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TMI Blog2012 (9) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... .45,00,000 as royalty expenses i.e. 60% of actual expenditure in the assessment year under consideration and remaining 40% expenditure left to be claimed in another three years to come (subsequent to the first year of actual payment expenditure). As AO did not dispute the fact that 60% of the film development expenses was allowed in the year of expenditure and the rest 40% to be treated as deferred revenue expenditure in the forthcoming years but he deviated from this stand while considering the royalty expenditure allowability and held that the same expenditure was capital in nature. As the AO has ignored the Board Circular No. 92 dated 18.9.1972 pertaining to writing off royalty/distribution expenses of films which is binding on tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to as the Act ). The assessing officer finalized the assessment at income of Rs.11,80,549 on 27.3.2006 u/s 143(3) of the Act. Subsequently after recording reasons and obtaining approval of appropriate authorities, the case was reopened and a notice dated 31.3.2010 u/s 148 of the Act was issued to the assessee company and reply and other required details were submitted to the Assessing Officer. 4. The Assessing Officer noted that perusal of the P L account reveals that the assessee debited an amount of Rs.45,00,000/- as royalty expenditure and the assessee was required to explain why the being capital in nature (intangible asset) should not be capitalized and depreciation at the allowable rate of 25% be allowed thereon. 5. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has written off Rs.45,00,000/- being 60% of the consideration during the F.Y. 2002-03 relevant for the impugned assessment year in accordance with the Board Circular No.92 dated 18.09.1972. The balance expenditure of Rs.30,00,000/- was written off in subsequent years. Similarly, the assessee incurred Rs.34,34,406/- towards film development charges which were also written off in similar fashion. However, the Assessing Officer considered the royalty/distribution expenditure of Rs.45,00,000/- debited to the P L account in F.Y. 2002-03 as capital expenditure and allow depreciation @25%. The Assessing Officer has not given proper reasons for treating the expenditure as capital expenditure and also for applying depreciation rate of 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was just and proper in the facts and circumstances of the case. He concluded with a submission that the ld. Commissioner of Income Tax(A) wrongly held this expenditure as revenue in nature and directed the Assessing Officer to allow the same and to withdraw the depreciation on erroneous grounds. Ld. DR requested that the impugned order may be set aside restoring the assessment order. 8. Replying to the above submissions, the AR vehemently contended and submitted that the Assessing Officer failed to consider the nature of business of the assessee company and ignored the fact that the total amount of Rs.75,00,000/- royalty paid for film exhibition rights cannot be exploited in the year of payment although major part of it was exploited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in the assessment year under consideration and remaining 40% expenditure left to be claimed in another three years to come (subsequent to the first year of actual payment expenditure). The ld. DR before us did not dispute the fact that 60% of the film development expenses was allowed in the year of expenditure and the rest 40% of the total expenditure amount was treated as deferred revenue expenditure left to be claimed by the assessee-company in the forthcoming years. But the Assessing Officer deviated from this stand while considering the royalty expenditure allowability and held that the same expenditure was capital in nature. We also observe that the Assessing Officer ignored the Board Circular No. 92 dated 18.9.1972 which i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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