TaxTMI 
TaxTMI 
2023 (4) TMI 798
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts of the case are that assessee is engaged, inter alia, in the business of production, recording, distribution and sale of music through compact disk, digital versatile disk etc. and also by way of grant of rights to parties to play music against payment of license fees. Assessee is also in the production of films and TV serials. It filed its return of income on 28.11.2014 which was revised on 22.03.2016, reporting a total income of Rs.25,56,92,463/-. Case of the assessee was selected for limited scrutiny through CASS. In the course of assessment, Ld. AO vide notice u/s. 142(1) of the Act dated 17.06.2016, inter alia, required the assessee to furnish full details of expenditure claimed by it in the Profit and Loss Account, amounting to Rs.14,757.14 lakh, with ledger accounts. While furnishing the details in this respect, assessee also furnished details and explanation relating to claim of expenditure towards royalty vide its letter dated 30.08.2016 placed in the paper book volume 1A at page 17 and 18. Reply furnished by the assessee vide this letter is material to the issue raised by the Ld. Pr. CIT and is, therefore, extracted below: 3.1. Ld. AO, after considering the submis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as only after due consideration of the same, he had accepted the claim of the assessee. Accordingly, assessment order passed by the Ld. AO cannot be said to be erroneous and is not prejudicial to the interest of revenue. The assessee thus, submitted that revisionary proceeding so initiated ought to be dropped. After taking into account the submissions made by the assessee in this respect, Ld. Pr. CIT arrived at a consideration that the manner and determination of the debitable royalty was required to be analysed thoroughly by the Ld. AO. The provision created in respect of claim of royalty expenses has to be examined with reference to the liability for the year. Ld. Pr. CIT thus, observed that Ld. AO erred in not examining the discrepancy in respect of debit of Rs.1688.00 lacs towards royalty expenses while disposing the case and accepting the assessee's claim without any application of mind or query. Accordingly, assessment order was set aside with the direction to Ld. AO to pass a fresh assessment order after considering the aforesaid observations. Aggrieved, assessee is in appeal before the Tribunal. 4. Before us, Shri J. P. Khaitan, Sr. Advocate and Shri Pratyush Jhunjhunwal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1,135.77 1,154.76 2,827.40 2,534.22 Less: Excess provision of earlier years, written back 34.32 60.72 Less: Amounts utilised during the year 1,507.35 781.87 Carrying amount at the end of the year 1,285.73 1,691.63 6.1. He thus, submitted that all these details along with the explanations were furnished before the Ld. AO who had carefully examined and then arrived at a plausible view. 6.2. Ld. Counsel further elaborated on the modus operandi of the business of the assessee relating to revenue arising from licence fees against which expenditure of royalty is incurred by the assessee. In this respect he referred to the facts and merits of the case which were submitted before the Ld. Pr. CIT which has been reproduced at page 8 and 9 and are extracted below: "Broadly, the appellant earns revenue from sale of music through physical/online form and also through license fees received from various associations/parties for playing of music. During the year under consideration, the license income received by the appellant amounts to Rs.10,639.26 lakhs. The revenue earned by the appellant fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... royalty is written back and offered to tax in the subsequent assessment year. The assessee has been consistently following the aforesaid principle and the same has been accepted by the Ld. AO over the years."[emphasis supplied by us, by underline] 6.3. Based on the above narration, Ld. Counsel strongly submitted that in the year under consideration, assessee had an unpaid amount of royalty of Rs.180.65 lakh out of which Rs.85.75 lakhs were paid by the assessee in AY 2015-16 and the balance of Rs.94.90 lakh had been written back and offered to tax in the subsequent assessment year. Hence, question of disallowance does not arise at all. Moreover, since the amount written back had already been offered to tax, disallowance of the same as considered by the Ld. Pr. CIT would lead to double taxation in the hands of the assessee. 7. Business modus operandi of the assessee, as explained by the Ld. Counsel is summarized below which demonstrates the basis and approach adopted in making provision towards royalty expense and claiming it as a deduction in the profit and loss statement. i) Assessee enters into agreements with producers/owners of the songs so as to obtain against p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nancial year, the assessee has to make an estimate of the liability for royalty on the basis of the past trends/trends emerging from the log books to the extent received during the year. The assessee makes the best possible estimate of the expenditure required to settle the obligation to pay royalty on licence fees for the financial year and such provision along with the amount of royalty payable on physical sales is debited to the profit and loss account as "Royalties". The amount so debited includes appropriate proportion of minimum guarantee royalty. iv) The provision for royalty on licence fees is shown on the liabilities side of the balance-sheet out of which payments are made to the producers/owners on the basis of details contained in the logbooks. In the event, the provision for any year is found to be in excess, such excess provision is written back and offered to tax. The aforesaid accounting policy followed by the assessee in respect of expenses on royalty is duly disclosed in its audited accounts. In the notes forming part of the audited accounts, the manner in which expenditure on account of royalty is recognised in the books of account is duly disclosed as a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mined by the Ld. AO and has duly applied his mind to take appropriate view by accepting the details furnished by the assessee and, therefore under no circumstances, the impugned assessment order can be termed as erroneous and prejudicial to the interest of the revenue. 8. Per contra, Ld. CIT, DR placed reliance on the order of Ld. Pr. CIT. He referred to para 5 of the impugned revisionary order and submitted that claim of expenses by way of provision is not allowable under the Act. Also, he submitted that ld. Pr. CIT has raised his concern as to whether the provisioning done by the assessee is scientific and acceptable for the line of business in which assessee is. He thus, submitted that no prejudice is caused to the assessee when Ld. Pr. CIT has directed the ld. AO to examine the issue afresh and pass the assessment order accordingly. 9. We have heard the rival contentions and perused the material available on record. We have also given our thoughtful consideration to the modus operandi of the business undertaken by the assessee in respect of generation of revenue from licence fees against which expenditure of royalty is claimed by the assessee. We have also gone through th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under section 37 of the 1961 Act. It would all depend on the data systematically maintained by the assessee."[emphasis supplied by us, by underline] 9.2. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. 9.3. For this, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordships have held that twin conditions need to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and in so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. 10.1.2. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law. 10.1.3. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the AO had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries witho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT ought to have applied his mind before embarking upon the journey of initiating the revisionary proceedings. 10.3. In the course of hearing, ld. CIT DR placed reliance on the decision of coordinate bench of ITAT Mumbai in the case of Crompton Greaves v. CIT in ITA No. 1994/Mum/2013, dated 01.02.2016. On perusal of the same from para 4 containing facts in brief, it is noted that is dealt with the issue relating to expenditure of contingent nature for which the liability had not crystalized during the year. Also, in para 9, in the finding, it is stated that ld. AO had not made any enquiry with respect to the claim of deduction made by the assessee. While concluding, it is held that deduction can only be claimed for known and ascertained liabilities having crystalized during the assessment year. In the present case before us, facts do not relate to expenses of contingent nature since claim of royalty expenses had crystalized during the year as corresponding license fee had been earned by the assessee and offered to tax. Thus, in our understanding, the said decision does not help ld. CIT DR for the contentions raised. 11. We find that the issue in the present case is purely on....