Itxa/1360/2012 Of The Commissioner Of Income Tax-11, Mumbai v. Shri Nitin Panchamiya

k IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1360 OF 2012 The Commissioner of Income Tax 11, Mumbai ...Appellant. V/s. Shri Nitin Panchamiya ...Respondent. Mr. P.C. Chhotaray for the Appellant. Mr. R. Murlidhar a/w Mr. Balasaheb Yawale i/b M/s. Rajesh Shah & Co. for Respondent. CORAM:S.C. DHARMADHIKARI ANDA.A. SAYED, JJ. DATED : 28 NOVEMBER, 2014. P.C.: 1This Appeal of the Revenue challenges the order passed by the Income Tax Appellate Tribunal on 17[th] February 2012 allowing the Assessee's Appeal partly and that of the Revenue dismissed. 2The two Income Tax Appeal Nos.3874/Mum and 3244/Mum, both of 2009 were dealt with by the Mumbai Bench of the Income Tax Appellate Tribunal. The Assessment Year was 2005-2006. The only question and which has been termed as substantial question of law is in relation to the exercise carried out by the Assessing Officer of determining the cost of production allowable under Rule 9A(3) of the k Income Tax Rules, 1962 in the assessment year in question and on the footing that part of the expenditure claimed was clearly not includible under explanation (ii) to Rule 9A(1) of the Income Tax Rules, 1962. The Commissioner and the Tribunal concurrently noted that this is an attempt to get over and purporting to reopen an assessment of a partnership firm in which the Assessee before us was a partner. The firm was carrying on business of film production and distribution and styled as M/s. Karma Entertainment. It produced a certain film and which film together with the rights in relation thereto are referred by both the Commissioner and the Tribunal. The film was produced at the value found in the balance sheet of the firm namely Rs.2,93,73,793/-. The Assessee on taking over the firm's business noticed that the cost of production of the film was shown to be Rs.10,76,55,232/- in the Profit and Loss Account of the firm. The Assessing Officer has referred to the Return of Income filed by the Assessee showing the loss of Rs.3,01,53,795/-. The Assessing Officer has observed that during the scrutiny assessment, Assessee claimed that entire assets and liabilities of M/s. Karma Entertainment were taken over by him as sole proprietor. M/s. Karma Entertainment also filed Return of Income for Assessment Year 2004-2005. The Assessing Officer was of the opinion that the Assessee claiming the un-recouped cost of production of the movie in the hands of the k Assessee and showed realization of only Rs.1,39,709/- while the gross loss is Rs.2.92 Crores and the net loss declared at Rs.3,01,53,795/- 3However, the Assessing Officer examined the Return of Income filed by the firm M/s. Karma Entertainment for the Assessment Year 2004-2005. It is M/s. Karma Entertainment which produced this movie and released the same in February 2004. The cost of production of the movie was claimed to the extent of realization at Rs.7,82,79,439/- up to 31[st] March, 2004 as per Rule 9A of the Income Tax Rules, 1962. The balance cost of production has now been claimed by the Assessee as the sole surviving partner and taking over the business of the firm. The Assessing Officer has observed that this is correct accounting but the detailed examination of the Return filed by the Firm for Assessment Year 2004-2005 reveals under statement of the loss and to a substantial extent. The expenses which could not have been claimed in terms of the explanation (ii) of sub-section 1 of Rule 9A have been claimed and to a large extent. It is in these circumstances, that the Assessing Officer reduced the loss of Rs.1,11,26,990/- as claimed and revised it at Rs.1,90,26,835/-. He initiated penalty proceedings as well. 4The aggrieved Assessee challenged the order before the Commissioner of Income Tax (Appeals) and the Commissioner at para k 4The aggrieved Assessee challenged the order before the Commissioner of Income Tax (Appeals) and the Commissioner at para k 5.3, internal page 7, running page 44 of the order passed by him held that this is nothing but a reexamination of the accounts of the firm. That could be done only by independent proceedings. The Assessment Year 2004-2005 reveals that the Assessee was a partner in the firm. However, when that is a separate entity and now the assessment is in relation to a sole proprietor after dissolution of the firm's business but on his taking over the same, then indirectly the Assessing Officer could not have made any adjustment in case of M/s. Karma Entertainment for the assessment year 2004-2005. Therefore, the Commissioner held that this was not necessary nor permissible in law. The Assessing Officer lost sight of the fact that he is making an assessment of the income of the Assessee before us and for Assessment Year 2005-2006. 5Holding thus he allowed the ground no.4 in the Assessee's Appeal. 6Aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the matter was carried by the Revenue to the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal has affirmed and concurred with the finding of fact of the Commissioner of Income Tax (Appeals). A detailed Reference has been made by the k Income Tax Appellate Tribunal to the requisite facts. It has also made Reference to the materials which have been produced and we find that the elaborate exercise commencing from para 23 ends with the following observations and findings recorded in para 29 and 30: “29. Aggrieved by the order of CIT(A), the Revenue has preferred the present appeal before the Tribunal. We have heard the submissions of the ld. DR who relied on the order of the AO. The ld. counsel for the assessee reiterated the submissions as were made before the CIT(A) and also submitted that even if it is considered that Rule 9A could not be applied in this case, the assessee on dissolution of the partnership firm took over the rights of the film Rudraksh at the value found in the balance sheet of the firm i.e. Rs.2,93,73,793/-. The assessee, on taking over the same, had exploited the film and realized a sum of Rs.1,39,709/- during the previous year. Thus, the loss in question has to be allowed. In fact, having accepted in the assessment of the firm M/s. Karma Entertainment that the un-recouped cost of production of the firm Rudraksh was Rs.2,93,77,793/-, the AO could not in the assessment of the firm seek to exclude any part of the cost of production expenses by trading them as post production expenses. He also pointed point out that the reopening of the assessment in the case of Karma Entertainment for AY 04-05 has already been struck down by the CIT(A) to be not proper and the order of reassessment now stands annulled. k k 30.We have considered the rival submissions. In our view, the claim made by the assessee was rightly accepted by the CIT(A). Even if Rule 9A is applied, the assessee was entitled to claim the un-recouped cost of production in terms of Rule 9A(3) of the Rules. This un-recouped cost has been determined at a sum of Rs.2,93,73,793/- by the AO in the assessment of the firm for asstt. year 2004-05 and the same has become final. It is not open to the AO of the assessee to redetermine the cost of production in the assessment of the assessee. Thus, the CIT (A), in our view, has rightly deleted the addition made by the AO. Even the alternative plea of the assessee that de hors the provisions of Rule 9A, the difference between the cost of acquisition of the film Rudraksh to the assessee and the cost of realization from the exhibition of the film during the previous year should be allowed as a deduction, is acceptable. In that view of the matter we hold that the loss claim by the Assessee deserves to be accepted. For the reasons given above, we confirm the order of CIT(A) and dismiss the appeal by the Revenue. 7In the light of the conclusion reached by the Tribunal and essentially on facts as brought on record that we are of the opinion that the present Appeal does not raise any substantial question of law. The essential findings being in consonance with the factual material has produced, the concurrent orders cannot be termed as perverse. katkam k The Appeal does not raise any substantial question of law and it is accordingly dismissed. (A.A. SAYED, J.) (S.C. DHARMADHIKARI, J.)