TaxTMI 
TaxTMI 
2017 (4) TMI 1091
X X X X Extracts X X X X
X X X X Extracts X X X X
....to scrutiny assessment u/s 143(3) wherein total income was determined at Rs. 41,84,92,622/- after making certain adjustments and disallowances vide Assessing officer [AO] order dated 31/12/2010. 3. AO noted that the assessee claimed production & distribution expenditure on three films which were released in earlier years as per the following details:- No. Name of the Film Production Expenditure Distribution Expenditure Total Year of Release of the film 1. Maa Santoshi 13,600/- - 13,600/- 2006-2007 2. Deadline 95,85,000/- - 95,85,000/- 2006-2007 3. Traffic Signal 1,58,97,104/- 7,08,255/- 1,66,05,359/- 2006-2007 Total 2,62,03,959/- Treating the same as prior period items and applying Rule 9A, the amount of Rs. 2,62,03,959/- was added to the income of the assessee and the assessee assailed the same before Ld. Commissioner of Income Tax(Appeals)-3 [CIT(A)], Mumbai. CIT(A) observed that the film 'Traffic Signal' was released during last quarter of financial year 2006-2007 and hence, as per Rule 9A, the excess expenditure over revenue, though prior period, was allowable to the assessee in the impugned AY. Aggriev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Limited'. These expenses were not at all debited to the Profit & Loss Account but claimed in the computation of income u/s 35D to the extent of 20%. CIT(A) confirmed the same and aggrieved, the assessee has assailed the same before us by way of Ground No.3. 8. Before us, Ld. Counsel for assessee [AR] contended that the assessee was a public company and issued share capital to various parties and incurred impugned expenditure of Rs. 1,41,63,200 for issue of fresh capital which qualifies for deduction u/s 35D. The Ld. AR has drawn out attention to the fact that the assessee was private limited company but got converted into public limited company w.e.f. 17/01/2008 after which it issued share capital and placed before us a copy of amended certificate of incorporation issued by 'Registrar of Companies, Maharashtra' consequent upon change of name. The detailed break-up of expenditure incurred by assessee and computation of assessee's claim was provided as under:- No. Particulars Amount (Rs.) Debited to 1. Share Issue Expenses-Stamp Duty Charges ROC Form 5 Stamp Duty 4,40,000/- Profit & Loss Account 2. Registration & Filing Fees-Increase in Authorised Share Cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l to one-tenth of such expenditure for each of the ten successive previous years", the words "an amount equal to one-fifth of such expenditure for each of the five successive previous years" had been substituted. (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :- (a) to (b)xx xx xx (c) where the assessee is a company, also expenditure- (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus: (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed." Per query from the bench, Ld. AR submitted that the assessee was engaged in the production of cinematogr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s claimed by the assessee, the write back constituted capital receipts in its hand and therefore rightly been reduced from profit in its computation of income. The provisions of Section 41(1) were not applicable to the assessee as no deduction with respect to these write off was ever claimed by the assessee and further the assessee purchased the running business of several companies on 'outright purchase basis' and not as 'successor' and hence the same was not taxable in its hand even as per clause (b) of Section 41(1). Rejecting the same, AO concluded that the assessee capitalized the consideration paid to take over the business in its books of account and claimed deprecation thereupon and hence the write-back constituted income in the hands of the assessee. The same was assailed before CIT(A) where the assessee relying upon various judicial pronouncements contended that the provisions of section 41(1) were not applicable to these receipts as the assessee never claimed any deduction / allowance thereof. Further, the same did not arise from business or exercise of profession and hence not covered even by Section 28(iv). CIT(A) treating the assessee as 'successor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aken over by him from vendor companies. The amounts were written off by way of credit to profit & loss account but deducted from profit in the computation of income on the ground that the same constituted capital receipts and not covered by the provisions of Section 41(1). At this juncture, it would be prudent to produce relevant extract of Section 41(1) which reads as follows:- Section 41(1) (l) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first- mentioned person) and subsequently during any previous year,- (a) the first- mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her person in that business' which is also not the case here. The case law relied upon by revenue in Hindustan Foods Ltd. (supra) was concerned with a situation where the assessee issued certain redeemable debentures for consideration and subsequently unilaterally transferred amount lying against unclaimed debentures to general reserve account and utilized the said amount from time to time for its business purposes. Therefore, in that case, the assessee actually received consideration and thereafter stood benefitted by remission thereof and hence, this case law is distinguishable from the facts of this case. Even the case law of Apex court in 'Nectar Beverages (P.) Ltd.' (supra) relied upon by assessee was related with taxability of sale of depreciable assets on which 100% depreciation was allowed and the apex court was concerned with applicability of Section 41(1) vis-a-vis Section 41(2) and hence, did not directly deal with present situation. The issue can be looked from another angle. Let us hypothetically assume that the assessee took over certain fictitious liabilities meaning thereby that actual liabilities stood at lower value. In that case, the value of 'net....