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2011 (4) TMI 794 - AT - Income TaxLoss on account of write off of the cost of production of the TV serial Raja Bhartuhari - It is required to ascertain whether the assessee had totally abandoned his film production business or he was still continuing the same - Held that - Since, the assessee has filed its Profit and Loss Account and Balance Sheet for several years starting from the year ended 31-3-1995, from which find that in the year ended 31-3-2005 the assessee has produced and sold a TV serial called Ek Aur Amar Premm - As the accounts for the year ended 31-3-2005 show the assessee did disclose business receipts of Rs. 25,21,000 in respect of Ek Aur Amar Premm - For the same year he has also disclosed distributorship receipts in respect of the film Mughal-E-Azam (Colour) to the extent of Rs. 18,49,375 - Therefore, the claim of loss on account of write off of the cost of production of the TV serial Raja Bhartuhari cannot be defeated even on the ground that the assessee has stopped carrying on the business of production/distribution of films - Decided in favour of assessee.
Issues:
- Allowability of loss claimed by the assessee in relation to the write-off of the cost of production of a TV serial. - Applicability of Rule 9A of the Income-tax Rules. - Interpretation of commercial expediency in allowing the claimed loss. - Consideration of relevant case laws in determining the outcome of the appeal. Issue 1: Allowability of Loss Claimed by the Assessee: The case involved an appeal by the revenue regarding the allowance of a loss claimed by the assessee for the assessment year 2006-07. The assessee, an individual engaged in various businesses including TV serial production, claimed a loss of Rs. 18,76,552 from the production of a TV serial titled "Raja Bhartuhari." The Assessing Officer initially disallowed the claim, citing Rule 9A of the Income-tax Rules, which required amortization of the cost of production against the income from the serial. The assessee argued that the loss was incurred due to commercial expediency, as the TV serial could not be commercially exploited despite completion. Issue 2: Applicability of Rule 9A of the Income-tax Rules: The Assessing Officer invoked Rule 9A to deny the claimed loss, emphasizing the need for amortization of production costs against receipts from the film. However, the appellate authority accepted the assessee's contention, supported by legal precedents, that the Rule was not applicable in this case. The tribunal noted that the Rule's provisions for amortization were not feasible due to the inability to exploit the TV serial commercially. The tribunal highlighted that Rule 9A could not override the general principles of allowing a loss incidental to business under section 28 of the Income-tax Act. Issue 3: Interpretation of Commercial Expediency: The tribunal analyzed the commercial expediency of writing off the cost of production as a loss, considering the inability to find TV channels willing to telecast the completed TV serial. The tribunal emphasized the assessee's decision-making authority in such matters and upheld the claim based on the absence of strong reasons to challenge the write-off. The tribunal also highlighted the relevance of specific provisions allowing deductions in cases where Rule 9A was deemed impractical, reinforcing the acceptance of the claimed loss on commercial grounds. Issue 4: Consideration of Case Laws: The tribunal referenced legal judgments, including those of the Supreme Court and High Courts, to support the decision to allow the claimed loss. The tribunal cited precedents where losses incidental to business were deemed allowable, even if projects were not completed or commercially viable. By evaluating the assessee's business activities over the years, the tribunal confirmed the legitimacy of the claimed loss, dismissing the revenue's appeal and affirming the decision of the appellate authority without costs. This detailed analysis of the judgment addresses the issues involved, the arguments presented by both parties, the legal framework applied, and the tribunal's rationale for upholding the allowance of the claimed loss by the assessee.
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