9911796707
TMI Blog2019 (5) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... ts - HELD THAT:- perusal of audited financial statements for all these years clearly reveals as detailed above that the availability of interest free funds with the assessee were much higher than interest free refundable rent deposit of 9 crores advanced by the assessee and in the absence of any cogent material inextricably linking interest bearing borrowings with the interest free refundable rent deposit granted by the assessee, the presumption will apply that the assessee has released the interest free refundable rent deposit out of interest free funds available with it. The decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Limited [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] is relevant. - Decided in favour of assessee Expenditure incurred towards audio rights - nature of expenditure - revenue or capital - HELD THAT:- No distinguishing facts are brought on record by both the rival parties in the year under consideration before the Bench vis-a-vis facts as were there in preceding years. Further, no judgment of Superior Court is brought on record by both the rival parties holding against the assessee. Thus, we have no reason to take a different stand than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l") in ITA No. 6194/Mum/2017 for AY 2011-12, read as under:- "1) On the facts and circumstances of the case and in law the Ld CIT Appeals-4, Mumbai erred in i) Sustaining the additions of ₹ 20,00,000/- for advances given during the course of business on the ground that acquiring lien on the overseas Territory of films was not the business of the Appellant Company, ignoring the fact that the business of the Appellant Company is also of productions and distribution of cinematographic films. ii) Upholding the addition of ₹ 1,08,00,000/- from interest paid on loan on the ground that the Interest Free Rent Deposit have been given from the business receipts/transactions, ignoring the fact that the Interest Free Rent Deposit are from the free reserves and surplus of the Appellant Company. iii) Your Petitioner craves your leave to add, alter or amend the grounds of Appeal, if any, at the time of hearing". 4. The brief facts of the case are that the assessee is engaged in the business of manufacturing and sale of Audio Cassettes & CD‟s, Production and distribution of features film. 5. During the course of assessment proceeding u/s. 143(3) r.w.s. 143(2) of the 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de deposit of interest free rent deposit out of interest free funds available with it. 5.3 The AO rejected the contentions of the assessee company by holding that these commercial premises were taken on leave and license basis from the wives of the Director of the company. It was also observed by the AO that these payments of interest free refundable rent deposit were given out of business receipts as is evident from the bank statement of IDBI Bank from 01.01.2008 to 31.03.2008 which as per AO made it clear that interest free refundable rent deposits were not given out of free reserves. It was observed by the AO that assessee is paying interest on the term loans and other loans raised by it while business receipts were utilised for advancing interest free refundable rent deposit. The AO rejected the contention of the assessee that free reserves were utilised for giving said interest free rent deposit and it was held by the AO that the assessee company has utilised the interest bearing funds to advance the interest free rent deposits which led to disallowance of 12% of interest free refundable rent deposit of ₹ 9,00,00,000/- by the AO leading to disallowance of ₹ 1,08,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 it had been mutually agreed that the assessee company had lien on the OVERSEAS TERRITORY of the above said Feature Film to the extent of the amount of ₹ 65,00,000/- Zerox copy of the Letter of Arrangement between assessee company and M/s Karishma International dated 22-3-2004 is enclosed herewith for your kind perusal and record. Assessee company could recover an amount of ₹ 45,00,000/- from the Overseas rights of Film 'SHADI KARKE PHAS GAYA YAAR" from Redsun Exports Put Ltd on behalf of M/s Karishma International. Zerox copy of the letter dated 31st July is enclosed herewith. Thereafter, assessee company rigorously followed up with M/s Karishma International for the recovery of the balance amount but the said party expressed their inability to make any further payment as they had suffered heavy losses in their various film productions and therefore refuse to make any payment. During the year under assessment the Assessee Company has written off an amount of ₹ 20,00,000/- being amount recoverable from M/s Karishma International for acquisition of Audio Rights as business loss for the reason that the said producer till this date has neither commenced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the said amount which is given to create an lien on overseas territory of the feature film "Dil Churake Chal Diye" produced by M/s. Krishma International and assigned to M/s. Ramnord Research Laboratories P. Ltd., is capital in nature and cannot be allowed as deduction as revenue expenses vide assessment order dated 31.12.2013 passed by the AO u/s 143(3) of the 1961 Act. 7. Aggrieved by assessment order dated 31.12.2013 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal before Ld. CIT(A). The Ld. Counsel for the assessee reiterated the submissions before learned CIT(A) as were made before the AO which are not repeated here.The assessee relied upon the decision of Hon‟ble Bombay High Court in the case of CIT v. Nicholas Piramal (India) Ltd., (2016) 95 CCH 2015(Bom.). The assessee also relied upon the decision of Hon‟ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. (2009) 77 CCH 0019 (Bom). The assessee also relied upon decision in the case of Hon‟ble Delhi High Court in the case of CIT v. Mrs. Sushma Kapoor (2009) 77 CCH 0958 (Delhi). The Ld. CIT(A) after considering the submission of the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evident that Share capital and Reserves & Surplus of ₹ 7004.22 lakhs has been utilized. Thus, for giving advance of ₹ 9 crores, the funds might have been utilized from Secured Loans or from business transactions. Therefore, the contention of the Appellant that such deposit of ₹ 9 crores has been made from Interest free Surplus fund is factually incorrect. 7.3. As regards business expediency of such Rent Deposit, the Appellant has not explained anything as to how there is business expediency for making such deposit with the wives of Directors for taking premises of Durga Chambers on rent. It can be seen that a very good monthly rent of ₹ 4,50,000/- has been given for such premises hence, there is no need to give any deposit of ₹ 5,50,00,000/- for each premise to be engaged by the wives of the Directors namely; Mrs. Renu K. Taurani & Mrs. Varsha R. Taurani. 7.4. The reliance placed by Ld. A.R. in the case of CIT vs. Nicolas Piramal India Ltd.(2016) 239 Taxman 470(Bom) is not applicable because the facts are different. In that case, the Assessee was carrying on business of Glass Manufacturing from a established Plant & Machinery and during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Rule, 1962 79 Marolia & Sons Vs. CIT(All) 129 of the Income-tax Rule, 1962 475 Tirupati Trading Co. Vs. CIT(Cal.) 242 ITR 13 CIT Vs. Sujanni Textiles (P) Ltd.(Mad-) 225 ITR 560 CIT Vs. P. Ganu Rao and Sons (Mad.) 185 ITR 324" Thus, in the light of above, factual references and judicial proposals, the disallowance of interest expenditure of ₹ 1,08,00,000/- made u/s.36(1)(iii) is sustained." 7.2. Similarly, the assessee also contended before learned CIT(A) that an amount of ₹ 20,00,000/- paid on account of advance towards audio rights is revenue in nature, by submitting as under:- " 5.1. In appeal, on other hand, it is contended that Ld. Assessing Officer has wrongly disallowed the genuine expenditure incurred during the course of business. It has paid advances of ₹ 65 lakhs to the Film Producer, M/s. Karishma International for acquisition of Audio Rights in F.Y.2002-03. It may be noted that such advance is a business advance hence, allowable expenditure. 5.2. The written submission of the Assessee is as under: 3. Disallowance of ₹ 20,00,000/- on account of Advance towards Audio Rights Appellant company had paid advances of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss activities of film production, therefore, the advances become irrecoverable and hence, the appellant company had no other alternative but to claim the said advances as revenue expenditure u/s.37(1) of the I T Act and accordingly has debited the said amount of ₹ 20,00,000/- to the Profit and Loss account under the head "BAD DEBTS". It is humbly submitted that the business loss is directly connected with the business operation and incidental to the carrying on the business of the appellant company, hence the same be allowed as business loss. It is reiterated that "M/s. Karishma International" has discontinued the film production business and since the advance payment though initially was towards acquisition of Audio Rights but later converted to create lien on the OVERSEAS TRRITORY of the feature film "DIL CHURAKE CHAL DIYE" and the fact that only an amount of ₹ 45,00,000/- was recovered from the overseas rights from Redsun Exports P Ltd., on behalf of M/s. Karishma International. The balance amount has become irrecoverable and time barred under the law of limitation act, and therefore, the said amount cannot be legally recoverable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed u/s.37 can also not be accepted because of the facts of the case. It can be seen from the admission of the Appellant that it had given ₹ 65 lakhs to one M/s. Karishma International for Audio Rights of a Film to be produced. However, the production of film did not materialize, and as mentioned by the Appellant, M/s. Karishma International had discontinued its production business hence, advance was outstanding right from F.Y.2002-03. Subsequently, the Appellant has negotiated for having "lien on overseas territory of the Feature Film namely; "Dil Churake Chal Diye" claimed to be produced by M/s. Karishma International. This film was assigned to one M/s. Ramnord Research Laboratories Pvt. Ltd.. Thus, according to the Mutual arrangement, the Assessee has lien over the overseas territory of feature film "Dil Chura Ke Chal Diye" for an amount of ₹ 65 lakhs vide arrangement letter dated 22.05.2004. It means nature of advance was changed subsequently and it was not for acquisition of Audio Rights of proposed film. Obviously, the Appellant had taken into account, the facts of the Agreement for having lien on the Overseas Territory on his Feature Fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 65,00,000/- under this agreement on and behalf of M/s Karishma International and it was submitted that ultimately an amount of ₹ 45,00,000/- could be recovered from M/s Karishma International through Redsum Exports Private Limited, while rest of the amount of ₹ 20,00,000/- was written off as Business Loss by the assessee in its books of accounts. Our attention was also drawn to page no. 75 of the paper book filed by the assessee with the tribunal wherein letter from M/s. Karishma International to M/s. Ramnord Research Laboratories P. Ltd., dated 22.03.2004 is placed wherein overseas lien is created for ₹ 65,00,000/- with respect to film "Dil Churake Chal Diye" in favour of the assessee. Our attention was drawn to page no. 76 of the paper book wherein M/s. Ramnord Research Laboratories P. Ltd., vide letter dated 08.04.2004 has created charge with respect to picture "Dil Churake Chal Diye" in favour of the assessee to the tune of ₹ 65.0 lacs. Our attention was also drawn to page no. 81 of the paper book filed with the tribunal wherein letter dated 31.07.2006 written by the assessee in favour of M/s. Ramnord Research Laboratories P. Ltd., is placed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business loss. The assessee relied on the decision of Hon‟ble Bombay High Court in the case of Harshad J. Choksi v. CIT reported in (2012) 349 ITR 250 (Bom). 8.2 On the second issue, it was submitted by learned counsel for the assessee that Leave & License agreement for taking commercial premises bearing number 501-601, Durga Chambers, 278/E, Linking Road, Khar West, Mumbai 400052 on leave and licence basis was entered into by the assessee with wives of Directors of the assessee company against which interest free refundable rent deposit of ₹ 9,00,00,000/- was given by the assessee to said wives of the Director of the assessee company. Our attention was drawn to the para 10 on page no. 19 of the assessment order. It was also submitted that no disallowance were made in the earlier years in assessment framed by the AO u/s 143(3) of the 1961 Act. Our attention was also drawn to paper book/page 43-65 wherein assessment orders for AY 2004-05, 2008-09,2009-10 and 2010-11 are placed in paper book filed by the assessee with tribunal, wherein no additions were made by the AO on this issue in all these assessment years. Our attention was also drawn to appellate order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal of the assessee for AY 2011-12 and it is claimed that similar contentions as were made for this year shall apply to those two years which are also before the tribunal. It was submitted that audited Balance Sheet, profit and Loss and net worth figures for those years are also filed in paper book which is referred to above by learned counsel for the assessee in his arguments before the tribunal. 9. The Ld. DR on the other hand submitted that additions of ₹ 20,00,000/- was made on the grounds that this loss was a capital loss and cannot be allowed as revenue loss or bad debt. It was submitted that the said sum was never included while computing income of the assessee chargeable to tax and hence the same cannot be allowed as bad debt. The learned DR would rely on the orders of the AO and Ld. CIT(A). 9.2 With respect to ground no. 2, the learned DR again placed reliance on the assessment order passed by learned AO and the appellate order passed by learned CIT(A). It was submitted that the case laws relied upon by the assessee were distinguished by learned CIT(A). 10. We have considered rival contentions and carefully perused the material on record including cited case law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss.It is also averred by Revenue that the said amount of ₹ 65 lacs which was advanced by the assessee or an amount of ₹ 20 lacs which ultimately could not be recovered by the assessee, was not included by the assessee as its income while computing income chargeable to tax in earlier years or even during the impugned assessment year, thus such advance of money cannot be allowed even as bad debt under the provisions of the 1961 Act. 10.2 The tribunal is the last fact finding authority and is obligated to appreciate complete facts on record before arriving at its conclusions. Thus, we are under obligation and heavy duty is cast on us to see and appreciate entire facts on record and then arrive at our decision based on facts and law. 10.3 At this stage, we would like to refer to paper book filed by the assessee which we have carefully gone through. The Ledger account of M/s Karishma International from 01.04.1999 to 31.03.2011 in the books of the assessee company is placed in paper book at page 66-69, which is reproduced hereunder: 10.4 Before we proceed further, it is important to reproduce hereunder agreement of arrangement dated 2nd March 2004 entered into between an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational. The disputes and differences between the assessee and M/s Karishma International stood resolved vide this agreement of arrangement dated 02.03.2004. c) There were three more parties found mentioned in the said agreement of arrangement dated 02.03.2004 who were having disputes and differences with M/s Karishma International namely Mrs. Renu K Taurani, Mrs. Varsha R. Taurani and Dasmesh International Limited, whose disputes and differences with M/s Karishma International also stood resolved as mentioned in this agreement of arrangement dated 02.03.2004. Incidentally as we have seen with respect to other issue in this appeal with respect to interest free refundable rent deposit given by the assessee, the said Mrs Renu K Taurani and Mrs Varsha R Taurani happens to be wives of Directors of the assessee company. d) The total consideration stipulated in the original agreement dated 09.06.1999 signed by the assessee with M/s Karishma International was ₹ 280 lacs for acquiring audio rights of the movie "Dil Churake Chal Diye‟ (Movie renamed later to "Shaadi Kar Ke Phas Gaya Yaar‟). Now, with mutual consent of both the parties agreed vide this agreement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chal Diye‟. The said M/s Karishma International agreed to deliver to assessee aforesaid master tapes/original recording tracks etc on signing of this agreement of arrangement dated 02.03.2004. The said M/s Karishma International agreed and assured assessee vide this agreement of arrangement dated 02.03.2004 to release the film "Dil Churake Chal Diye‟ in the month of July 2004. The authorities below had not seen whether the assessee had paid this additional advance of ₹ 100 lacs out of which ₹ 90 lacs were disbursed to wives of the Directors of the assessee company by assessee for and on behalf of Karishma International to settle and resolve their inter-se dispute with Karishma International, arose from contractual, commercial and legal boundation of the assessee to sub-serve the business interest of the assessee or was an amount of ₹ 90 lacs disbursed gratuitously to protect the interest of wives of Directors of the assessee because already the said Karishma International was holding excess payment of ₹ 75 lacs owing to reduced consideration of audio rights of the feature film "Dil Churake Chal Diye‟. h) It was further agreed vide this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to excess advance keeping in view reduced consideration of ₹ 55 lacs for acquisition of audio rights of the feature film "Dil Churake Chal Diye‟, vide agreement of arrangement dated 02.03.2004, instead of original agreed consideration of ₹ 280 lacs vide original agreement dated 09.06.1999. This left the balance recoverable of ₹ 65 lacs by assessee from M/s Karishma International. The assessee vide entry in its books of accounts passed on 25.09.2004 has debited ₹ 155 lacs towards audio rights expenses for the film "Dil Churake Chal Diye‟ (later renamed as "Shaadi Kar Ke Phas Gaye Yaar‟ ) as is emanating from ledger account filed by the assessee. However, the reduced cost of acquisition of audio rights was ₹ 55 lacs while ₹ 100 lacs was refundable advance for which 10 refund cheques of ₹ 10 lacs all drawn on UTI Bank, Andheri, Mumabi was handed over by Karishma International to the assessee, but entry as is appearing in Ledger accounts of M/s Karishma International in the books of accounts of the assessee is of ₹ 155 lacs towards cost of acquisition of audio rights of "Dil Churake Chal Diye‟ ( later renamed as Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay ₹ 65,00,000/- to the assessee before effecting delivery of any prints of the said picture for any of the territories of the world including the Overseas territories. M/s Karishma International agreed that it will not release, distribute, exhibit or exploit the said picture "Dil Chuarke Chal Diye‟ in any of the territories of the world directly or indirectly until this amount of ₹ 65 lacs is first paid to the assessee. M/s Karishma International also agreed to secure this payment of ₹ 65 lacs by obtaining in favour of the assesseee, simultaneously a letter of confirmation from the laboratories where the negatives of the said picture "Dil Churake Chal Diye‟ are lying, to the effect that the said laboratory shall not effect delivery of any prints of the said picture for any territory of the world until the said sum of ₹ 65 lacs is first paid in full to the assessee. Apart from above, said M/s Karishma International also agreed to repay ₹ 100 lacs by ten monthly instalments of ₹ 10 lacs each starting from the expiry of one year from the date of the first release of the said picture in any territories of the world. As collateral secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is in accordance with the understanding vide inter-se agreement Karishma International had with Redsun Exports Private Limited, dated 20.08.1999 for overseas circuit. p) Then there was further change in understanding between M/s Karishma International with assessee, vide fresh agreement of arrangement dated 18.03.2005, which is placed at page 78 of paper book. In this revised agreement of arrangement dated 18.03.2005, it is recorded that release of film "Dil Churake Chal Diye‟ now titled "Shaadi Karke Phas Gaya Yaar‟ got delayed from proposed date of release in June 2004 to now revised date of release in May 2005. It is agreed by the assessee with M/s Karishma International that it will accept ₹ 45 lacs as against ₹ 65 lacs as originally agreed vide agreement of arrangement dated 22.03.2004. The said Karishma International agreed that movie will be released in May 2005 or otherwise this letter will become null and void. The said M/s Karishma International released two post dated cheques of ₹ 10 lacs each aggregating to ₹ 20 lacs drawn on Development Credit Bank, Lokhandwala Branch, Mumbai in favour of the assessee payable within ten mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the assessee to said M/s Karishma International vide agreement of arrangement dated 02.03.2004 needs to be explained, more so when the amount already advanced was ₹ 130 lacs which was in excess of reduced consideration of ₹ 55 lacs for acquiring audio rights of feature film "Dil Churake Chal Diye‟ and the said additional advance of ₹ 100 lacs is disbursed by assessee for and on behalf of Karishma International to the tune of ₹ 90 lacs to wives of Directors of the assessee company which was in resolving inter-se disputes and differences of wives of the Directors of the assessee with M/s Karishma International. The commercial expediency and prudence in releasing additional advance to M/s Karishma International needs to be looked into more-so out of this ₹ 90 lacs were disbursed by assessee on behalf of M/s Karishma International to wives of the Director of the assessee to settle and resolve their inter-se disputes and differences. c) Fate/clearances of cheques of ₹ 100 lacs issued by Karishma International in favour of the assessee to secure additional advance of ₹ 100 lacs vide agreement of arrangement dated 02.03.2004 needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature. This ground of appeal being ground no. 1 filed by the assessee in memo of appeal with tribunal is allowed for statistical purposes. We order accordingly. 11. Coming to the second issue, we have observed that the assessee has taken on leave & licence basis commercial premises bearing numbers 501-601, Durga Chambers, 278/E, Linking Road, Khar West, Mumbai 400052 from Mrs. Renu K Taurani and Mrs Varsha R. Taurani, wives of the Director of the assessee company for a period of three years w.e.f. 01.04.2010 to 31.03.2013 vide leave and license agreement dated 01st April 2010. The said agreement dated 01.04.2010 was entered into by the assesse as the earlier agreement dated 01.01.2007 had expired and licensors have vide letter dated 29.01.2008 asked for increase in compensation and interest refundable rent deposit. In terms of leave and license agreement, the monthly compensation being license fee is fixed at ₹ 4,50,000/- for each premises excluding service tax component. The assessee had also given interest free refundable rent deposit of ₹ 9.0 crores to licensors who happened to be wives of the Directors of the assessee company. It is pertinent to mention that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th tribunal at page 23-42. 11.2. We have gone through audited financial statements of the assessee for financial year 2003-04 and also from financial year 2007-08 to financial year 2012-13, which are all placed in paper book filed with the tribunal at page 6-18. The perusal of these financial statements clearly shows that the assessee has its own interest free funds available with it which are more than the interest free refundable rent deposit released by the assessee in favour of licensors of the aforesaid commercial premises.The net worth statement of the assessee company for the financial year 2003-04 to 2013-14 are also placed in paper book at page 5. The details of the interest free refundable rent deposit granted by the assessee was ₹ 2 crores in financial year 2003-04 while ₹ 7 crores stood disbursed in financial year 2006-07 and 2007-08 ( ₹ 1 crore in financial year 2006-07 while ₹ 6 crores stood disbursed in financial year 2007-08 ) -Refer paper book/page 1-4. The perusal of audited financial statements placed on record clearly reveals that own funds consisting of share capital and reserves and surplus were higher than interest free refundable ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 2012-13 and 2013-14 respectively are allowed. We order accordingly. 14. Now we will take up appeal of the revenue in ITA no. 6291/Mum/2017 for AY 2012-13. 14.2. The grounds of appeal raised by the revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- "1. "Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the addition of audio right expenses amounting to ₹ 3,10,99,925/- holing the same as revenue expenses without appreciating that the Expenses Incurred are of enduring nature and categorically falls under the head of "capital expenses" 2. "Whether on the facts, in the circumstances of the case and as per law, the Ld. CIT(A) has erred in directing to delete the directing the addition of audio right expenses amounting to ₹ 3,10,99,925/- without appreciating that the audio rights acquired by the assessee gives it a perpetual right to exploit the same and as such the expenses incurred are of capital in nature". 3. The appellant prays that the order of CIT(A) on the above grounds be set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction and not an equipment to help the production, expenses incurred on this items directly vary with the turnover of the goods produced and sold as evident from the enclosed statement of purchases of audio rights and sales for past three years. As such, the said expenses is rightly claimed as manufacturing expenses and debited to trading account (to the extent of cassettes released during the year) and claimed as expenses for amount paid to producers or during the year purchase of audio u/s. 37(1) of the IT. Act, 1961 and on the same basis cost of Audio rights is also included while valuing the closing stock of the finished cassettes included in the closing stock shown in the trading Account. Considering the above the facts you will appreciate that amount spent for purchase of Audio rights during the year is rightly claimed as Manufacturing expenses which through purchased and held in perpetuity is of the revenue nature hence the same be allowed u/s 37(1) of the act. Reasons as to why Audio rights of ₹ 3,10,99,925/- should be considered as revenue and not capital expenses. Assessee's business is that re-production of Audio sound and music from the original record of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is a basic material to facilitate the copying of, the payment made for it, is nothing more than the revenue. We once again reiterate that unlike the tangible and visible products that have raw material that is either visible, tangible the present product is reproduction of sound music etc. embedded into magnetic tapes or gramophone records. The payment of audio rights is relatable to the magnetic tapes or the gramophone records or compact discs fitted with the same sound, music dialogues etc. the production of filled tapes etc is nothing more than duplication of the original. The original master plate is primarily a raw material and incidentally happen to be the substratum of the business of the assessee. The only point of difference is that the substratum part is entirely incidental to the main activity of reproduction of the original plate which reproduction of the original is impossible without the original since the making of the master plate has cost the producer certain sum of money he gets re-imbursement from the assessee in the shape of fixed sum. The selling price of tapes of the audio cassettes consists of the sale value of the basic empty tapes or and the other eleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Act, decided the issue against the assessee by holding as under:- "5.3 The issue as to whether audio expenses of ₹ 3,10,99,925/- debited to the P&L account are capital or revenue in nature has been deliberated in detail in the earlier assessment years right from A.Y.1990-91. In this regard, the stand of the Revenue is that these expenses are of enduring nature and therefore, should be treated as capital expenses. Although the issue has been decided in favor of the assessee by the CIT(A) and the ITAT, the Revenue has not accepted the said decision and filed appeal before the Hon'ble Bombay High Court. Hence, following the stand of the Revenue in the earlier years, the assessee's claim of expenditure on acquiring audio rights as revenue expenditure is not accepted. Accordingly, expenditure on acquiring audio rights claimed as revenue expenditure amounting to ₹ 3,10,99,925/- is hereby disallowed and the same is treated as capital expenditure. However, depreciation @ 25% of the said expenditure is allowed u/s.32. The same works out to ₹ 77,74,981/-. Accordingly, net disallowance of ₹ 2,33,24,944/- is made and added to the total income of the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as paid ₹ 3,10,99,925/- for purchase of audio rights which was claimed as Revenue expenses. The assessee is engaged in the business of manufacturing and sale of audio Cassettes & CDs, Production and distribution of features films. 17.2 We have observed that the tribunal in assessee‟s own case in earlier years has held that these expenses incurred for purchase of audio rights are revenue expenses. We have also observed that the tribunal has consistently held that the expenses incurred for acquisition of audio rights to be revenue in nature and was allowed as business expenses by holding the issue in favour of the assessee. The details of tribunal orders for earlier years are placed in para 16 above. 17.3 We have also observed that the tribunal in recent decision in ITA no. 1894/Mum/2017 for AY 2010-11 in assessee‟s own case vide appellate orders dated 06.08.2018 has observed that expenditure incurred for purchase of audio video rights by the assessee is revenue in nature, by holding as under;- " 4. We have heard both the parties and perused the materials available on record. The issue of expenditure incurred for purchase of audio and video rights of feature fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Tribunal. In view of the above discussion, we respectfully apply the decision of the coordinate bench of the Tribunal in the assessee's own case for earlier years and dismiss the ground taken by the revenue. In view of the same, ground of appeal No. 1 is rejected," 5. As no distinguishing facts have been brought on record by the Ld. Departmental Representative, we have no hesitation in following the decision of the Tribunal (supra). Accordingly, the revenue's appeal is dismissed." 5. Thus, respectfully following the judicial precedence of the earlier years, we do not find any merits on the ground raised by the Revenue and the same is dismissed." 5. In this view of the matter and consistent with the view taken by the co-ordinate bench, we are of the considered view that expenditure incurred for purchase of audio video rights is revenue in nature. The CIT(A), after considering relevant facts, has rightly deleted addition made by the AO. We do not find any error in the order of the Ld.CIT(A) and hence, we are inclined to uphold the findings of Ld.CIT(A) and dismiss the appeal filed by the revenue." 17.4 Even before us, no distinguishing facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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