2015 (8) TMI 612 - AT - Income Tax

Reopening of assessment - Held that - On the arguments relating to the existence of new or tangible material for the AO before initiating the re-assessment proceedings, we find from the reasons that it is not the case of Revenue that AO has any such tangible material on the incorrectness of the claim of amortization of the inventories of programs / films or the method of valuation thereof. In the preceding paragraphs, we have extracted ratios of various case laws in the form of the assessee on the requirement of tangible / new material. On these arguments of the Ld Counsel for the assessee also, the Revenue fails. The proceedings initiated by the AO are unsustainable in law. - Decided in favour of assessee. Addition on account of disallowance of intangible assets ie News / TV Program / Film Rights - On the debits relating to the purchases of the News items - Held that - Regarding the nature of the news items purchased by the assessee and debited to the P and L account, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon ble Delhi High Court in the case of Television Eighteen India Ltd (2014 (5) TMI 588 - DELHI HIGH COURT ) that the claims of the assessee relating to news / non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as intangible assets‟ for the purpose of invoking the provisions of section 32(ii) of the Act. Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act, without any sustainable reasoning. Therefore the decision of the AO/CIT(A) is unsustainable legally. Hence, the assessee is entitled to claim the purchases of news items/non fictional items as an allowable expenditure. Accordingly, we direct the AO to delete the relevant addition.- Decided in favour of assessee. On the debits relating to the purchases of the TV Programs/Film rights - Held that - Assessee amortised the inventories‟ as per the method of accounting consistently followed by him over the years. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act without any sustainable reasoning. We have perused he judgment of Honble High Court of Delhi and the order of the Tribunal of Chennai Bench in the case of M/s Sun TV Networks Ltd (2013 (10) TMI 1290 - ITAT CHENNAI). We have also extracted the relevant paragraphs and already placed in this order above. We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal wherein the issue was decided in favour of the assessee and rejected the AO‟s proposal to invoke the provisions of section 32(ii) of the Act in respect of the above programs/rights. As such, the Ld DR s argument on the applicability of the AS-26 to the TV Programs and Film rights is not supported by any precedents and therefore, the arguments raised by the Revenue are not allowed. Thus, considering the covered nature of the issue as well as the consistent method of accounting followed by the assessee in this regard and also in the absence of any contrary material to support the arguments of the Revenue against the assessee‟s claim, we are of the opinion that the decision taken by the CIT (A) in the impugned order is required to be reversed. - Decided in favour of assessee.

Issues Involved:
1. Validity of re-assessment under Section 147 of the Income Tax Act.
2. Treatment of TV programs and film rights as intangible assets.
3. Allowability of expenses related to news and non-fiction items.
4. Consistency in accounting policies and their acceptance by the tax authorities.

Issue-wise Detailed Analysis:

1. Validity of Re-assessment under Section 147 of the Income Tax Act:

The assessee contended that the re-assessment under Section 147 was based on a mere change of opinion without any new tangible material. The original assessment had considered the nature of the business, inventories, and their valuation method. The assessee argued that the AO had already formed an opinion on these issues during the initial assessment, and therefore, reopening the assessment on the same grounds was not permissible. The Tribunal agreed with the assessee, citing several precedents, including the Bombay High Court's decision in Aroni Commercials Ltd vs. DCIT, which emphasized that reassessment based on a change of opinion is not allowed. The Tribunal concluded that the AO did not possess any new tangible material to justify the reassessment, making it invalid.

2. Treatment of TV Programs and Film Rights as Intangible Assets:

The assessee treated TV programs and film rights as current assets, amortizing them over a specified period based on their useful economic life. The AO, however, treated these as intangible assets, allowing only 25% depreciation. The Tribunal noted that the assessee consistently followed this accounting method, which was accepted in previous assessments. The Tribunal referred to the Chennai Bench's decision in ACIT vs. M/s. Sun TV Networks Ltd, which supported the assessee's method of treating such rights as current assets and amortizing them. The Tribunal found no reason to deviate from this consistent accounting practice and reversed the AO's decision.

3. Allowability of Expenses Related to News and Non-fiction Items:

The assessee argued that news and non-fiction items should be fully expensed in the year of acquisition as they do not have enduring value. The Tribunal referred to the Delhi High Court's decision in CIT vs. Television Eighteen India Ltd, which supported the full expensing of such items. The Tribunal agreed with the assessee, stating that news items lose their value after the initial telecast and should be fully expensed. The Tribunal directed the AO to delete the disallowance related to these expenses.

4. Consistency in Accounting Policies and Their Acceptance by Tax Authorities:

The Tribunal emphasized the importance of consistency in accounting policies. The assessee had consistently followed its method of treating TV programs and film rights as current assets and amortizing them, which was accepted in previous assessments. The Tribunal found no justification for the AO to disturb this settled practice without any new material evidence. The Tribunal upheld the principle of consistency and allowed the assessee's claims.

Conclusion:

The Tribunal allowed the assessee's appeal, declaring the re-assessment under Section 147 invalid due to the absence of new tangible material and the reassessment being based on a change of opinion. The Tribunal also upheld the assessee's method of accounting for TV programs, film rights, and news items, emphasizing the importance of consistency in accounting practices. The AO was directed to delete the additions and disallowances made in the reassessment.

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