Sagar Sarhadi , Mumbai vs Assessee

Shri Sagar Sarhadi, Income Tax Officer, 30/363, Sardar Nagar, Ward No.11(1)-4, Vs. Sion (E), Mumbai Mumbai - 400 022 PAN: AAQPS 1834C (Appellant) (Respondent)

Present for: Assessee by : Dr. K. Shivaram, D.R. & Miss Neelam C. Jadhav, A.R.

Revenue by : Shri Neil Philip, D.R.

Date of Hearing : 19.03.2015 Date of Pronouncement : 03.06.2015

ORDER

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 19.09.2013 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2007-08.

2. The assessee has taken the following grounds of appeal:

"1 The learned CIT (A) erred in confirming the order of the AO levying penalty of Rs. 6,98,589/- u/s 271(l)(c) of the Act on t h e d i s a l l o w a n c e o f r e d u c t i o n o f c l o s i n g s t o c k o f f i l m "Chausar" by Rs.20,75,425/- without appreciating that such reduction was reflected in the P&L account filed along with the ROl and the same was also noted by the learned AO at the time of assessment proceedings, and hence, as all disclosures were made by the Appellant at the time of filing the ROl, there is neither concealment nor furnishing of inaccurate particulars of income. Hence, the penalty of Rs. 6,98,589/- may be deleted.

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2 The learned CIT (A) erred in confirming the order of the AO levying penalty of Rs.6,98,589/- u/s 271(1)(c) of the Act on t h e d i s a l l o w a n c e o f r e d u c t i o n o f c l o s i n g s t o c k o f f i l m "Ch a u sa r " b y Rs .2 0 , 7 5 , 4 2 5 / - wi t h o u t a p p r e ci a t i n g t h a t assessment proceedings and penalty proceedings are distinct and separate and that the reduction of closing stock was su ppor ted b y le tter f rom Bo obna Ente rta inm ent P ri vate Limited, and hence, penalty levied of Rs. 6,98,589/- may be deleted.

3 . Th e l ear ned CIT (A ) f ai led t o app re cia te tha t the Ap pel la nt's ca se wa s covere d b y Rule 9A (6 )(b ) and no t b y Ru le 9 A (5 ), and du rin g the qu antu m pr o ceed ings, Ru le 9 A (6 )(b ) wa s not con side red , a nd i f the sa me wou ld ha ve be en con sid er ed, no addit ion cou ld ha ve b een m ade , and h en ce, pen al ty of Rs. 6 ,98 ,58 9/- ma y b e de let ed.

4 . Th e le ar ned CIT (A ) e rr ed in sta tin g th at in th e case of J oseph V al a kuzh y 17 0 T a xm an 19 6, the S upre me Cou rt h eld tha t wh en it co me s t o the a ll o wa bi lit y of e xp enses r el ati ng to co st of p rodu ction of a fi lm , th e r egul ar pr ovi si ons of the In co me- ta x A ct, 19 61 ha ve no a ppl i cab il it y, a s in th is j udgeme nt th e S up rem e Co urt ha s n ot held th is an ywh ere .

5 . Th e le arne d CIT (A ) f ai led to ap pre cia te that it co uld not be said th at the re wa s l oss t o the Re venue b e cau se in the qu antum p ro cee din gs, th e Hon our abl e Tr ibun al d ire ct ed the A O to con side r th e i ncre ased clo sin g sto ck of AY 2007- 08 a s op eni ng sto ck for A Y 2 008- 09, the reb y, lea din g t o a t im in g d iffe ren ce."

3. The brief facts of the case are that the assessee, an individual, is engaged in the business of production of TV serials and film for Prasar Bharti. The assessee had produced the art film 'Chausar' in the financial year 2003-04 and had carried forward the same as closing stock of Rs.46,00,425/-. The assessee could not get the desired price for the said art film because of today's trend of corporate commercial films. The assessee got an offer of Rs.25 lakhs from Boobna Entertainment Pvt. Ltd. vide their letter dated 20.03.07 as consideration for the said film. The assessee therefore valued the closing stock of the film 'Chausar' at Rs.25,25,000/- against the opening stock of Rs.46,00,425/- and thereby booked the loss of Rs.20,75,445/-. The Assessing Officer (hereinafter referred to as the AO), however, held that the booking of 3 ITA No.6397/M/2013 Shri Sagar Sarhadi

loss by the assessee was just a paper transaction and the same was without any basis. The AO held that this was similar to providing for diminution in the value of asset or investment which was not an allowable expenditure. The AO also relied on Rule 9A(5) of the Income Tax Rules and observed that the assessee had not done any of the acts as provided therein i.e. exhibition or sale of exhibition rights of the film to claim any expenditure. He therefore held that the assessee's case did not fall under the specific provisions meant for booking the expenditure for film and therefore disallowed the reduction in the value of the film claimed by the assessee.

4. The Ld. CIT(A) also confirmed the findings of the AO. The matter ultimately went to the Tribunal. The Tribunal also upheld the order of the AO. In the meantime penalty proceedings were initiated by the AO against the assessee under section 271(1)(c) of the Act on account of suppression of closing stock of the film 'Chausar' to the extent of Rs.20,75,445/-. In the penalty proceedings before the AO, the assessee submitted that all the details relating to the valuation of the closing stock was submitted in the quantum proceedings and that there was no furnishing of inaccurate particulars of income or concealment of income. The AO, however, did not agree with the submissions of the assessee and therefore, he levied the impugned penalty. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A).

5. The Ld. CIT(A) vide impugned order observed that in case of a film producer the deduction of post production expenditure is available as per provisions of Rule 9A. The assessee had sought to right off a portion of the closing stock on the ground that market value of the film had reduced which was akin to the claim of expenditure. He further observed that the said claim was made by the assessee even the film in question had not been released. He 4 ITA No.6397/M/2013 Shri Sagar Sarhadi

observed that as per provisions of Rule 9A(5), the expenses cannot be allowed till the film is released. He therefore held that the assessee had made a wrong claim which was not bonafide. He therefore upheld the penalty levied by the AO under section 271(1)(c) of the Act.

6. Before us, the Ld. A.R. of the assessee has stated that the assessee had made a bonafide claim of reduction in closing stock. He has further relied upon the letter of Boobna Entertainment Pvt. Ltd. dated 20.03.07 wherein they have assessed the market value of the film at Rs.25 lakhs. The Ld. A.R. therefore has submitted that the assessee, on the basis of said record/letter, had made a bonafide claim of the reduction in the value of the closing stock of the film. The Ld. A.R. has further contended that the assessee's case, even otherwise, was covered by Rule 9A(6)(b). However, the said rule had not been considered by the lower authorities and even by the Tribunal in the quantum proceedings. As per the provisions of Rule 9A(6)(b), the assessee's claim was genuine and bonafide. He therefore has submitted that no penalty is attracted in the assessee's case.

7. We have gone through the provisions of Rule 9A(6)(b) wherein it has been provided that where having regard to the facts and circumstances of the case, it is not practicable to apply the provisions of Rule 9A, the deduction in respect of the cost of the production of the film may be allowed by AO in such other manner as he may deem suitable. A perusal of the above stated Rule 9A(6)(b) reveals that it is given as an alternative to Rule 9A and is applicable in cases where it is not practicable to apply Rule 9A(1) to (5) in the peculiar circumstances of the assessee's case. Hence, it cannot be said that the assessee had not made a bonafide claim of reduction in closing stock in the light of the provisions of Rule 9A(6)(2). We accordingly do not deem it a fit case for levy 5 ITA No.6397/M/2013 Shri Sagar Sarhadi

of penalty under section 271(1)(c) of the Act. The same is accordingly ordered to be deleted.

8. In the result, the appeal of the assessee is hereby allowed.

Order pronounced in the open court on 03.06.2015.

Sd/- Sd/- (R.C. Sharma) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 03.06.2015. * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.