INCOME TAX OFFICER-16(1)(3), MUMBAI vs. MANDIRA K. KASHYAP, MUMBAI

सुनवाई क� तार�ख / : 13.01.2017 Date of Hearing घोषणा क� तार�ख / : 05.02.2018 Date of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue is directed against the order by the Commissioner of Income Tax (Appeals) dated 06.04.2017 and pertains to the assessment year 2012-13.

(A.Y. 2012-13) ITO vs. Mandira K. Kashyap 2. The grounds of appeal read as under: i) 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 disallowance of Rs. 37,72,670/- by upholding the contention of the assessee that its case is governed by Rule 9A of Income tax Rules without appreciating that Rule 9A is applicable only for production of feature films whereas the assessee has produced TV Serials for which Rule 9A is not applicable. ii) Whether on the facts, in the circumstances of the case and as per law, the Ld. C1T(A) has erred in directing to delete the disallowance of Rs. 37,72,670/-, without appreciating that the assessee has not accounted for his income and expenses serial-to-serial basis or say, client-to-client basis over a period of years and hence the actual profitability of the assessee has always been masked behind the carried-forward work-in-progress. iii) The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. iv) The appellant craves leave to amend or alter any ground or add new ground which may be necessary.

(A.Y. 2012-13) ITO vs. Mandira K. Kashyap base. Assessing Officer had mentioned that assessee is carry forwarding work in progress from FY 2006-07 till FY 2011-12 and setting of revenue every year.

According to Assessing Officer, the assessee was show caused why the cost of production should not be disallowed as year after year, the assessee is netting off income from work in progress of episodes produced by her on behalf of clients and sold to clients is without applying matching principal to revenue earned and cost incurred per episode. Assessing Officer was also of the view that assessee has not followed any acceptable norms of accounting and accounting system of work in progress was totally incorrect. According to Assessing Officer the revenue from work in progress are not in consonance with the accounting principal and practice and further the accounting policy follows by assessee does not shows clear picture of profit earn during the year consideration. Hence, Assessing Officer disallowed 10% of expenses for Rs. 37,72,670/- and this amount was added to total income of the assessee.

2.2 I have considered appellant's submission. In ground of appeal, AO had disallowed 10% of expenses on the ground that accounting policy followed by appellant is not inconsonance with normal method of accounting. In appellant's submission, appellant states that she is a television or film producer and for taxation of her professional income, she is governed by Rule 9A of the rules under Income Tax Act, 1961.

(A.Y. 2012-13) ITO vs. Mandira K. Kashyap 2.3 If we examine above rule 9A which appellant had mentioned, expenditure incurred on production of a film are to be debited to work in progress account and if the film is not released on a commercial basis 90 days before the end of previous year, the cost of production will be allowed as deduction while computing the profits and gains of the previous year as long as cost does not exceeds the amount realized by the film producer by exhibiting the film selling the right to exhibit the film on a commercial basis. In case the entire expenditure is not written off and there is any balance, it will be carried forward to the next previous year as a deduction in that year from the receipts and so on and so forth.

2.4 Further appellant also states that, the expenditure incurred on production of a film is to be debited to work in progress account and the cost of production will be allowed as a deduction while computing the profits and gains of the previous year as long as such cost does not exceed the amount realized by the* film producer by exhibiting the film, In case the entire expenditure is not written off against the receipts and there is any balance , it will be carried forwards to the next previous year as a deduction in that year from the receipts and so on. This system followed by appellant as she a director and producer. 2.5 Appellant also furnished memorandum of understanding with Chinmaya Creations where it is stated that Chinmaya creation agrees to pay the executive producer a lumpsum amount of Rs.15,50,000/- for each episode and also Rs.25,00,000/- paid in advance for starting the production and when we examine P & L account for this year appellant had shown income received from movie making and serial work in progress in credit side of balance sheet and in debit side she mentions work in progress which is of last year and debited all the expenses. AO had really misunderstood the whole method of accounting which follows rule 9A of IT Rules. I find no error in appellant's accounting policy or method. AO made adhoc disallowance of 10% of expenditure on the ground that appellant's accounting policy is not as per IT Rules. As discussed above appellant is accounting as per rule 9A of IT rules which is prescribed for film/TV producers. As the accounting of assessee is per IT rules, no adhoc disallowance of 10% of expenditure is required. Here AO's disallowance of 10% expenditure is deleted. Ground of appeal is allowed.

(A.Y. 2012-13) ITO vs. Mandira K. Kashyap 6. I have heard both the counsels and perused the records. Upon careful consideration, I may here gainfully refer to the provisions contended in Rule 9A of the Income Tax Rules, the same reads as under:

Deduction in respect of expenditure on production of feature films. 9A. (1) In computing the profits and gains of the business of production of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film producer), the deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year shall be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4). Explanation : In this rule,— (i) “Board of Film Censors” means the Board of Film Censors constituted under the Cinematograph Act, 1952 (37 of 1952); (ii) “cost of production”, in relation to a feature film, means the expenditure incurred on the production of the film, not being— (a) the expenditure incurred for the preparation of the positive prints of the film; and (b) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors:] Provided that the cost of production of a feature film, shall be reduced by the subsidy received by the film producer under any scheme framed by the Government, where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year. (2) Where a feature film is certified for release by the Board of Film Censors in any previous year and in such previous year,— (a) the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or (b) the film producer— (i) himself exhibits the film on a commercial basis in all or some of the areas; or (ii) sells the rights of exhibition of the film in respect of some of the areas; or (iii) himself exhibits the film on a commercial basis in certain areas

(A.Y. 2012-13) ITO vs. Mandira K. Kashyap and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is released for exhibition on a commercial basis at least ninety days before the end of such previous year, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year. (3) Where a feature film is certified for release by the Board of Film Censors in any previous year and in such previous year, the film producer— (a) himself exhibits the film on a commercial basis in all or some of the areas; or (b) sells the rights of exhibition of the film in respect of some of the areas; or (c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is not released for exhibition on a commercial basis at least ninety days before the end of such previous year, the cost of production of the film in so far as it does not exceed the amount realised by the film producer by exhibiting the film on a commercial basis or the amount for which the rights of exhibition are sold or, as the case may be, the aggregate of the amounts realised by the film producer by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year. (4) Where, during the previous year in which a feature film is certified for release by the Board of Film Censors, the film producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year; and the entire cost of production of the film shall be carried forward to the next following previous year and allowed as a deduction in that year. (5) Notwithstanding anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless,— (a) in a case where the film producer— (i) has himself exhibited the feature film on a commercial basis; or (ii) has sold the rights of exhibition of the feature film; or (iii) has himself exhibited the feature film on a commercial basis in (A.Y. 2012-13) ITO vs. Mandira K. Kashyap some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas, the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible; (b) in a case where the film producer has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible. (6) Where the Assessing Officer is of opinion that— (a) the rights of exhibition of the feature film have been transferred by the film producer by a mode not covered by the provisions of this rule; or (b) having regard to the facts and circumstances of any case, it is not practicable to apply the provisions of this rule to such case, deduction in respect of the cost of production of the film may be allowed by the Assessing Officer in such other manner as he may deem suitable. (7) For the purposes of this rule,— (i) the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis; (ii) the rights of exhibition of a feature film shall be deemed to have been sold only on the date when the positive prints of the film are delivered by the film producer to the purchaser of such rights or where in terms of the agreement between the film producer and the film distributor as defined in rule 9B, the positive prints are to be made by the film distributor, the date on which the negative of the film is delivered by the film producer to the film distributor. (8) Nothing contained in this rule shall apply in relation to any assessment year commencing before the 1st day of April, 1987.

(A.Y. 2012-13) ITO vs. Mandira K. Kashyap Upon assessing officers enquiry about the method of accounting the assessee had made following submissions:

With reference to the subject matter hereof Wisdom production is in the business of production of teleserials, documentaries and short movies. It is pertinent to note that the assessee is following accrual method of accounting as specified by Accounting Standard for the purpose of preparation and maintenance of their books of accounts. The same can be verified with the Income Tax return filed by the assessee for aforesaid assessment year. it is further relevant to ntoe that upon completion of pertinent episodes, the assessee issues invoices with applicable taxes and revenue recognition, hence the expenses incurred on productions of episodes are carried forward under work in progress until the completion of episode. Since, the production of episodes requires considerable amounts of funds, the assessee used to avail advances from its clients on regular basis to fund the production cost of as per the terms agreed with such clients.

The learned CIT-A has accepted the submission without any comment from the assessing officer in this regard. It is settled law that when learned CIT-A accepts submission on evidence which was not before the assessing officer, it is incumbent upon him to ask for remand from the assessing officer. In these circumstances, in my considered opinion, the issue needs to be remitted to the file of assessing officer. The assessing officer is directed to consider the issue afresh after

(A.Y. 2012-13) ITO vs. Mandira K. Kashyap considering the submissions made before the learned CIT-A and after giving the assessee proper opportunity of being heard.