2003 (12) TMI 289 - AT - Income Tax

Validity of reassessment proceedings - Income Escaping Assessment - additions made on account of un-amortized cost of pictures brought forward from earlier years under Rule 9B and in allowing carry forward under Rule 98 - HELD THAT - In the present case in our opinion the assessee has not been able to establish that Assessing Officer had accepted the interpretation of Rule 9B in the manner stated by the assessee. As far as this year is concerned the return filed by the assessee was processed u/s 143(1). Therefore it cannot be said that Assessing Officer formed any opinion in such proceedings. As far as earlier years are concerned no material has been placed before us in respect of any year prior to assessment year 1991-92. As far as assessment year 1992-93 is concerned the Assessing Officer has not accepted the stand of the assessee. So the only year on which reliance is placed by the assessee is the assessment year 1991-92. Let us examine whether the Assessing Officer had accepted the stand of the assessee in assessment year 1991-92. In that year the assessee could not run four films namely Farishtey Saugandh Pathar Ke Phool and Pathar Ke Insan on commercial basis for 180 days or more. The rights to exhibit these films were acquired on MG amount basis. The assessee also incurred expenditure on acquiring positive prints. For example MG amount of Rs 55 lakhs was paid for acquiring rights in the film Farishtey . The expenditure by way of cost of prints was Rs. 16, 63, 006 while the realization was only Rs. 43, 99, 031. According to the assessee there was loss of Rs. 27, 63, 974 which was carried forward to next year by showing the same to the asset side of the balance sheet as on 31-3-1991 and no claim was made in that year. Similarly method was adopted for the other three films. Coming to the merits we are of the considered view that if any assessment is contrary to the clear provisions of law it can be said that there is an escapement of income. As stated earlier Rule 9B clearly and specifically provides that cost of prints cannot be included in the cost of acquisition of the exhibition rights in the film. Therefore what can be carried forward is the cost of acquisition and not the cost of prints. On the contrary the cost of prints can be allowed in the year in which the expenditure incurred as per the provisions of section 28 either on accrual basis or cash basis as the case may be. It is nobody s case that cost of prints was incurred in the year under consideration in respect of two films Lakshman Rekha and Suryavanshi . Therefore the assessee was entitled to set off only that part of carried forward which related to MG amount and not the cost of prints. Thus by claiming excess amount of carry forward and acceptance of the same in the routine manner u/s 143(1) the income of the assessee had been under assessed. Hence notice u/s 147 was validly issued. Accordingly the order of CIT(A) is quashed on this issue and consequently Ground No.1 raised by the revenue is allowed. As far as Ground No.2 is concerned both the parties are agreed that the issue stands covered against the assessee by the decision of the Tribunal in assessee s own case for assessment year 1992-93. Therefore following the same the order of the CIT(A) on this issue is reversed and the order of Assessing Officer is restored. Thus ground No.2 is allowed.

Summary

Issues Involved:
1. Validity of action u/s 147/148 by the Assessing Officer.
2. Deletion of additions and allowance of carry forward u/r 9B.

Summary:

Issue 1: Validity of Action u/s 147/148
The main issue revolves around whether the action taken by the Assessing Officer u/s 147/148 was justified. The assessee, engaged in the business of film distribution, had its return processed u/s 143(1). The Assessing Officer initiated reassessment proceedings based on findings from the previous year, believing that the assessee had misinterpreted Rule 9B, leading to escapement of income. The CIT(A) held that the reassessment was a mere change of opinion, which is not permissible. However, the Tribunal disagreed, stating that reassessment proceedings cannot be initiated on mere change of opinion unless an opinion was formed in the original assessment. Since the return was processed u/s 143(1) without forming any opinion, the Tribunal held that the reassessment was valid and quashed the CIT(A)'s order on this issue.

Issue 2: Deletion of Additions and Allowance of Carry Forward u/r 9B
The second issue pertains to the deletion of additions amounting to Rs. 15,66,161 and the allowance of carry forward of Rs. 16,57,100 u/r 9B. The assessee had claimed deductions for the cost of positive prints carried forward from the previous year, which the Assessing Officer disallowed, stating that Rule 9B does not permit such carry forward. The CIT(A) deleted the additions and allowed the carry forward, following its order for the previous year. However, the Tribunal reversed the CIT(A)'s decision, citing its earlier ruling in the assessee's case for the assessment year 1992-93, and restored the Assessing Officer's order. Thus, the Tribunal allowed the revenue's appeal on this issue.

Conclusion:
The Tribunal upheld the reassessment proceedings initiated u/s 147/148 and reversed the CIT(A)'s order regarding the deletion of additions and allowance of carry forward u/r 9B, thereby allowing the revenue's appeal on both grounds.