CA Sandeep Kanoi
Brief facts of the case are that the Assessing Officer observed that the assessee is following conservative method of accounting for valuation of closing stock. The films purchased are shown at cost if the same are sold in the year, the profit or loss on the same is recorded. In respect of unsold films, the same is carried forward as stock at purchase cost in the next financial year. He observed that as the assessee is engaged in the business of distribution of rights of feature films, Rule 9B of the Income-tax Rules, 1962 is attracted in this case. Rule 9B of the Income-tax Rules specifies the deduction that is to be allowed in respect of cost of acquisition of a feature film for computing the profits and gains of the business of distribution of feature films. Referring to sub Rule 4 & 5 of Rule 9B, the Assessing Officer disallowed the excess cost of Rs. 27,52,935/-. The matter carried before the first appellate authority in appeal and after considering the submissions made on behalf of the assessee, the CIT(A) granted relief to the assessee. Aggrieved, the Revenue is in appeal before us.
The ld. D.R. contended that the CIT(A) was not justified in holding that the assessee is not required to follow the method of valuation prescribed under Rule 9B of the Income Tax Rules, 1962 and thereby the CIT(A) was not justified in deleting the addition made as a result of excess cost claimed of Rs. 27,52,935/- and accordingly prayed that the order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand, the ld. Authorised Representative of the assessee strongly supported the order of CIT(A).
Having considered the rival submissions and perusing the material on record, we find that the assessee is engaged in sale of T.V. serial, editing and film software development. The stand of the assessee has been that it is buying satellite/TV telecasting rights of the movie and that the purchase of movies is not for theatre release and thus Rule 9B of the Income Tax Rules, 1962 is not applicable. It is not in dispute that the assesee has been valuing the closing stock of movies at cost for past many years and in assessment years 2007-08 and 2008-09, the valuation method has been challenged by the concerned Assessing Officer. If the method followed by the assessee is accepted, the loss claimed in assessment years 2007-08 and 2008-09 is as under;-
