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TMI Blog2015 (8) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon'ble Delhi High Court in the case of Television Eighteen India Ltd (2014 (5) TMI 588 - DELHI HIGH COURT ) that the claims of the assessee relating to news / non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as „intangible assets‟ for the purpose of invoking the provisions of section 32(ii) of the Act. Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act, without any sustainable reasoning. Therefore the decision of the AO/CIT(A) is unsustainable legally. Hence, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was done without proper reasons solely on the basis of change of opinion. The reasons given for doing so are wrong, contrary to the facts of the case and against the provisions of law. (b) The Ld CIT (A) erred in law and facts in upholding re-opening and re-assessment of the assessment completed u/s 143(3) of the Act, on the basis of information already on the record of the department and without bringing any fresh material / evidence on record and / or without proving any escapement of income. The reasons given for doing so are wrong, contrary to the facts of the case and against the provisions of law. (c) The Ld CIT (A) / AO erred in law and facts in re-opening of the assessment and re-assessment u/s 147 of the Act on the basis of reasons recorded which states that depreciation is allowable @ 25% on film rights, while as per Accounting Policy amortization has been done by the assessee over 60 months or license period i.e. 20% p.a. for years, higher than claim made by assessee, which proves no escapement of income. The reasons given for doing so are wrong, contrary to the facts of the case and against the provisions of law. (d) The Ld CIT (A) / AO are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was revised by declaring the total income of ₹ 65,75,90,650/-. Assessment was completed u/s 143(3) of the Act on 10.12.2010 and the assessed income was determined at ₹ 65,88,02,777/-. Against the said order of the AO, assessee went on appeal to the CIT (A). After considering the submissions of the assessee, CIT (A) allowed the appeal vide his order dated 14.9.2012. Aggrieved with the decision of the CIT (A), Revenue is in appeal be the Tribunal, and the same is pending for disposal. Subsequently, AO issued notice u/s 148 of the Act giving reasons recorded as under: The assessee during the year had acquired program / films rights of ₹ 99,05,07,680/-. And the same was debited to P L Account under the head operational expenses. Since, the film rights are an intangible asset, one fourth of the same ie ₹ 24,76,26,920/- can only be allowed. That has resulted in underassessment of income of ₹ 74,28,80,760/-. 4. After considering the submissions of the assessee, which are extracted and placed in para 7.1 of the assessment order, AO proceeded to make addition of Rs. 74,28,80,760/- as per the discussion given in paras 7.2 and 7.3 of the re-assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count during the year under consideration. Further, TV rights / film rights are amortized for the period of time depending on the period of use of such rights and obligations specified in the purchase agreements / lease agreements. Assessee relied on the contents of Note No.7 of the notes to the financial statements. 7. As seen from the para 4 above, CIT (A) has not adjudicated the assessee‟s arguments relating to the intangible nature of such rights, depreciable nature of such intangible rights and allowability of depreciation etc. However, being current assets, the said intangibles were considered by the assessee as current assets and are either debited fully or amortized over the year depending on the accounting policy of the assessee. Otherwise, Assessing Officer took a stand that the said assets constitutes intangible rights, being capital in nature, the provisions of section 32(ii) of the Act applies accordingly. Therefore, the claim made by the assessee was not allowed. However, this is the first time that the Assessing Officer disturbed the method of accounting followed in this regard on the issue of News / TV / Film rights. Eventually, the AO made re-assessment vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee submitted that ₹ 99,05,07,680/- is the total purchase / acquisition of the programs on film rights. Ld Counsel for the assessee also submitted that there is an opening balance on this account (on account of program and film rights) amounting to ₹ 48,42,86,388/-. Referring to the assessee‟s method of accounting followed in matters of valuation of such inventories, Ld Counsel for the assessee brought our attention to Item No.7 of schedule 16, which is placed at page 8 of the paper book, and mentioned that the assessee consistently following the method of accounting in matters of programs and film rights and inventories. The said Item No.7 is extracted as under: 7. Programs / Film Rights and inventories: a. Program / Film Rights. Program / Film Rights are stated at the lower of net cost (cost minus accumulated amortization / impairment) or realizable value. Where the realizable value on the basis of its useful economic life is less than its carrying amount, the difference is expensed as impairment. i. Cost of news / current affairs / chat chows / events etc are fully expensed. ii. Programs [other than (i) above] are amorti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come and the annexures thereon, it is easy to infer that the Assessing Officer has formed an opinion on the nature of the film rights and TV rights‟ as currents assets‟. Consequently, no addition was made by the AO in the regular assessment. Thus, issue of notice u/s 148 of the Act for re-assessing these current assets as intangible capital rights of the assessee, constitutes a change of opinion‟, which is not permitted in law. For this proposition, Ld Counsel for the assessee filed number of precedents and some of the details are as follows: (i) Aroni Commercials Ltd vs. DCIT [WP NO.137 of 2014 362 ITR 403 (Bom) In this case, in para 14, the Hon'ble Bombay High Court has noted that there was a specific query and a reply was given by the assessee and therefore, reassessment on the same issue amounted to a change of opinion. The Department argued that there. was no formation of opinion since the same was not referred in the assessment order (bottom of page 17). The High Court rejected this contention by holding that once a query is raised and reply is given, it follows that the query raised was a subject of consideration of the AO while completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings, as explained above. (ii) Plus Paper Food Pac Ltd. Vs. ITO 56 Taxmann.com 467 (Bom) In this case, in the course of the original assessment proceedings for AY 2009-10, the AO called for details of long-term capital gains, trial run expenses and bad debts, all of which were furnished (page 4, para 4). Satisfied after scrutinising the particulars, the AO passed the assessment order. Thereafter, on 18th November 2013, i.e., within 4 years from the end of the relevant assessment year, a notice under section 148 was issued (para 8). The reasons for issuance of the notice were: (1) brought forward depreciation pertaining to AY 1997-98 and 1999-2000 could not be set off against income of AY 2009-10 since 8 years had elapsed (2) claim of deduction of bad debts written off was incorrect and (3) incorrect claim of lower of the unabsorbed depreciation and brought forward business loss (para 9). The High Court in para 15 noted the Department's contention that the issues involved in the reassessment proceedings were never examined by the AO and that the AO without looking into the issues allowed the claim of the assessee, which is not permissible. The High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails and examining them, whereas the case before the High Court was a one-off transaction of acquisition of asset management rights. (iv) Alliance Space Pvt. Ltd. Vs. ITO 58 Taxmann.com 112 (Bom) In this case, the original assessment proceedings for AY 2009-10 were completed under section 143(3) on 22nd March 2014 after enquiry into various aspects of share capital and share premium issued during the year. On 29th March 2014, i.e., within a week a notice under section 148 was issued on the ground that section 68 of the Act was applicable in respect of share premium received by the Assessee. It may be noted that no specific query was raised by the Aa during the original assessment proceedings on the question of application of section 68 of the Act. The High Court struck down the reassessment proceedings holding that there was no lack of disclosure or suppression of any material facts. All queries of the AO were answered. Thus, there was no tangible reason for reopening the assessment. (v) Maharashtra Airport Development Co. Ltd. Vs. DCIT (2013) 35 Taxmann.com 591 (Mum Tribunal) In this case, the assessment for AY 2005-06 was reopened within four years o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that there was hardly any activity from the Bombay office. It was pointed out by the assessee that the very same issue relating to the expenditure had been adjudicated and allowed in the regular asst. Orders passed u/s 143 (3) in the past assessment years. The High Court held that in the absence of any material or information, action of the AO in re-opening the assessments could not be sustained. The High Court in para 15 gave weightage to the fact that for several decades the expenses incurred at the Bombay office had been consistently allowed in the regular assessments and there was no material on record to show that in past the expenditure has been erroneously allowed. Thus the High Court concluded that there was no material or information based on which the AO could form a reasonable belief that income chargeable to tax had escaped assessment and that the re-openings were based purely on a change of opinion. In the present case also, the method of accounting has been consistently followed for a number of years in past and is also accepted in scrutiny assessments but is now sought to be rejected without any tangible material purely on the basis of a change of opinion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. JCIT (252 ITR 673) (Bombay) (ii) Fateh Chand Charitable Trust vs. CIT (357 ITR 604) (Allahabad) (iii) Innovative Foods Ltd vs. Union of India (356 ITR 389) (Kerala) (iv) Sri Sakthi Textiles Ltd vs. JCIT (340 ITR 144) (Kerala)\ (v) Export Credit Guarantee Corporation of India vs. Addl.CIT (30 taxmann.com 211) (Bombay) (vi) DCIT vs. Tivoli Investment Trading Co. (P) Ltd ITA No.7713/Mum/2012 and CO No.32/Mum/2014. 14. During the rebuttal time, Ld Counsel for the assessee distinguished the decisions relied on by the Ld DR by mentioning as under: It is submitted that the decisions relied upon by the Ld. DR are either distinguishable or are no longer good law or support the case of the assessee, as explained hereinafter. (i) Dr. Amin Pathology laboratory vs JeIT (252 ITR 673) (Bombay) In this case the reassessment proceedings for AY 1994-95 were initiated vide a notice u/s 148 issued on 14.03.2001 i.e. beyond a period of 4 years from the end of the relevant asst. year. The present case is not of the same kind. Be that as it may, the High Court in arriving at the conclusion that the reassessment proceedings were properly initiated noted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT vs Popular Vehicles and Services Ltd. (191 Taxman 333). It is most respectfully submitted that the decision is in direct conflict with the decision of Hon'ble Supreme Court in the case of Kelvinator (320 ITR 561) and hence cannot be regarded as good law. (iv) Sri Sakthi Textiles Ltd. Vs JCIT (340 ITR 144) (Kerala) In this case the assessee was engaged in the manufacture of textiles. Certain amounts spent on replacement of assets and towards conversion of material were allowed in earlier asst. years as revenue expenditure. The High Court at para 22 held that notices u/s 148 issued for AY 1991-92 and 1992-93 were wholly without jurisdiction as they were issued beyond a period of 4 years. As far as AY 1993-94 is concerned it was held that there was no legal necessity that the materials referred to in Section 147 should be fresh material collected subsequent to the conclusion of the original asst. proceedings. In the present case there is no material whatsoever, existing or new, and therefore the decision is distinguishable. (v) Export Credit Guarantee Corp. Of India Ltd. Vs Add!. CIT (30 taxmann.com 211) (Bombay) In this case the asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that there existed tangible material and reason to re-open the assessment. (vi) DCIl vs Tivoli Investment Trading Co. (P) Ltd. - ITA No. 7713/Mum-2012 and CO No. 32/Mum-2014 In this case the Tribunal upheld the reopening on the ground that there was fresh material in the form of an assessment order passed for AY 2004-05 (page 7, para 3.3). At page 5, the Tribunal was pleased to explain the difference between review or change of opinion (which would result in invalidation of reassessment proceedings) and reassessment based on fresh material. The Tribunal observed thus: The moot question, however, would be of what constitute a review or change of opinion . In our view and which corresponds with that of the first appellate authority itself, it would be reappraisal of the facts the case. When, however, a new fact comes into picture, and there is a change in the factual matrix of the case consequent thereto, it cannot be said to be a review, which predicates examining the same factual matrix, which may lead to a view either in the agreement or in modification of that formed earlier. It is well settled that even one fact can change the whole complexion and lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge of the AO during the regular assessment. Thus, the assessee‟s disclosure of information in the Note No.7 relating to the consistently maintained method of valuation to the inventories of TV Programs and Film Rights together with the above questions and answers raised by the Assessing Officer during the regular assessment, suggest that the AO is directly on the issue of inventories‟ and their method of accounting. 16. Further, we have put a question to ourselves on the original intention of the AO in raising such queries in the questionnaire. In our opinion, though the above queries, the AO wants to examine the correctness on the treatment of the assessee to the inventories and also the basis of the valuation. It is relevant to mention here that the None No.7 provides for the method of valuation of the programs and the film rights, the pasts of the inventory. The contents of the said Note No.7‟ is very clear as to how the TV Programs and Film Rights are amortized, and the AO is aware of these facts during the time of regular assessment. Therefore, AO raised the said questions with the view to make disallowance on account of amortization of the inventories, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO are unsustainable in law. Accordingly, Ground no.1 raised by the assessee is allowed. 18. Ground nos. 2 and 3 relate to the merits of addition on account of disallowance of intangible assets ie News / TV Program / Film Rights. As described already in the preceding paragraphs, assessee purchased the said News / TV Program / Film Rights amounting to ₹ 90,05,07,680/- (pages 24 to 28 of the paper book). In this regard, Ld Counsel for the assessee submitted the break-up (page 49 of the paper book) of TV Programs, News and non-fiction, Film Rights. It provides the details of manner of amortization. 19. On perusal of said page 49, we find the opening balance of these items works out to ₹ 48.42 Crs (rounded off); total purchases amounting to ₹ 99.05 Crs (rounded off) while the News and non-fiction were completely amortized by debiting to the P L Account whereas the TV Programs and Film Rights were differently amortized over a period of time depending upon the agreement and the nature and potential of the TV Programs and Film Rights. The total such amortization under these three heads works out to ₹ 76.41 Crs (rounded off) and the same is accounted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition to the intangible assets‟ vide para 6.1 of the said AS-26, the expression an intangible asset is an identifiable non-monetary asset........held for use in .............. supply of .......and services......... and it covers the TV Programs and Film Rights. Therefore, the provisions of AS-26 should apply in full. Further, bringing our attention to the definition current assets‟, Ld DR submitted that the current asset is defined as an asset such as receivables, inventory, work in progress or cash ie constantly flowing in and out of the organization in the normal course of its business, such as cash is converted into goods and then back into the goods. In accounting, any asset being in use for lesser than one year, is considered a current asset‟. Relying on the above definition, Ld DR for the Revenue submitted that News / non-fictional items, TV Programs, Film Rights did not constantly flow in and out for the assessee. In fact, assessee uses these TV Programs / Film Rights as bait for attracting the advertisements and Television Rating Point (TRP) rates. In that sense, the said rights do not constitute current assets. Therefore, these items constitute inta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of films on serials as well. On the other hand, the contention of the Revenue is that the film and serial broadcasting rights acquired by assessee are perpetual in nature. After first telecast, the assessee does not discard the films but carefully store the same in digital library for airing the same again. Therefore, the assessee gets enduring benefit from the rights acquired in films and serials and they do not expire on the date of first telecast as contemplated by the assessee. The rights are intangible assets within the meaning of Explanation (iii) to section 32 and do not fall within the purview of section 37(1). The assessee is entitled to claim depreciation on same. 9. The issue of amortization of cost of movie and serial rights, programme production expenses, consumable and media expenses by treating them as intangible assets u/s 32(1)(ii) has been dealt in detail by the CIT (A) in his order dated 23.2.2013 relevant to the AY 2006-07 and 2007-08. We fully agree with the detailed findings and the reasoning given by the CIT (A) in his order allowing this ground of appeal of the assessee. For the sake of brevity, we are not reproducing the finding of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the revenue on these issues is that these items constitute intangible depreciable capital assets‟ and provisions of section 32 of the Act apply. Considering the same, we shall now undertake to discuss the item wise adjudication as follows. a. On the debits relating to the purchases of the News items: Regarding the nature of the news items purchased by the assessee and debited to the P and L account, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd (supra) that the claims of the assessee relating to news / non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as intangible assets‟ for the purpose of invoking the provisions of section 32(ii) of the Act. We rely on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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