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2013 (12) TMI 181 - AT - Income TaxAssessment u/s 263 Held that - Following Tips Cassettes and Record Co. 2000 (7) TMI 210 - ITAT BOMBAY-E - the assessee was a dealer of music and the nature of capital or revenue vis-a-vis various expenditure has to be considered on this point. Since the assessee was dealer in music, the master plate or in turn the rights which enable the assessee to obtain the master plate (assignment of copyrights) become raw material of the assessee. The assessee sells music purchased on master plate and transmits on a different device called cassette or record. The raw material, i.e. master plate is integral part of the profit earning process and not the capital field. The Commissioner of Income-tax was not correct in holding that the assessment order is erroneous - For invoking the provisions of section 263 two conditions have to be satisfied - The order of the Assessing Officer sought to be revised is erroneous ; and The order of the Assessing Officer is prejudicial to the interests of the Revenue Following Malabar Industrial Co. Ltd. v. CIT 2000 (2) TMI 10 - SUPREME Court - The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue Decided in favour of Revenue.
Issues Involved:
1. Jurisdiction and authority of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. 2. Nature of expenditure on acquisition of audio copyrights and CD/DVD rights - whether it is capital or revenue expenditure. 3. Applicability of Rule 9A/9B of the Income-tax Rules for the write-off of expenses. 4. Validity of the assessment order passed by the Assessing Officer. Issue-wise Detailed Analysis: 1. Jurisdiction and Authority of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961: The Commissioner of Income-tax issued a notice under section 263 of the Act to the assessee, asserting that the assessment order was erroneous and prejudicial to the interests of the Revenue. The Commissioner contended that the Assessing Officer should have capitalized the expenditure on the acquisition of copyrights and allowed depreciation instead of treating it as revenue expenditure. The assessee argued that the order of the Commissioner was without jurisdiction and contrary to law, emphasizing that there was no error or prejudice warranting the invocation of section 263. The Tribunal concluded that the Commissioner was not correct in invoking section 263, as the assessment order was not erroneous. 2. Nature of Expenditure on Acquisition of Audio Copyrights and CD/DVD Rights - Capital or Revenue Expenditure: The primary contention was whether the expenditure on acquiring audio copyrights and CD/DVD rights should be treated as capital expenditure or revenue expenditure. The assessee maintained that such expenditure was revenue in nature, citing precedents where similar expenditures were allowed as revenue expenditure. The Commissioner, however, held that the rights were capital assets and depreciation should be allowed. The Tribunal, referencing previous judgments, including those in the cases of Super Cassettes Industries P. Ltd., M. Subramaniam, and Gramophone Co. of India Ltd., concluded that the expenditure was indeed revenue in nature and should not be capitalized. 3. Applicability of Rule 9A/9B of the Income-tax Rules for the Write-off of Expenses: The assessee argued that if the purchases had to be capitalized, the receipts should also be capitalized, referencing Rule 9A of the Income-tax Rules, which allows the entire expenses of a movie/production to be written off if released within three months before the end of the financial year. The Commissioner did not accept this contention. The Tribunal did not find it necessary to delve deeply into this rule, as it had already concluded that the expenditure was revenue in nature. 4. Validity of the Assessment Order Passed by the Assessing Officer: The Tribunal examined whether the assessment order dated October 30, 2008, was erroneous and prejudicial to the interests of the Revenue. It was found that the Assessing Officer had passed the order after a detailed examination of the records, and the expenditure was correctly treated as revenue expenditure. The Tribunal referenced the Supreme Court's judgment in Malabar Industrial Co. Ltd. v. CIT, which clarified that an order cannot be deemed prejudicial to the interests of the Revenue if the Assessing Officer had adopted one of the permissible courses in law. The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the order of the Commissioner of Income-tax and restoring the order of the Assessing Officer. The expenditure on acquiring audio copyrights and CD/DVD rights was held to be revenue in nature, and the invocation of section 263 by the Commissioner was deemed unjustified. The order pronounced in the open court on March 30, 2012, concluded that the assessment order was valid and correctly treated the expenditure as revenue expenditure.
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