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ACIT Circle-29(1), Room No. 107 Drum Shape Building , IP Estate, New Delhi Vs.Achla Sabharwal Prop M/s. Media International 1596, Diwan Hall, Bhagirath Place, Chandni Chowk, Delhi
September, 08th 2014
                       DELHI BENCH "A": NEW DELHI
                   SHRI A. T. VARKEY, JUDICIAL MEMBER

                                 ITA No. 1808/Del/2013
                               (Assessment Year: 2009-10)

                   ACIT                           Achla Sabharwal
                   Circle-29(1),                  Prop M/s. Media International
                   Room No. 107             Vs.   1596, Diwan Hall, Bhagirath Place,
                   Drum Shape Building ,          Chandni Chowk, Delhi
                   IP Estate, New Delhi           PAN: ABBPS7047D
                   (Appellant)                    (Respondent)

                            Appellant by    : Y Kakkar, Sr. DR
                          Respondent by     : Rano Jain, CA



      This appeal preferred by the revenue is against the order of the ld CIT(A)-

XXV, New Delhi dated 04.01.2013 for the Assessment Year 2009-10.

2.    The grounds of appeal are as follows:-

      "1    The ld CIT(A) has erred on facts and in law in deleting a sum of Rs.
            30,11,304/- made by the AO on account of depreciation.
      2.    The ld CIT(A) has erred on fact and in law in deleting of Rs. 75,00,000/-
            made by the AO on account prior expenses.
3.    Apropos deletion of addition of Rs. 30.11.304/- made by the AO on account

of depreciation.

4.    Brief facts of the case are that the assessee is in the business of distribution of

films and songs. Return of income declaring total income of Rs. 41,60,115/- was

filed by the assessee on 30.09.2009. The case was processed u/s 143(1) of the

Income tax Act, 1961 (the Act' for brevity). The case was thereafter selected for

scrutiny through CASS. The AO on perusal of the profit and loss account, took note
                                       Page No. 2

of the fact that the assessee had debited an amount of Rs. 1,36,68,771/- as

depreciation on `films-cinematograph'. The annexure of fixed assets suggested

that the assessee had claimed depreciation on films- cinematograph @ 100%.

During the assessment proceedings the assessee was asked to file the evidence for

the said claim. In response to this the assessee filed copies of agreements entered

into with certain parties for purchase of films rights. After a perusal of these

agreements AO was of the opinion that by virtue of these agreements, the

assessee acquired certain distribution, broad casting, exhibition, satellite rights etc.

for the periods specified in the agreements. According to the AO, the rights

derived by the assessee from the said agreements are of two types:

      a)    Perpetual rights or period of assignment of rights being more than one
      b)     Limited rights acquired for one year.
5.    Therefore the AO was of the opinion that vide these agreements the

assessee did not purchase any cinematographic films for its consumption but it

were only broadcasting/ exhibition rights, satellite rights etc related to certain

movies. And since the assets acquired by the assessee appears to be intangible

assets within the meaning of section 32 of the Act after seeking the explanation of

the assessee, the AO allowed the depreciation u/s 32(1)(ii) of the Act, at the @

25% and thus the depreciation allowed on purchase of film rights worth

Rs.44,17,864/- was restricted to 25% i.e. Rs.11,04,466/- and Rs.33,13,398/- was being

disallowed and added back to the total income of the assessee.

6.    Before the ld CIT(A) it was clamed by the assessee that under Rule 9B(2)(a)

of Income Tax Rules 1962, (herein after `the Rules), the assessee is eligible for

depreciation/ deduction at the rate of 100% on the purchase of films except that
                                         Page No. 3

of two films i.e. Bewafa (Rs.2,77,094/-) and Marmitege (Rs.25,000/-) which were not

sold in relevant A.Y. The ld CIT(A), after considering Rule 9B(2), held that the

assessee is eligible for full deduction. The relevant finding of the learned ld CIT(A)

reads as under:-

      "4.3 I have considered the order of the AO and the submissions of the assessee
      and I find considerable merit in the submission of the assessee that in the case of
      purchase and sale of films the provisions of Rule 9B is applicable and the assessee is
      eligible to claim the deduction of the entire cost of purchase if the films are sold in
      the same year. In the present case, the assessee had made the purchase of
      Rs.44,17,864/- and the entire films has been sold except the two films for
      Rs.3,02,094/- (Rs.2,77,094/- (+) Rs.25,000/-) as discussed above. After considering all
      the case facts and circumstances of the case, I am of the view that there is no
      merit in the addition made by the AO and accordingly the addition to the extent
      of Rs.3,02,094/- is confirmed as discussed above and the balance additions of
      Rs.30,11,304/- (Rs.33,13,398/-(-) Rs.3,02,094/-) are deleted."

7.    Aggrieved by the said order of the ld CIT(A) the revenue is before us.

8.    At the outset the ld AR brought to our notice the order passed by the co-

ordinate Bench of this Tribunal in assessee's own case for Assessment Year 2010-11,

wherein the Tribunal has upheld the order of the ld CIT(A) on the same issue,

wherein it was held by the Tribunal has under:-

      "6. It is not in dispute that during the previous year, the assessee had
      acquired the feature film for a sum of Rs.1,20,00,000/- and the assessee has
      sold the rights of exhibition of the film. We also find that before the Assessing
      Officer also, the assessee, in its reply dated 15.3.2013, has submitted that
      100% deduction in respect of cost of purchase of feature film is allowable
      under Rule 9B. The relevant portion of the assessee's reply reads "The
      assessee has claimed depreciation on the basis of provision of Rule 9B of the
      act as it has sold rights purchase during the previous year relevant to current
      AY". The above factual statement made by the assessee before the
      Assessing Officer has not been controverted by the Revenue. In view of the
      above, in our opinion, Rule 9B(2) was applicable to the facts of the case
      and learned CIT(A) rightly allowed the relief following Rule 9B(2) of the
      Income-tax Rules, 1962. We, therefore, find no justification to interfere with
      the order of learned CIT(A). The same is sustained."

9.    We find that except for two films stated above the films purchased by the
                                       Page No. 4

assessee was sold in the same year and so the ld CIT(A) rightly held that Rule 9B is

applicable and rightly deleted Rs.30,11,304/-. Respectfully following the order of

the co-ordinate bench in assessee's own case we therefore confirm the order of

the ld CIT(A) and dismiss the appeal of the revenue.

10.   The second issue is regarding deletion of addition of Rs.75 Lacs by CIT(A)

which the AO has made under the head prior period expenses. The observation

of the AO is in para 7 on page 4 of the assessment order is as under:-

      "7. The assessee has purchased rights of Rs. 75,00,0001- from M/s Spot Light
      on 30.09.2007 and delivery period mentioned in MOU was within 30 days
      from the date of MOU. The assessee has booked this purchase in A Y 2009-
      10. The AR of the assessee vide order sheet entry dated 28. 12.2011 was
      asked that why purchase of Rs. 75,00,000/- shall not be disallowed as prior
      period expense. The AR of the assessee submitted the ledger of M/s Spot
      Light A Y 2008-09 but he could not produce any reason for booking the prior
      period purchase in A Y 2009-10. Since the assessee is following mercantile
      system of accounting the purchase should have been booked in the year of
      purchase. Therefore, Rs.75,00,0001- is being disallowed as prior period
      expense and added back to the total income of the assessee."

11    Aggrieved by the said order of the AO, the assessee preferred an appeal

before the ld CIT(A), who was pleased to delete the same by holding as under:-

      "5.3 I have considered the order of the AO and the submissions of the
      assessee and I find considerable merit in the submission of the assessee that
      the assessee is eligible to claim the deduction of Rs.75,00,000/- a the films
      has been sold in the current year and the assessee did not claim the
      deduction in the earlier year as the films were not sold as provide under Rule
      9B(2) and (4). After considering all the case facts an circumstances of the
      case, I am of the view that the AO has not followed the provisions of Rule 9B
      and the assessee is eligible for full deduction as per Rule 9B and as such the
      addition/disallowance made by the AO is without any justification and
      accordingly, the same is deleted. "

12.   We have heard both the parties and have perused the records of the case.

We find that the issue is squarely covered by the sub-rule (4) of Rule 9B. As per sub-

rule (2) of Rule 9B where a feature film is acquired in any previous year and the

rights of such film are sold by the film distributor, the entire cost need to be allowed
                                          Page No. 5

in that year. As per sub-rule (4) if during the previous year, the feature film

acquired by the distributor has not been sold, no deduction shall be allowed in

respect of the cost of acquisition in that previous year i.e. the year of acquisition,

but the entire cost of acquisition shall be carried forward and allowed as

deduction in the next year. The assessee has acquired the rights on 30.09.2007 i.e.

in the preceding year. It has not sold the same in the financial year 2007-08. It has

sold its rights in the financial year 2008-09 i.e. assessment year 2009-10, that is the

year under consideration. Therefore as per sub-rule (4) it is entitled to claim the

entire cost of acquisition in this assessment year i.e. 2009-10 which is the following

AY 2008-09, the year in which the rights were acquired. As such the CIT(A) has

rightly deleted the addition as per law.

13.      In the aforesaid reasons we find that there is no infirmity in the order of the ld

CIT(A), therefore, we dismiss the ground of the revenue.

14.      In the result the appeal preferred by the revenue is dismissed.

         Order pronounced in the open court on 05.09.2014.

               -Sd/-                                                -Sd/-
         (J. S. REDDY)                                          (A. T. VARKEY)
       ACCOUNTANT MEMBER                                      JUDICIAL MEMBER
 Dated: 05/09/2014
A K Keot

Copy forwarded to
      1. Applicant
      2. Respondent
      3. CIT
      4. CIT (A)
      5. DR:ITAT
                                                                  ASSISTANT REGISTRAR
                                                                      ITAT, New Delhi
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