2020 (4) TMI 718 - AT - Income Tax

Addition towards cost of purchase of film rights u/s 40A(2) - HELD THAT - Assessee, the mother of assessee and sister of the assessee acquired the impugned property during 1992. The mother of the assessee and sister of the assessee settled their portion of the land by a settlement deed dated 17.06.2011. Assessee has sold and claimed capital gain, in accordance with the case law relied on in CIT vs Manujal J Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT the period of holding is to be reckoned from the year 1992-93 for the purpose of computing cost of indexation and therefore, we do not find any reason to interfere with the order of the Ld. CIT(A). Claim of interest capitalisation towards cost of acquisition - For the purpose of indexation the assessee has submitted before the CIT(A) that the land was purchased during 1999-2000 relating to assessment year 2000-01. The interest paid was in connection with the acquisition which happened almost 15 to 20 years back. The relevant papers were not able to be produced since the details of capitalisation happened about 20 years back. Assessee has been subject to tax audit in the relevant assessment year and the books of account are duly audited and certified by the CA, the same was duly submitted by the AO as an alternative evidence to substantiate the interest capitalisation which the AO has not considered and made the disallowance. CIT(A) held that he is convinced with the AO s action on capitalisation interest on capitalising the interest is correct, as per law and directed the AO to include the interest on housing loan borrowed as part of the cost of acquisition. Since, the Revenue has not disputed the findings recorded by the CIT(A) with relevant material, we do not find any reason to interfere with the decision of the CIT(A) on this issue. Disallowance on assessee s claim on loss of distribution of movie relating to the movie Badrinath - CIT(A), the assessee has explained very clearly the nature and the scope of the transaction and made out the case that the amount paid to the company was at arm length which was prevalent as per normal practice in the assessee s business. The assessee has also made out that there was no unreasonableness in the transaction and the transaction was fully accounted and all the relevant particulars were filed before the AO. As submitted that the AO has not made out the case based on evidence but came to a conclusion that the said transaction was a sham transaction. Considering the material and the plea etc., CIT(A) held that the AO has not made out the case based on evidence. The AO has not determined the fair market value with comparable cases etc. Therefore, he deleted the additions. Revenue is not able to dislodge the findings recorded by the Ld. CIT(A) with relevant material. In the facts and circumstances, we do not find any reason to interfere with the order of the Ld. CIT(A) and hence the corresponding grounds of the Revenue are dismissed.

Summary

Issues:
1. Disallowance of indexation and interest expenditure by Assessing Officer.
2. Disallowance of cost of purchase of film rights under section 40A(2).
3. Dispute over long-term capital gain and indexation year.
4. Disallowance of claimed loss in movie distribution.

Analysis:
1. The Assessing Officer (AO) disallowed the assessee's claim of indexation and interest expenditure related to property transactions. The AO held that the assessee created a notional loss to avoid tax payment on capital gains. However, the Commissioner of Income Tax (Appeals) allowed the claims, stating that indexation should be awarded from the year of acquisition and directed to allow the claims. The Tribunal upheld the CIT(A)'s decision, considering the evidence presented.

2. The AO disallowed the cost of purchase of film rights under section 40A(2), alleging tax evasion. The CIT(A) overturned this decision, emphasizing the commercial expediency of the transaction and the reasonableness of the consideration paid by the assessee. The Tribunal upheld the CIT(A)'s ruling, noting the lack of material provided by the Revenue to challenge the decision.

3. Regarding long-term capital gain and indexation year, the Tribunal referred to the case law and held that the period of holding for indexation should start from the year of acquisition in 1992-93. The Tribunal found no reason to interfere with the CIT(A)'s order on this issue.

4. The AO disallowed the claimed loss in movie distribution, alleging tax evasion. The CIT(A) and Tribunal found the AO's conclusions unsubstantiated, highlighting the arm's length nature of the transaction and the lack of evidence to support the AO's claims. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision on this matter.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on the various issues raised in the case.