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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
This appeal filed by the Revenue is directed against order passed by the learned Commissioner of Income Tax (Appeals)-14, Chennai, dated 26.02.2019 and pertains to assessment year 2009-10.
The Revenue has raised following grounds of appeal:-
“1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts ofthe case and in law.
2. The Id. CIT(A) erred in directing the Assessing Officer to delete the addition of Rs.2,33,58,021/- on expenditure occurred on cost of production of tele serials.
3. The Id CIT(A) failed to note that the disallowance of Rs. 2,33,58,021/- towards expenditure in respect of cost of production of teleserial was made by the AO since, the expenditure incurred in this regard was capital in nature.
The Id.CIT(A) failed to note that the assessee itself has differed the said tele-serial expenditure in the books but claimed in full for income tax purpose. The assessee can not take one stand for income tax purpose and different stand for others.
The Id. CIT(A) having relied on the decision of Hon’ble High Court in the case of Prasad Productions T.C. Appeal No.905 of 2008 dated 04.04.2018 ought to have considered that the said decision was based on the fact that the expenditure has to be revenue in nature, while in the said case the tele serial expenditure has enduring benefits to the assessee, as serials can be re-telecast, dubbed in to other languages and retelecast in another TV channel etc.
The Id.CIT(A) failed to note that the facts in the case of Prasad Productions T.C. Appeal No.905 of 2008 dated 04.04.2018 is dealt with the cost of production of abandoned feature film; whereas the instant case the said expense is a regular one.
7. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
Brief facts of the case are that the assessee is engaged in the business of production and marketing of tele serials and tele films, filed its return of income for the assessment year 2009-10 on 30.09.2009 admitting total income of Rs.32,44,024/-. The assessment has been completed u/s.143(3) of the Income Tax Act, 1961, on 12.12.2011 and determined total income at Rs.36,19,440/-. The case has been, subsequently reopened u/s.147 of the Income Tax Act, 1961, for the reasons recorded, as per which income chargeable to tax had been escaped assessment. The case has been taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction towards production expenses of tele serials at Rs.3,11,44,028/- as revenue expenditure. Therefore, after considering relevant explanation of the assessee, the Assessing Officer opined that production expenses of tele serials is in the nature of capital expenditure which cannot be allowed as revenue expenditure and thus, disallowed expenses claimed by the assessee and has allowed depreciation at 25% on total expenditure. The balance amount of Rs.2,33,58,021/- has been disallowed and added back to total income.
4. Being aggrieved by the assessment order, the assessee preferred an appeal before learned CIT(A). Before the learned CIT(A), the assessee has filed detailed written submissions on the assessee along with certain judicial precedents, including decision of the Hon’ble Delhi High Court in the case of CIT Vs Television Eighteen India Ltd. (2014) 364 ITR 605 (Del), and argued that expenditure incurred for production of tele serials and films is revenue expenditure, because income derived from exhibition of tele serials is recognized as income from operations and thus, any expenditure incurred for production of such feature films is revenue in nature, which cannot be considered as capital in nature.
5. The learned CIT(A), after considering relevant submissions of the assessee and also by relied upon certain judicial precedents, including decision of the Hon’ble Delhi High (supra) deleted additions made by the Assessing Officer towards disallowance of production expenses of tele serials by holding that expenditure incurred for production of tele serials and films is revenue in nature, because same needs to be allowed as and when said expenditure was incurred. The relevant findings of the learned CIT(A) are as under:-
“14. I have carefully considered the observations of the Assessing Officer and the submissions of the appellant. The issue is whether teleserial production cost is revenue expenses or capital expenses. The Assessing Officer did not allow the expenses claimed on the ground that expenses incurred results in enduring benefit as TV serials can be re-telecast. The AR of the appellant submitted that the same issue came up for the A.Y. 2008-09 and the Assessing Officer disallowed the teleserial production expenses which was deleted by CIT(A) holding the same as revenue expenses. The decision of the CIT(A) was said to be accepted by the department.
The AR of the appellant also relied upon the decision of ITAT, Delhi in the case of Guruji Entertainment Network Ltd cited supra wherein it was held that the expenses incurred in connection with the production, marketing, telecasting of television serials are of revenue nature and allowable u/s 37(1) of the Act and the corresponding income from sale or teEsting of the serials are in the nature of revenue income. was also held that manufacturing and sale of an entity cannot be a capital asset of that entity. The Hon’ble Tribunal further held that it is correct that the future rights are vested with the assessee company in relation to these serials, if any income such rights relating to serials then such income will be taxed in full in the year of receipt. Suppose, there is no income in future from these rights then in which year these deferred revenue expenditure will be allowed and how these expenses will be accounted for under the Income-tax Act. Hence, as general business rule, all production expenses in connection with making serials are allowable.
The AR also relied upon the Delhi High Court judgment in the case of Television Eighteen India Ltd cited supra wherein it was held that the production expenses incurred for expansion of television programme from one and half hour programme to twelve hours programme for each day is held to be falling u/s 37(1) of the Act and not resulting in any enduring advantage required to be treated in the capital stream. The Madras High Court in the case of Prasad Productions T.C. Appeal No.905 of 2008 dated 04.04.20 18 held that cost of production of abandoned teleserial shall be treated as revenue expenditure. The Hon’ble High Court followed the CBDT Circular No.16/2015 dated 06. 10.2015 wherein it was stated that the cost of production of an abandoned future film is to be treated as revenue expenditure and allowed as per the provisions of Section 37 of the Income Tax Act. Among the decisions cited above, the ITAT Delhi in the case of Guruji Entertainment Network Ltd., cited supra, clearly held that production expenses of teleserials is revenue in nature. The other decisions cited
above of tele serials must be allowed as revenue expenses. In view of the above, the expenses incurred for the production of teleserials are held to be revenue in nature and accordingly the addition made is hereby deleted.”
6. The learned DR submitted that the learned CIT(A) has erred in not appreciating fact that production expenses of tele serials is capital in nature, because the assessee derived benefit from more than one year and thus, expenditure should be apportioned over the period when the assessee has derived income from exhibition of said teleserials. The learned DR further referring to decision of the Hon'ble Jurisdictional High Court of Madras in the case of M/s. Prasad Productions in T.C.A. No.905 of 2008 dated 04.04.2018, submitted that in the said decision, cost of production of abandoned feature film was considered, whereas in the present case, facts are entirely different that the assessee has produced tele serials and exhibited. Therefore, he submitted that the learned CIT(A) was completely erred in deleting addition towards cost of production.
The learned A.R for the assessee referring to the decision of the ITAT., Delhi Benches in the case of Guruji Entertainment Network Ltd. Vs. ACIT 108 TTJ 180 submitted that the Tribunal has considered an identical issue and held that expenditure incurred for production of tele serials and films is revenue in nature and it should be allowed as deduction. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and his order should be upheld.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. Admittedly, cost of production of tele serials and films is not governed by Rule 9A & 9B of Income-tax Rules, 1962.
Therefore, this issue needs to be considered without going into rules prescribed for allowing deduction for expenditure incurred for production of feature films. Admittedly, major expenditure of the assessee involved in production and exhibition of tele serials is cost of production of tele serials. The revenue derived from exhibition of tele serials is offered as income from operations, but may be in one or two or three years, however, except cost of production of feature films, the assessee does not have any other major expenses. Therefore, in case where assessee involved in production and exhibition of tele serials, expenditure incurred for production of tele serials cannot be considered as capital in nature, because it does not give enduring benefit to the assessee or it does not lead to creation of any asset. Therefore, we are of the considered view that expenditure incurred for production of feature films of an assessee involved production and exhibition of tele serials is definitely revenue in nature, which cannot be considered as capital expenditure. This view is fortified by the decision of Hon’ble Delhi High Court in the case of CIT Vs Television Eighteen India Ltd.(supra), after considering CBDT circular No.16/2015 dated 06.10.2015 has clearly held that production of abandoned feature film is to be treated as revenue expenditure and allowed as per provisions of section 37 of the Income Tax Act, 1961. Although, in the said case, it was cost of production of abandoned feature film, but in our considered view, it does not make any difference whether tele serial or films is abandoned or continued for exhibition to the audience.
Since major expenditure of the assessee involved in production and exhibition of tele serials, is cost of production of said tele serial and thus, we are of the considered view that same needs to be allowed as revenue expenditure as and when such expenditure has been incurred by the assessee, even though revenue from exhibition of tele serial or film is spread over for more than one year. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards cost of production of tele serial and hence, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the Revenue.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 23rd February, 2022