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2016 (1) TMI 797 - ITAT MUMBAI

2016 (1) TMI 797 - ITAT MUMBAI - TMI - Addition on account of estimation of annual letting value while computing the income from house property - Held that:- AO as well as CIT(A) have drawn adverse inference for enhancing the ALV, mainly on the ground that, firstly, the assessee has taken interest free deposit from the tenants and if such deposits would not have been taken, then the rental value would have been more; and secondly, the market rate at which the flat was rented to M/s Futura Polyes .....

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of valuation, which on the facts and circumstances of the case can be applied. They have even discussed whether, any adverse effect has to be drawn in the cases where interest free deposits have been accepted. Thus, in wake of the said judgment of Hon’ble Bombay High Court we are of the opinion that the matter should be restored back to the file of the AO to determine the ALV as per the guidelines proposed - Decided in favour of assessee for statistical purposes.

Disallowance of over .....

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and then decide, whether the TDS is to be deducted or not. - Decided in favour of assessee for statistical purposes.

Disallowance made for treating current repair as a ‘capital expenditure’ - Held that:- we find that no specific finding with regard to the expenditure aggregating to ₹ 8,78,595/- has been given by the CIT(A) when the cost of construction of boundary wall itself was only ₹ 1,63,048/-, which was the basis for the disallowance by the Ld. CIT(A). Hence, in the i .....

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SIC and PF respectively - Held that:- All these payments have been made within the grace period prescribed under the respective acts and in any case, all the payments have been made much before the due date of the filing of the return of u/s 139(1) and accordingly, such payment are allowable u/s 43B. - Decided in favour of assessee.

Disallowance of expenditure claimed as deduction u/s 35AB(2AB) - CIT(A) allowed the claim - Held that:- If the entire expenditure incurred by the assessee .....

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ble from that date only. Moreover, it is also clear from Form 3CM, which does not give any cut off date for the approval. Accordingly, respectfully following the same, we uphold the order of the CIT(A) on this score allowing the claim.- Decided in favour of assessee.

Rejection of books of accounts - exclusive method of CENVAT & VAT - CIT(A) deleted the rejection - Held that:- So far as the AO’s observation on the exclusive method of CENVAT & VAT and that the assessee should provide ea .....

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on for rejecting the books of accounts.

On the issue of accounting on scrap, it has been found that assessee has been recording the same at the time of sale and not at the time of generation of scrap. The assessee was following a particular method of accounting of scrap, from last several years which cannot be rejected, unless such a method of accounting is not correct. Further, as pointed out by the Ld. Counsel, this method of accounting is followed and accepted by the department. L .....

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D SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Appellant : Shri Rakesh Kumar Agarwal For The Respondent : Shri Vijay Mehta ORDER PER AMIT SHUKLA, JM: The aforesaid cross appeals by the assessee and the revenue has been filed against impugned order dated 10.12.2010 passed by CIT(A)-5, Mumbai, for the quantum of assessment passed u/s 143(3) for the assessment year 2007-08. 2. We will first take-up appeal in ITA 672/Mum/2011 vide which following grounds have been raised. Ground no. 1 to 8 : 1. The lea .....

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752/- made by the Assessing Officer u/s. 40(a)(ia) of the Act. 4. The learned CIT (A) has erred in law and on facts in concurring with the disallowance of ₹ 5,51,333/- made by the Assessing Officer u/s. 40(a)(ia) of the Act for want of details. The learned CIT (A) ought to have directed the Assessing Officer to verify and allow the claim if relevant details were produced before him in the proceedings to be conducted to give effect to the appellate order. 5. The learned CIT (A) has erred in .....

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₹ 1,63,048/- incurred on repairs to boundary wall by considering it as amount spent on 'construction of boundary wall'. 7. The learned CIT (A) has erred in law and on facts in invoking the provisions of S. 145A of the Act and in directing the Assessing Officer to work out addition on account of estimation of profit. 8. The learned CIT (A) has erred in law and on facts in approving the additions of ₹ 48,064/- and ₹ 1,41,776/- made by the Assessing Officer for belated pa .....

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#8377; 53,48,000/- on account of estimation of annual letting value while computing the income from house property as raised in ground no. 2, the relevant facts on the impugned issue are that, the assessee had disclosed income of ₹ 40,39,219/- under the head Income from house Property . The AO from the details furnished by the assessee, noted that assessee owns following buildings; (i) Dhanpur, 15, Sir P M Road, Fort, Mumbai; and (ii) Shangri-la, 27A, Carmichael Road, Mumbai. In the first .....

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lowing flats, the tenants were new and as per the leave and license agreement provisions of standard rent are not applicable :- Detail of the Property Area(Sq.ft) Deposit if Any (Rs.) Name of the tenant Monthly Rent Recd. (Rs) Dt. from which Prop is rented to Current tenant : 1st Floor no.4 3527.305 3.5 crore Johnson & Johnson 20,000 01.01.2002 to Nov, 2006 1st Floor Flat No.4 3527.305 15 lakh Futura Polyester 5,00,000 16.01.2007 2nd Floor, Flat No. 5 3587.458 2 crores Centurion Bank 1,00,00 .....

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d deposits of ₹ 3.50 crores and ₹ 2 crores and if such deposits were not there, then these property would have fetched much higher rent. In response, assessee submitted a reply vide letter dated 15.12.2009, where the assessee had submitted the copies of agreement in respect of all the three companies and stated as under :- We are enclosing copies of agreement with M/s Johnson & Johnson, Centurion Bank and Futura Polyester Ltd, for premises rented to them at Shangrila (Residential .....

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d not been received by us, the interest cost would have gone more by approx. ₹ 70-75 lakhs, which would have been admissible expenditure . 5. Ld. AO, after discussing various decisions and facts of the case, enhanced the ALV at ₹ 76,40,000/- and thereby made the addition of ₹ 53,48,000/-. He has estimated the market value of the rent of these flats at ₹ 4,50,000/- per month which was on the basis of comparison with the higher rent received from another tenant i.e. Futura .....

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aken by the assessee, the property would have fetched even a slightly higher rent than ₹ 5 lakh per month as the tenant would have saved interest corresponding to the deposit. The same flat was given to Johnson & Johnson at a monthly rent of only ₹ 20,000/- per month from 01.01.2002. Though, the flat was given to Johnson & Johnson at an earlier date and, therefore the market rate has to be slightly lower than the market rate at which flat was rented to future Polyester Ltd. H .....

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kh per month with a deposit of ₹ 2 crore. The market value of this flat is also estimated at ₹ 4,50,000/- per month. Considering the rent retched by flat rented to Futura Polyester and other factors. Thus, the ALV of Flat No. 5, at 4.5 lakh per month comes to ₹ 54 lakh as compared to ₹ 12 lakh declared by the assessee while the proportionate ALV of Flat No.5 for the period up to November, 2006 (for 8 month) comes to ₹ 36 lakh as compared to ₹ 1,60,000/- declar .....

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two properties. The income from house property has been computed at ₹ 19,63,555/- in view of enhancement of ALV by ₹ 76,40,000/-, after allowing deduction @ 30% u/s 24 of the Income Tax Act. The addition to the income from house property declared by assessee would be ₹ 53,48,000/- . 6. The Ld. CIT(A) too confirmed the action of the AO in enhancing the ALV of the two flats by adopting the monthly rent @ ₹ 4,50,000/-. 7. Before us, the Ld. Counsel submitted that now the is .....

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ied upon the order of the CIT(A) & AO and submitted that, when there was a direct comparable case in the same building, then it is implicit that assessee was require to determine the ALV of the flat, as per comparable case therefore, the estimate made by the AO is very fair. In any case, the matter can be sent back to the AO to decide the issue in light of the decision of Hon ble Bombay High Court in the case of Tip Top Typography. 9. After considering the rival submissions and on perusal of .....

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; Johnson. Now the jurisdictional High Court has discussed similar kind of cases in detail in case of Tip Top Typography and have laid down very detailed proposition on the determination of ALV. The Hon ble High Court have accepted the contention of the assessee that, municipal valuation rate for determining the ALV is also an accepted method of valuation, which on the facts and circumstances of the case can be applied. They have even discussed whether, any adverse effect has to be drawn in the .....

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e disallowance of overseas commission of ₹ 3,12,752/- made by the AO u/s 40(a)(ia). 11. The assessee made provision of commission of ₹ 3,12,752/- which was account of payment of overseas commission. The disallowance u/s 40(a)(ia) has been made by the AO on the ground that, assessee has not been able to bring anything on record that the said amount is not taxable in the hands of the recipient. Before us, the Ld. Counsel submitted that, with regard to the payment of ₹ 1,34,12,878 .....

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not given any specific finding qua the said provision of payment of overseas commission in the assessment order, nor the CIT(A) has given any finding as to how the amount is exigible to tax in the hands of the recipient. Therefore, in the interest of justice, we feel that this matter should be restored back to the file of the AO to examine the chargeability of tax in the hands of the recipient on the payment of commission and then decide, whether the TDS is to be deducted or not. The AO will pr .....

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and bills furnished by the assessee, AO noted that some of these expenditures are in the nature of capital expenditure. After detailed discussions and analysis of the nature of expenditure, he treated the expenditures aggregating to ₹ 42,74,626/- claimed as current repairs to be as capital expenditure and allowed depreciation @ 10%. 16. The Ld. CIT(A) noted the following expenditure which was treated as capital expenditure by the AO :- Sr. No. Description Amount 1 Computer peripherals 1,90 .....

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all. 17. Before us, the Ld. Counsel submitted that entire expenditure should be treated as revenue expenditure being current repairs. In support assessee had furnished all the relevant details and bills and none of these expenditures have gone to create any capital asset of enduring nature. All the expenditure incurred was purely for repairs as per the details and submission made before the CIT(A) as incorporated in para 5.2 of the appellate order. The expenditure which has been confirmed by the .....

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has been given by the CIT(A) when the cost of construction of boundary wall itself was only ₹ 1,63,048/-, which was the basis for the disallowance by the Ld. CIT(A). Hence, in the interest of justice, we feel that this matter should also be restored back to the file of the AO to decide the issue afresh after calling for the details and examine the nature of the expenditure aggregating ₹ 8,78,595/-. If such expenditure are purely for repairs without creating any capital asset of endu .....

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ave to be allowed. This, he submitted that is evident from the perusal of the Para 11.2 of the assessment order, wherein the following details of payments and the dates have been noted by the AO :- a. ESIC ₹ 4,996/- on 18.05.2006 relating to Aurangabad ₹ 14,187/- on 18.05.2006 relating to Waluj ₹ 15,091/- on 18.08.2006 relating to Waluj ₹ 13,790/- on 18.10.2006 relating to Waluj ₹ 48,064/- ========== b. Contribution of Employees towards PF ₹ 1,41,716 on 18.02. .....

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accordingly, such payment are allowable u/s 43B. Thus, ground no. 8 is treated as allowed. 23. In the result, appeal of the assessee is partly allowed for statistical purposes. 24. Now, we will take-up Revenue s appeal in ITA No. 1982/Mum/2011 vide which following grounds have been raised :- The order of the CIT(A) is opposed to law and facts of the case: 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing R&D expenditure of ₹ 71.98 lakhs w .....

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e conditions laid down under sub section 3 of section 35 of the I.T. Act. 2(i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that provisions of section 145(3) is not attracted in the case of the assessee without appreciating that information in respect of excess / shortage in stock in physical verification of the goods, the scrap generated were not recorded in the books. 2(ii) On the facts and in the circumstances of the case and in law, the ld. CI .....

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rred on the Scientific Research for which it has made an application for in-house approval in R & D Unit to the Department of Scientific and Industrial Research (DSIR) and has also completed all the necessary formalities. However, the formal approval for the same is pending. The claim of deduction was made on the ground that approval may be granted very shortly. The AO required the assessee to submit the copy of certificate from DSIR, if any issue and also the quantification of the expenditu .....

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it has incurred the expenditure on in-house facility which is admittedly approved u/s 35(2AB). The said section nowhere provides any cutoff date and hence the expenditure incurred throughout the year is eligible or qualifies for weighted deduction. In support of the said proposition, the reliance was placed on the decision of the Hon ble Gujarat High Court in the case of CIT vs Claris Lifesciences Ltd, reported in 326 ITR 251. Further, the said proposition is also supported by a decision of Madr .....

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. Thus, he strongly relied upon the order of the AO. 28. On the other hand, Ld. Counsel relied upon the decision of the CIT(A) and also the decision of ITAT in the case of Claris Lifesciences which has been confirmed by the Hon ble Gujarat High Court. 29. We have heard rival contentions and perused the relevant finding given in the impugned orders. It is an undisputed fact that the expenditure incurred by the assessee was otherwise eligible for deduction u/s 35(2AB) except for the fact that appr .....

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in this case was granted during the previous year relevant to the assessment year, thus the assessee was entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35AB of the Act. Nowhere it has been provided under the section that R&D facility is to be approved from a particular date and then only it would be allowable from that date only. This proposition finds support from the decisions of Hon ble Gujarat High Court in the case of CIT vs Claris Lifes .....

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e approval being granted during the previous year relevant to the assessment year, the assessee was entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35AB of the Act . Moreover, it is also clear from Form 3CM, which does not give any cut off date for the approval. Accordingly, respectfully following the same, we uphold the order of the CIT(A) on this score. Accordingly, ground no. 1 as raised by the revenue is treated as dismissed. 30. Brief facts q .....

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ls were provided; secondly, in the quantitative details enclosed with Form 3CD report, the Auditors have given a comment that stocks are valued after adjustment of excess/shortage of physical account and write off of obsolete and slow moving items; and lastly, for scrap generation or sales, no regular records have been maintained. 31. The assessee in response gave its explanation, however, after rejecting the assessee s reply, the AO as per the discussion contained from pages 24 to 37 of the ass .....

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to be accepted and cannot be rejected. The relevant observation and finding of the CIT(A) in this regard reads as under :- I have considered the assessment order and the submissions of the Appellant. Looking into the reasons forwarded by the Assessing Officer, the Appellant s offence, the governing principles of section 145, principles of accounting and the specific facts of the Appellant s case, I do not agree with the Assessing Officer that the deficiencies and inadequacies pointed out by him .....

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tails of opening and closing stock, quantity, value rate were otherwise available and which were subjected to checks and audit by various authorities, the inability to correlate alone cannot affect the correctness and completeness of the accounts. Further, apart from pointing out procedural flaw, no specific fault on the details submitted has been brought to notice by the Assessing Officer. Besides, as pointed out by the Appellant, item wise nonmaintenance cannot be a defect in the books because .....

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ly made. There is no specific adverse finding on this by the Assessing Officer. Further, similar method of accounting followed for the AY 2005-06 and 2006-07 has been accepted in scrutiny assessment. In similar vein, I do not find the extent of inadequacies on stock as brought to notice by the Assessing Officer substantial enough to call for rejection of the books. As I note, the basic flaw pointed out by the Assessing Officer is omission of the information on shortage/excess. This is, however, .....

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l difference would be highly disproportionate and against the principle of materiality, which is a key component of accounting principles. Besides regarding the scrap, I find that the Appellant is recording it upon sale and not upon generation of scrap. In this backdrop, I note that the Appellant was only following a different method of accounting of scrap, which in itself, without detection of anything specific, cannot make the accounts incorrect and incomplete so as to attract provisions of se .....

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irst place, the profit shown by the Appellant is better than that shown by SKF. Further, the Appellant s profile, status and volume of business is not comparable with that of FAG and accordingly, the comparison is incompatible. Although the Assessing Officer has brought out his own issues on this comparison, the fact remains that when seen against the totality of accounts such comparison thus, does not render the correctness and completeness of the books faulty. Books of account cannot be reject .....

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ed, wherever found omitted in other relevant statement. Cost Audit Report, Audit Report, by way of opening and closing stock, rate, weight, etc. As held by the Hon ble Calcultta High Court in the case of Ashok Refectories Pvt Ltd 279 ITR 457, where the accounts are otherwise verifiable, rejection of books would not be justified. Further, the issues raised by the Assessing Officer on the exclusive method of accounting, recognition of scrap on sales are debatable issues and vulnerable to contrary .....

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that in terms of section 145A of the ITA, CENVAT & VAT are to be added to the closing stock. This has not been done by the Appellant. Section 145A is very clear on this point and accordingly, the Assessing Officer is directed to work out the addition based on particulars to the submitted by the Appellant. In terms of the foregoing discussion, the ground of appeal is partly allowed . 33. After considering rival submissions and finding given in impugned orders and material on record, we find .....

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