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TMI Blog2012 (11) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,84,37,124/- and disallowed the balance amount of Rs. 2,34,91,380/-. Therefore, it is not factually correct that the AO at the time of making the assessment did not consider the applicability of Rule 9A vis-a-vis claim of the assessee on cost of production of film. CIT in his revisional proceedings cannot travel beyond reasons given by him for revision in show cause notice issued u/s 263. CIT has not exercised his revisional jurisdiction u/s 263 in respect of allowability of claim of production of film in the context of Rule 9A of I.T. Rules validly as the assessment order on this issue had already been merged with the order of CIT(A) dated 12-10-2011 much before issue of show cause notice dated 19-3-2012 to assume jurisdiction u/s 263 therefore, that the order of ld. CIT dated 29-3-2012 is liable to be vacated - in favour of assessee. - IT Appeal No. 3024 (Mum.) of 2012 - - - Dated:- 14-9-2012 - B.R. Mittal And B. Ramakotiah, JJ. Vijay Mehta for the Appellant. Ms. Sasikala I. for the Respondent. ORDER B.R. Mittal, Judicial Member - The assessee has filed this appeal for the assessment year 2006-07 against the order of the Ld. CIT dated 29-03-2012 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessing officer is, therefore, erroneous and prejudicial to the interest of revenue as the deduction of Rs. 6,99,73,052/- on account of expenses on making the film "Darna Zaroori Hal" was allowed, whereas the same is not allowable. You are required to explain why it should not be held that the order of I the Assessing Officer is erroneous and prejudicial to the interest of revenue. You are also requested to explain why the issue should not be restored back to the file of the Assessing Officer for fresh consideration." The assessee filed its submissions disputing the initiation of revisionary proceedings u/s 263 of the Act. It was contended, inter alia, that the assessee sold its share of 25% theatrical rights in the film "Darna Zaroori Hai" to M/s Varma Corporation Ltd. on 11-03-2006. Since the film is sold in the current year before its release, in accordance with the provisions of Rule 9A, the entire cost of the production of the film is to be allowed as expenses. The assessee also contended that during the course of assessment proceedings the AO examined the allowability of the expenses. He considered the amount of Rs. 24.84 crores debited to the profit loss account on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rations, was actually share application money received and accordingly, the addition made by the AO was deleted. The Ld. CIT has stated that Ld. CIT(A) never looked into the applicability of the provisions of Rule 9A in the case of the assessee as it was not part of grounds of appeal before the Ld. CIT(A). The Ld. CIT stated that the expenses claimed are more than the revenue earned and accordingly the expenses were not allowable in the current year. As per Rule 9A, expenses can be allowed only upto the extent of income earned if a part of release of film is less than 90 days in the current previous year. This makes the order of AO erroneous. The Ld. CIT has also stated that the assessee never claimed before the AO that it has sold the rights of exhibition over the film "Darna Zaroori Hai" on 11th March, 2006. Thus, assessee has hidden this crucial fact from the AO. The Ld. CIT has stated that AO has not properly examined how the expenses of the assessee incurred for the production of film "Darna Zaroori Hai" is allowable as deduction in the current year i.e. A.Y 2006-07. That the claim of the assessee that AO has taken one possible view is not acceptable. He has stated that assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R. submitted that the copy of the said remand report is also placed at pages 48 to 50 of the paper book. He submitted that the said order of the AO merged with the order of the Ld. CIT(A) much before the CIT issued notice u/s 263 of the Act dated 09-03-2012. The Ld. A.R. submitted that the ld. CIT(A) while considering the cost of production, examined Rule 9A of I.T. Rules and to substantiate his submissions he referred to paras 2.1 to 2.4 of the order of Ld. CIT(A). He submitted that the AO also considered Rule 9A in his remand report in considering the claim of deduction of cost of production. He submitted that the computation of claim of cost of production of feature film "Darna Zaroori Hai" was a subject matter of appeal before the Ld. CIT(A) and Ld. CIT(A) had given his finding on the claim of cost of production after due consideration of remand report submitted by the AO. Therefore, the revisionary jurisdiction of Ld. CIT u/s 263 of the Act cannot be invoked as the order of the AO was merged with the order of the Ld. CIT(A). To substantiate his submissions, the Ld. A.R. placed reliance on the decision of ITAT Mumbai Bench in the case of Sonal Garments v. Jt. CIT [2005] 95 ITD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and only contended for the first time before the ld. CIT and, therefore, ld. CIT is also justified to give further direction to the AO while setting aside the assessment order and directing him to pass a fresh assessment order. 7. We have carefully considered the orders of the authorities below and the submissions of learned representatives of the parties. We have also considered the cases cited before us and the relevant pages of the paper book, along with the remand report, copy placed at pages 48 to 50 of the paper book, and the order of the ld. CIT(A) dated 12-10-2011, copy placed at pages 35 to 47 of the paper book. We consider it prudent to refer to the provisions of sec. 263 of the Act which read as under: 263. (1) The Commissioner may call for and examine the record of any [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT simply because, according to him, the order should have been written more elaborately. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) has held that Section 263 does not visualize a case of substitution of the judgment of the Commissioner for that of the A.O., who passed the order, unless the decision is held to be erroneous. 10. The words "prejudicial to the interests of the revenue" have not been defined, but they must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. Our views find support from the decisions Addl. CIT v. Mukur Corporation [1978] 111 ITR 312(Guj.), Gabriel India Ltd. (supra). 11. The phrase "prejudicial to the interests of revenue" has to be read in conjunction with an erroneous order passed by the A.O.. As has been held by Hon'ble apex court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, every loss of revenue as a consequence of an order of the A.O., cannot be treated as prejudicial to the interests of revenue. When an A.O. adopted one of the courses permissible in law and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessee filed an appeal against the said order of the AO and ld. CIT(A) called for remand report from the AO and after seeking comments of the assessee restricted the disallowance to Rs. 4,01,467/- vide paras 2.1 to 2.4 of his order dated 12-10-2011 (copy placed at pages 35 to 47 of the paper book). We consider it prudent to reproduce the said paras 2.1 to 2.4 of the ld. CIT(A)'s order which are as under: 2.1 The A.O. has noticed that the assessee has not filed the details of cost of production allowable as per I.T. Rule 9A. Thus he has allowed only the deduction to the extent of Rs. 24,84,37,124/- debited to the P. LA/c. and the balance amount of Rs. 2,34,91.380/- was added back to the taxable income. 2.2 Before me, the appellant has submitted that the complete details were submitted before the A.O. However, due to oversight he has ignored and made the wrong addition. 2.3 I have considered the submissions of the appellant, order of the A.O. and remand report on this issue was called for from the A.O. A gist of the remand report was submitted by the A.O. is produced as under: "The Ld CIT(A) had directed the undersigned to verify the assessee's claim of deduction of qo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,01,467/-was claimed by the assessee. The A.R. of the appellant has not raised any objection on this figure. Therefore, the addition made by the A.O. is restricted to Rs. 4,01,467/- and the balance addition is deleted. Ground of appeal is partly allowed. It is evident from the order of the ld. CIT(A) that the claim of cost of production of film was a subject matter of appeal before the ld. CIT(A) and ld. CIT(A) after consideration of remand report of the AO gave his finding. Therefore, this order of the AO, undisputedly had merged with the order of the ld. CIT(A) as far as the claim of cost of production of film is concerned. Clause (c) of Explanation to sec. 263(1) of the Act (as mentioned hereinabove) provides that ld. CIT cannot exercise his jurisdiction of the Act in respect of an order/issue which has been considered by the ld. CIT(A) in the appeal because the said order of the AO on being given a finding by the ld. CIT(A) merged with the order of the ld. CIT(A). Similar issue also came before the Hon'ble Delhi High Court in the case of CIT v. Ansal Properties and Ind. (P.) Ltd. [2009] 315 ITR 225, wherein it was held that in view of explanation (c) to sec. 263(1), it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after allowing the deduction u/s.80HHC. On appeal, the assessee agitated the computation of deduction u/s. 80HHC on the ground that AO erred in deducting certain amounts from export turnover. The CIT(A) allowed the appeal of the assessee and directed the AO to reduce FOB value from the export turnover. Thereafter, CIT passed an order u/s 263 holding that the profit for the purpose of sec. 80HHC should be computed after excluding export incentives and after allowing current years depreciation and as the assessee had incurred loss from the export business, deduction u/s. 80HHC was erroneously allowed by the AO in the assessment year which caused prejudice to the interests of the revenue. The ld. CIT, thus, directed the AO to recompute the income of the assessee by disallowing deduction u/s. 80HHC of the Act. On appeal before the Tribunal it was contended that the order of the AO had merged with the order of the ld. CIT(A) and, thus, power u/s 263 could not be exercised by the Commissioner. In that context, it was held by the Tribunal that the Commissioner (Appeals) had given some finding from the computation of deduction u/s. 80HHC. Therefore, the assessment order had merged with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 80I of the Act. The requirement of fulfillment of condition stipulated by sub-sec (2) of sec. 80I of the Act, is therefore, very much subject matter of the appeal in relation to the income from warehousing which had been disallowed by the AO. The Hon'ble High Court rejected the stand of the assessee that the assessment order was silent. As regards the allowability or otherwise of sec. 80I of the Act, it was inter alia, held that in view of clause (c) of explanation to sec. 263 of the Act, the order passed by the ld. CIT is not valid. 20. A similar view has also been taken by the ITAT Mumbai Bench in the case of Marico Industries Ltd. (supra), wherein it was held that CIT had no power to assume jurisdiction in respect of matter covered in appeal as the order of AO had merged with the order of CIT(A). 21. In view of the above discussions, we hold that the contention of the Ld. DR has no merit that CIT(A) had not considered the provisions of Rule 9A in entirety and, therefore, it cannot be said that the order of the AO had merged with the order of the ld. CIT(A). On the other hand, the decisions cited hereinabove and considering the fact that AO as well as ld. CIT(A) had consid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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