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2022 (1) TMI 479 - AT - Income TaxReopening of assessment u/s 147 - escapement of income determined by applying Rule 9A 9B of Income Tax Rules, 1962, which deals with quantification of expenses allowable in case of film producer and distributor - additions towards interest on loans and unsecured loans u/s.68 - HELD THAT - In this case, assessment has been reopened after a period of four years from the end of relevant assessment year and further, except audit objection, on application of Rule 9A 9B, there is no tangible material with the Assessing Officer to form reasonable belief of escapement of income. In our considered view, reasons recorded by the Assessing Officer for reopening of assessment is a clear case of change of opinion, which is not permissible under the law. The learned CIT(A) after considering relevant facts has rightly quashed reassessment proceedings for assessment year 2004-05 and thus, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. Disallowance made towards post production expenses in respect of feature film 7G Brindabhan Colony (Telegu) - AO disallowed post production expenses on the ground that the assessee has acted only as producer, but not a distributor for the film 7G Brindavan Colony (Telugu), which is evident as per financial statement filed by the assessee for relevant assessment year which shows that there is no realization from the above film - HELD THAT - As we have already stated in earlier paragraph of this order, Rule 9A / 9B is applicable only in a case where a person acts in a capacity of producer and distributor. In this case, in respect of 7G Brindavan Colony (Telugu), the assessee seems to have acted as a producer and distributor, because there is no realization from picture, it means he has not acted as an exhibitor. Therefore, post production expenses incurred by the assessee is not governed under rule 9A or 9B of I.T.Rules, 1962. Therefore, deductibility of same needs to be considered u/s.37(1) of the Act as expenditure wholly and exclusively incurred for purpose of business of the assessee. This proposition is supported by decision of the Hon ble Bombay High Court in the case of Dharma Productions Ltd. 2019 (3) TMI 1271 - BOMBAY HIGH COURT where it was clearly held that where the assessee was engaged in business of production and distribution of films, cost of print as well as publicity and advertisement expenses incurred after production as well as certification by censor board, same would not be governed by Rule 9A and hence, same would be allowable as business expenditure u/s.37(1) - Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. Estimation of income from resale of set materials - AO estimated 10% of cost of set materials as realization from resale and accordingly, made addition - CIT(A) has restricted additions to 2% of set expenses - HELD THAT - Although, the Assessing Officer has adopted 10% cost of set materials as resale value, but no reason was given and further, not brought on record any comparable cases of similar nature. At the same time, though learned CIT(A) has restricted addition to 2% of cost of set materials as resale value, but has not given any valid reason. Even before us, both the parties have failed to file necessary details, to adopt a particular rate for estimation of income from resale of set materials. Therefore, considering facts and circumstances of the case and also to settle dispute between the parties, we deem it appropriate to estimate 5% total cost incurred for set materials as realization from resale. Hence, we direct the Assessing Officer to estimate 5% of total cost incurred for set materials for estimation of income on resale. Additions made towards estimation of interest on loans from M/s. Focus Computers and M/s. Rakesh Sarin Sons - assessee was not able to prove loan taken form said party, same has been treated as unexplained cash credit and added back to total income for the assessment year 2003-04 - HELD THAT - There is no clarity in the facts brought out by the Assessing Officer in respect of disallowance of loan from M/s. Focus Computers in assessment year 2003-04. Similarly, there is no clarity in respect of difference in loan claimed to have been received from M/s. Rakesh Sarin Sons. Similarly, the learned CIT(A) has also deleted additions made by the Assessing Officer without recording any factual finding as to whether addition was made for said loan in assessment year 2003-04 or not. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer to ascertain correct facts with regard to loans taken from the above two parties and consequent interest paid for impugned assessment year. Hence, we set aside the issue to the file of the Assessing Officer and direct him to reconsider the issue afresh, after providing reasonable opportunity of hearing to the assessee. Additions made towards unsecured loans - HELD THAT - There is no clarity on the issue of additions made towards unsecured loans in the assessment order. The Assessing Officer has simply stated that for want of evidences he has made additions. Similarly, the learned CIT(A) deleted additions by holding that the assessee has annexed details of loan taken from parties with their addresses and PAN, but such information is not emanating from return of income filed for relevant assessment years. Even before us, both the parties failed to bring on record relevant materials to justify their claim. Therefore, we are of the considered view that this issue needs to go back to the file of the Assessing Officer for fresh consideration.
Issues Involved:
1. Validity of reopening of assessment under Section 147. 2. Disallowance of post-production expenses under Rule 9A and Rule 9B. 3. Estimation of income from resale of set materials. 4. Disallowance of interest on loans and unsecured loans under Section 68. Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147: The Revenue challenged the CIT(A)'s decision that reopening the assessment under Section 147 was invalid due to it being based on an audit objection without independent application of mind. The CIT(A) held that reopening after four years requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The CIT(A) found that the audit objection did not constitute a valid ground for reopening the assessment, as it was based on a legal issue rather than a factual difference. The Tribunal upheld the CIT(A)'s decision, stating that the reasons recorded by the Assessing Officer were a clear case of change of opinion, which is not permissible under the law. 2. Disallowance of Post-Production Expenses under Rule 9A and Rule 9B: For the assessment year 2004-05, the CIT(A) deleted the disallowance of post-production expenses, holding that since the assessee released films within 90 days and earned realizations, Rule 9A was not applicable. For the assessment year 2005-06, the CIT(A) similarly deleted the disallowance of post-production expenses for the film 7G Brindavan Colony, stating that the expenses were eligible for deduction under Rule 9A. The Tribunal upheld these findings, noting that Rule 9A applies to producers and Rule 9B to distributors, and that post-production expenses not covered by these rules should be considered under Section 37(1) of the Act. 3. Estimation of Income from Resale of Set Materials: The Assessing Officer estimated 10% of the cost of set materials as realization from resale, while the CIT(A) restricted this to 2%. The Tribunal found that neither party provided sufficient evidence to justify their respective rates. To settle the dispute, the Tribunal directed the Assessing Officer to estimate 5% of the total cost incurred for set materials as income from resale. 4. Disallowance of Interest on Loans and Unsecured Loans under Section 68: For the assessment year 2005-06, the CIT(A) deleted the disallowance of interest on loans from M/s. Focus Computers and M/s. Rakesh Sarin & Sons, stating that no addition was made towards the principal loan amounts in prior years. The Tribunal, finding a lack of clarity in the facts presented, remanded the issue back to the Assessing Officer for fresh consideration. For the assessment year 2006-07, the CIT(A) deleted the addition of unsecured loans and consequent interest, but the Tribunal again found insufficient clarity and remanded the issue back to the Assessing Officer for further examination. Conclusion: - The appeal for the assessment year 2004-05 was dismissed. - The appeals for the assessment years 2005-06 and 2006-07 were partly allowed for statistical purposes, with specific issues remanded back to the Assessing Officer for further consideration.
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