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2015 (7) TMI 1020 - ITAT DELHI

2015 (7) TMI 1020 - ITAT DELHI - TMI - Income earned from exploitation of commercial space - whether has to be assessed under the head 'Income from House Property' or 'Profits and Gains of Business & Profession' - Held that:- no hesitation to hold that the main object of the present assesssee company was not to earn rental income from letting of property which was purchased in FY 2001-02 and let out in FY 2002- 03 temporarily till the company gets sufficient profits from its main business activi .....

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ot as per main objects of the assessee company and the same was let out in the third year of business operations temporarily when the assessee company could not earn income from its main object in spite of their best efforts. At this juncture, the ratio of the decision of Hon’ble Special Bench, ITAT, Delhi in the case of Atma Ram Properties (P) Ltd. [2006 (4) TMI 196 - ITAT DELHI-C] also supports the case of the revenue wherein it was held that rental income derived by assessee company of lettin .....

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quite justified and reasonable. - Decided against assessee.

Admission of additional evidence objected - Held that:- In the present case, the assessee has not placed any sufficient reason which prevented it in filing documents/evidence during assessment proceedings which was filed subsequently before CIT(A) as additional evidence under Rule 46A. The assessee was given due opportunity of hearing before the AO, hence the AO rightly objected to the admission of additional evidence and the .....

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her relevant facts and circumstances only on the basis of letter dated 22.8.2008 which was not field on the instructions of the assessee. Therefore, we are inclined to accept the contention of the assessee that the letter dated 22.8.2008 cannot be held as filed on behalf of the assessee and on the instruction of the assessee company. The conclusion of the AO cannot be held as sustainable in treating the rental receipts of the assessee company as income from house property instead of business inc .....

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uneration to Director, salary and remuneration - Held that:- respectfully following the ratio of the judgments of Hon’ble Supreme Court in the case of CIT vs Rajendra Prasad Moody (1978 (10) TMI 133 - SUPREME Court ), we hold that it is not necessary that any income should, in fact, have been earned as a result of expenditure and expenses incurred by the assessee to maintain its corporate and legal existence cannot be disallowed merely because no income has been earned as a result of activities .....

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sue - Decided in favour of assessee for statistical purposes.

Disallowance of set off of brought forward assessed business losses - Held that:- Since by the earlier part of this order on ground no. 1, we have held that the rental income of the assessee company deserves to be treated as income from house property instead of business income as claimed by the assessee, therefore, business loss cannot be set off against the income from house property and conclusion of the CIT(A) was corre .....

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n of jurisdiction for initiation of proceedings and issuance of notice u/s 147/148 challenged - additional ground - Held that:- Assessee is devoid of merits as notice u/s 148 of the Act in this case relevant to AY 2006-07 was issued on 25.9.2008 which is very well within the prescribed time limit as per provisions of section 149(b) of the Act. As we have already noted that the assessee did not place his wiliness or desire before the AO after receipt of notice u/s 148 of the Act until completion .....

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ccept the legal contention of the assessee that the reopening of assessment was not valid, void ab initio and bad in law. - Decided against assessee. - ITA No.273/Del/2013,ITA No.1134/Del/2013 - Dated:- 28-7-2015 - Shri R.S. Syal and Shri Chandramohan Garg, JJ. For the Petitioner : Shri O.P. Pahuja For the Respondent : Shri T. Vasanthan, Sr. DR ORDER PER C.M. GARG, JUDICIAL MEMBER This appeal by the assessee has been preferred against the order of the CIT(A)-V, New Delhi dated 21.11.2012 in Appe .....

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stances of the case and in law, the ld. CIT ( A) erred in upholding the disallowance of following expenses claimed in the profit and loss account on account of:- [In Rs.] i) Accounting charges 30,000.00 Ii) Bank Charges 1468.08 iii) General expenses 25,680.00 IV) Telephone Expenses 3,600.00 v) Preoperative expenses written off 2,400.00 vi) Staff welfare 8,695.00 vii) Lease rent expenses 66448.00 Viii) Maintenance Charges 85,208.00 ix) Printing & Stationery 6,090.00 x) Remuneration to Directo .....

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any cogent reason or any material on record. 4. On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in rejecting application under rule 46A of the I'T Rules, 1962 and ignoring the documents forming part of the assessment records. 5. On the facts and in the circumstances of the case and in law, the ld. CIT ( A) erred in considering letter dated 22.8.2008 filed by Shri Sanjeev Bhardwaj, who was never authorized by the assessee company to file such a letter. In .....

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the assessee filed E-return on 30.11.2006 declaring an income of ₹ 2,45,851/- for AY 2006-07. Subsequently a paper return was also filed on 8.12.2006 after setting off of brought forward business loss of ₹ 7,67,190. The assessee has shown income from its property located at sector 18, Noida under the head of profit and gains of business and profession but the AO treated the same as income from house property . The first contention of the assessee is that the AO wrongly treated the s .....

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et taxable income of ₹ 13,67,361. The AO disallowed all other expenses mentioned in ground no. 2 of the assessee in this appeal. The aggrieved assessee preferred an appeal before the CIT(A) which was also dismissed by passing the impugned order. Now, the empty handed assessee is before this Tribunal in this second appeal with the ground as reproduced hereinabove. Ground No.4 4. Next issue for our consideration is rejection of application of the assessee filed under Rule 46A of the Income T .....

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AO has not allowed any opportunity of hearing to produce the evidence which was though referred by Mr. Mirola i.e. assessment records of earlier years. The AO had also not asked to produce the same. In view of this it was found necessary to file all the returns already on record, certificate of incorporation, objects of the company, board s resolution in order to appreciate the facts and circumstances of the case. Though these documents are part of earlier assessment record but in order to avoid .....

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llant's case is covered under clause 'c & clause 'd' of rule 46Aof the IT rules." The application was referred to the AO for his comments. The AO resisted the admission of additional evidence on the ground that the appellant's case does not fall under any of the clauses mentioned in Rule 46A of the I.T. Rules. A perusal of the record of proceedings (note sheet) shows that the appellant was given reasonable opportunity by the AO during proceedings before him. Therefor .....

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e Rules. It was also contended that during the assessment proceedings, the assessee was prevented by sufficient cause from producing the same as the AO was not allowed due opportunity of hearing, hence, the issue falls under clause (c) and (d) of Rule 465A of the Rules and the CIT(A) was totally unjustified in disallowing the same. 6. Ld. DR replied that the AO provided due opportunity of hearing to the assessee, hence, the case of the assessee does not fall under any of the clauses of Rule 46A .....

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given due opportunity of hearing before the AO, hence the AO rightly objected to the admission of additional evidence and the CIT(A) was quite justified in rejecting the same. Hence, ground no. 4 of the assessee is dismissed. Ground No. 5 8. We have heard arguments of both the sides and carefully perused the relevant material placed on record. At the very outset, ld. counsel of the assessee vehemently contended that Shri Sanjeev Bhardwaj was never authorised by the assessee company to file any .....

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making such request on 22.8.2008 which was picked up by the AO for treating the income as income from house property instead of profits and gains of business and profession. On this issue, ld. DR submitted that a letter was submitted on 22.8.2008 before the AO by the AR Shri Sanjeev Bhardwaj who subsequently attended the assessment proceedings, therefore, the AO was correct in treating the rental receipts as income from house property. 9. On careful consideration of above submissions, firstly, w .....

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filing any affidavit or any other details before us. On careful consideration of rival contentions of both the parties on this issue, we are of view that if the rental income of the assessee company was being assessed as profits and gains of business and profession during the earlier assessment year, then in an ordinary course of action, the company would not agree to treat the same as income from house property instead of business income. From first para of the assessment order, we note that or .....

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ring the other relevant facts and circumstances only on the basis of letter dated 22.8.2008 which was not field on the instructions of the assessee. Therefore, we are inclined to accept the contention of the assessee that the letter dated 22.8.2008 cannot be held as filed on behalf of the assessee and on the instruction of the assessee company. The conclusion of the AO cannot be held as sustainable in treating the rental receipts of the assessee company as income from house property instead of b .....

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of the assessee and the AO did not consider the treatment given by the assessee and accepted by the revenue in earlier assessment yeas and other relevant facts. Ld. counsel vehemently contended that the CIT(A) rejected additional evidence of the assessee and upheld the conclusion of the AO only on the basis of wrong observations of the AO which were not sustainable in law and on the facts of the case. 11. Ld. DR replied that the AO had no option but to accept the admission letter of the assesse .....

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of Rajasthan Warehousing Corp. (2000) 242 ITR 450 (SC), S.G. Mercantle Corpn. Ltd. vs CIT (1972) ITR 700 (SC), East India Housing & Land Dev. Trust vs CIT (1961) 42 ITR 49 (SC) and the order of the Special Bench of ITAT Delhi in Atma Ram Properties Pvt. Ltd. vs JCIT (2006) 102TTJ (SB) (Del) 345. 12. The ld. counsel of the assessee placed rejoinder to the contentions of the ld. DR and submitted that when objects of the company include activities of letting properties and exploiting income the .....

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roperty have been treated as business income. Ld. counsel has placed reliance on the following judgments of Hon ble Supreme Court and Hon ble Gujarat High Court:- 1. Commissioner of income Tax Vs. Calcutta National Bank [1959],37 ITR 171 (SC) 2. Universal Plast Vs Commissioner of Income Tax [1999] 103 Taxman 493 (SC). 3. Commissioner of Income Tax vs. New India Ind. Ltd.[1993] 201 ITR 208 (Gujarat). 13. On careful consideration of above submissions, we are of the opinion that the authorities bel .....

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ion of the AO is not sustainable. At the same time, when we consider the conclusion of the authorities below we find it appropriate to consider facts of present case under which the assessee earned impugned rental income. Then it would suffice to consider the applicability of the ratio of the judgments and order as relied by both the parties. 14. As per para 2 page 2 of written submissions/synopsis filed by the assessee before us narrated facts leading to impugned rental income which reads as un .....

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he assessee filed return declaring loss of ₹ 2,05,553/- and for the AY 2003- 04, the assessee filed return declaring loss of ₹ 1,03,106/- . On 14-01-2003 the board of directors in the meeting held at its registered office analyzed that in spite of their best efforts in almost two years they are unable to earn income while they were incurring losses for the last three years it is necessary to exploit their commercial space available at its Noida office by letting out same temporally t .....

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06, the assessee declared income of ₹ 2,38,868/- in terms of provisions of sec. 115JB of the Act. These returns for the AYs 2001-02 to 2005-06, were accepted u/s 143(1) of the Income tax Act, 1961 [hereinafter referred to as the 'Act']. (Emphasis supplied by us by underlining). 15. In view of above narrated facts submitted by the assessee, we note that the assessee company purchased a shop at Sector 18, Noida in the beginning of the business operations i.e. during AY 2001-02 and ea .....

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rts in almost two years they are unable to earn income while they were continuously incurring losses for the last consecutive three years. It was also decided by the Board of directors of the assessee that it is necessary to exploit their commercial space available at its Noida office by letting out the same temporarily till company gets sufficient profits from its main business activities which would further reduce burden of expenditure and losses of last three years. 16 . On careful considerat .....

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8377; 90,000 and ₹ 9,50,600 respectively and there was no business income from commission. In the AY 2005-06, there was rental income of ₹ 17,88,000 and there was no commission income during this period. In the year under consideration i.e. AY 2006-07, the assessee earned gross rental income of ₹ 19,75,500 and there was no business income during this period. 17. Under above noted facts and circumstances and as per year wise detail of gross rental income and gross business incom .....

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ness operation during AY 2001-02 and the same was first time let out as per decision of Board of Directors meeting held on 14.1.2003 i.e. at the fag end of the financial period and there was a gross rental income of ₹ 90,000 only in AY 2003-04. As per written submissions in para 2 of the assessee company, it is amply clear that in the initial 2-3 years, there was no rental income for the assessee company and there was no activity to earn business income but in the board meeting dated 14.1. .....

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d losses of last three years. 18. On logical analysis of above submissions, it can safely be presumed that the assessee company was formed with the main object of earning income from property transactions in the form of commission and profits etc. In the first three years of business, the assessee company did not earn any amount from rental income and at the fag end of third financial year 2002-03 relevant to AY 2003-04, the Board of Directors of the assessee company decided to let out shop in s .....

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under consideration 2006-07. 19. Now, we proceed to consider the ratio of the judgments relied by both the sides. In the case of CIT vs Calcutta National Bank Ltd. (supra), the Hon ble Supreme Court held that the realisation of rental income by the assessee was in the course of its business in prosecution of one of its objects in its memorandum and was liable to be included in its business profits and was assessable to tax as business profit. In this case, the bank owned a six-storeyed building .....

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inguishable from that case. 20. In the judgement of Universal Plast Ltd. vs CIT (supra), it was decided that where the assessee is engaged in the business of giving cotton stopped its business and let out godowns and also separated machinery and let out pressing factory to a metal pressing factory, rental income derived therefrom could not be assessed as business income. In view of above, we respectfully note that benefit of the ratio of this judgment is not available for the assessee. 21. In th .....

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udgements as relied by the ld. DR and authorities below, we find that similar issue was considered and decided by the ITAT Delhi Special Bench in the case of Atma Ram Properties (P) Ltd. vs CIT(supra) and we note that it was held that rental income derived by the assessee company by letting out a property simplicitor was chargeable to tax under the head income from house property and not as business income irrespective of the fact that the assessee company was doing business of acquiring, develo .....

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ental Representative has heavily relied on the decision of Hon'ble Madras High Court in the case of CIT vs. Chennai Properties & Investments Ltd. (supra). In the said decision, Hon'ble Madras High Court has discussed and analyzed various decisions of the different High Courts as well as that of Hon'ble Supreme Court available on the issue. On a careful perusal of the said decision of Hon'ble Madras High Court cited by the learned Departmental Representative and keeping in vie .....

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rental income should be from the bare letting of the tenements or from letting accompanied by incidental services or facilities. The subject hired out should not be a complex one and the income obtained should not be so much because of the facilities and services rendered than because of their letting of the tenements. If such a situation is found to be obtained, the other aspects such as nature of the property being commercial/business asset, etc. in the hands of the assessee as well as nature .....

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ial activity. The rental income earned from the said property thus was chargeable to tax under the head "Income from house property" and not under the head "Profits and gains of business or profession" as claimed by the assessee. As such, considering all the facts of the case and keeping in view the legal position emanating from the various judicial pronouncements discussed hereinabove, we hold that the rental income received by the assessee in the year under consideration wa .....

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ase of the assessee on the principle of consistency and submitted that the rental income was assessed from AY 2003-04 to AY 2005-06 as business income and in the similar set of facts and circumstances, the same was assessed as income from house property in AY 2006-07 without any change in the facts and circumstances and without any justified and reasonable basis. Thus, ld. counsel of the assessee vehemently contended that the revenue authorities should respect principle of consistency in the tax .....

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se, the AO took a correct view that the rental income of the assessee was to be assessed as income from house property instead of Business income as declared by the assessee in its return of income. 25. Ld counsel of the assessee placed a rejoinder on this issue and submitted that the AO treated the rental receipts as income from house property on the basis of letter dated 22.8.2008 which was neither filed by the assessee nor the same was filed on the instructions of the assessee, therefore, the .....

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, application of principle of consistency cannot be pressed in the present case. 27. At the cost of repetition, we may point out that the revenue authorities have not disputed this fact that the assessee company was incorporated on 12.12.2000 with a number of objects including as follows:- "to build, construct, establish, own, purchase, sell, take on lease or exchange or otherwise acquire, hold, maintain and manage industrial, commercial or residential buildings, apartment houses, hotels, m .....

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ustrial, commercial or residential buildings, apartment houses, hotels, motels, hostels and restaurants. As per objects of the assessee company, besides aforesaid main objects, the letting and sub-letting of property was also the object of the assessee company. When we proceed to evaluate and analyse the business activities of the assessee company, in view of aforesaid main and other objects, we note that the assessee company earned commission income of ₹ 66,710 in AY 2001-02 and there is .....

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n any money from the main business activities and therefore it was decided to rent out property at Noida Sector 18 which was purchased in AY 2001-02 viz. in the first year of incorporation of the assessee company, temporarily till the company gets sufficient profits from its main business activity with the intention to reduce burden of expenditure and losses suffered by the assessee company in the preceding three financial years. 29. In this situation, it is amply clear that the assessee company .....

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uld further reduce burden of expenditure and losses. In this situation and totality of the facts and circumstances, we have no hesitation to hold that the assessee company was formed with the main object of property business and earning income from property transactions in the form of commission and profits etc. but when the company could not perform well in its main objects, then at the end of third FY 2002-03, it was decided by the Board of Directors of the company that the said shop purchased .....

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udgments of Hon ble Apex Court in the case of East India Housing and Land Development Trust Ltd. vs CIT (1961) 42 ITR 49(SC), decision of Hon ble constitutional bench to Supreme Court in the case of Sultan Brothers (P) Ltd. vs CIT (1964) 51 ITR 353 (SC) and also ratio of the decision of Hon ble Supreme Court in the case of Karanpura Development Co. Ltd. vs CIT (1962) 44 ITR 362 (SC), their lordships held as follows:- The Memorandum of Association of the appellantcompany which is placed on record .....

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the main objective of the company. It may further be recorded that in the return that was filed, the entire income which accrued and was assessed in the said return was from letting out of these properties. It is so recorded and accepted by the assessing officer himself in his order. It transpires that the return of a total income of ₹ 244030 was filed for the assessment year in question that is assessment year 1983-1984 and the entire income was through letting out of the aforesaid two p .....

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nded properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business. This cou .....

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to the Constitution Bench judgment in the case of Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)]. That was also a case where the company, which was the assessee, was formed with the object, inter alia, of acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its .....

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t in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, .....

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ely, is summed up in the following words: - As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to .....

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Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. This is so stated in the following words: - We think each case has to be looked at from a businessman's point of view to find out whe .....

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ed, to support the proposition that certain assets are commercial assets in their very nature. We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head In .....

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cts and as per the Memorandum, the main object of the assessee was to acquire and hold properties known as Chennai House and Firhavin Estate both in Chennai and to let out these properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. Therefore, after considering dicta laid down by constitutional bench of the apex court, in the case of Sultan Brothers (P) Ltd. (supra), it was held that letting of property, in fact was the main busi .....

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rrive at a conclusion where the income is to be treated as income from business and such a question would depend upon the circumstances of each case and whether a particular business is letting or not. The Hon ble Supreme Court in the judgment of Chennai Properties and Investments Ltd. vs CIT (supra) have given a demarcation line and enlightened us by providing a proposition that where the main object of the assessee company is to acquire and hold properties and to let out those properties, then .....

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categorically held that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at a conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case. In the light of above ratio if we analyse the totality of the facts and circumstances of the present case, we have no hesitation to hold that the main object of the present assesssee company was not to earn rental in .....

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h of Hon ble apex court in the case of Sultan Brothers Ltd. vs CIT (supra) as the assessee company let out the shop situated at Sector 18, Noida not as per main objects of the assessee company and the same was let out in the third year of business operations temporarily when the assessee company could not earn income from its main object in spite of their best efforts. At this juncture, the ratio of the decision of Hon ble Special Bench, ITAT, Delhi in the case of Atma Ram Properties (P) Ltd. al .....

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complex commercial activity. 34. On the basis of foregoing discussion, we are inclined to hold that the view taken by the AO and upheld by the CIT(A) is quite justified and reasonable. We are unable to see any infirmity, perversity or any other reason to interfere with the same. Accordingly, ground no. 1 of the assessee company is dismissed. Ground No. 2 35. Apropos ground no.2, ld. counsel of the assessee submitted that CIT(A) erred in upholding the disallowance of expenses claimed in the prof .....

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counsel of the assessee has placed reliance on the ratio of following decisions of Hon ble Supreme Court, Hon ble Calcutta High Court, Hon ble Allahabad High Court and ITAT Delhi and Mumbai Benches:- 4. Commissioner of Income Tax vs. Rajendra Prasad Moody [1978 115 ITR 519(SC). 5. Commissioner of Income Tax vs Ganga Properties Ltd. [1992] 62 Taxman 285 (Cal) 6. CIT vs New Savan Sugar & Gur Refining Co. Ltd. (1991) 55 Taxman 189 (Cal) 7. CIT vs Rampur Timber & Turnery Co. Ltd [1981] 6 Ta .....

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al year under consideration, therefore, the expenses claimed by the assessee in the profit and loss account were rightly disallowed by the AO. Ld. DR also submitted that the AO took a reasonable approach in allowing claim of audit fee and filing fee to the assessee. Supporting the impugned order, ld. DR submitted that the first appellate authority was right and correct in upholding the disallowance made by the AO. 37. On careful consideration of above submissions, at the very outset, we respectf .....

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e necessary for maintaining a corporate establishment and which are inextricably linked with the business activities of the assessee. The relevant operative part of the order of the Tribunal reads as under:- 9. Now, the issue before us is whether or not the expenditure claimed by the assessee under various heads for sums aggregating to ₹ 6,87,626, can be allowed? The Assessing Officer has disallowed these expenses but did not make any separate addition on the ground that he has disallowed .....

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sessee has also made advance with a view to engage in real estate development. For carrying out all the activities, it has to maintain its establishment for complying with various statutory obligations and the operations of the company even if the assessee is having income under the different heads. Even under the head "Income From Other Sources", the expenditure incurred by the company has to be allowed. Looking to the nature of expenses claimed by the assessee, it is seen that most o .....

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penditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. Sec. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is n fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of r .....

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which was ipsissima verba in the same terms as s. 57(iii), Bosc J., speaking on behalf of the Court, observed: "It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned." It is indeed difficult to see how, after this observation of the Court there can be any scope for controversy in regard to the interpretation of s. 57(iii). It is also interesting to note that, according to the Revenue, the expenditure would disqualify for deduction .....

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iture would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting inco .....

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is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of s. 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income. It is true that the language of s. 37(1) is a little wider than that of s. 57(iii), but we do not see how th .....

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clearly supported by the observations of Lord Thankerton in Huges vs. Bank of New Zealand (1938) 6 ITR 636 (HL) TC16R.381, where the learned Law Lord said.' "Expenditure in course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of the trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense. " 10. Further, the Calcutta High Court in Ganga Properties Ltd. .....

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f the company for all practical purposes. So long as it is in operation, it has to maintain its status as a company and it has to discharge certain legal obligations and, for that purpose, it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income is prominently a reasonable conclusion. We have considered a similar c .....

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t case, then, except for the amount claimed under the head "Depreciation on Motorcar & Computer", all other expenses listed above in foregoing paragraphs, are to be allowed, as these expenses mostly pertain to carrying out of various operations and activities carried on by the assessee company, which are necessary for maintaining a corporate establishment and are intricably linked for earning of the income under various heads, as shown by the assessee . 38. While we consider the as .....

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ion, respectfully following the ratio of the judgments of Hon ble Supreme Court in the case of CIT vs Rajendra Prasad Moody (supra), we hold that it is not necessary that any income should, in fact, have been earned as a result of expenditure and expenses incurred by the assessee to maintain its corporate and legal existence cannot be disallowed merely because no income has been earned as a result of activities conducted and expenditure incurred by the assessee company during the relevant period .....

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l purposes. Ground No.3 39. Apropos ground no.3, ld counsel of the assessee submitted that the CIT(A) erred on both facts and in law in confirming the action of the Ld. AO, in not allowing the set off of brought forward assessed business losses of earlier years without appreciating that the said disallowance is not supported by any cogent reason or any material on record. Ld. DR replied that when the assessee company is making false claims and there was no business income of the assessee company .....

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ht forward losses was not given to the assessee. During the first appellate proceedings, the issue of brought forward losses was dismissed by the CIT(A) by holding that business loss cannot be set off against the income from house property. 41. Since by the earlier part of this order on ground no. 1, we have held that the rental income of the assessee company deserves to be treated as income from house property instead of business income as claimed by the assessee, therefore, business loss canno .....

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cordance with law and relevant provisions of the Act. Ground No.6 42. Since the main issue of the assessee has been restored to the file of AO and ground no. 6 of the assessee pertaining to interest u/s 234B of the Act being consequential in nature is also restored to the file of AO for a fresh adjudication as per reassessment order, accordingly, ground no. 6 of the revenue is also restored to the file of AO. Ground No.7 43. Ground No. 7 challenging initiation of penalty proceedings u/s 271(1)(c .....

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sides and carefully perused the relevant material placed on record. Ld. counsel of the assessee placing reliance on several judgements of Hon ble Supreme Court and Hon ble High Court including judgment in the case of NTPC vs CIT (1998) 229 ITR 383 (SC) submitted that the additional grounds raised by the assessee are purely legal grounds which could not be taken before CIT(A) for want of proper legal advice, therefore, the same may kindly be admitted for adjudication. Ld. DR submitted that when .....

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o challenge the reassessment proceedings on the ground of section 149(1)(b) of the Act. In view of judgment of Hon ble Supreme Court in the case of NTPC vs CIT (supra), the Tribunal should not be prevented from considering the question of law arising in assessment proceedings, although not raised earlier. It was further held that the view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) is too narrow a view to take regarding powers of the Tribunal. Since g .....

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the circumstances of the case and in law, the ld. CIT (A) erred in not appreciating that the order passed by the Assessing Officer u/s 143(3) of the Income tax Act, 1961 is without jurisdiction and bad in law as the jurisdiction u/s 147 is vitiated. 2. On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in not appreciating that the order passed by the Assessing Officer u/s 143(3) of the Income tax Act, 1961 is without jurisdiction and bad in law as the AO did not .....

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ome Tax Act, 1961 and therefore the assessment made thereon is bad in law and must be quashed. 5. On the facts and in the circumstances of the case, the reassessment proceedings are barred by limitation in as much as the reasons for reopening have not been supplied to the appellant before the expiry of six years from the end of the relevant Assessment Year, which is beyond the period prescribed under Section 149( 1) (b) of the Income Tax Act, 1961. 45.3 Along with original appeal, the assessee r .....

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1961 is without jurisdiction and bad in law as the AO did not communicate reasons for issuance of notice u/s 148 of the Act. 3. On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in holding that income earned from exploitation of commercial space has to be assessed under the head 'Income from House Property' instead of under the head 'Profits and Gains of Business & Profession' and had incorrectly and unjustifiably upheld the said action of L .....

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nting & Stationery 4,280.00 x) Remuneration to Director 3,60,000.00 xi) Salary 1,77,350.00 xii) Depreciation 2,86,646.00 xiii) Interest on loans 4,87,369.00 xiv) Legal fees 36,000.00 without assigning any reasons, especially when aforesaid expenses were incurred wholly and exclusively for the purpose of business of the company and in order to maintain its status. 5. That on the facts and in law, the ld. CIT(A) grossly erred in confirming the interest charged by the ld. AO under section 234B .....

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itional ground submitted that the AO in its order dated 27.11.2009 has not whispered a word about the date when the proceedings u/s 147 of the Act were initiated and when the reasons were recorded. Ld. counsel pointed out that in the first para of impugned assessment order, the AO only records that subsequently, proceedings u/s 147/148 of the Act were initiated and notice u/s 148 dated 20.9.2008 was issued for the following reasons. Ld. counsel further submitted that the AO in response to notice .....

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s, completion of assessment u/s 143(3) of the Act is not in accordance with law and, therefore, notice u/s 148 of the Act and all reassessment proceedings need to be quashed. Ld. counsel also took us through decision of Hon ble Calcutta High Court in the case of Berger Paints India Ltd. vs ACIT & Ors. (2004) 266 ITR 462 (Cal.) and submitted that the assessee is entitled to be supplied with the reasons in the event he challenges the notice for reassessment; assessee is not stopped from challe .....

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Shri G.N.Mohan Raju vs ITO dated 10.10.2014 in ITA No. 242 & 243/Bang/2013 for AY 2006-07 and 2007-08 and submitted that the AO did not issue notice u/s 143(2) of the Act before picking up the assessment for scrutiny and passing order u/s 143(3) r/w section 147 of the Act, therefore, entire reassessment proceedings need to be quashed. 46.2 Replying to the above, ld. DR pointed out that the letter submitted by the assessee asking to supply reasons recorded for reopening are dated 30.1.2013 a .....

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u/s 148 of the Act is issued, proper course of action for the notice is to file the return and if he (assessee) so desires to seek reasons for issuing the notice. Ld. DR further contended that if the assessee desires to seek reasons for reissuance of notice, the AO is bound to furnish reasons for reopening within a reasonable time but when the assessee is not making any effort in this regard after receipt of notice and till completion of reassessment proceedings, then it should be presumed that .....

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Shri G.N.Mohan Raju vs ITO (supra) which was also referred by Hon ble Calcutta High Court in the case of Berger Paints India Ltd. vs ACIT & Ors. (supra), it has been held that when a notice u/s 148 of the Act is issued, a proper course of action for the notice (assessee) is to file the return and if he so desires to seek reasons for issuing the notice u/s 148 of the Act. When the assessee expresses his willingness or desire to seek reasons before the AO, then the AO is bound to furnish reas .....

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sued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the .....

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rom the letters filed as Annexure 1 along with written submissions of the assessee, it is clear that the assessee asked for the reasons of reopening much later viz. on 30.1.2013 and 22.2.2013. In this situation, we respectfully hold that in our humble understanding of the relevant provisions of the Act, the assessee did not place his willingness or desire seeking copy of the reasons recorded for initiation of proceedings u/s 147/148 of the Act after receipt of notice u/s 148 of the Act until com .....

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nts India Ltd. vs ACIT & Ors. (supra) is not available for the assessee and this legal issue raised by the assessee is jettisoned. 47. Now, we proceed to consider another legal contention of the assessee placed in additional ground no. 5 that the reasons for reopening have not been supplied to the assessee before expiry of six years from the end of relevant assessment year which is beyond the period prescribed u/s 149(1)(b) of the Act. Ld. counsel of the assessee submitted that in case reaso .....

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assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that period. Ld. DR pointed out that the present case is related to AY 2005-06 and notice u/s 148 of the Act was issued to the assessee on 25.09.2008 which is very well within the prescribed time limit u/s 149(1)(b) of the Act and the said provision prescribes time limit for issuance of notice u/s 148 of the Act wherein supply of reasons recorded is no .....

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mpletion of reassessment proceedings on 27.11.2009, seeking copy of reasons recorded, therefore, the assessee is not entitled for any benefit in this regard. 47.2 We further proceed to consider the proposition laid down by ITAT, Bangalore C Bench in the case of Shri G.N.Mohan Raju vs ITO (supra) wherein it was held that if there was no valid issue of notice u/s 143(2) of the Act and the assessments were done without following mandatory requirements of the Act, then subsequent proceedings are inv .....

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the power to issue notice u/s 148 of the IT Act. Notice u/s 148 of the Act, issued to the assessee required it to file a return within 30 days from the date of service of such notice. There is no provision in the Act, which would allow an AO to treat the return which was already subject to a processing u/s 143(1) of the IT Act, as a return filed pursuant to a notice subsequently issued u/s 148 of the Act. However, once an assessee itself declare before the AO that his earlier return could be tre .....

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ssessment and cannot make an assessment under section 143(3). On the other hand, if the AO chose to accept assessee s request, he can indeed make an assessment under section 143(3). In the case before us, assessments were completed under section 143(3) read with section 147. Or in other words AO accepted the request of the assessee. This in turn makes it obligatory to issue notice u/s 143(2) after the request by the assessee to treat his earlier return as filed in pursuance to notices u/s 148 of .....

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bsequent proceedings all invalid. Learned CIT(A) had only adjudicated on a position where there was no service of notices u/s 143(2) of the IT Act. He had not dealt with the scenario, where notice was issued prior to the filing of return by the assessee. We therefore, quash the assessment done for the impugned assessment years. Since the appeals of the assessee are allowed on its ground 3, other grounds are not adjudicated. 47.3 In the light of aforesaid proposition if we analyse the facts and c .....

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is case in response to which Shri M.K. Nirola, CA & AR of the assessee company attended the proceedings from time to time and filed the details asked for. 47.4 In view of above noted facts about reassessment order, it is vivid that the notice u/s 148 of the Act was issued on 25.09.2008 for reassessment of income of relevant AY 2005-06. We further observe that in response of the said notice u/s 148 of the Act, the assessee had neither filed revised return nor stated that the return already fi .....

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n may be treated as income of return in response to notice u/s 148 of the Act. In this situation as per ratio of the order of ITAT, Bangalore (supra), the case of the present assessee falls within the category where the AO had issued notice u/s 143(2) of the Act in the very beginning of the reassessment proceedings and the assessee s representative also attended the proceedings in pursuance thereto, therefore, we decline to accept this legal contention of the ld. counsel of the assessee that the .....

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ures and the reopening has to be based on some tangible material, something that can be recorded as having a live link/close nexus with the circumstances relied upon for formation of belief before the AO. Ld counsel of the assessee submitted that when the same income was treated as business income in the earlier assessment years right from 2001- 02 to 2005-06, then on similar set of facts and circumstances without any deviation or change, the reopening u/s 147/148 of the Act would be change of o .....

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from the need to show reason to believe . The fact that the intimation issued u/s 143(1) of the Act cannot be equated to assessment u/s 143(3) of the Act, lead to the conclusion that the requirement of section 147 of the Act can be dispensed with when the finality of intimation u/s 143(1) is sought to be disturbed. Ld. counsel submitted that the assessment order passed for earlier assessment year on the same facts and material cannot be disturbed subsequently by way of invoking provisions of sec .....

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lhi in the case of CIT vs Usha International Ltd. (2012) 348 ITR 485 (Del)(FB) and submitted that if the assessee s return was accepted u/s 143(1) of the Act in earlier four consecutive assessments and when the AO invokes provisions of section 147/148 of the Act in view of subsequent assessment order passed u/s 143(3) of the Act, then there was no question of change of opinion inasmuch as while accepting the return u/s 143(1) of the Act for earlier assessment years, no opinion was formed while p .....

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or details submitted by the assessee in the return of income. 47.8 Strongly supporting the action of the AO for issuance of notice and initiation of reassessment proceedings u/s 147/148 of the Act, ld. DR lastly submitted that the AO assumed valid jurisdiction for issuance of notice and reopening of assessment that cannot be alleged as change of opinion because the department had no opportunity to form any opinion during earlier assessment year proceedings which were completed u/s 143(1) of the .....

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ndisputedly and admittedly, the assessment was completed u/s 143(1) of the Act in the case of assessee from commencement of its business i.e. AY 2001-02 to 2005-06 and the AO had no opportunity to form any opinion about the taxable head of rental receipts of the assessee company in those assessment years. The issue cropped up when the AO took up the case of the assessee for AY 2006-07 for scrutiny and reached to a conclusion that the gross rental receipts shown by the assessee deserve to be trea .....

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uari Estate Development & Investment Co. Ltd. (supra) wherein their Lordships speaking for Hon ble Apex Court and after referring its earlier judgment in the case of CIT vs Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) at page 664 held as follows:- After going through the detailed order passed by the High Court, we find that the main issue which is involved in this case is not at all addressed by the High Court. A contention was taken by the appellant-Department to the effect that since the .....

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section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(l)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circul .....

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ision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any assessment is done by them? The reply is an emphatic no . The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpos .....

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Broker (P) Ltd., (supra), DCIT vs Zuari Estate Development & Investment Co. Pvt. Ltd. (supra), it is clear that when the original assessment in earlier assessment years was completed u/s 143(1) of the Act, then there was no question of change of opinion inasmuch as while accepting the return u/s 143(1) of the Act, no opinion was formed by the AO and therefore, on this basis notice u/s 148 of the Act cannot be held as invalid. Respectfully following the ratio of the decision of Hon ble Apex .....

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