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TMI Blog2014 (3) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... quiry by the Assessing Officer by issuing any questionnaire etc., to the assessee on the issues pointed out by the CIT – thus, the assessment order passed is certainly erroneous since it causes prejudice to the interest of revenue – thus, the exercise of jurisdiction u/s 263 of the Act by the CIT (A) to revise such an order is permissible in accordance with the provisions of the Act. The order of the CIT is modified to the extent by directing the Assessing Officer to redo the assessment after examining all aspects of the matter and after conducting necessary enquiry as may be deemed fit without being influenced by the observations of the CIT that the rent from machinery and plant should be treated as income from other sources - The Assessing Officer shall take an independent decision on the issue of taxability of conducting charges under an appropriate head – Decided partly in favour of Assessee. - ITA No.789/Hyd/2013 - - - Dated:- 12-3-2014 - Shri B. Ramakotaiah And Sri Saktijit Dey,JJ. For the Appellant : Sri G. Manikya Prasad For the Respondent : Sri P. Somasekhar Reddy (DR) ORDER Per Saktijit Dey, J.M: This appeal of the assessee is directed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilms up to 8-4-2007. Therefore, monthly conducting charges to the tune of Rs.42,93,334/- received from Adlabs Limited from 9-4-2007 was disclosed as business income only as the assessee has not discontinued the business of exhibition of films in theatre. He further contended that the expenditure claimed was in connection with carrying on business of the films and incurred wholly and exclusively for the purpose of business only. It was submitted that the expenditure incurred is fully supported by vouchers and also reflected in the books of accounts Since the Assessing Officer has passed the assessment order after examining all these facts, there is no occasion to revise the assessment order by invoking section 263 of the Act. 4. In course of revision proceedings, the CIT noted that the assessee has claimed an amount of Rs.2,80,458/- under the head theatre maintenance. On examining the details of expenses it was noted by the CIT (A) that the said expenditure was incurred on account of flooring, tiles and whitewashing etc., after the theatres had been handed over by the assessee. Whereas as per the agreement the cost of such alteration shall be borne by the Adlabs Limited. Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tead of business income as declared by the assessee. In reply, the assessee submitted that it is carrying on business of exhibition of films in the theatres owned by it since several years and was approached by the Adlabs Limited for taking exhibition of films. As the market condition was not favourable since the assessee was assured of fixed income, it agreed to lease the commercial assets for exhibition of films. It was contended that it had not discontinued the business and the commercial asset is susceptible of being put to variety of uses in which the gain may be acquired and whichever of these uses it is to be in order to procure income. Thus, the profit earned is from business and in this context the assessee relied on various case laws. The CIT observed that there are various factors which compelled the assessee to discontinue the exhibition of films in its own theatres and instead lease out the theatres for fixed terms of income with no liabilities attached to it. 6. Therefore, the conduct of the assessee clearly demonstrate that it has no intention to carry on the business but to exploit the assets on long term lease basis. The CIT opined that in case the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is still carrying on its business of film exhibition which would be evident from the return filed by the assessee for the assessment year 2009-10 wherein expenditure on exhibition of films has been debited to the profit loss a/c. In this context, the learned AR referred to page-1 of the paper book containing the profit loss a/c for the assessment year 2009-10. The learned AR submitted that the CIT in the first show cause notice has not at all raised the issue relating to chargeability of income from lease of theatre as income from 'other sources' and not from 'business'. Furthermore, the CIT while coming to the conclusion that the assessment order is erroneous and prejudicial to the interests of revenue for non consideration of certain issues like purchase of movie Okkadunnadu , the same was never brought to the notice of the assessee during the revisions proceedings for enabling it to explain the same. The learned AR submitted that while observing that the conducting charges cannot be income under the head 'business', the CIT has not expressed any opinion whether it is to be assessed as income from 'other sources' or income from 'house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revenue on the following issues:- (i) By virtue of agreement with Adlabs Limited, the assessee has discontinued its business for a long term period and hence the lease rentals termed as conducting charges cannot be assessed as income from business. ii) The assessee has claimed various expenditures which in fact as per the terms of the agreement is to be incurred by Adlabs Limited and to be reimbursed to the assessee which has not been examined by the Assessing Officer . iii) The Assessing Officer while completing the assessment has allowed the entire expenditure towards the purchase of film Okkadunnadu instead of allowing proportionate expenditure. On perusal of the assessment order, it is to be seen that the assessment has been completed by the Assessing Officer by observing as under:- The assessee is a firm and engaged in screening movies who has filed the return of income for the assessment year 2008-09 on 25-9- 2008, admitting total income of Rs.0/-. The return of the income was processed u/s 143(1) on 7-3-2010. Subsequently the case was selected for scrutiny and accordingly a notice u/s 143(2) dated 24-8-2009, was issued. In response to the notice issued u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t extent, we uphold the order of the CIT in setting aside the assessment order as erroneous and prejudicial to the interest of revenue. 12. However, when the CIT has set aside the assessment order directing the Assessing Officer to redo it de novo after examining all aspects it was not proper on his part to comment that the income from lease of theatre and machinery would fall under the head income from 'other sources'. We therefore modify the order of the CIT to that extent by directing the Assessing Officer to redo the assessment after examining all aspects of the matter and after conducting necessary enquiry as may be deemed fit without being influenced by the observations of the CIT that the rent from machinery and plant should be treated as income from other sources. The Assessing Officer shall take an independent decision on the issue of taxability of conducting charges under an appropriate head after examining the agreement of the assessee with Adlabs Limited and considering the submissions of the assessee and by applying the ratio of the decisions which may be cited before him. 13. In the result, the appeal of the assessee is treated as partly allowed for stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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