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2015 (12) TMI 376 - AT - Income TaxDisallowance of excess cost claimed - CIT(A) held that the assessee is not required to follow the method of valuation prescribed u/r 9B of I.T. Rule, 1962 thus deleted the addition - Held that - Cost to be allowed during the year depends upon the closing stock of the previous year, purchases during the year and the valuation of the closing stock would be dictated by sub Rule 2 & 3. From the assessment order, it appears that the Assessing Officer has misconstrued the provisions of Rule 9B and has not applied sub Rule 2,3 properly. In fact ignored sub Rule 4 completely and did not allow the closing stock of the previous year of unsold films which is to be allowed as deduction irrespective of sale or not. Thus, instead of loss of ₹ 18,22,482/- claimed by the assessee in the return, loss of ₹ 62,94,368/- have to be allowed as per Rule 9B. We find that as per the cost of acquisition, closing stock adjustment in past year s closing stock may lead to allowing higher losses in the instant assessment year. The method followed by the assessee is endorsed and the addition made by the Assessing Officer was rightly deleted by the CIT(A) in the assessment year i.e 2007- 08. This factual legal finding needs no interference from our side. We uphold the same. - Decided against revenue
Issues involved:
Interpretation of Rule 9B of the Income Tax Rules, 1962 for valuation of closing stock in the business of distribution of feature films. Analysis: 1. The primary issue in this case pertains to the interpretation and application of Rule 9B of the Income Tax Rules, 1962 for the valuation of closing stock in the business of distribution of feature films. The Assessing Officer disallowed an excess cost claimed by the assessee, amounting to Rs. 27,52,935, under Rule 9B. The CIT(A) granted relief to the assessee, leading to the Revenue's appeal before the ITAT. 2. The Assessing Officer contended that the assessee should follow the valuation method prescribed under Rule 9B, whereas the assessee argued that Rule 9B is not applicable as the movies purchased are for TV telecasting rights, not theatre release. The ITAT observed that the assessee had consistently valued closing stock at cost for several years, and the method was challenged only in recent assessment years. 3. The ITAT analyzed the provisions of Rule 9B in detail. Subsequent rules under Rule 9B specify the deductions allowed for the cost of acquisition of feature films based on various scenarios. The ITAT found that the Assessing Officer had misconstrued the provisions of Rule 9B, failed to apply certain sub-rules properly, and completely ignored others, resulting in an incorrect computation of the net profit. 4. By correctly adjusting the opening and closing stock as per Rule 9B, the ITAT determined that the assessee's losses were higher than claimed in the return. The ITAT endorsed the method followed by the assessee and upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer in the assessment year. The ITAT concluded that the factual and legal findings did not warrant any interference. 5. Another similar issue arose in a separate appeal, wherein the ITAT upheld the CIT(A)'s decision based on the same reasoning. Consequently, the ITAT dismissed the appeals filed by the Revenue, affirming the CIT(A)'s orders in both cases. In summary, the ITAT's judgment focused on the correct interpretation and application of Rule 9B of the Income Tax Rules, 1962 for the valuation of closing stock in the business of distribution of feature films. The ITAT found in favor of the assessee, upholding the CIT(A)'s decision to delete the addition made by the Assessing Officer and dismissing the Revenue's appeals.
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