ACIT, CHENNAI vs. A.M.RATNAM, CHENNAI

आदेश / O R D E R

PER G.MANJUNATHA, AM:

These three appeals filed by the Revenue are directed

against common order passed by the learned Commissioner

of Income Tax (Appeals)-VI, Chennai, dated 12.03.2013 and

pertain to assessment years 2004-05 to 2006-07. Since, facts

are identical and issues are common, for the sake of

convenience, these appeals were heard together and are

being disposed off, by this consolidated order.

2 ITA Nos.1736 to 1738/Chny/2013

of appeal for all these assessment years, therefore, for the

sake of brevity, grounds of appeal filed for the assessment year

2004-05 are reproduced as under:-

“1. The order of the learned CIT(A) is contrary to the law and facts of the case. 2. The Id CIT(A) erred in holding that reopening u/s.147 is not valid in law as the assessment is reopened beyond four years and on mere change of opinion; 2.1 The CIT(A) ought to have appreciated the fact that the assessment has been reopened after four years but before six years according to Sec.151(1) of the Act. Hence, the reopening of assessment u/s 147 after four years and before six years is valid in law. 2.2 The Id CIT(A) failed to appreciate the fact that there was tangible material to reopen the assessment u/s.147 since the assessee had claimed the post production expenditure under Rule 9A of the Act. This has been considered to be a tangible material for reopening the assessment u/s 147 of the Act. 2.3 The Id CIT(A) ought to have appreciated the fact that reassessment is well within the provisions of sec.147 and Explanation 1 of sec. 147 of the I T Act clarifies that production of account or other evidences before the AO from which material evidence could with due diligence have been discovered, will not necessarily amount to disclosure within the meaning of the proviso to sec. 147. 2.4 The Id CIT(A) ought to have appreciated the fact that , as per clause(c) of Explanation 2, cases where assessment have earlier been made and there is escapement of income, reopening of assessment can be made to reassess the escaped income. Hence, proceedings are valid as per law, since the assessee had claimed excess amount of expenditure which cannot be allowed under Rule 9A of the Act.

ITA Nos.1736 to 1738/Chny/2013

2.5 Reliance is placed on the decision of M/s. Export Credit Guarantee I Corporation of India, 30 Taxman.com.211, wherein the Hon’ble BombayHigh Court held that “ Whether, even in absence of assessees, failure to disclose material facts, where there is complete failure on part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment”

2.6 It is submitted that the decision of the Hon’ble High Court in the case of Consolidated Photo and Finvest Ltd vsACIT(2006) 151 Taxman 41 held that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provision of explanation 1 of Sec 147 of the Act.

2.7 It is submitted that the decision of Delhi High Court n the case of Dalimia Brothers (P) Ltd. Vs. CIT is applicable to the facts of the case wherein it is held that Reassessment proceedings have been initiated after examining and considering the audit note. The note records that the auditor’s scrutiny revealed that the Assessing Officer had asked the assessee to furnish complete details/confirmations in respect of the sundry creditors amounting to Rs. 1,66,37,402/-. Out of the said amount, the assessee could submit confirmations in respect of the creditors amounting to Rs. 1,13,53,344/- and the balance amount of Rs 52,84,058/- remained unconfirmed. This had resulted in under assessment of Rs. 32,97,057/-.This was held to be a factual lapse.

2.9 It is submitted that an assessment can be reopened even if the same is done based on audit objection (irrespective of whether the issue involved is factual or legal). Reliance is placed on the decisions in the following cases viz., CIT Vs PVS Beedies Pvt Limited 1999 103 Taxmann 294 (SC) and Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC).

3.1 The Id CIT(A) failed to appreciated that in para 11 of the CIT(A) order, it could be seen that in respect of the films Boys(Telugu) and Nee Manasu, Naaku Telusu (Telugu) no

4 ITA Nos.1736 to 1738/Chny/2013

income has been admitted by the assessee towards realization of pictures. 3.2 The Id CIT(A) ought to have appreciated the fact that nature of expenditure claimed by the assessee relates to publicity expenses, which are post production expenses and the assessee did not admit an realization from pictures. Hence the assessee did not act as a distributor for the above said two films. 3.3 It is submitted that according to Rule 9B, a producer can claim PostProduction Expenses of the film if he also acts as a distributor for thesefilms. In this case the assessee did not act as a distributor and as per Rule 9A, a producer cannot claim post production expenses; 3.4 The Id CIT(A) ought to have appreciated the fact that film producers are covered by the specific provisions Rule 9A and 9B to claim the expenditure incurred on the production of the films and post production expenses are clearly covered by Rule 9B of the Act. 4. The Id CIT(A) erred in deleting the addition made under Rule 9A(3) to the extent of Rs.64.07 lacs holding that since proceedings u/s.147 is held to be invalid, the addition becomes nullified though it is in accordance with law; 4.2 It is submitted that if proceedings u/s.147 are held to be valid, the addition made on this issue has to be upheld; 5. The Id CIT(A) erred in restricting the addition from 10% to 2% on the resale of set materials; 5.1 The Id CIT(A) ought to have appreciated that part of the materials can be retrieved and others may be sold as scrap which will yield some returns and such yield may also be higher than 10% estimation made by theAO. 5.2 The Id CIT(A) failed to appreciate the fact that restriction of 2% disallowance was not based on any material and the same has been estimated without any basis.”

producer and assessment of all three concerned assessment

5 ITA Nos.1736 to 1738/Chny/2013

years have been originally completed u/s.143(1) or 143(3) of

the Income Tax Act, 1961. The assessment has been

subsequently reopened for the reasons recorded, as per which

income chargeable to tax had been escaped assessment on

account of wrong application of Rule 9A & 9B of Income Tax

Rules, 1962, and thus, notices u/s.148 of the Act were issued.

The assessee has requested to treat original returns filed by the

assessee for all relevant three assessment years as returns

filed in response to notices issued u/s.148 of the Income Tax

Act, 1961. Subsequently, cases have been taken up for

scrutiny and during the course of assessment proceedings, the

assessee has objected to reopening of assessments on the

ground that reasons recorded by the Assessing Officer for

reopening of assessment is based on audit objection and thus,

on the basis of audit objection without any independent

application of mind, regarding escapement of income,

assessments cannot be reopened. The assessee has also

contested various issues raised by the Assessing Officer

towards disallowance of post production expenses of certain

feature films and also additions towards interest on loans and

6 ITA Nos.1736 to 1738/Chny/2013

unexplained cash credit u/s.68 of the Act, towards unsecured

loans.

the explanation furnished by the assessee and accordingly,

rejected arguments challenging validity of reopening of

assessment and held that audit objection is a solid ground for

reopening of assessment, because said information constitutes

fresh tangible materials and opined that reopening of

assessment for all assessment years is valid in view of specific

ratio laid down by the Hon'ble Supreme Court in the case of

PVS Beedies Pvt. Ltd. 103 taxmann 294 (SC) and also Rajesh

Jhaveri Stock Brokers 291 ITR 500 (SC). The Assessing

Officer had also made additions towards disallowance of post

production expenses of certain feature films on the ground that

when the assessee has acted as only producer without

exhibiting those films to public, then post production expenses

cannot be allowed as deduction, in view of specific procedure

followed for computation of expenses under Rule 9A & 9B of

Income Tax Rules, 1962. The Assessing Officer had also made

7 ITA Nos.1736 to 1738/Chny/2013

additions towards interest on loans and unsecured loans u/s.68

of the Income Tax Act, 1961.

preferred an appeal before the learned CIT(A). Before the

learned CIT(A), the assessee has challenged reopening of

assessment u/s.147 of the Act, for all three assessment years

on the ground that when assessment is reopened after four

years and within six years from the end of relevant assessment

year, then there should be allegation from the Assessing

Officer that there is a failure on the part of the assessee to

disclose fully and truly all facts necessary for completion of

assessment and in absence of any allegation, assessment

cannot be reopened. The assessee had also challenged

reopening of assessment on the ground that the Assessing

Officer had reopened assessments based on the audit

objection without any independent application of mind to form

reasonable belief of escapement of income and thus, action of

the Assessing Officer is nothing but change of opinion, which

is not permissible under the Act. The assessee had also

challenged additions made by the Assessing Officer towards

8 ITA Nos.1736 to 1738/Chny/2013

post production of expenses of certain feature films disallowed

under Rule 9A, additions made towards resale of set materials,

addition u/s.68 in respect of unsecured loans and interest on

loans taken from M/s. Focus Computers & M/s. Rakesh Sarin

and Sons etc.

also by taking into account reasons recorded by the Assessing

Officer for reopening of assessment for assessment year 2004-

05 has held that the Assessing Officer had reopened

assessment for assessment year 2004-05 only on the basis of

audit objection without any basis for arriving at reasonable

belief of escapement of income on factual material basis.

Therefore, he opined that audit objection may constitute a

tangible material for reopening of assessment, when it points

out factual differences on escapement of income. However, it

is not a ground for reopening of assessment on legal issue.

Since, the Assessing Officer formed reasonable belief of

escapement of income on the basis of wrong application of

Rule 9A & 9B of I.T Rules, 1962 , said audit objection cannot

be considered as valid ground for reopening of assessment

9 ITA Nos.1736 to 1738/Chny/2013

and thus, opined that reopening of assessment for assessment

year 2004-05 is invalid and accordingly, quashed

reassessment order passed by the Assessing Officer.

However, for assessment years 2005-06 and 2006-07, the

learned CIT(A) has upheld reopening of assessment on the

ground of original assessments for those two assessment years

have been completed u/s.143(1) of the Act, and further, there

is tangible material in the form of audit objection for arriving at

a reasonable conclusion on escapement of income and thus, in view of the ratio laid down by the Hon'ble Supreme Court in the

case of PVS Beedies Pvt.Ltd. (supra) and also Rajesh Jhaveri

Stock Brokers (supra), reopening of assessment for

assessment years 2005-06 and 2006-07 are valid and thus,

rejected arguments taken by the assessee.

towards post production expenses, the learned CIT(A) after

considering relevant submissions of the assessee held that

since the assessee has released Boys (Telugu) and Nee

Manasu Naaku Telusu (Telugu) feature films within 90 days and also earned realizations from the pictures. It is incorrect on the

10 ITA Nos.1736 to 1738/Chny/2013

part of the Assessing Officer to apply Rule 9A for computing

disallowances in respect of post production expenses. The

learned CIT(A) observed that although the Assessing Officer

has rightly applied Rule 9A to disallow excess of expenditure

over realization from the film, but because assessment

proceedings u/s.147 of the Act are held to be void, disallowance

also gets nullified and thus, directed the Assessing Officer to

delete additions made towards disallowances of production

expenses of Kovil, Tamil feature film. As regards additions

towards resale of set materials @ 10%, the learned CIT(A) after

considering relevant facts has restricted disallowance to 2% of

total expenses incurred for set expenses.

assessee has incurred a sum of Rs.20,03,118/- towards

publicity expenses and cost of film, but because the assessee

has not realized any income from 7G Brindabhan Colony

(Telugu) feature film, the Assessing Officer has disallowed said

amount and added back to total income. The learned CIT(A),

after considering relevant facts held that since said film was

11 ITA Nos.1736 to 1738/Chny/2013

released within 90 days from end of financial year, expenditure

incurred by the assessee is eligible for deduction under Rule 9A

of the Income Tax Rules, 1962 and accordingly, deleted

additions made by the Assessing Officer. In respect of

disallowance of set expenses, the learned CIT(A) restricted

disallowance to 2% of set expenses like in assessment year

2004-05. Insofar as additions made towards disallowance of

interest on loan from M/s. Focus Computers amounting to

Rs.2,40,000/- and interest paid to Rakesh Sarin & Sons

Rs.1,26,000/-, the learned CIT(A) deleted additions made by

the Assessing Officer by holding that since there was no

disallowance of loan from M/s.Focus Computers in the order for

assessment year 2003-04, disallowance of interest in this year

is not correct. Likewise, interest paid to M/s. Rakesh

Sarin & Sons, when principal amount was accepted in the

assessment year 2004-05 as genuine, then no disallowance

can be made towards interest expenses.

Officer has disallowed post production expenses in respect of

12 ITA Nos.1736 to 1738/Chny/2013

film Sivakasi (Tamil) and Ponniyin Selvan (Tamil) feature films

on the ground that as a distributor the assessee has exhibited

those two films at 4 theaters, hence, @ Rs.1,25,000/- per print,

the assessee is entitled to claim a sum of Rs.10 lakhs for 8

prints towards cost of prints and thus, out of total post

production expenses at Rs.1,83,56,999/- he has allowed a sum

of Rs.10 lakhs for cost of print and balance amount of

Rs.1,83,56,999/- has been disallowed. The learned CIT(A)

deleted additions made by the Assessing Officer by holding that

since the assessee has released and realized revenue from

those two feature films, post production expenses is allowable

and accordingly, deleted additions made by the Assessing

Officer. As regards disallowance of post production expenses

of Rs.21,86,649/- in respect of Muddula Koduku (Telugu)

feature film, the learned CIT(A) held that even though said

expenditure is not deductible under Rule 9A, but same can be

allowed as deduction u/s.37(1) of the Act, because said

expenditure was incurred for purpose of business of the

assessee. Insofar as additions made towards disallowance of

unsecured loans and consequent interest u/s.68 of the Act, the

13 ITA Nos.1736 to 1738/Chny/2013

learned CIT(A) deleted additions made by the Assessing Officer

by holding that the assessee has filed detailed statement of

loans taken, addresses, PAN of creditors etc. However, the

Assessing Officer has disallowed loans and consequent interest

u/s.68 of the Act, without any reasons and thus, directed the

Assessing Officer to delete additions made towards unsecured

loans and consequential interest u/s.68 of the Act. Aggrieved

by the learned CIT(A) order, the Revenue is in appeal before

us.

ground no.2.1 to 2.9 of revenue appeal for assessment year

2004-05 is validity of reassessment order passed by the

Assessing Officer.

10.1 The learned DR submitted that the learned CIT(A) has

erred in not appreciating fact that there was tangible material to

reopen the assessment u/s.147 of the Act, since the assessee

had claimed post production expenses under Rule 9A of the

Act, and thus, reopening of assessment u/s.147 of the Act is

14 ITA Nos.1736 to 1738/Chny/2013

valid. The learned DR further submitted that the learned CIT(A)

ought to have appreciated fact that reassessment is well within

the provisions of section 147 and Explanation 1 of section 147

of the Income Tax Act, 1961, clarifies that production of account

or other evidences before the Assessing Officer from which

material evidence could with due diligence have been

discovered, will not necessarily amount to disclosure within the

meaning of the proviso to section 147 of the Act. The learned

DR further referring to the decision of Hon’ble Bombay High

Court in the case of M/s. Export Credit Guarantee Corporation

of India, 30 Taxman.com.211, argued that even in absence of

assessee’s failure to disclose material facts, where there is

complete failure on the part of Assessing Officer to apply his

mind, during original assessment proceedings, to points on

which assessment is sought to be reopened, it can be said that

there is tangible material and reason to believe that income has

escaped assessment. The learned DR further referring to

decision of Hon’ble Delhi High Court in the case of Dalimia

Brothers (P) Ltd. Vs. CIT argued that reassessment

proceedings is valid, if such reopening is made on the basis of

15 ITA Nos.1736 to 1738/Chny/2013

audit note. In this regard, the learned DR relied upon the

decision of the Hon'ble Supreme Court in the case of PVS

Beedies Pvt. Ltd. 103 taxmann 294 (SC) and also Rajesh

Jhaveri Stock Brokers 291 ITR 500 (SC).

10.2. The learned A.R for the assessee, on the other hand,

supporting order of the learned CIT(A) submitted that admittedly

assessment for assessment year 2004-05 has been reopened

after a period of four years from the end of relevant assessment

year and in such case, proviso to section 147 of the Act applies

as per which there should be failure on the part of the assessee

to disclose fully and truly all material facts necessary for

assessments. In this case, assessment for impugned

assessment year was completed u/s.143(3) r.w.s. 147 of the

Act, and during the course of assessment proceedings, the

assessee has disclosed all facts necessary for completion of

assessment. Therefore, reopening of assessment on the basis

of audit objection is only a change of opinion which is not

permissible. The learned CIT(A) after considering relevant facts

16 ITA Nos.1736 to 1738/Chny/2013

has rightly quashed assessment order and his order should be

upheld.

10.3. We have heard both the parties, perused materials

available on record and gone through orders of the authorities below. Admittedly, the Assessing Officer formed reasonable

belief of escapement of income on the basis of audit objection.

As per reasons recorded for reopening of assessment,

escapement of income was determined by applying Rule 9A &

9B of Income Tax Rules, 1962, which deals with quantification

of expenses allowable in case of film producer and distributor.

The assessee being film producer, has claimed certain post

production expenses. The Assessing Officer formed reasonable

belief of escapement of income on the ground that as per Rule

9A, post production expenses cannot be allowed. If you go through reasons recorded by the Assessing Officer to form

belief of escapement of income, we find that said reasons were

recorded on the basis of audit note which is further

strengthened by legal issue of application of Rule 9A & 9B of

Income Tax Rules, 1962. It is well settled position of law by

decisions of various Courts that audit objection may constitute

17 ITA Nos.1736 to 1738/Chny/2013

fresh tangible material for reopening of assessment, if such

audit objection pointing to factual difference on escapement of

income. However, if audit objection refers to legal issue, then it

cannot be said that said audit objection constitute fresh tangible

material for escapement of income, because legal points on

which the Assessing Officer needs to deliberate was very much

available at the time of assessment and if the Assessing

Officer failed to apply correct legal position to the facts of the

case, then it cannot be said that there is failure on the part of

the assessee to disclose fully and truly all facts necessary for

completion of assessments. In this case, assessment has been

reopened after a period of four years from the end of relevant

assessment year and further, except audit objection, on

application of Rule 9A & 9B, there is no tangible material with

the Assessing Officer to form reasonable belief of escapement

of income. In our considered view, reasons recorded by the

Assessing Officer for reopening of assessment is a clear case

of change of opinion, which is not permissible under the law.

The learned CIT(A) after considering relevant facts has rightly

quashed reassessment proceedings for assessment year 2004-

18 ITA Nos.1736 to 1738/Chny/2013

05 and thus, we are inclined to uphold findings of the learned

CIT(A) and reject grounds taken by the revenue.

by the Assessing Officer towards post production expenses of

certain feature films in terms of Rule 9A & 9B of Income Tax

Rules, 1962, restriction and estimation of resale value of set

materials by way of ground no.3 to 5.2 and challenged findings

of the learned CIT(A). But fact of the matter is reassessment

order passed by the Assessing Officer is held to be invalid by

us in preceding paragraph and thus, grounds taken by the

Revenue challenging findings of learned CIT(A) in deletion of

addition made by the Assessing Officer becomes academic in

nature and hence, ground no.3 to 5.5 of revenue appeal is

dismissed as infructuous.

year 2004-05 is dismissed.

ITA No.1737/Chny/2013: (AY 2005-06):

No.2 to 2.4 of revenue appeal is deletion of disallowance made

19 ITA Nos.1736 to 1738/Chny/2013

by the Assessing Officer towards post production expenses

amounting to Rs. 20.03 lakhs in respect of feature film 7G

Brindabhan Colony (Telegu). The Assessing Officer has

disallowed post production expenses on the ground that the

assessee has acted only as producer, but not a distributor for

the film 7G Brindavan Colony (Telugu), which is evident as per

financial statement filed by the assessee for relevant

assessment year which shows that there is no realization from

the above film. Therefore, in terms of Rule 9A & 9B of I.T.

Rules, 1962, the Assessing Officer has disallowed post

production expenses of feature film 7G Brindabhan Colony for

Rs.20,03,118/-. On appeal, the learned CIT(A) has deleted

additions made by the Assessing Officer by holding that the

film was released within 90 days from end of the financial year

and hence, expenditure is eligible for deduction under Rule 9A.

to appreciate that in para 16 of the learned CIT(A) order, it

could be seen that in respect of film 7G Brindavan Colony

(Telugu) no income has been admitted by the assessee

20 ITA Nos.1736 to 1738/Chny/2013

towards realization of picture, which clearly shows that the

assessee did not act as distributor or exhibitor of the film and

thus, post production expenses like cost of print and

advertisement of film, after it is certified by the Censor Board is

not allowable as deduction. The learned DR further submitted

that as per Rule 9B of IT Rules, 1962, a producer can claim

post production expenses of a film, if he also acts as distributor

for those films. Since, the assessee did not act as distributor, as

per Rule 9A, producer cannot claim post production expenses.

The learned CIT(A) without appreciating facts deleted additions

made by the Assessing Officer and his order should be

reversed.

referring to Rule 9A & 9B of the IT Rules, 1962, submitted that

Rule 9A is applicable only in case of producer and Rule 9B is

applicable in case of distributor. If the assessee acts as a

producer, distributor and exhibitor of feature film, then in

respect of post production expenses, Rule 9A & 9B has no

application and thus, whatever expenditure incurred by the

assessee for publicity and other expenses is allowable u/s.37(1)

21 ITA Nos.1736 to 1738/Chny/2013

of the Act. The learned CIT(A) after considering relevant facts

has rightly deleted additions made by the Assessing Officer

and his order should be upheld.

on record and gone through orders of the authorities below.

The facts borne out from records shows that the assessee

acted in the capacity of producer and distributor for some

feature films and for some feature films, he acted in the

capacity of producer and exhibitor. Rule 9A of the I.T. Rules,

1962, deals with deduction in respect of expenditure on

production of feature films, but it does not applies to distributor

and exhibitor of feature films. Rule 9B of Income Tax Rules,

1962, deals with deduction in respect of expenditure on

acquisition of distribution rights of feature films and hence, it

does not applicable to an exhibitor of feature films. In the film

industry there are three scenarios. In the first scenario, a

person may act as a producer, distributor and exhibitor. In such

cases, production expenditure is governed by Rule 9A and post

production expenses is not governed by either Rule 9A or 9B of

22 ITA Nos.1736 to 1738/Chny/2013

I.T. Rules, 1962. Therefore, the issue has to be examined in

light of capacity of the assessee in which he acted in a

particular film. The Assessing Officer has disallowed post

production expenses of 7G Brindavan Colony (Telugu) on the

ground that the assessee does not act as a distributor and uch

finding was recorded on the basis of no realization from

pictures. As we have already stated in earlier paragraph of this

order, Rule 9A / 9B is applicable only in a case where a person

acts in a capacity of producer and distributor. In this case, in

respect of 7G Brindavan Colony (Telugu), the assessee seems

to have acted as a producer and distributor, because there is

no realization from picture, it means he has not acted as an

exhibitor. Therefore, post production expenses incurred by the

assessee is not governed under rule 9A or 9B of I.T.Rules,

1962. Therefore, deductibility of same needs to be considered

u/s.37(1) of the Act as expenditure wholly and exclusively

incurred for purpose of business of the assessee. This

proposition is supported by decision of the Hon’ble Bombay

High Court in the case of Dharma Productions Ltd. Vs CIT

(2019) 263 taxmann 583, where it was clearly held that where

23 ITA Nos.1736 to 1738/Chny/2013

the assessee was engaged in business of production and

distribution of films, cost of print as well as publicity and

advertisement expenses incurred after production as well as

certification by censor board, same would not be governed by

Rule 9A and hence, same would be allowable as business

expenditure u/s.37(1) of the Income Tax Act, 1961. Similar view

has been expressed by the Hon’ble Madras High Court in the

case of CIT Vs. Prasad Production Pvt. Ltd. (1989) 179 ITR

Assessing Officer has erred in disallowing post production

expenses by invoking Rule 9A & 9B of I.T. Rules, 1962. The

learned CIT(A), after considering relevant facts has rightly

deleted additions made by the Assessing Officer. Hence, we

are inclined to uphold findings of the learned CIT(A) and reject

grounds taken by the revenue.

ground no.3 to 3.2 of revenue appeal is additions towards

estimation of income from resale of set materials. The

Assessing Officer has estimated 10% of cost of set materials as

24 ITA Nos.1736 to 1738/Chny/2013

realization from resale and accordingly, made addition of

Rs.14,61,468/-. The learned CIT(A) has restricted additions to

2% of set expenses.

materials available on record, we find that although both the

authorities have taken different rate for estimation of income

from resale of set materials, but none of them have given any

reasons for adopting said rate. Although, the Assessing Officer

has adopted 10% cost of set materials as resale value, but no

reason was given and further, not brought on record any

comparable cases of similar nature. At the same time, though

learned CIT(A) has restricted addition to 2% of cost of set

materials as resale value, but has not given any valid reason.

Even before us, both the parties have failed to file necessary

details, to adopt a particular rate for estimation of income from

resale of set materials. Therefore, considering facts and

circumstances of the case and also to settle dispute between

the parties, we deem it appropriate to estimate 5% total cost

incurred for set materials as realization from resale. Hence, we

25 ITA Nos.1736 to 1738/Chny/2013

direct the Assessing Officer to estimate 5% of total cost incurred

for set materials for estimation of income on resale.

ground no.4 to 5.3 of revenue appeal is deletion of additions

made towards estimation of interest on loans from M/s. Focus

Computers and M/s. Rakesh Sarin & Sons. The Assessing

Officer has made addition of Rs.2,40,000/- towards interest on

loans form M/s. Focus Computers on the ground that when the

assessee was not able to prove loan taken form said party,

same has been treated as unexplained cash credit and added

back to total income for the assessment year 2003-04. Since,

the assessee has paid interest for the impugned assessment

year on said loan, the Assessing Officer has disallowed and

added back to total income. Similarly, the Assessing Officer

has disallowed interest amounting to Rs.1,26,000/- in respect

of sum of Rs.7 lakhs being difference in opening balance as per

confirmation received from M/s. Rakesh Sarin & Sons and Mr.

Rakesh. On appeal, the learned CIT(A) has deleted additions

made by the Assessing Officer by holding that when no addition

26 ITA Nos.1736 to 1738/Chny/2013

was made towards loans, question of making addition of

interest on said loan does not arise.

available on record and gone through orders of the authorities

below. There is no clarity in the facts brought out by the

Assessing Officer in respect of disallowance of loan from M/s.

Focus Computers in assessment year 2003-04. Similarly, there

is no clarity in respect of difference in loan claimed to have

been received from M/s. Rakesh Sarin & Sons. Similarly, the

learned CIT(A) has also deleted additions made by the

Assessing Officer without recording any factual finding as to

whether addition was made for said loan in assessment year

2003-04 or not. Therefore, we are of the considered view that

the issue needs to go back to the file of the Assessing Officer

to ascertain correct facts with regard to loans taken from the

above two parties and consequent interest paid for impugned

assessment year. Hence, we set aside the issue to the file of

the Assessing Officer and direct him to reconsider the issue

afresh, after providing reasonable opportunity of hearing to the

assessee.

27 ITA Nos.1736 to 1738/Chny/2013

year 2005-06 is partly allowed for statistical purposes.

ITA No.1738/Chny/2013 (A.Y. 2006-07):

ground no. 2 to 2.4 of revenue appeal is deletion of

disallowance made towards post production expenses

amounting to Rs.21.86 lakhs in respect of feature film Mudhula

Kodukku (Telugu). An identical issue has been considered by us in ITA No.1737/Chny/2013 for assessment year 2005-06.

The reasons given by us in preceding paragraph No.15 shall

mutatis mutandis apply to this appeal, as well. Therefore, for

similar reasons, we are inclined to uphold findings of the

learned CIT(A) and reject ground taken by the revenue.

ground no. 3 to 3.4 of revenue appeal is disallowance of post

production expenses in respect of feature films Sivakasi (Tamil)

and Ponniyin Selvan (Tamil) amounting to Rs.1,73,56,999/-.An

identical issue has been considered by us in ITA No.1737/Chny/2013 for assessment year 2005-06. The

28 ITA Nos.1736 to 1738/Chny/2013

reasons given by us in preceding paragraph No.15, shall

mutatis mutandis apply to this appeal, as well. Therefore, for

similar reasons, we are inclined to uphold findings of the

learned CIT(A) and reject ground taken by the revenue.

ground no. 4 to 4.2 of revenue appeal is restriction of additions

towards resale of set materials. An identical issue has been

considered by us in ITA No.1737/Chny/2013 for assessment

year 2005-06. The reasons given by us in preceding paragraph

No.17, shall mutatis mutandis apply to this appeal, as well.

Therefore, for similar reasons, we direct the Assessing Officer

to estimate 5% of total cost incurred for set materials as income

from resale of set materials.

ground no. 5 to 5.3 of revenue appeal is deletion of additions

made towards unsecured loans amounting to Rs.9.53 crores

and consequent interest thereon at Rs.1.75 crores. The

Assessing Officer has made addition towards unsecured loans

and consequent interest thereon for want of evidence.

29 ITA Nos.1736 to 1738/Chny/2013

According to the Assessing Officer, although a specific show

cause notice was issued calling upon for various details, the

assessee has failed to file any evidence to prove identity of the

party, genuineness of transaction and creditworthiness of

parties, except objecting reopening of assessment. Therefore,

the Assessing Officer has made addition towards unsecured

loan for want of evidence. The learned CIT(A) has deleted

additions made by the Assessing Officer by holding that the

assessee has furnished statement of loans taken, addresses,

PAN of creditors etc. along with return of income.

available on record and gone through orders of the authorities

below. There is no clarity on the issue of additions made

towards unsecured loans in the assessment order. The

Assessing Officer has simply stated that for want of evidences

he has made additions. Similarly, the learned CIT(A) deleted

additions by holding that the assessee has annexed details of

loan taken from parties with their addresses and PAN, but such

information is not emanating from return of income filed for

relevant assessment years. Even before us, both the parties

30 ITA Nos.1736 to 1738/Chny/2013

failed to bring on record relevant materials to justify their claim.

Therefore, we are of the considered view that this issue needs

to go back to the file of the Assessing Officer for fresh

consideration. Hence, we set aside the issue to the file of the

Assessing Officer and direct him to reconsider the issue afresh

in accordance with law, after providing reasonable opportunity

of hearing to the assessee.

year 2004-05 is dismissed and that of assessment years 2005-

06 & 2006-07 are partly allowed for statistical purposes. Order pronounced in the open court on 5th January, 2022 Sd/- Sd/- ( वी.दुगा� राव) ( जी. मंजुनाथ) (V.Durga Rao) ( G.Manjunatha ) #या�यक सद&य /Judicial Member लेखा सद&य / Accountant Member

चे#नई/Chennai, )दनांक/Dated 5th January, 2022 DS आदेश क� ��त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु.त (अपील)/CIT(A) 4. आयकर आयु.त/CIT 5. ,वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.app