2016 (1) TMI 1122 - AT - Income Tax

Write off expenditure incurred as advance paid for the purchase of a film script for the production of a feature film - allowable revenue expenditure - Held that - Written off expenditure incurred by assessee as advance paid for purchase of a film script for production of an abandoned film is allowable as revenue expenditure and also that Rule 9A of the IT Rules, 1962 has no applicability in the matter.See M/s Venus Records and Tapes Pvt. Ltd 2015 (10) TMI 460 - BOMBAY HIGH COURT - Decided against revenue

Summary

Issues involved:
- Whether the expenditure incurred by the assessee as advance paid for the purchase of a film script for the production of a feature film was revenue expenditure?

Detailed Analysis:
1. The appellant, engaged in various business activities, filed its return of income for the assessment year 2009-10, declaring a total loss. The assessment was completed under section 143(3) of the Income Tax Act, disallowing an amount on account of write off of expenses for the purchase of a film script, treating it as capital expenditure.
2. The assessee appealed to the CIT (Appeals)-2, Mumbai, challenging the disallowance. The CIT (A) allowed the appeal based on previous tribunal decisions and a High Court ruling, holding the expenditure as revenue expenditure.
3. The Revenue appealed against the CIT (A) order, questioning the treatment of the expenditure as revenue. The appellant argued that the issue was settled in favor of the assessee by a decision of the Hon'ble Bombay High Court and a CBDT Circular.
4. The Tribunal considered the arguments and cited the decision of the Hon'ble High Court of Bombay in a similar case, where it was held that the cost of an abandoned film written off was revenue expenditure. The Tribunal also referred to the CBDT Circular clarifying that Rule 9A of the IT Rules, 1962 does not apply to abandoned feature films.
5. Based on the legal precedents and the CBDT Circular, the Tribunal held that the expenditure incurred for the purchase of a film script for an abandoned film was allowable as revenue expenditure. Consequently, the Revenue's appeal was dismissed, affirming the treatment of the expenditure as revenue.
6. The Tribunal pronounced the order on January 15, 2016, dismissing the Revenue's appeal for the assessment year 2009-10.

This detailed analysis outlines the legal proceedings, arguments presented, relevant case laws, and the final decision of the Tribunal regarding the treatment of the expenditure in question as revenue expenditure.