IN THE ITAT DELHI
Moving Picture Company India Ltd.
v/s.
Assistant Commissioner of Income-tax
IT Appeal No. 210 (Delhi) of 2011
[Assessment Year 2007-08]
MARCH 16, 2012
ORDER
K.G. Bansal, Accountant Member
The assessee has taken up five grounds in this appeal. Ground no. 4 is that the learned AO erred in not correctly computing the brought forward loss and unabsorbed depreciation. This ground has not been pressed by the ld. counsel as the computation can be corrected by the AO u/s 154 of the Income-tax Act, 1961. Ground no. 5 is residuary in nature. No fresh ground has been raised in pursuance to this ground. Therefore, both these grounds are treated as dismissed.
2. Ground nos. 1 and 2 are in respect of addition of Rs. 3,19,95,890/- made by the AO on account of “Media Library”. It is mentioned that the ld. CIT(Appeals) erred in holding that intangible assets by way of media library are in the nature of stock or scrap generated in the course of business, which have a commercial value. The facts mentioned in the assessment order are that the assessee is carrying on the business of production of TV serials. It has been producing documentaries in the nature of clippings or film documentaries. Certain pilot projects are also undertaken. These clippings and documentaries have archival value, which can be used in future. In this year, the assessee has estimated the present value of such clippings or documentaries. The result is that intangible assets have been enhanced in value by an amount of Rs. 3,19,95,873/-. A corresponding capital reserve of equivalent amount has also been created. This amount has been shown as current assets in the balance-sheet under the head media library. However, the profit has not been increased by the corresponding amount. The assessee was required to state as to why the amount should not be added to the income. It was submitted that the assessee estimated potential value of clippings, recording etc. at Rs. 3,19,95,890/. This amount has been credited to the capital reserve. The AO considered the facts of the case and submissions made before him. It has been mentioned that recording of correct value of the stock is necessary for determining the business income. The assessee has increased stock by the aforesaid amount without crediting it to profit and loss account by way of increase in the value of the stock. Therefore, it has been held that this amount is assessable as income in this year.
2.1 The issue was agitated before the CIT(Appeals)-VIII, New Delhi. In the impugned order, it has been mentioned that the dispute between the revenue and the assessee is limited to the amount of Rs. 3,19,95,890/-. The case of the AO is that this is undisclosed stock and, therefore, a revenue item taxable in this year. On the other hand, the case of the assessee-company is that there is no real addition to fixed assets, namely, media library, but its value has been notionally increased by the aforesaid amount. However, the fact of the matter is that there is an act of bringing into accounts a new asset. A corresponding capital reserve has also been created in the balance-sheet. Thus, it is not a case of creation of any artificial asset with a view to window dress its balance-sheet. One of the possibilities is that the assessee failed to properly account for items of work-in-progress knowingly or unknowingly, but, in order to remove the mistake the accounts of this year recognized additional stock of Rs. 3,19,95,890/- by initially showing it as work-in-progress and then transferring the same to the balance-sheet as an asset in the form of media library. The ld. CIT(Appeals) considered the details of work-in-progress furnished in schedule-7 of the accounts in this year. The details are as under:-
