TaxTMI 
TaxTMI 
2014 (9) TMI 940
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....sp; 3. The learned Commissioner of Income-tax (Appeals) ought not to have confirmed the disallowances on a different ground without affording an opportunity of being heard on this ground." 3. Briefly the facts are, the assessee a partnership-firm is engaged in production and sale of feature films. For the assessment year under dispute the assessee filed its return of income on October 13, 2008, declaring loss of Rs. 36,48,898. During scrutiny assessment proceeding, the Assessing Officer while examining the assessee's financial statements along with other facts and materials on record, noticed that the assessee during the year had produced two films titled as "Chandamama" (designated as P-5) released on September 6, 2007 and "Attadishta" (designated as P-6) released on March 20, 2008. As per the profit and loss account sales for P-5 were reported at Rs. 4,49,05,658 against direct expenses of Rs. 3,98,04,770 resulting in a profit of Rs. 51,00,888 whereas the sales for P-6 were reported at Rs. 2,39,22,763 against direct expenses incurred by the assessee amounting to Rs. 5,36,68,411 resulting in a loss of Rs. 2,97,45,648. The Assessing O....
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.... Rs. 2,09,98,862 was carried forward as loss to the next assessment year. The Commissioner of Income-tax (Appeals), though, agreed that the assessee has correctly carried forward loss of Rs. 2,09,98,862 to the assessment year 2009-10, however, he held that the expenditure of Rs. 87,47,786 set off against profit of P-5 is not correct as it is not in accordance with rule 9A. The Commissioner of Income-tax (Appeals) on interpreting the provisions of rule 9A held that the expenditure incurred for preparation of positive prints and expenditure on account of advertisement of the film, after it is satisfied by CBFC, are post-production expenses, hence, cannot be considered to be part of cost of production. Accordingly, he held that the expenditure towards positive prints amounting to Rs. 75,01,743 and advertisement expenditure of Rs. 8,81,850 cannot be allowed as expenditure in view of rule 9A. So far as common expenditure of Rs. 3,66,186 relating to salaries to partners, bank charges depreciation, etc., the Commissioner of Income-tax (Appeals) held that it relates to both P-5 and P-6, hence the assessee would be eligible for 50 per cent. of the said amount. Accordingly, out of the expend....
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....ommissioner of Income-tax (Appeals), he does not dispute the fact that the assessee is eligible to set-off of loss Rs. 87,46,786 of P-6 against the profit of P-5 amounting to Rs. 51,00,888. In this context we refer to the observation of the learned Commissioner of Income-tax (Appeals) in paragraph 7.3 of his order, which is extracted herein for the sake of clarity. "7.3 I agree with the contentions of the appellant that as per rule 9A, it had correctly carried forward loss of Rs. 2,09,98,862 to the next previous year, i.e., financial year 2008-09 (assessment year 2009-10). I also agree with the contentions of the appellant that as per section 70, it was entitled to set off loss of any source against income from any other source under the same head and the appellant was correct in set off of balance loss of Rs. 87,46,787 of P-6 against the profit of film 'Chandamama' (P-5) of Rs. 51,00,888." 9. However, though, the Commissioner of Income-tax (Appeals) may be correct in holding that expenditure towards positive prints and advertisement cannot be considered towards cost of producti....
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....activities which culminate in the production of a feature film the latter contemplates a stage subsequent to the completion of the production of the film, viz., exhibition of the film produced. Viewed thus, any expenditure incurred in connection with the preparation of the positive prints for purposes of exhibition would really be post- production expenses and also an item of expenditure in relation to the business of production and exhibition of feature films and would, therefore, qualify for deduction as expenditure laid out or expended wholly and exclusively for the purpose of the business. We have not been referred to any provision in the Act or the rules disallowing such expenditure as an item of business expenditure for the purpose of section 37 of the Act. Though, learned counsel for the Revenue placed considerable reliance upon the decision in CIT v. Carborundum Universal Ltd. [1977] 110 ITR 621 (Mad), we are of the view that that decision does not in any manner assist the Revenue. In that case, the assessee claimed deduction of a certain amount in the computation of its profits and gains of the business by way of contribution to the superannuation fund of its foreign colla....