03.2021)