Sanjay Garg, Member (J) -
(1.) THE present appeal has been filed by the Revenue against the order of the Commissioner of Income -tax (Appeals) (hereinafter referred to as CIT (A)) dated October 31, 2012 relevant to the assessment year 2009 -10. The Revenue has contested the action of the learned Commissioner of Income -tax (Appeals) in allowing the write off of cost of production of television serial as abandoned stock in trade amounting to Rs. 40,06,707.
(2.) THE brief facts are that the assessee is engaged in production of Hindi teleserials. During the assessment proceedings the Assessing Officer (hereinafter referred to as the AO) noted that the assessee had debited the cost of production amounting to Rs. 40,06,707 on account of expenses pertaining to teleserial "Kahkashan" which had not been telecasted during the year. The Assessing Officer found that there was no corresponding sale or revenue earned against the said teleserial "Kahkashan", whereas the assessee had debited the said amount of Rs. 40,06,707 out of the opening stock of production at Rs. 79,58,707 and the balance of Rs. 39,52,000 was carried forward. The Assessing Officer observed that the Prasar Bharti had rejected the said teleserial by communication dated January 22, 2010. Hence, the said loss was pertaining to the assessment year 2010 -11 and not business loss pertaining to the current assessment year, i.e., 2009 -10. He therefore held that even the claim of the assessee was premature. He therefore disallowed the said write off of Rs. 40,06,707. In the first appeal, it was submitted before the learned Commissioner of Income -tax (Appeals) that the amount of Rs. 40,06,707 was debited to the profit and loss account on account of reduction in the value of closing stock based on market value of the said serial, as the said serial was rejected by the Doordarshan and had become stale with the passage of time. It was also submitted that the said serial was produced for Doordarshan in the financial year 2006 -07 but due to delay in production of the certain episodes of the serial, the said episodes were rejected by the Doordarshan and were not telecasted. Due to the abovesaid rejection of the episodes and with the passage of time, the cost of the teleserials got reduced and was assessed as per market value at Rs. 39,52,000. A fresh proposal was submitted to the Doordarshan for selling the said teleserials at reduced cost of Rs. 39,52,000 but the said proposal was again rejected by the Doordarshan vide letter dated January 22, 2010 and hence the value of the stock was declared at nil on March 31, 2010. The learned Commissioner of Income -tax (Appeals), after considering the relevant facts on the file, allowed the appeal of the assessee. The relevant observations of the learned Commissioner of Income -tax (Appeals), for ready reference, are reproduced as under :
"1.3 I have considered the facts and perused the material on record. It is seen that the appellant is predecessor of teleserials. In the case of film/television serial, the cost of production is to be treated as stock -in -trade; hence, the cost of production of abandoned films/teleserials can be written off as revenue expenditure. The Assessing Officer has disallowed the cost of production on the ground that claim is premature. However it is seen that the teleserials was rejected by the Doordarshan for technical reason which was approved in 2007. This serial was to be aired or telecasted in the financial year 2007 -08. It is also noticed that the appellant has shown the cost of tele -serials as stock -in -trade and also reduced the cost on market value from closing stock. In case of abandoned film or television serial, the expenditure is to be allowed as business expenditure as laid down in the decision in the case of Rajesh Khanna v Asst. CIT (I.T.A. No. 4804/Bom/2000 -assessment year 1992 -93 D -Bench Mumbai dated January 17, 2003) as well as in the case of Asst. CIT v. J Radical Entertainment (I) Pvt. Ltd. (I.T.A. No. 4550/M/2004 -assessment year 1998 -98 dated January 31, 2007) and Asst.CIT v. Dream Merchants Enterprise (I.T.A. Nos. 3243 and 3245/M/2009 assessment years 2006 -07 and 2004 -05 dated February 9, 2010) and Asst. CIT v. Rajiv Tolani (I.T.A. No. 633/Mum/2010 assessment year 2006 -07 dated September 30, 2010) and ITO v. Rajiv Tolani (I.T.A. No. 2522/Mum/2010 assessment year 2007 -08 dated April 27, 2011) wherein following the ratio of decision in the case of Rajesh Khanna and the above decisions, disallowance made on account cost of abandoned films were deleted. The act of rejection of teleserials amounts to abandon of tele -serials. In the light of the above facts, the issue under consideration is squarely covered in favour of the appellant by the aforesaid decision of the hon'ble Tribunal. The case law as relied on by the authorised representative as discussed in the above paras also support his view as the claim is allowable as business expenses. Therefore, respectfully following the aforesaid decisions, the disallowance made on account of cost of rejected/abandoned teleserial "Kahkashan" as written off is directed to be allowed as business expenditure. Accordingly, this ground of the appeal is allowed."
From the above reproduced findings of the learned Commissioner of Income -tax (Appeals) it may be observed that the learned Commissioner of Income -tax (Appeals), in the light of various case law, has held that in case of film/television serial, the cost of production is to be treated as stock in trade and further that in case of abandoned film or teleserial the expenditure is to be allowed as business expenditure. The learned Commissioner of Income -tax (Appeals) has further rightly observed that the cost of production was written off by the assessee as per the market value of the serial as on the said date which was calculated at Rs. 39,52,000. The said calculated/assessed market value of Rs. 39,52,000 had nothing to do with the further rejection of the proposal of the assessee by the Doordarshan vide letter dated January 22, 2010 which ultimately resulted in treating the cost at nil. We do not find any infirmity in the order of the learned Commissioner of Income -tax (Appeals) on the above findings. Hence, there is no merit in the appeal of the Revenue and the same is accordingly dismissed.
The order pronounced in the open court on September 12, 2014.