INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A": NEW DELHI
BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER
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 by : Y Kakkar, Sr. DR
Respondent by : Rano Jain, CA
PER A. T. VARKEY, JUDICIAL MEMBER
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
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
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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
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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
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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
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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.
(J. S. REDDY) (A. T. VARKEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
A K Keot
Copy forwarded to
4. CIT (A)
ITAT, New Delhi