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M/s. Rajasthan Patrikia Pvt. Ltd. Versus The Assistant Commissioner of Income Tax, Circle-5, Jaipur. and Vica-Versa

2016 (1) TMI 179 - ITAT JAIPUR

Disallowance of general/other expenses - whether in the absence of complete details and evidence, the non business use/personal use out of the expenses claimed cannot be ruled out? - Held that:- The assessee’s business activities are not only in Jaipur but all over India and the offices of the company are managed by the professionals. The assessee is a company. It has separate legal entity as per the Company Law from the Director of the Company. Personal element in case of a company as decided b .....

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ance of Marketing and Survey expenses - Held that:- The coordinate Bench of the Tribunal in assessee’s own case for A.Y 2005-06, 06-07 and 08-09 had considered identical issue and set aside the issue to the file of AO by observing a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by ld. AO & CIT (A). There exist conflicting claims .....

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y of being heard - Decided in favour of assessee

Additional depreciation on Plant and Machinery - CIT(A) allowed the claim - Held that:- Hon’ble Tribunal in assessee’s own case for A.Y. 2005-06, 06-07 and 08-09 had considered the identical issue and upheld the order of ld. CIT (A) as news papers and periodicals are distinct commodity than the paper, printing ink and other ingredients used therein. Since a new commercial product comes into existence, the process involved for such trans .....

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e grounds raised in the appeal are as under :- Assessee s Grounds : (ITA No. 187/JP/2014) 1. On the facts and in the circumstances of the case the ld. CIT (A) has grossly erred in confirming the disallowances of ₹ 5,00,000/- made out of general/other expenses claimed by the assessee arbitrarily without appreciating the nature of expenses incurred vis-à-vis expediency, thus the disallowances so confirmed deserves to be deleted. 1.1. That the ld. CIT (A) has further erred in ignoring .....

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ding results have been accepted, thus the disallowance made by making general and vague observations deserves to be deleted. 2. On the facts and in the circumstances of the case the ld. CIT (A) has grossly erred in confirming the disallowance of Marketing and Survey Expenses legitimately claimed at ₹ 67,73,510/- by the assessee company without appreciating the nature of expenses and the business module of the assessee company, thus the expenses as claimed deserve to be allowed. 2.1. That t .....

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lowances made in the hands of the assessee deserves to be deleted. Revenue s Grounds : (ITA No. 223/JP/2014) On the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in :- (i) Allowing additional depreciation of ₹ 54,34,045/- without appreciating the fact that printing of paper cannot be considered as producing a new article or thing. 2. The assessee is engaged in the business of printing & publishing of Newspaper and Periodicals. It has filed return .....

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rious employees against their claims of transport circulation, recovery work, remuneration of temporary employees etc. No complete bills and vouchers were maintained by the assessee. For certain expenses, the assessee was having only self made vouchers and payments were made in cash. The AO further held that in the absence of complete bills and vouchers, genuineness of these expenses cannot be verified. The AO gave reasonable opportunity of being heard on this issue and also proposed lump sum di .....

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out of the expenses claimed cannot be ruled out. Therefore, a lump sum addition of ₹ 5,00,000/- was made by the AO. 4. Being aggrieved by the order of the AO, assessee carried the matter before ld. CIT (A) who confirmed the order of the AO by observing as under :- 7.3. I have considered the facts of the case; assessment order and appellant s written submission. Identical issue came up in assessment year 2008-09 in the appellant s own case and while deciding appeal by order dated 28.3.2012 .....

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ring the present appellate proceedings. The counsel of appellant has merely submitted an explanation of general nature and these expenses are not supported by independent corroborative evidences. The AO has been very fair and reasonable in making disallowance of ₹ 5,00,000/- out of total expenditure of ₹ 3,02,68,784/- which was not amenable to verification. It was held by Hon ble Rajasthan High Court in the case of Jaipur Electro Private Limited vs. CIT (223 ITR 535) that doctrine th .....

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der on the identical facts, addition made by the assessing officer is confirmed. 5. Now the assessee is before us. The ld. A/R submitted that entire expenses was incurred in the normal course of business and their utility to the business cannot be denied merely because nature of expenses incurred is that personal element could be involved more particularly when the assessee is a private limited company having separate legal entity and can not be at par with the proprietorship or partnership firm .....

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observing that facts about assessee s regular maintenance of accounts which were not rejected by the AO, diverse business activities, contentions, applicable case laws and past litigation history is narrated in details above and needs no repetition. Therefore, he requested to delete the addition made by the AO. 6. At the outset, the ld. D/R vehemently supported the order of the A.O. 7. We have heard rival contentions and perused the material available on record. The AO made the addition which wa .....

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ble High Courts, is not possible. The ld. AO has not pointed out any specific bill which is personal in nature. The disallowance made by the AO is general. By considering the past history, the coordinate Bench has deleted the similar additions in A.Ys 2005-06, 06-07 and 08-09 in preceding years. In various decisions of ITAT Jaipur Bench, particularly in ITA No. 519, 520 and 521/JP/2012 held as under :- 3.6. In our considered view these judgments are fully applicable to assessee s grounds relatin .....

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an be no personal expenditure. Consequently the disallowances attributed to be personal user cannot be justified and are deleted. viii. For A.Y. 2006-07 qua the same disallowances assessee has paid more Fringe Benefit Tax (FBT). As over FBT and IT provisions if any expenditure is taxable under FBT it cannot be disallowed again in Income Tax provisions. 3.7. Considering the entirety of above observations, we have no hesitation in deleting the disallowances/additions retained by ld. CIT (A) out of .....

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AO observed that assessee has debited a sum of ₹ 3,70,19,437/- in the Profit & Loss account in respect of Head Office and Branch Offices towards Marketing and Survey expenses. The details are as under :- 1. M/s. Perfect N Marketing ₹ 29,02,400/- 2. M/s. Aneu Marketing ₹ 18,04,380/- 3. M/s. A One Marketing ₹ 2,97,420/- 4. M/s. Harshit Marketing ₹ 2,19,410/- 5. M/s. Sharma Marketing ₹ 3,21,855/- 6. M/s. Lakshya Marketing ₹ 1,68,635/- 7. M/s. Anoop Mar .....

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namely, M/s. Perfect N Marketing and M/s. Aneu Marketing, but no other parties were produced on that date and till the date of order also no one has been produced. He further had given the facts discovered during the course of investigation in the case of Shri Pushpendra Singh and Shri Hanuman Singh i.e. both persons are real brothers in whose names M/s. Anew Marketing and M/s. Perfect N Marketing concerns stated to be worked for assessee company. M/s. A One Marketing (New) stated to be a propr .....

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Singh is 10th failed. Shri Pushpendra Singh is B.Sc. 1st year in 1996 and Shri Hanuman Singh is B.A. Final year in 1999-2000 as stated by them in their statements. Shri Pushpendra Singh has a two wheeler Hero Puch since 1997, Shri Hanuman Singh has a Splendor Motorcycle since 2006 and both of them do not have any other vehicle including any four wheeler. Presently Shri Pushpendra Singh is running a small restaurant preparing and selling Samosa & Kachori since 2007 on a rental site. As per th .....

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re unable to tell the address or telephone numbers of even a single employee appointed by them. 8.3. Smt. Shakuntala Singh w/o Shri Pushpendra Singh neither appeared nor any copy of her return of income of A.Y. 2007-08 was furnished. 8.4. The proprietors of above concerns did not produce even a single bill or any other document submitted to the assessee company for receiving payment. They also did not produce any forms on which survey report was made. 8.5. In the statement vide answer to questio .....

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. 8.6. So veracity of the statements or facts enumerated by him in their statements creates suspicion. Why he would supply the surveyor to assessee below its cost. 8.7. The assessee has claimed that all the entire payments made to them were by account payee cheque. Shri Hanuman Singh & Shri Pushpendra Singh were having the current bank account bearing no. 2172 & 2409 respectively. It is noticed after going through the bank statement of the relevant year that after depositing the cheques .....

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rried out by them. Self serving contentions of these persons cannot be acceptable in the eyes of law. 8.9. The AO gave show cause on the nature of expenditure claimed under the head Marketing & Survey expenses, on the basis of statement recorded and material collected by the AO and also considered the assessment orders for A.Ys 2005-06 and 06-07 to disallow the expenses claimed in the name of M/s. Harshit Marketing, M/s. Sharma Marketing, M/s. Lakshya Marketing, M/s. Anoop Marketing, M/s. Th .....

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forth even any other reliable document/evidence in respect of the other parties which could bear even a little substance of authenticity. Therefore, he disallowed the total expenditure claimed by the assessee under the head Marketing and Survey at ₹ 67,73,510/-. 8.10. He further relied on the case of CIT vs. Calcutta Agency Ltd., 19 ITR 191 (SC), Liberty Cinema vs. CIT, 152 ITR 153 wherein it has been held that in order to claim an expenditure falls under section 37(1), the burden of prov .....

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ical facts. Relevant extract of the appeal order is quoted below:- I have duly considered the submissions of the appellant. In the year under reference, marketing and survey expenses of ₹ 43,36,835/- were claimed to have been paid to M/s Perfect Requirement & Consultancy Services, M/s A One Marketing, M/s Harshit Marketing, M/s Sharma Marketing, M/s Lakshya Marketing and M/s Anoop Marketing. During the course of assessment proceedings, the AO asked the assessee to produce the proprieto .....

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scharging the initial onus cast that lay upon it to prove the genuineness of the expenses so claimed. When the department enquired into the matter by deputing the inspector at the given addresses of the abovementioned two concerns, it was gathered that the alleged concerns were operating from 411-412, Kishan Bagh, Naya Kheda, Amba Badi, laipur. These alleged concerns, were operated by the family members of Sh Hanuman Singh. Further Smt. Shakuntala Singh, the proprietor of M/s A One Marketing was .....

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ry of ₹ 21,000/- per month from ICICI Mutual Fund. In the earlier years also, the claim of marketing & survey fess could not be substantiated by the assessee company. The department also took photographs of the office premises of the alleged concerns and these were made part of the assessment order to show that no business activities were carried out by M/s Perfect N Marketing, M/s A One Marketing and M/s Aneu Marketing in AY 2006-07. The office of M/s A One Marketing was stated to be .....

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did not prove that M/s Perfect Requirement & Consultancy Services, M/s A One Marketing, M/s Harshit Marketing, M/s Sharma Marketing, M/s Lakshya Marketing and M/s Anoop Marketing had rendered any kind of services to the appellant as these forms had been filled by some laymen or the temporary employees of the appellant to whom marketing & survey fees of ₹ 4,39,94,858/- were paid and these were not doubted by the AO. On the contrary, the department was in the possession of informatio .....

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eged concerns for taking accommodation entries. Further it could not be coincidence that the assessee company and the alleged concerns had their bank accounts in the same bank and branch. It showed that the appellant did yield some control over the bank accounts of the alleged concerns. The counsel of the appellant has argued that the alleged concerns namely M/s Perfect Requirement & Consultancy Services, M/s A One Marketing, M/s Harshit Marketing, M/s Sharma Marketing, M/s Lakshya Marketing .....

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s alleged that the information so collected was passed on the appellant company whose representative along with the person conducting the survey visited the houses in which its newspaper was not read and tried to convince them to read its newspaper by giving free samples for a period ranging between 2 to 10 days. As per the alleged procedure adopted between the alleged concerns and the assessee company, there should have been the primary records of door to door survey conducted indicating the da .....

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se concerns. However it is surprising to note that not a single daily working sheet had been furnished by the assessee to the department obviously for the reasons best known to it. The alleged monthly market survey reports submitted during the course of appellate proceedings were prepared by the temporary employees of the appellant who were paid marketing and survey fees of ₹ 4,39,94,858/-. These reports were signed by the supervisors employed by the appellant company. The appellant had tr .....

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the I.T. Act. She had shown opening capital of ₹ 21,000/- and did not have any expertise in this line of business. Smt Meena Kumari, Proprietor of M/s Anoop Marketing had shown non-taxable income of ₹ 85,130/- in her return of income. She did not appear personally before the AO in response to summons u/s 131 of the I. T. Act. She had shown opening capital of ₹ 21,000/- and did not have any expertise in this line of business. Even in the photograph affixed on her PAN card, she a .....

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r return of income. She did not appear personally before the AO in response to summons u/s 131 of the I.T. Act. She had shown opening capital of ₹ 21,210/- and did not have any expertise in this line of business. She was just a house wife. It was strange to notice that in all these cases, the returns were belatedly filed on 30th March, 2009 just to give shade of genuineness to the alleged transactions. In the year under reference, the appellant had claimed Marketing and survey fees of S .....

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over the absence of any business relations of these concerns with the assessee group. Even Smt. Shakuntala Singh (10th failed) Prop. of M/s A One Marketing wife of Sh. Pushpendra Singh was not presented for examination obviously for the reason that her statements might have disclosed the collusion in a more candid manner. The same was also true for Smt Hemanti kumara, Smt Meena Kumari and Smt Kamlesh Kumari. The results of inquiries made by the AO in AY 2006-07 are enumerated as under: i) The p .....

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Sh Pushpendra Singh was running a small restaurant in a rental plot. ii) The proprietors of the alleged concerns were men of meagre means. They were residing in plots of 50 sq yds and that too was financed by the bank. They possessed only three wheelers and did not have any four wheelers. It did not transpire that they could have engaged employees / staff to render any kind of consultancy services to the appellant company running into several lakhs of rupees. They were persons of small means and .....

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r employees. In addition to the above, they did not have any supporting / evidences for the conveyance expenses and travelling expenses. It was baffling to note that they did not have an iota of evidence for any expenditure incurred by them in relation to the services rendered for marketing & survey fees. v) They could not state the names of sundry debtors and persons to wham loans & advances were given. Except for computerized balance sheet and profit & loss account, no books of acc .....

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8377; 100 per employee whereas Sh Hanumant Singh had admitted before the AO that they were paying remuneration to their employees at the rate of ₹ 120 per employee. No contractor could have paid more than what he received from his principals. Therefore there were contradictions in the statement of the appellant and that of Sh. Hanumant Singh. vi) The bank statements of the alleged concerns showed that there were cash withdrawals immediately after the deposits of cheques on the same day. Th .....

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sed and release of payments etc., paid to M/s Vashisht Industrial Products (P.) Ltd. The assessing officer rejected this claim on the ground that the assessee failed to establish that the commission was wholly and ex1usively for the purpose of business of the assessee. This, view was reversed by the Commissioner (Appeals) with the observation that the assessee had paid similar commission in the previous years and that Shri Amarjeet Dhal had confirmed that the payment had been given for the servi .....

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yments, procuring drawing and collecting payments from various parties. He was also responsible for collecting 'C' forms and ST declaration whereas, Shri P.D. Sharma stated that he only provided knowledge to the assessee-company for upgradation of their products and to improve their productivity and had taken the management of the assessee company along with its products to various tractor manufacturing companies. He further claimed that his services were of comprehensive nature and not .....

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s to the assessee on behalf of his company M/s Vashisht Industrial products (P) Ltd. of which he was the director and the assessee-company specifically alleged to have paid commission @ 2 per cent of the sales. iii) Thirdly, the assessee had not filed any documentary evidence to prove the nature of services required to be rendered by M/s Vashisht Industrial Products (P) Ltd. nor regarding the rate of commission required to be paid for the services by the assessee company to M/s Vashisht Industri .....

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ecipient the assessee showed the payment of commission to evade correct tax liability. It was held by Hon'ble Punjab & Haryana High Court that the Tribunal inter alia held that other income of M/s Vashisht Industrial Products (P) Ltd. to whom commission of ₹ 23,20,982 was paid was only ₹ 59,441 which created doubt about payment of commission. Further absence of a written document containing terms of the agreement with a person to whom commission was being paid in lakhs, discr .....

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le Jaipur ITAT in the case of ACIT Vs Mehru Electrical & Engg Pvt Ltd (128 ITD 247) upheld the disallowance of commission when the assessee could not produce any evidence for rendering of services by the commission agent. In the cited case, the AO noticed that no proof of substantial efforts mode for earning of commission had been furnished. The expenses debited by the recipients did not indicate that they had made expenses relating to phone call, meeting expenses, frequent travelling, discu .....

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cal expertise failed to provide any documentary, evidence or communication which could prove that it had done anything to earn this commission income. The Tribunal accordingly held that there was no material to indicate that services were rendered by M/s Sadem India Ltd. No expenses for providing services were there. The amount could not be allowed to the assessee on the ground that it was paid by cheque. Accordingly the appeal of the revenue was allowed. This decision is squarely applicable to .....

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ach stated to be purchased by Shri Pushpendra Singh few years back through finance from bank. The educational qualification of Shri Pushpendra Singh was stated to be B.Sc. 1st year. Shri Hanuman Singh was B.A. Final year student in 1999-2000 as stated by him. From all the facts and information gathered during the course of statements, it was seen that they were the persons of small means and did not have any resources to carry out any door to door survey for the appellant company. Sh. Hanuman Si .....

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ument submitted to the assessee company for receiving payment. Inspite of repeated opportunities, they could not submit any evidence for having worked for the appellant company. They did not have an iota of evidence to show that they had actually rendered any services to the appellant. The Honourable Delhi High Court in the case of Schneider Electric India Ltd. (304 ITR 360) has upheld the disallowance of commission even though the assessee had submitted debit notes and payment to commission age .....

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gencies to suggest that there was any relationship on the basis of which M/s Ram Agencies procured some orders for the assessee for which it was entitled to receive commission. Moreover, we find that the understanding between the parties was an oral understanding and it appears to be doubtful that such an oral understanding can be arrived at without any longstanding relationship having been established between the assessee and M/s Ram Agencies. It seems a bit out of place that the parties entere .....

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that M/s Perfect N Marketing and M/s Aneu Marketing had necessary wherewithal to render any kind of services relating to door to door survey. These concerns had given wrong address in their bills and it was difficult to believe that it could have employed a large number of persons to render any services. It was held in the case of CIT Vs Premier Breweries Ltd (279 ITR 51) that the burden of proving the deductibility of an expenditure was on the assessee. The mere fact that the payment had been .....

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statute so as to ascertain whether it was a sham or make believe transaction or one which was genuine and, therefore, was eligible for deduction under the Income Tax Act. Hence, courts had to look into the form of the transaction to find out its substance so9 as to ensure that there was no avoidance of tax by a method impermissible in law. In the cited case, there was no evidence regarding any services rendered by the firm except to the assessee. It was held that creation of the firm was a devic .....

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survey fees paid by the appellant had been offered to tax. It was held by Honourable Punjab & Haryana High Court in the case of Mittal Belting and Machinery Stores Vs CIT (253 ITR 341) that if on the examination of the evidence, it was found that there was no genuine transaction between the parties, a pure paper transaction could not have entitled the assessee to claim benefit under the law. Despite the documentation supporting the claim of the assessee superficially, the evidence could not .....

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as examined in great detail by my learned predecessor. Considering entirety of facts, appellant s submissions and assessing officer s investigation on the issue, CIT(A) reached the conclusion that appellant failed to substantiate its claim of marketing and survey fees in respect of certain parties. Since facts of this year are also same, the aforesaid observations and decision of my learned predecessor squarely applies to this year also. Respectfully following the aforesaid decision, the additio .....

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acts, the issue was examined at great detail by his learned predecessor considering entirety of facts, the appellant s submission and Assessing Officer s investigation on the issue, the ld. CIT (A) reached the conclusion that appellant failed to substantiate its claim of marketing and survey fees in respect of certain parties. Since facts of this year are also same, the aforesaid observations and decision of his learned predecessor are squarely applied to this year also. Accordingly he confirmed .....

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urvey so as to collect the information regarding readers of the newspaper published by it and the readership of the next competitive newspaper in a particular area. The company also wanted to sustain and increase the present readership base and to convert the readers of other competitive newspaper to the newspaper published by the assessee company. Further, assessee company wanted to know the profile of the readers which may ultimately turn into the increase in the advertisement revenue. The pur .....

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ound the Municipal limits of Jaipur District. The said firms had conducted the survey by their self hired staff, who had visited door to door in a particular area on a particular day and collected the information, like number of house where assessee s newspaper is read, other competitive newspaper is read, where both the newspapers are read and no newspaper is read. With the help of this marketing technique, the receipts of the assessee company had increased substantially. Thus the AO had accept .....

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tion and without even verifying the complete set of the survey reports available with the assessee company including the survey report submitted by the independent parties, the allegation levied, deserves to be ignored and excluded as the same is based on mere conjectures, surmises and suspicion without referring to the credible evidences and material available on record. The total expenses claimed by the assessee company was ₹ 3,70,19,437/-, out of which the ld. AO had disallowed ₹ .....

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of M/s. Lakshya Marketing, Anoop Marketing, Harshit Marketing, Sharma Marketing and AOne Marketing duly confirming the fact that they have conducted door to door services on behalf of the assessee and also filed evidences which remained uncontroverted. He further has drawn our attention to section 37 and also relied on the decision in the case of Uma Charan Shaw & Bros. Co. vs. CIT, 37 ITR 271 (SC). Further, he argued that suspicion howsoever strong cannot take the place of proof, for which .....

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CIT, 158 Taxman 74 (SC) and argued that it was a business need to incur the expenditure on marketing. Therefore, he requested to delete the addition confirmed by ld. CIT (A). 12. At the outset, the ld. CIT DR vehemently supported the order of the ld. CIT (A) and reiterated the arguments given by the lower authorities that these parties did not have any capacity/expertise to render the required services for which payment had been made by the assessee. Therefore, he requested to uphold the order .....

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surfaced in piece meal and from time to time as the assessee attempted to fill in the gaps about inferences drawn by the authorities from time to time. Consequently a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by ld. AO & CIT (A). There exist conflicting claims about the existence of such survey agencies coupled with non .....

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e identical. Therefore, respectfully following the decision of coordinate Bench of the Tribunal, we set aside this issue to the file of AO to reconsider this issue as per the direction given by the coordinate Bench in preceding years. Accordingly this ground is set aside. 14. In Revenue s appeal the first ground is in respect of allowing additional depreciation claimed at ₹ 54,34,045/- on Plant and Machinery. 14.1. The AO observed that assessee had claimed additional depreciation at ₹ .....

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ce any article or thing. It simply prints the newspaper which cannot be termed as manufacture or production. The raw material in the form of newsprint remains only in the form of newsprint. Neither any manufacturing of newsprint work is done nor any other raw material are mixed in the newsprints. Thus no new article or thing comes up which can be termed as manufacturing of article. He further relied on the order of Hon ble Supreme Court in the case of CIT vs. Pio Food Packers (1980) 46 ITR 63 (S .....

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45/-. 15. Being aggrieved by the order of the AO, assessee carried the matter before ld. CIT (A) who had deleted the addition by observing as under :- 11.3. I have considered the facts of the case; assessment order and appellant s written submission. Against this disallowance, appellant submitted that identical issue came up in assessment year 2008-09 and CIT (A) while deciding appeal by appeal order dated 28.3.2012 allowed additional depreciation. Relevant extract of the order of CIT (A) is quo .....

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AO was aggrieved with the fact that no such additional depreciation was claimed in the earlier years though it was admissible. Therefore, the AO disallowed the claim of additional depreciation of ₹ 35,31,480/-. On careful consideration of facts, I am inclined to accept the arguments of the appellant. During the year under reference, new printing machines were installed at Jaipur, Jodhpur and Udaipur. The appellant was printing the roll of paper with the help of machinery and therefore it w .....

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therefore it was imperative to construe its general meaning. The word production refers to applying human endeavour on some existing raw material. Therefore every manufacture could be characterized as production, but every production did not amount to manufacture. The Hon ble Rajasthan High Court in the case of ITO vs. Arihant Tiles & Marble Pvt. Ltd. (295 ITR 148) has held that sawing of marble blocks into slabs and tiles amounted to production and therefore the assessee was entitled to ded .....

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re us. 17. The ld. D/R vehemently supported the order of AO and argued that these disallowances were made by the AO consistently on the ground that assessee was not in any manufacturing activity. Therefore, additional depreciation claimed by the assessee is not allowable. Thus he requested to confirm the order of the A.O. 18. At the outset, the ld. A/R of the assessee submitted that Hon ble Tribunal in assessee s own case for A.Y. 2005-06, 06-07 and 08-09 had considered the identical issue and u .....

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