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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI G.S.PANNU & SHRI SANJAY GARG
The captioned appeal filed by the assessee pertaining to assessment year 2007-08 is directed against an order passed by CIT(A)-3, Mumbai dated 26/08/2013, which in turn arises out of an order passed by the Assessing Officer under section 143(3) r.w.s. 263 of the Income Tax Act, 1961 (in short ‘the Act’) dated 28/12/2012.
(Assessment Year : 2007-08) 2. In this appeal assessee has raised the following two Grounds of appeal:- “
1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appals)-3 erred in confirming the order of Ld Assessing Officer in disallowing deduction of interest of |Rs.75,24,622/-.
2. Without prejudice to the foregoing ground of appeal and on the facts and in the circumstances of the case and in law the Ld Commissioner of Income Tax (Appeals)-3 erred in not giving direction for allowing deduction of interest in ASSESSMENT YEAR 2008-09(the year of release of the respective films)even though it was clear as per records before him that the said films were released in AY 2008-09 and the said deduction had not been claimed in AY 2008-09.”
3. At the time of hearing, none appeared on behalf of the assessee in spite of issuance of notice for the hearing and Ld. Departmental Representative was present for the respondent Revenue. In the absence of any appearance by the assessee, the appeal is being disposed off ex-parte qua the appellant, after hearing Ld. Departmental Representative on merits in terms of Rule 24 of the Income Tax Appellate Tribunal Rules, 1963.
4. In brief, the relevant facts are that the appellant is an individual engaged in the business of production of films and for the assessment year under consideration, he filed a return of income declaring an income of Rs.2,52,07,250/-, which was subject to scrutiny assessment under section 143(3) of the Act dated 30/12/2009, whereby the income was assessed at Rs.2,63,40,770/-. Subsequently, the assessment was reviewed by the Commissioner in terms of section 263 of the Act and the same was found to be erroneous in so far as it was prejudicial to the interest of the Revenue, qua the deduction of interest expenditure of Rs.75,24,622/-, allowed in the assessment. In the impugned order
(Assessment Year : 2007-08) passed consequent to the order of the Commissioner under section 263 of the Act, the Assessing Officer has reassessed the income at Rs.3,38,55,394/-, which, inter-alia, consists of a disallowance of interest expenditure of Rs.75,24,622/-, which is the subject matter of Ground of appeal No.1 raised by the assessee before us.
The relevant facts which emerge from the orders of the authorities below reveal that the Commissioner examined the records of assessment under section 263 of the Act and found that during the year under consideration, only one film i.e. “Phir Hera Pheri” has been released and the cost of production of which was fully claimed as deduction. Two other films namely, “Welcome” and “Fool-N-Final” are still under production and the cost of production of these films have been reflected in the closing stock. It was noticed that in respect of the said two films assessee had paid interest of Rs.33,31,086/- and Rs.41,93,536/- to the IDBI Bank. The said interest expenditure was claimed by the assessee by way of debit in the Profit & Loss account and which was allowed by the Assessing Officer in the original assessment finalized under section 143(3) of the Act dated 30/12/2009. The Commissioner noticed that IDBI Bank had advanced the loans for the purpose of meeting the cost of production of these two films and, therefore, the interest expenditure of Rs.75,24,622/- was directly relatable to the cost of production of these two films and that such expenditure could not be allowed as deduction as the films were not released during the year under consideration and the same formed part of cost of production as defined under Rule 9A of the Income Tax Rules, 1962, in respect of the two films.
(Assessment Year : 2007-08) 6. Pursuant to the aforesaid decision of Commissioner under section 263 of the Act, the Assessing Officer has held that the interest expenditure of Rs.75,24,622/- shall form part of cost of production of these two films which was to be considered in accordance with Rule 9A of the Income Tax Rules. Accordingly, the expenditure was disallowed and added back to the total income. The CIT(A) has also affirmed the stand of the Assessing Officer primarily on the ground that the Tribunal vide its order dated 10/04/2013 in had affirmed the view of Commissioner on merits of the disallowance while disposing of the appeal of the assessee against the order of the Commissioner under section 263 of the Act, and, the impugned disallowance was made by the Assessing Officer accordingly. As per the CIT(A), the Tribunal affirmed that the interest on borrowings in question, which had been taken specifically for the production of two films was liable to be considered as part of cost of production as per Rule 9A of the Rules. Against the aforesaid decision, assessee is in appeal before us.
At the time of hearing, Ld. Departmental Representative pointed out that the decision of the CIT(A) was based on the order of the Tribunal dated 10/04/2013(supra) on the very same issue and, therefore, no interference is called for. There is no material before us, which would require us to depart from the order of the Tribunal dated 10/04/2013(supra), which has been relied upon by the CIT(A). There is also nothing on record to establish that the order of the Tribunal dated 10/04/2013(supra) does not continue to hold the field. As a (Assessment Year : 2007-08) consequence, we hereby confirm the order of the CIT(A) and assessee fails on Ground of appeal No.1.
By way of Ground of appeal No.2, the alternative plea of the assessee is that in case the disallowance of Rs.75,24,622/- is sustained in the instant year, then the same to be directed to be allowed in assessment year 2008-09, i.e. the year in which the two films were released. The aforesaid plea of the assessee, in our view, is consequential to the decision in Ground of appeal No.1, and deserves to be examined by the Assessing Officer in the assessment year 2008-09, as and when it is raised by the assessee before him. The Assessing Officer shall consider the plea of the assessee in accordance with law. Thus, on this aspect assessee succeeds for statistical purposes.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 15/06/2016