2012 (4) TMI 355 - AT - Income Tax

Additional Evidence - Rule 46A - right of the assessee - held that - The assessee has explained that because the Assessing Officer has not specifically called for the evidence, therefore the assessee did not file the same before the Assessing Officer. - It is pertinent to note that the Assessing Officer has raised a specific query whereby the assessee was asked to explain such valuation and subsequent loss. - The assessee filed its reply vide letter dated 7.10.2009. Therefore, the assessee was given sufficient opportunities to explain and substantiate its claim of revaluation of closing stock. - As regard sub rule (4) of Rule 46A that is a discretionary power of the CIT(A) to direct the production of any document, or the examination of any witness for proper adjudication of the case. - the assessee cannot claim any right under sub rule (4) of Rule 46A for producing of any document which otherwise cannot be produced under sub Rule (1) of Rule 46A. Valuation of Closing Stock - deduction in respect of cost of production of feature film as per Rule 9A - held that - once the expenditure on the production of the film is allowable as deduction as per the provisions of Rule 9A, then no deduction is permissible de-hors the provisions of Rule 9A. Allowance of cost of the feature film as business loss - abandoned project - held that - the assessee s case is not for the claim of abandoned project or covered under Rule 9(4). Therefore, the case relied upon by the assessee are not applicable in the facts of the present case. Further, the alternative plea of the assessee is pertaining to the issue of allowing the business loss in the assessment year other than the year under consideration, which cannot be adjudicated in the proceedings of this year. Business loss as per Rule 9A(4) - held that - The deduction shall be allowed in accordance with the provisions of sub rule (2) to sub rule (4) of Rule 9A of I T Rules 1962. Therefore, sub rule (2) to (4) expresses various circumstances and procedures to allow the deduction. Whereas sub rule (5) of Rule 9A stipulates the conditions which are required to be fulfilled for such deduction is allowed. - when the assessee has neither himself exhibits feature film on commercial basis nor sold the rights of exhibits of the feature film nor transfer the rights of exhibits of feature film, then the claim of deduction is hit by sub rule (5) of Rule 9A of the I T Rules and cannot be allowed. Valuation of opening stock of the next year - held that - in view of the decision of the Hon ble jurisdictional High Court in the case of CIT v. Mahalaxmi Glass (2009 -TMI - 35481 - BOMBAY HIGH COURT), opening stock of the next year should be valid at the figure which has been taken by the Assessing Officer for the closing stock of this year.

Issues Involved:
1. Additional evidence under Rule 46A.
2. Addition to closing stock.
3. Allowing business loss of the relevant year.
4. Allowing business loss as per Rule 9A(4).
5. Adjustment to opening stock of the subsequent year.

Detailed Analysis:

1. Additional Evidence - Rule 46A:
The assessee contended that the CIT(A) erred in not admitting additional evidence under Rule 46A, specifically a letter from M/s. Boobna Entertainment Pvt. Ltd., which was crucial for the valuation of the closing stock. The CIT(A) rejected this evidence on the grounds that it was not presented before the Assessing Officer (AO) despite ample opportunities. The Tribunal noted that Rule 46A(1) allows additional evidence in specific circumstances, none of which applied in this case. The Tribunal concluded that the assessee's failure to present the evidence earlier was an afterthought and upheld the CIT(A)'s decision to reject the additional evidence.

2. Addition to Closing Stock:
The AO added Rs. 20,75,425/- to the closing stock, observing that the assessee had artificially reduced the market value without any basis. The assessee argued that the valuation was based on the principle of cost or market value, whichever is lower, and was supported by trade inquiries. The Tribunal upheld the AO's decision, stating that Rule 9A of the IT Rules governs the deduction of the cost of production of feature films and does not allow for such artificial reductions. The Tribunal emphasized that deductions must comply with Rule 9A and cannot be claimed through indirect methods like reducing the closing stock's value.

3. Allowing Business Loss of the Relevant Year:
The assessee argued that the entire cost of the feature film should be allowed as a business loss for the relevant year. The Tribunal rejected this argument, noting that the loss was not permissible under Rule 9A and that the issue of allowing business loss for another year was not relevant to the current proceedings. Consequently, the Tribunal did not provide any direction regarding the claim for any other year.

4. Allowing Business Loss as per Rule 9A(4):
The assessee claimed that the entire cost of production should be carried forward and allowed as a deduction in the next year under Rule 9A(4). The Tribunal clarified that Rule 9A(5), which has an overriding effect, stipulates that no deduction is allowed unless the film producer exhibits the film commercially or sells the exhibition rights. Since the assessee did neither, the claim was denied.

5. Adjustment to Opening Stock of the Subsequent Year:
The assessee argued that the opening stock of the subsequent year should reflect the closing stock value adopted by the AO for the current year. The Tribunal agreed, citing the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Mahalaxmi Glass, and directed that the opening stock for the next year should be valued at the figure taken by the AO for the closing stock of the current year.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the AO's and CIT(A)'s decisions on most grounds but directed an adjustment to the opening stock of the subsequent year.

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