ITAT Hyderabad Allows TV Serial Production Cost as Revenue Expenditure

ACIT Vs Eenadu Television Private Limited (ITAT Hyderabad)

The Hyderabad ITAT decided cross appeals arising from the order of the CIT(A), NFAC, for Assessment Year 2022-23.

Revenue’s Appeal: The Revenue challenged the CIT(A)’s directions regarding depreciation on non-compete fee and the treatment of cost of production of TV serials and programmes as revenue expenditure instead of capital expenditure.

On the issue of depreciation on non-compete fee, the Revenue argued that the payment under a non-compete agreement with related parties was not allowable as depreciation under Section 32(1)(ii), that it was a self-serving arrangement, and that the CIT(A) had no power to remand the matter under Section 251. The assessee submitted that the issue had already been decided in its own case and in the case of the parent company, and that the CIT(A) had merely followed earlier Tribunal directions.

The Tribunal noted that in the assessee’s own case for AY 2011-12 it had already directed the Assessing Officer to give consequential effect to earlier Tribunal orders dealing with the same issue. It held that the CIT(A) had only directed the Assessing Officer to implement the earlier Tribunal order and had not remanded the matter for fresh adjudication. The Tribunal found no error or illegality in the CIT(A)’s order and also stated that it was directing the Assessing Officer to consider the issue in terms of the earlier Tribunal directions.

On the issue of cost of production of TV serials and programmes, the Assessing Officer had treated the expenditure as capital in nature and allowed depreciation, contending that Rules 9A and 9B applied only to feature films and not television serials or programmes. The Revenue also argued that TV serials and programmes created enduring assets having repeat telecast value.

The Tribunal noted that this issue had repeatedly arisen in the assessee’s own case and that for AY 2011-12 it had followed its earlier decision in the case of the sister concern, Prism TV Pvt. Ltd., which in turn had relied on the Chennai Bench decision in Sun TV Network Ltd. The earlier decisions held that expenditure on production and broadcasting of television programmes was allowable as revenue expenditure. The Tribunal observed that although the Revenue had challenged the earlier Tribunal order before the High Court, there was neither any order setting it aside nor any stay. Following the rule of consistency, it upheld the CIT(A)’s order allowing the claim as revenue expenditure and dismissed the Revenue’s appeal.

Assessee’s Appeal: The assessee challenged the addition of Rs.32,78,982 made on account of subscription revenue.

The assessee explained that while closing the accounts on 31.03.2022, actual subscriber data for March 2022 from Distribution Platform Operators was unavailable. Accordingly, subscription revenue of Rs.36.41 crore was estimated based on February 2022 subscriber data and credited in the books. Subsequently, actual subscription revenue for March 2022 was determined at Rs.36.08 crore, resulting in a difference of Rs.32,78,982, which was adjusted while computing total income in the return. The assessee stated that this practice had been consistently followed since the introduction of the New Tariff Order by TRAI in February 2019.

The Assessing Officer rejected the explanation, stating that under the mercantile system income accrues irrespective of receipt and added the differential amount. The CIT(A) affirmed the addition.

The Tribunal observed that for AY 2020-21, where the actual subscription revenue later turned out to be higher than the estimated revenue, the Revenue had added the differential amount as income for that year and the addition had been sustained. For the present year, however, the Assessing Officer adopted a contrary approach without examining whether the assessee’s claim reflected the actual subscription revenue.

The Tribunal held that the dispute was not about mercantile versus cash accounting but about determining the actual income for the relevant financial year. Since the assessee’s claim required verification with supporting records, the Tribunal set aside the CIT(A)’s order on this issue and remanded the matter to the Assessing Officer to verify the actual facts and supporting evidence rather than decide the matter solely on accounting principles.

Accordingly, the Revenue’s appeal was dismissed, while the assessee’s appeal was allowed for statistical purposes.

Cases Discussed

• ACIT, Media Circle-II, Chennai vs. M/s. Sun TV Network Ltd., Chennai (ITAT Chennai), ITA.Nos.1515 to 1520/Mds/2013
• CIT Vs. Global Vantedge (P) Ltd. (Delhi HC), 354 ITR 21 (Del)
• CIT Vs. K. Y. Pillah & Sons (SC), 63 ITR 411
• Prism TV Private Ltd., Hyderabad vs. DCIT, Circle-16(3), Hyderabad (ITAT Hyderabad), ITA.No.466 & 1249/Hyd/2015
• ITA.No.760/Hyd./2015 (assessee’s own case), order dated 13.05.2016
• ITA.No.466/Hyd./2015 (AY 2009-10 in sister concern), order extracted in ITA.No.760/Hyd./2015

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

These cross appeals are directed against the Order dated 19.02.2025 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, for the assessment year 2022-2023.

ITA.No.636/Hyd./2025 – A.Y. 2022-2023 (Revenue Appeal):

2. The Revenue has raised the following grounds of appeal:

1. “The Learned CIT(A) erred in directing the AO to verify the issue and given consequential effect which is in contravention of amended provision to section 251(1)(a) of the Finance Act 2024 w.e.f. 01.10.2024.

2. In the assessees own case for the asst year 2017-18, 2018-19 and 2020-21, the revenue has preferred appeal before the Hon’ble ITAT vide ITA Nos. 654/Hyd/2023 Α.Υ. 2017-18, ITA No. 665/Hyd/2023 A.Y. 2018-19 and ITA No.648/Hyd/2024 (Α.Υ. 2020-21) which are pending adjudication.

3. The Learned CIT(A) erred in giving directions to follow the order of the Hon’ble ITAT in the assessees own for earlier years in respect of allowing the claim of cost of production of TV serials and programmes as revenue expenditure as against depreciation granted by AO treating it as Capital expenditure?

4. The Learned CIT(A) erred in following the directions of the ITAT in allowing the claim of cost of production of TV serials and programmes as revenue expenditure when incurring of such expenditure resulted in creation of asset with enduring benefit because of its repeat telecast value?

5. The Learned CIT(A) erred in following the directions of the ITAT in allowing the claim of the assessee in which the subject matter was ‘news content’ which does not have repeat telecast value as against expenses incurred towards TV serials and programmes and film rights having repeat telecast value?

6. The Learned CIT(A) erred in ignoring that Rule 9A and 9B are available only for production of feature films and not for production of TV serials and programs?

7. The Learned CIT(A) erred in following the directions of the ITAT in not considering that expenses incurred towards TV serials and programs and film rights created an intangible asset and such asset has to be depreciated over its life time as held in Accounting Standard-26 ?

8. Any other ground(s) that may be urged at the time of appeal hearing.”

3. The Revenue has raised two issues in this appeal regarding the claim of depreciation on non-compete fee disallowed by the Assessing Officer however, the ld. CIT(A) directed the Assessing Officer to follow the earlier decision of this Tribunal in assessee’s own case as well as the claim of cost of production of TV serials and programmes disallowed by the Assessing Officer by treating the same as capital in nature and allowed depreciation on the same, on which, the ld. CIT(A) has followed the earlier Order of this Tribunal and directed the Assessing Officer to follow the earlier Order of this Tribunal in assessee’s own case.

4. Learned DR has submitted that M/s. Ushodaya Enterprises Private Limited [in short “UEPL”] had earlier acquired M/s. Usha Kiran Television and M/s. Usha Kiran Movies [TV Division] from Shri Ramoji Rao- HUF and entered into a non-compete agreement dated 30.01.2008 for 05 years paying Rs.670 crores as non-compete fee treating as an intangible asset. Upon demerger of assessee from UEPL the Written Down Value [in short “WDV”] of non-compete fee of Rs.329.76 crores was apportioned among group entities and assessee’s share was shown at Rs.212.33 crores and WDV as on 01.04.20 21 at Rs.8.96 crores. Thus, the assessee claimed depreciation @ 25% amounting to Rs.2.24 crores for the year under consideration. The Assessing Officer has held that both the payer and payee were related parties under the control of Shri Ramoji Rao and his HUF therefore, making the transaction as self-serving and the amount paid by the entity under the common control without any element of competition cannot be accepted as non-compete fee. The Assessing Officer held that the payment appears to be a colourful device to adjust the losses of HUF and reduced taxable profits. Further the non-compete fee cannot be considered as an intangible asset as it is not a business or commercial right of similar nature of know how, patents, trademark, license or franchise as contemplated under section 32(1)(ii) of the Income Tax Act [in short “the Act”], 1961. It represents merely a restrictive covenant, not an asset capable of ownership transferred or realization. Thus, the learned DR has submitted that the claim of depreciation on payment of non-compete to the related party is not allowable.

He has further submitted that the ld. CIT(A) had no power to set aside the matter to the Assessing Officer as per the existing provisions of section 251 of the Act. He has further submitted that the earlier decision of this Tribunal has been challenged before the Hon’ble High Court by the department and the matters are pending adjudication before the Hon’ble High Court.

5. On the other hand, the learned Authorised Representative of the Assessee has submitted that the issue of allowability of depreciation on non-compete fee was considered in the hands of UEPL and allowed by this Tribunal. The assessee along with other group entities have received the said asset already part of the balance sheet on demerger. Therefore, once the claim of depreciation was already allowed in the case of the parent company before the demerger then, the same is allowable in the hand of the assessee. He has further submitted that the ld. CIT(A) has followed the order of this Tribunal in assessee’s own case for the assessment year 2011-2012 and accordingly directed the Assessing Officer to follow the earlier order of the Tribunal ITA.No.752/Hyd./2025 & ITA.No.636/Hyd./2025 and give consequential effect. He has relied upon the earlier order of this Tribunal dated 13.05.2016 in assessee’s own case for the assessment year 2011-2012.

6. We have considered the rival submissions as well as relevant material on record. At the outset, we note that this Tribunal in assessee’s own case for the assessment year 2011-2012 in ITA.No.760/Hyd./2015 vide order dated 13.05.2016 has considered an identical issue in Para nos.5 and 5.1 as under.

“5. Having regard to the fact that the issue which had arisen in the case of the parent company as well as the sister concern has been remitted to the file of the A.O. for reconsideration, we deem it fit and proper to set aside this issue also to the file of the A.O. to give consequential effect to the decisions taken by him for the A.Y. 2009-2010 in their cases. The relevant findings of the order of the Tribunal for the A.Y. 2009-2010 are extracted hereunder for the sake of ready reference :

“5. Having regard to the rival contentions and the material on record, we find that on demerger of the parent company, the assessee has succeeded to the issue of the depreciation on non-compete fee as well and therefore, the decision of the Tribunal for the A.Y. 2008-2009 (cited supra) on the very same issue would be consequential and applicable to the facts of the case before us. We find that the Tribunal at paras 25 to 28 of its order has held as under :

“25. We have heard the submissions of the parties and perused the orders of revenue authorities as well as other materials on record and also gone through the decisions cited. A perusal of the assessment order as well as the order passed by CIT(A) would leave no room for doubt that assessee’s claim of depreciation on non-compete fee has been rejected basically for the following two reasons:

1. Genuineness of the payment made and necessity of paying non-compete fee.

2. Non-compete fee not being in the nature of an intangible asset as defined in section 32(1)(ii), depreciation is not allowable.

26. Before examining whether non-compete fee can be considered to be an intangible asset so as to entitle the assessee to claim depreciation on it, it is necessary, at the outset, to address the issue of genuineness of payment of non-compete fee and necessity to make such payment. As can be seen from the assessment order, AO has treated the agreement entered into between assessee for payment of non-compete fee as a sham transaction as Shri Ramoji Rao is not only the owner of UKT and UKM being the karta of HUF to which these concerns belong but he also in his individual capacity is the Chairman of the assessee company. As such, assessee cannot be considered to be competing with himself. As it is an arrangement between related parties, there is no necessity for payment of non-compete fee. AO further observed that the assessee has entered into agreement for payment of non-compete fee to reduce its tax burden by allowing Shri Ramoji Rao HUF to adjust the non-compete fee against the huge brought forward losses suffered by it. AO also raised doubts with regard to the value of non-compete fee at Rs. 670 crores. However, the CIT(A) has rejected assessee’s claim by holding that as Shri Ramoji Rao, who is the kartha of HUF, which owns UKT and UKM and also in his individual capacity is the Chairman of the assessee company, therefore, there is no question of paying non-compete fee as a person cannot compete with himself. Of course the CIT()A) has also held that as non-compete fee does not provide any asset of enduring nature, deprecation cannot be allowed. In this context, it is to be noted that assessee on 25/01/2008 has entered into subscription agreement and share purchase agreement with a domestic company, Viz.;

Equator Trading Enterprises Pvt. Ltd. as per which the said domestic company agreed to make substantial investment in purchase of equity shares of the assessee company. However, as a precondition for making such investment, the said domestic company required the assessee company to enter into a non-compete agreement with UKT and UKM. Though, copies of the share purchase agreement and subscription agreement are not available on record before us, however, on perusal of the closing agreement dated 30/01/08 between assessee and M/s Equator Trading Enterprises Pvt. Ltd. a copy of which is at page 220 of paper book, we find a reference to such precondition in clause 2(a). Further, as it appears from the fact on record and which remains uncontroverted in pursuance to the condition imposed by the domestic investor assessee has entered into the non compete agreement with UKT and UKM for a period of 5 years on payment of non-compete fee of Rs. 670 crores, which is also approved by the domestic investor. It is the contention of assessee that as a result of fulfillment of such condition of non-compete fee thereby excluding UKT and UKM competing with assessee company in future, the domestic company invested substantial amount by acquiring 39% of share in the assessee company.

27. From the aforesaid facts it cannot be denied that Equator Trading Enterprises Pvt. Ltd is a major stakeholder in assessee company. As can be seen from the assessment order as well as order passed by the CIT(A) before coming to their respective conclusion that the transaction entered into by parties for payment of non-compete fee is not genuine or there is no necessity for paying the non-compete fee as the same person is controlling both the assessee company and the two other companies acquired by the assessee, the role of M/s Equator Trading Enterprises Pvt. Ltd. in any decision taken by assessee company has not at all been considered. Neither the AO nor the CIT(A) has examined the effect of acquisition of 39% of equity shares by another entity and whether after such acquisition of shares, it can still be held that Shri Ramoji Rao is the controlling authority of assessee company and it is a transaction between related parties. Unfortunately, the assessment order and order of CIT(A) is totally silent on this aspect. Though in the remand report, AO has examined the issue of investment made by the domestic investor and has alleged that it as a sham transaction and a collusive agreement entered into between the parties to reduce the tax burden by claiming depreciation on payment of non-compete fee. However, such inference drawn by

AO, in our view, is more on presumptions and surmises rather than on the basis of strong evidence. When two independent parties enter into an agreement on certain terms and conditions, it cannot be termed as sham or collusive without bringing sufficient evidence to prove such fact. AO cannot treat the transaction as a colourable device adopted by the parties merely on presumptions and surmises without proving the fact that either the promoters of both the companies are same or M/s Equator Trading Enterprises Pvt. Ltd. is a front company of either the assessee or the Ramoji Rao group. In these circumstances, the inference drawn on mere assumptions and presumptions that the agreement is a colourable device to reduce the tax burden cannot be accepted. Therefore, without examining the impact of investment made in equity shares to the extent of 39% by the domestic investor and condition imposed by it, the conclusion drawn by the CIT(A) that there is no necessity of payment of non-compete fee as the same person is controlling the assessee company as well as UKT and UKM, in our view, is without proper appreciation of facts and evidences brought on record, hence, cannot be sustained.

28. Even though the AO in the assessment order has also raised the issue of payment of non-compete fee for the purpose of setting off the loss sustained by the HUF and also has questioned the value of non-compete fee but the learned CIT(A) has not at all dealt with these issues. Be that as it may, it needs to be observed that so far as valuation of non-compete fee is concerned, in course of assessment proceeding, assessee has submitted a valuation report of a CA firm in support of the valuation made by it. Therefore, if the AO had any doubt with regard to the valuation made, he should have got it valued through an independent valuer in stead of rejecting the valuation by simply observing that the method adopted is not correct or scientific. It is also alleged by the AO that the payment of non-compete fee was made on the one hand to enable the assessee to reduce its profit and at the same time allowing Shri Ramoji Rao HUF to adjust it against its huge brought forward losses. In this context, it is to be observed that in course of hearing before us the learned AR has submitted certain documents as additional evidence. A perusal of the said documents reveal that Shri Ramoji Rao HUF for the assessment year 2008-09 has not only shown the non compete fee received by it as income but has also adjusted it against the brought forward losses of earlier years. AO i.e. JCIT, Range -16, while completing assessment in case of Shri Ramoji Rao HUF has accepted not only the income but also its adjustment against brought forward losses in an assessment order passed u/s 143(3) on 24/12/2010. Therefore, when the non-compete fee paid by assessee has been accepted at the hands of Shri Ramoji Rao HUF and allowed to be set off against the brought forward losses, it needs to be examined whether still the payment of non-compete fee made by the assessee to Shri Ramoji Rao HUF can be held to be either non-genuine or not necessary. Therefore, considering the totality of the facts and circumstances we are of the view that as the impact of acquisition of 39% of equity shares by M/s Equator Trading Enterprises Pvt. Ltd. has not at all been examined by AO at the time of assessment proceeding or by the learned CIT(A) while disposing of assessee’s appeal and further as the additional evidences produced before us were not examined either by the AO or by CIT(A), which certainly have a crucial bearing on the issue as to whether the payment of non-compete fee is genuine and necessary, we are inclined to remit the matter back to the file of AO for deciding afresh………………………………….”

2.1. This appeal before us being for the subsequent assessment year, also needs to be remanded to the file of the A.O. to give consequential effect to the decisions taken by him for the A.Y. 2009-2010. This ground of appeal is accordingly treated as allowed for statistical purposes.”

5.1. In the result, this ground of appeal is treated as allowed for statistical purposes.”

6.1. Thus, the Tribunal by following the earlier decision in the case of other group entity of the assessee as well as the parent company UEPL, has remanded the matter to the record of the Assessing Officer to give the consequential effect to the earlier decision of this Tribunal on this issue. The ld. CIT(A) has decided this issue in Para nos.6.3 and 6.3.1 as under:

“6.3. The facts of the issue, assessment order, written arguments and the relevant case laws have been gone through carefully. It is evident from the records that the appellant company was originally formed along with M/s. Prism TV Pvt. Ltd. and M/s. Panorama TV Pvt. Ltd. and the demerger was approved by the Hon’ble High Court, Andhra Pradesh w.e.f. 01/04/2010. The parent company. UEPL had acquired M/s. Usha Kiron Television (in short ‘UKT’) and M/s. Usha Kiron Movies (TV Division) (in short ‘UKM’) in the FY 2007-08 and had also entered into an agreement with the said acquired companies for non-Competing in the business directly or indirectly for a period of 05 years from the date of agreement and accordingly paid Rs. 670 Crores as ‘Non-Compete Fee’. UEPL had also claimed depreciation of Rs. 109,92,18,756/- during FY 2009-10 relevant to AY 2010-11. As a result of the demerger, the intangible asset of non-compete fee amounting to Rs. 329.76 Crores held by the parent company ie. UEPL was distributed among the three demerged companies and the appellant’s share whose WDV was worked out at Rs.15,94,32,993/-as on 01/04/2019 and for AY 2020-21, depreciation was claimed on such WDV of Rs.15,94,32,993/- 25% which was worked out to Rs.2,24,20,265/-

6.3.1. According to the AO, non-compete fee is not an asset as it has no market value and therefore does not fall under the ambit of the provisions of section 32(1)(ii) of the Act. It is further held by the AO that non-compete fee is also not a right which is acquired by the payer but a restriction on the recipient and for the reasons elaborated in the assessment order dated 19/02/2024 cited supra, the depreciation claimed of Rs.2,24,20,265/- as non-compete fee was disallowed. It is claimed by the appellant that in its own case for AY 2011-12, Hon’ble ITAT, in ITA No.760/Hyd/2015 dated 13-05-2016, based on its own decision on similar issue for the AY. 2009-10 in the case of sister concern M/s Prism TV Limited, in ITA No. 466/Hyd/2015 dt. 24-03-2016 & ITA No. 1249/Hyd/2015 (for AY 2012-13), remitted back the above issue to the file of the Assessing Officer for reconsideration. The issue of depreciation of non-compete fees emanates from AY 2010-11 in the appellant’s own case. The Hon’ble ITAT has directed the AO to verify this issue in light of its directions. The decision of the AO with regards to remanded proceedings has direct bearing on the subsequent years as the issue of depreciation has a consequential effect. Thus, considering the directions issued by Hon’ble ITAT for earlier years and the issue being similar for this year as well, the Assessing Officer is directed to verify this issue for this year also and accordingly give the consequential effect. These grounds are therefore allowed accordingly for statistical purposes.”

6.2. Thus, the ld. CIT(A) has found that an identical issue has been considered by this Tribunal in assessee’s own case for the assessment year 2011-2012 and accordingly, the Assessing Officer was directed to give effect of the earlier order of this Tribunal on this issue. The Revenue has challenged this order of the ld. CIT(A) however, it is also matter of fact that the Tribunal has decided this issue in assessee’s own case for the assessment year 2011-2012 as reproduced in earlier part of this order. Accordingly, we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue.

6.3. As regards the power of the ld. CIT(A) for remanding the matter, we find that it is not an order of remanding the matter to the Assessing Officer for fresh verification and decision, but the directions were only limited to give effect to the earlier order of this Tribunal. Even otherwise, we are directing the Assessing Officer to consider the issue in terms of the earlier direction of this Tribunal for the assessment year 2011-2012.

6.4. As regards the disallowance of cost of production of TV serials and programmes by treating the same as capital expenditure and allowing depreciation on the same by the Assessing Officer, at the outset, we note that this issue is also perennial from year after year and in the earlier assessment year i.e., 2011-2012 this Tribunal in assessee’s own case vide order dated 13.05.2016 has considered this issue in Para nos.8 to 8.1 as under

8. Having regard to the rival contentions and the material on record, we find that similar issue had arisen in the case of the sister concern Prism TV Private Ltd., Hyderabad vs. DCIT, Circle16(3), Hyderabad and this Tribunal vide orders dated 24.03.2016 in ITA.No.466 & 1249/Hyd/2015 at paras 6 to 9 has held as under :

“6. As regards ground No.2, against the treating of the cost of production of TV serials and programmes as capital expenditure, brief facts are that the assessee company debited an amount of Rs.123,63,94,000 towards cost of production of TV serials and programmes for the year under consideration. Instead of claiming depreciation, the entire expenditure was claimed as revenue expenditure and debited to the P & L account. The A.O. observed that the cost of production of TV serials and programmes is not covered under Rule 9A or 9B of I.T. Rules. As these Rules are applicable only to production of feature films. The A.O. treated the entire expenditure as capital expenditure and allowed the depreciation thereon. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the order of the A.O. and the assessee is in second appeal before us.

7. The Ld. Counsel for the assessee, while reiterating the submissions made by the assessee before the authorities below, has relied upon the decision of the Coordinate Bench of this Tribunal at Chennai and Mumbai and also the decision of Hon’ble High Court at Delhi in support of his contention that the expenditure incurred on production of television programmes should be allowed as revenue expenditure under section 37 of the I.T. Act. Copies of the said decisions are also filed before us.

8. The Ld. D.R. on the other hand, supported the orders of the authorities below.

9. Having regard to the rival contentions and the material on record, we find that the ‘A’ Bench of this Tribunal at Chennai in the case of ACIT, Media Circle-II, Chennai vs. M/s. Sun TV Network Ltd., Chennai in ITA.Nos.1515 to 1520/Mds/2013 by its order dated 31.10.2013 has held as under :

“8. Now, we take up the common issue involved in all the appeals. The assessee is in the business of running satellite television channels. These channels telecast films, serials etc., through satellite channels. The rights over these films are purchased from the producers of the respective films for broadcasting through satellite television. These rights come with an embargo that the films shall not be broadcasted or aired for a specified period from the date of release in theatres depending upon the success at the box office and other factors. Till the time, such films are broadcasted, they are to be treated as stock in trade. Once the films are broadcasted, the purchase value of the films is written-off. The expenditure on purchase of films is claimed in the first year itself. The assessee has got only satellite telecasting rights and has no universal rights for airing the films or serials. Once the film or the serial is aired, its value is diminished in subsequent telecasts. The assessee earns substantial revenue in the first telecast itself. In repeat telecast, the assessee is able to generate marginal revenue. Whatever income is earned from the subsequent telecasts is offered as income without claiming any expenditure.

The assessee also generates revenue from broadcasting serials through satellite channels. The assessee gets revenue from production and broadcasting serials on the lines of feature films, the rights of broadcasting such serials are also treated as stock in trade till the time they are aired and the expenses are debited to the Profit & Loss account. The assessee treats the films and the serials at par and applied the provisions of Rule 9A and 9B of the Income Tax Rules, as are applicable in case of films on serials as well.

On the other hand, the contention of the Revenue is that the film and serial broadcasting rights acquired by assessee are perpetual in nature. After first telecast, the assessee does not discard the films but carefully store the same in digital library for airing the same again. Therefore, the assessee gets enduring benefit from the rights acquired in films and serials and they do not expire on the date of first telecast as contemplated by the assessee. The rights are intangible assets within the meaning of Explanation (iii) to Section 32 and do not fall within the purview of Section 37(1). The assessee is entitled to claim depreciation on same.

9. The issue of amortization of cost of movie and serial rights, programme production expenses, consumable and media expenses by treating them as intangible assets u/s.32(1)(ii) has been dealt in detail by the CIT (Appeals) in his order dated 23-02-2013 relevant to the A Y. 2006-07 and 2007-08. We fully agree with the detailed findings and the reasoning given by the CIT(Appeals) in his order allowing this ground of appeal of the assessee. For the sake of brevity, we are not reproducing the findings of CIT (Appeals) in accordance with the judgment of the Hon’ble Supreme Court of India in the case of CIT Vs. K. Y. Pillah & Sons reported as 63 ITR 411 subsequently followed by the Hon’ble Delhi High Court in the case of CIT Vs. Global Vantedge (P) Ltd., reported as 354 ITR 21 (Del). The Id. DR has not been able to controvert the well reasoned order of the CIT (Appeals) on the issue. Accordingly, the findings of the CIT (Appeals) on the issue are affirmed and this ground of appeal of the Revenue in respect of all the AYs is dismissed.”

8.1. Respectfully following the same, the alternate ground No.3 of the assessee is treated as allowed.”

6.5. The learned DR has submitted that the cost of production as per Rule 9A and 9B of I.T. Rules, 1962 is allowable only in the case of feature films and not in the case of TV serials and programmes. He has submitted that the production of feature films is a one-time affair whereas the TV serial and programme is a continuous process and not a one-time project. Therefore, the production cost of TV serial and programme cannot be allowed as an expenditure but the same will be treated as capital expenditure and only depreciation is allowable. The learned DR further submitted that the order of this Tribunal has been challenged by the department before the Hon’ble High Court and matters are pending adjudication before the High Court. Since there is no order of the High Court either setting aside the Order of Tribunal or staying the operation of the Order of this Tribunal therefore, we have no option but to follow the rule of consistency. The ld. CIT(A) has considered this issue in Para no.7.3 as under:

“7.3. I have carefully considered the assessment order and statement of facts of the appellant. With regard to above ground, the Hon’ble ITAT in the appellant’s own case for the AY 2011-12 in ITA No 760/Hyd/2015 dated 13.05.2016, based on its own decision on similar Issue in the case of sister concern M/s Prism TV Limited, in ITA No 466 & 1249/Hyd/2015 dt 24.03.2016 has allowed the issue in favour of the appellant by holding as under at paras 6 to 9:-

“6. As regards ground No.3, the Ld. Counsel for the assessee, submitted that this is against the disallowance made by the A.O. for cost of production of TV serials and programmes incurred by the assessee and allowing depreciation only @ 25% thereon by treating the same as capital expenditure. The Ld. Counsel for the assessee submitted that similar issue had arisen in the case of M/s. Prism TV P. Ltd., (cited supra) and the Tribunal has allowed the same as revenue expenditure.

7. The Ld. D.R. on the other hand, supported the orders of the authorities below.

8. Having regard to the rival contentions and the material on record, we find that similar issue had arisen in the case of the sister concern Prism TV Private Ltd., Hyderabad vs. DCIT, Circle16(3), Hyderabad and this Tribunal vide orders dated 24.03.2016 in ITA.No.466 & 1249/Hyd/2015 at paras 6 to 9 has held as under:

“6. As regards ground No.2, against the treating of the cost of production of TV serials and programmes as capital expenditure, brief facts are that the assessee company debited an amount of Rs. 123,63,94,000 towards cost of production of TV serials and programmes for the year under consideration. Instead of claiming depreciation, the entire expenditure was claimed as revenue expenditure and debited to the P & L account. The A.O. observed that the cost of production of TV serials and programmes is not covered under Rule 9A or 9B of I.T. Rules. As these Rules are applicable only to production of feature films. The A.O. treated the entire expenditure as capital expenditure and allowed the depreciation thereon.Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the order of the A.O. and the assessee is in second appeal before us.

7. The Ld. Counsel for the assessee, while reiterating the submissions made by the assessee before the authorities below, has relied upon the decision of the Coordinate Bench of this Tribunal at Chennai and Mumbai and also the decision of Hon’ble High Court at Delhi in support of his contention that the expenditure incurred on production of television programmes should be allowed as revenue expenditure under section 37 of the I.T. Act. Copies of the said decisions are also filed before us.

8. The Ld. D.R. on the other hand, supported the orders of the authorities below.

9. Having regard to the rival contentions and the material on record, we find that the ‘A’ Bench of this Tribunal at Chennal in the case of ACIT, Media Circle-II, Chennai vs. M/s. Sun TV Network Ltd., Chennai in ITA.Nos. 1515 to 1520/Mds/2013 by its order dated 31.10.2013 has held as under:

“8. Now, we take up the common issue involved in all the appeals. The assessee is in the business of running satellite television channels. These channels telecast films, serials etc., through satellite channels. The rights over these films are purchased from the producers of the respective films for broadcasting through satellite television. These rights come with an embargo that the films shall not be broadcasted or aired for a specified period from the date of release in theatres depending upon the success at the box office and other factors. Till the time, such films are broadcasted, they are to be treated as stock in trade. Once the films are broadcasted, the purchase value of the films is written-off. The expenditure on purchase of films is claimed in the first year itself. The assessee has got only satellite telecasting rights and has no universal rights for airing the films or serials. Once the film or the serial is aired, its value is diminished in subsequent telecasts. The assessee eams substantial revenue in the first telecast itself. In repeat telecast, the assessee is able to generate marginal revenue. Whatever income is earned from the subsequent telecasts is offered as income without claiming any expenditure.

The assessee also generates revenue from broadcasting serials through satellite channels. The assessee gets revenue from production and broadcasting serials on the lines of feature films, the rights of broadcasting such serials are also treated as stock in trade till the time they are aired and the expenses are debited to the Profit & Loss account. The assessee treats the films and the serials at par and applied the provisions of Rule 9A and 9B of the Income Tax Rules, as are applicable in case of films on serials as well.

On the other hand, the contention of the Revenue is that the film and serial broadcasting rights acquired by assessee are perpetual in nature. After first telecast, the assessee does not discard the films but carefully store the same in digital library for airing the same again. Therefore, the assessee gets enduring benefit from the rights acquired in films and serials and they do not expire on the date of first telecast as contemplated by the assessee. The rights are intangible assets within the meaning of Explanation (iii) to Section 32 and do not fall within the purview of Section 37(1). The assessee is entitled to claim depreciation on same.

9. The issue of amortization of cost of movie and serial rights, programme production expenses, consumable and media expenses by treating them as intangible assets u/s.32(1)(ii) has been dealt in detail by the CIT (Appeals) in his order dated 23-02-2013 relevant to the A Y. 2006-07 and 2007-08. We fully agree with the detailed findings and the reasoning given by the CIT(Appeals) in his order allowing this ground of appeal of the assessee. For the sake of brevity, we are not reproducing the findings of CIT (Appeals) in accordance with the judgment of the Hon’ble Supreme Court of India in the case of CIT Vs. K. Y. Pillah & Sons reported as 63 ITR 411 subsequently followed by the Hon’ble Delhi High Court in the case of CIT Vs. Global Vantedge (P) Ltd., reported as 354 ITR 21 (Del). The Id. DR has not been able to controvert the well reasoned order of the CIT (Appeals) on the issue. Accordingly, the findings of the CIT (Appeals) on the issue are affirmed and this ground of appeal of the Revenue in respect of all the AYs is dismissed.” DEPAR

8.1. Respectfully following the same, the alternate ground No.3 of the assessee is treated as allowed.” Since the issue of the present case is similar to that of the issue in the case for AY 2011-12, therefore, respectfully following decision of the Hon’ble ITAT, the above grounds are allowed for this year also.”

6.6. Therefore, the ld. CIT(A) has followed the earlier order of this Tribunal in assessee’s own case for the assessment year 2011-2012 and allowed the claim of the assessee. Accordingly, in view of the earlier order of this Tribunal, we do not find any reason to interfere with the impugned order of the ld. CIT(A) qua this issue. Ground numbers 7 to 10 of the revenue are dismissed.

7. In the result, appeal ITA.No.636/Hyd./2025 of the Revenue is dismissed.

ITA.No.752/Hyd./2025 – A.Y. 2022-2023 [Assessee’s Appeal]:

8. The assessee has raised the following grounds of appeal:

1. “Order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) dated 19-02-2025 is erroneous, contrary to the law and facts of the case.

2. Commissioner of Income Tax (Appeals) erred in sustaining the addition of Rs.32,78,982/- made by the Assessing Officer on account of Subscription Revenue stating that Appellant is not following mercantile basis of accounting. Commissioner of Income Tax (Appeals) ought to have seen that subscription revenue credited to statement of profit and loss account for the month of March 2022 is Rs.36,41,13,778/-which is recognised based on the February 2022 SMS(Subscribers Management system) reports, as SMS reports for the month of March 2022 are not received at the time of closing books of accounts for financial year 2021-22. The aforesaid subscription revenue is more than the actual subscription revenue of Rs. 36,08,34,796 which is calculated based on the SMS(Subscribers Management system) reports submitted by Distribution Platform operators(i.e., DTH operators, MSO’s etc.,) for the month of March 2022. Difference of Rs.32,78,982/- in revenue between the subscription revenue in financials and actual subscription revenue was adjusted in computing the total income at the time of filing return of income for the assessment year 2022-23. Hence the Commissioner of Income Tax (Appeals) is not justified in confirming the action of Assessing Officer in making addition of Rs.32,78,982 towards subscription revenue.

3. For all of the above and such other grounds as may be urged at the time of hearing it is most respectfully prayed that this Hon’ble Tribunal may be pleased to allow the appeal.”

9.The solitary issue raised by the assessee in this appeal is regarding the addition made by the Assessing Officer on account of subscription revenue of Rs.32,78,982/-

10. The learned Authorised Representative of the Assessee has assessee in the books of accounts, the assessee has shown the subscription revenue for the month of March at Rs.36,41,13,778/- whereas while filing the return of income the assessee has shown the subscription revenue for the month of March 2022 at Rs.36,08,34,796/- which is lower than the revenue shown in the books of accounts to the tune of Rs.32,78,982/-. The Assessing Officer issued a show cause notice to the assessee as to why the differential amount shall not be added to the total income of the assessee. In reply, the assessee has submitted that the actual details of the subscription revenue for the month of March 2022 was not available as on 31.03.2022 and therefore, the assessee has estimated the subscription revenue for the month of March, 2022 based on the preceding month. However, subsequently the actual details of customer base subscription revenue were available, and it was noted that the actual subscription revenue for the month of March is lower than the estimated revenue and accordingly the assessee has reduced the sum of Rs.32,78,982/-. The assessee also explained that this practice is followed uniformly for each financial year since introduction of new tariff order by the TRAI in February 2019 onwards. The Assessing Officer did not accept the contention of the assessee and held that the assessee follows the mercantile system of accounting and records the transactions when they arise, and income is recognized when the sum is accrued irrespective of it has received. Accordingly, the Assessing Officer has made an addition of Rs.32,78,982/-.

10.1. The learned Authorised Representative of the Assessee has submitted that during the course of assessment proceeding and in response to the show cause notice issued under section 142(1) of the Act, the assessee has furnished the details of actual amount of subscription revenue received and disclosed in ITR and also the provisional subscription revenue earned relating to the Distribution Platform Operator [in short “DPO”] like DTH operators Subscription Management System for the month of March, 2022. He has further submitted that as the customer base for the month of March 2022 was not received at the time of finalizing the accounts for the year ended on 31.03.2022, the assessee recognized the subscription revenue of Rs.36.41 crores for the month of March, 2022 on estimate basis by considering the customer base of February, 2022. The said estimated amount was credited to the statement of profit and loss account however, the actual revenue was recognized later on based of actual customer/subscription of Rs.36.08 crores which was lower than the estimated revenue. Therefore, there was a difference of Rs.32,78,982/- which was deducted by the assessee while computing the total income and disclosed in the return of income. He has referred to Item no.33 in ITR and submitted that in the Schedule BP the assessee has clearly shown this amount as allowable deduction. The learned Authorised Representative of the Assessee has submitted that the Assessing Officer has made this addition without verifying the record and to ascertain the actual subscription revenue for the month of March 2022. Therefore, the addition is made on the basis of wrong presumption of fact that the assessee has offered the income based on actual receipts instead of accrual of income. The learned Authorised Representative of the Assessee has submitted that there is no difference in the accrual andactual receipt, but it is a matter of actual revenue based on the customer subscription for the month of March 2022. The information about the actual subscription income for the month of March 2022 was received only in the month of April 2022 therefore, the assessee made the necessary adjustment while filing the return of income. The learned Authorised Representative of the Assessee has further submitted that for the assessment year 2020-2021 there was a difference between the estimated subscription revenue for the month of March 2020 and actual subscription revenue ascertained subsequent to the closure of books of accounts which was offered by the assessee to tax in the subsequent assessment year 2021-2022 however, the Assessing Officer made an addition of the said amount of difference being an excess subscription revenue as per the actual data in comparison to the estimated revenue shown in the books of accounts which was upheld by the ld. CIT(A) as well as by this Tribunal.

10.2. Thus, the learned Authorised Representative of the Assessee has submitted that when the actual subscription revenue for the month of March, 2020 ascertained subsequent to the closure of the books of accounts was treated as income for the assessment year 2020-2021 then, on the same analogy the actual subscription revenue for the month of March, 2022 shall be taken as the part of the total income instead of higher estimated revenue shown in the books of account for this assessment year. The assessee has rightly included the actual subscription revenue for the month of March 2022 in the total income instead of the estimated subscription revenue while filing the return of income. Thus, he has submitted that the addition made by the Assessing Officer is liable to be deleted.

11. On the other hand, the learned DR has submitted that the Assessing Officer has assessed the income of the assessee based on the books of accounts of the assessee and therefore, the deduction claimed by the assessee not part of the books of accounts cannot be allowed. It is not a deduction allowable under the Income Tax Act, but the assessee is claiming the deduction without carrying out the rectified entries in the books of accounts. The learned DR has submitted that the assessee has claimed the deduction of the amount of Rs.32,78,982/- without explaining how this deduction is allowable under the provisions of the Act when there is no such expenditure or deduction is recorded in the books of accounts of the assessee. He has relied upon the orders of the authorities below.

12. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has made this addition by giving the reasons as under:

“The pointwise rebuttal to the above reply is mentioned below:

It is submitted that this practice is followed uniformly for each financial year since the introduction of New Tariff Order by TRAI in February 2019 and it is followed by all broadcasters in the Cable industry. But this contention of the assessee is not acceptable as in mercantile basis of accounting being followed by the assessee transaction are recorded when they arise and the income is recorded in the books of account when it is accrued irrespective of the facts when it is received. Therefore, the above contention of the assessee is not acceptable and hence rejected.

In view of the above discussion and rebuttal, the income of the assessee is hereby enhanced by an amount of Rs.32,78,982/-by disallowing the assessee’s claim of adjustment to subscription revenue relating to DPO by that amount.”

12.1. The Assessing Officer has applied the principle of mercantile basis of accounting being followed by the assessee and consequently, assumed that the assessee has claimed the said deduction of Rs.32,78,982/- on the basis of the actual receipts treating the same as cash basis accounting. It is pertinent to note that on similar point for the assessment year 2020-2021, the assessee recorded the subscription revenue for the month of March, 2020 based on estimation and subsequently the actual details of subscription revenue for the month of March, 2020 was available/ascertained and was found to be higher than the estimated subscription revenue recorded in the books of accounts. That higher amount of subscription revenue for the month of March 2020 was not offered to tax by the assessee for the assessment year 2020-2021 but the assessee claimed that the said differential amount was taken and included in the income of the subsequent year i.e., assessment year 2021-2022. The Assessing Officer made the addition of the said differential amount of subscription revenue for the month of March 2020 as it was an actual income for the financial year relevant to the assessment year 2020-2021. The said addition was sustained by the ld. CIT(A) as well as by this Tribunal.

12.2. For the year under construction, the assessee has recorded in the books of accounts the subscription revenue for the month of March, 2022 based on estimation at Rs.36,41,13,778/- and claimed that subsequently, the actual revenue was recognized for the month of March, 2022 based on customer subscription at Rs.36,08,34,796/- which is lower than the estimated revenue recorded in the books of accounts and credited in the profit and loss account. The assessee in the return of income claimed the deduction of the said differential amount but the Assessing Officer has made the addition by giving the reasons that the claim of the assessee is contrary to the mercantile base of accounting being followed by the assessee. Thus, it is clear that the Assessing Officer has taken a contrary view as taken for the assessment year 2020-2021. Secondly, there is no dispute regarding the revenue recognition based on the merchandise system of accounting or cash system of accounting, but this is an issue of what is the actual and real income of the assessee for the financial year relevant to the assessment year under consideration. Undisputedly, the assessee is following a practice of recording the subscription revenue for the month of March on estimate basis as the actual details of the subscription revenue are not available at the time of closing the books as on 31^st March of each year. Therefore, the claim of the assessee ought to have been verified and examined based on the fact as well as record and to arrive at the conclusion whether the claim of the assessee is duly substantiated by the facts and record or not. The ld. CIT(A) has also not gone to the aspect of the actual income of the assessee but has upheld the order of the Assessing Officer by giving the similar reasonings. In the facts and circumstances of the case, we are of the considered opinion that this issue requires proper verification and examination of relevant facts and records to ascertain the veracity and correctness of the claim of the assessee. Accordingly, we set aside the impugned order of the ld. CIT(A) and remand this issue to the record of the Assessing Officer to decide the same on the basis of the actual facts and supporting evidence to be filed by the assessee and not on the basis of the accounting principle.

13. In the result appeal ITA.No.752/Hydf./2025 of the assessee is allowed for statistical purposes.

14. To sum up appeal ITA.No.636/Hyd./2025 of the Revenue is dismissed and appeal ITA.No.752/Hyd./2025 of the assessee is allowed for statistical purposes. A1 copy of this common order be placed in the respective case files

Order pronounced in the open court on 30.06.2026.