TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 670
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....f Rs.9,98,500/- in the facts and circumstances of the case. The background facts 3.1 The relevant facts are that the assessee, an individual, claimed a loss of Rs.102.36 lakhs on the distribution of a Bengali film 'Haar Jeet' per his return of income filed on 31.10.2001 at an income of Rs.62.67 lakhs, including business income at Rs.46.95 lakhs. The said loss was found by the Assessing Officer (A.O.) to be primarily on account of the acquisition cost of the distribution rights of the said film at Rs.111 lakhs on minimum guarantee (MG) basis from a sister concern, M/s. Aftab Pictures Pvt. Ltd. (APPL). The assessee, thereafter, entered into an agreement for exhibition of the said film with M/s. Aftab Group (AG), again a firm in which the assessee was interested in terms of section 40A(2)(b) of the Act. The two agreements were dated 05.12.2000 and 11.12.2000. The entire receipt for the approximately 100 days over which the said film was exhibited during the relevant previous year (22.12.2000 to 31.03.2001) was only at Rs.20.88 lakhs. The assessee had apart from acquiring the exhibition rights also incurred publicity expenditure. The total expenditure, at Rs.123.24 lakhs, on the set ....
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....considered as unreasonable, if the assessee had, instead, earned some profit? It is after all a question of assessment by one person as against another. The genuineness of the transaction had not been doubted. On an enquiry by the Bench as to the price at which the distribution rights were sold in other markets, it was submitted by the ld. AR that the film being a Bengali film, was sold only for the eastern circuit. On a further enquiry as to the price at which the non-theatrical rights of the film were sold, viz., TV, cable, satellite, etc., he was unable to furnish any specific reply, further submitting that the disallowance as sustained by the tribunal is purely on an estimate basis, without any data, as in fact stands noted by it in its order, and which cannot by itself form the basis of the levy of penalty. Reliance was placed by him on the decisions in the case of Dilip N. Shroff vs. Jt. CIT [2007] 291 ITR 519 (SC) and Jhavar Properties P. Ltd. vs. ACIT [2009] 317 ITR (AT) 278 (Mum.). 4.2 The Revenue, on the other hand, claims that the assessee had wholly failed to substantiate its claim of the distribution price of the film being arrived at on an arm's length basis, i.e., o....
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....sp; (b) ............. (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) .............. he may direct that such person shall pay by way of penalty,- (i) .......... (ii) .......... (iii) in cases referred to in clause (c) or clause (d), in addition to tax, ........... Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relation to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to re....
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....ular manner, with the record being consistent to the stated position of him being a producer and a dealer in audio cassettes. We do observe that the first appellate authority in the quantum proceedings states of the assessee having distributed films. That, however, is not supported by any material on record, nor do we find any such plea raised by the assessee. No details of any distribution business undertaken in the past stand furnished. A producer may occasionally distribute his films for some territory/s. That, however, would not make him a regular distributor. Besides, this would rather be where he expects to gain more than that by distributing it through others, to capitalize on the profit expectation, and normally after recovering the cost of the film through distribution of its exhibition rights for other territories. The assessee, thus, is not in the business of distribution of films, and the impugned transaction accordingly was not one carried out by him in the regular course of his business. The purchase of the distribution rights in the instant case is only from his own sister concern, APPL, in which company the assesee is a director (PB page-2), and which has produced ....
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....ng back to the facts of the case, the film apparently failed to elicit interest or response from the distribution market. No doubt, APPL would prefer to sell to an outsider, as purchase by a related party would imply continuing to bear the risk and no 'profit' in the commercial sense. In the absence of any buyers, quoting a reasonable price, the obvious choice would be to self-distribute, or through AG, who is in this business. The assessee's, who is not in this business, entry into the transaction at this juncture, against the popular market perception, does therefore raise considerable doubt with regard to the bona fides thereof as a genuine business transaction. Then, again, the assessee does nothing apart from entering into two agreements with sisters concerns, one for acquisition of distribution rights and the other for exhibition through exhibitors for the entire eastern circle, one after the other, with both the corresponding parties not sharing, or undertaking hardly, any business risk, which is entirely by the assessee. APPL has been paid an amount in excess of its production cost on MG basis, while AG is to pay the assessee, without any guarantee as to the minimum, 15% of....
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....ct/s. And if an intermediary, as a trader or distributer, with the price it would fetch on resale (and its terms), which again depends on market forces of supply and demand. There is no explanation in terms of similar past experience on distribution, or of distribution rights of similar movies, i.e., of the same genre or with the same principal cast or by the same director, etc., or any other business consideration that prevailed with the assessee to settle for the agreed purchase price. The explanation could also be in terms of the expected yield or the revenue the film was expected to fetch. As afore-noted, an intermediary, as the distributor, would quote on the basis of the price he expects to realize on release. The price at which the film is 'resold' or the exhibition rates it fetches from the exhibitors, is a strong indicator of the market sentiment in this regard. That the film may subsequently not run, proving the market players wrong, is another matter. In fact, we have already found of the prevailing circumstances as indicating of the market response as being luke warm. It is only any such explanation, supported by some materials, so as inform the basis of the decision ma....
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....258 (Bom). The assessee having been unable to do so, the disallowance was confirmed by the tribunal albeit at a lower amount. The law is clear and the burden to explain his case, substantiating it [CIT vs. Lal Chand Tirath Ram [1997] 225 ITR 675 (P&H)], as well as the bona fides of his conduct (in acting in the manner he does), is on the assessee; penalty being a civil and strict liability. The assessee in the penalty proceedings was, therefore, required to show the basis for having decided on the stated purchase price, which was on a minimum guarantee basis, so that he assumed the risk up to that amount, while any receipt in excess thereof was required to be shared by him with the producer at a defined percentage basis. This assumes all the more significance as the assessee, by doing so, had assumed the entire risk for the commercial exploitation of the film; the purchase price exceeding the cost of the production of the film, the revenue from which could admittedly be generated from only a part of the country. The assessee failed to show any basis. At the minimum, he was required to show of having undertaken the transaction in the normal course of his business. This is as a bad j....