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TMI Blog2015 (9) TMI 1237X X X X Extracts X X X X X X X X Extracts X X X X ..... losing stock of the relevant financial year and has not claimed it as expenditure. When there is no claim, there can be no disallowance of the same. - Decided in favour of assessee. - ITA No. 1733/Hyd/2012 - - - Dated:- 23-9-2015 - Smt. P. Madhavi Devi, Judicial Member And Shri B. Ramakotaiah, Accountant Member For the Petitioner : Shri P. Murali Mohan Rao For the Respondent : Shri Konda Ramesh, DR ORDER Per Smt. P. Madhavi Devi, J. M. This is assessee s appeal for A.Y 2008-09. In this appeal, assessee is aggrieved by the order of the CIT (A) in confirming the disallowances made by the AO u/s 37(1) of the I.T. Act. 2. Brief facts of the case are that the assessee company, which is engaged in the business of film production filed its return of income for A.Y 2008-09 on 7.10.2008 declaring a loss of ₹ 7,15,46,975. The same was processed on 14.08.2009 resulting in a refund of ₹ 21,37,030. Subsequently, the assessment was taken up for scrutiny u/s 143(3) of the I.T. Act and various details regarding assessee s claim u/s 37(1) were called for. Assessee filed the required details and on perusal of the same, the AO observed that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure, if all the conditions under Rule 9A are astisfied. With regard to the disallowance of expenses of other two films, the CIT (A) confirmed the order of the AO. Aggrieved, assessee is in second appeal before us. 4. During the course of hearing, the learned Counsel for the assessee submitted that though the assessee has invested money and has incurred expenditure in production of two movies, it however, found them to be unviable and therefore, has abandoned the said movies mid-way. He submitted that the film production was the business of the assessee and therefore, the expenditure incurred by the assessee even on abandoned movies is also business expenditure allowable u/s 37(1) of the I.T. Act. As regards the expenditure incurred by the assessee on the movie Shabari , it was submitted that the movie was under production and therefore, the amount of expenditure incurred for the incomplete project was shown as work in progress and to that extent the amount debited to the P L a/c has also been credited to the P L a/c and hence the expenditure to the extent of ₹ 3,07,26,744 has not been claimed by the assessee. He submitted that all the details of the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to a feature film, means the expenditure incurred on the production of the film, not being- (a) the expenditure incurred for the preparation of the positive prints of the film; and (b) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors:] Provided that the cost of production of a feature film, shall be reduced by the subsidy received by the film producer under any scheme framed by the Government, where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year.] (2) Where a 29[***] feature film is certified for release by the Board of Film Censors in any previous year and in such previous year,- (a) the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or (b) the film producer- (i) himself exhibits the film on a commercial basis in all or some of the areas; or (ii) sells the rights of exhibition of the film in respect of some of the areas; or ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bited the feature film on a commercial basis; or (ii) has sold the rights of exhibition of the feature film; or 35[(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas,] the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible; (b) in a case where the film producer has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible. [(6)] Where the 37[Assessing Officer] is of opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT vs. Prasad Productions (P) Ltd (179 ITR 147), wherein it was held that even if expenditure relating to positive prints is not allowable under rule 9A, the same can be allowed u/s 37(1) of the Act as it is incurred in connection with the business of film production. The relevant observations of the Hon'ble High Court, which was reproduced at Para 7 of the order of the ITAT is also reproduced hereunder for ready reference: 7. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. As is evident from the order of the CIT(A), he disallowed the expenditure claimed by the assessee only on the ground that expenditure towards positive prints and advertisement cannot be considered as cost of production in view of bar imposed under Rule 9A of the Act. However, as would be evident from the observation made by the learned CIT(A), he does not dispute the fact that assessee is eligible to set off of loss ₹ 87,46,786 of P-6 against the profit of P-5 amounting to ₹ 51,00,888. In this context we refer to the observation of the learned CIT(A) in Para 7.3 of his order, which is extracte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r exhibition. It cannot, therefore, be assumed that in all cases of production of a film, the producer must necessarily obtain the positive prints of the film as well. In other words, if a person carries on the business of production of films, he may not only produce the films but also prepare the positive prints for the purpose of exhibition or he may not take steps for the exhibition of the film having produced it. The production and exhibition of a feature film constitutes two distinct and separate stages and while the former would take in all activities which culminate in the production of a feature film the latter contemplates a stage subsequent to the completion of the production of the film, viz., exhibition of the film produced. Viewed thus, any expenditure incurred in connection with the preparation of the positive prints for purposes of exhibition would really be post-production expenses and also an item of expenditure in relation to the business of production and exhibition of feature films and would, therefore, qualify for deduction as expenditure laid out or expended wholly and exclusively for the purpose of the business. We have not been referred to any provision in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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