FIROZ NADIADWALA, MUMBAI vs. ASST CIT 11(1), MUMBAI

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.

(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.