2016 (7) TMI 390 - AT - Income Tax

Tribunal directs deletion of disallowance, upholds commercial rationale in film rights valuation.

The Tribunal allowed the appeal by the assessee, directing the Assessing Officer to delete the disallowance of Rs. 45.83 lakhs. It emphasized the ... Disallowance of loss - quantum of loss - assessee is engaged in the business of production of films - Held that:- We are of the view that the reasoning given by the tax authorities to restrict the loss to ₹ 19.00 lakhs cannot be considered to be correct one. Since the assessee has taken a commercial decision in the normal course of carrying on its business and since the assessing officer has not brought on record any material to show that identical transaction with identical set of facts could have fetched more price at the relevant point of time, we are of the view that there is no reason to disbelieve the consideration disclosed by the assessee. Further, we have also noticed that the rights and liabilities available with the assessee and M/s AFL/RBEL cannot be considered to be the same. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the disallowance made by the AO. Accordingly we set aside the order of Ld CIT(A) passed on this issue and direct the AO to delete the impugned disallowance of ₹ 45.83 lakhs. - Decided in favour of assessee. Issues involved:Assessment of loss claimed by the assessee due to transfer of film rights for inadequate consideration.Analysis:1. The appeal concerns the addition of Rs. 45.83 lakhs made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] in relation to the assessment year 2009-10.2. The assessee, engaged in film production, entered into an agreement with a company for the production of a film. Due to naming conflicts, the film could not be completed, leading to liabilities. Subsequently, the assessee transferred its rights over the film for Rs. 1.85 crores, incurring a loss of Rs. 64 lakhs, which was claimed as a deduction.3. The AO restricted the loss to Rs. 19 lakhs based on a subsequent transaction involving the transfer of rights by the company that acquired the original assignee. The CIT(A) upheld this decision.4. The assessee argued that the transactions were in different periods and circumstances, justifying the transfer at Rs. 1.85 crores. The assessee emphasized commercial considerations and the absence of evidence showing under-valuation.5. The Tribunal noted the distinct rights and liabilities of the assignor and assignee, rejecting the tax authorities' view of treating them as the same. It found no justification for comparing transactions in different periods and upheld the commercial rationale behind the assessee's decision.6. Considering the lack of evidence supporting under-valuation and the commercial nature of the transaction, the Tribunal held that the AO and CIT(A) erred in restricting the loss. The Tribunal directed the AO to delete the disallowance of Rs. 45.83 lakhs.7. The appeal by the assessee was allowed, emphasizing the commercial decision-making process and rejecting the tax authorities' approach to the valuation of the film rights.This detailed analysis covers the issues involved in the legal judgment comprehensively, highlighting the key arguments and decisions made by the Tribunal regarding the assessment of the loss claimed by the assessee.