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2016 (6) TMI 179 - ITAT MUMBAI

2016 (6) TMI 179 - ITAT MUMBAI - TMI - Levy of penalty u/s 271(1)(c) - assessee bring rental income as income from business as against income from house property - Held that:- As the assessee company has not furnished inaccurate particulars of income making it liable for penalty u/s 271(1)(c) of the Act as the assessee company duly declared all the income earned on rental income albeit under the head ‘Income from business or profession’ although the claim of the assessee company did not found fa .....

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015 (5) TMI 46 - SUPREME COURT] it could not be said that this claim of the assessee company to bring rental income as income from business as against income from house property was ex-facie wrong and unsustainable . Thus in view of our above stated discussions and reasoning as set-out above, we order deletion of penalty levied by the AO and confirmed by the learned CIT(A) on this ground. - Decided against revenue - Disallowance of depreciation - Held that:- It is incumbent upon the assessee .....

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dismissed by the learned CIT(A) against the quantum additions. In view of our above discussions and reasoning, addition towards disallowance of depreciation on purchase of new fixed assets , to the income of the assessee company needs to be confirmed/ sustained. We find no infirmity in the orders of the learned CIT(A which we confirm/sustain.- Decided against assessee - Addition of general expenses being 10% of the general expenses - failure of the assessee company to produce the documentar .....

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eduction of the general expenses from the income of the assessee company in the return of income has been made by the assessee company and the primary onus to prove its claim in return of income lay on the assessee company , which the assessee company failed to do so in the instant case. In our considered view based on facts and circumstances of the case, the disallowance of 10% of general expenses is quite reasonable keeping in view peculiar facts and circumstances of the case and we confirm th .....

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r income at NIL . There is a tangible information/material which has come to the possession of A.O. having close nexus and live link with the formation of belief by the AO that income has escaped assessment based on which he has formed reason to believe that income has escaped assessment. Earlier, the Revenue has processed the return u/s 143(1) of the Act. No scrutiny assessment has been made u/s 143(3) of the Act. There is no opinion which was formed by the A.O. earlier and thus there is no que .....

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Dey, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri S.C. Tiwari & Ms. Rutiya Pawar For the Revenue : Shri Ritesh Misra,DR ORDER Per Ramit Kochar, Accountant Member All the four appeals are filed by the assessee company against four separate orders passed by learned Commissioner of Income Tax (Appeals) for the assessment years 2006-07 to 2009-10. These appeals were heard together and we decide them by this combined order for the sake of convenience. First we .....

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ht to be deleted. 2. Without prejudice to the above, the Ld CIT-(A) has further erred in confirming the levy of penalty u/s 271(1)(c) of the Act, on account of disallowance of depreciation of ₹ 1,67,426/- on account of rent from running business centers was assessed as "income from house property" as against business income computed by the appellant. On the facts and circumstances of the case and in law, the penalty levied on disallowance of depreciation to the extent of ₹ .....

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t branches. The A.O. asked the assessee company to furnish necessary documentary evidences regarding the fixed assets, but the assessee company failed to furnish necessary documentary evidences. The A.O. disallowed the claim of the depreciation of the assessee company to the extent of ₹ 2,79,591/- in respect to additions to the fixed assets, vide assessment orders dated 23.12.2008 passed by the AO u/s 143(3) of the Act. Similar , disallowance of depreciation on additions to fixed assets we .....

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e assessment year 2005-06 , was added back the same to the income of the assessee company in this assessment year, vide assessment orders dated 23.12.2008 passed by the AO u/s 143(3) of the Act. The A.O. further observed that the assessee company had declared ₹ 36,81,539/- under the head Income from business or profession as business income which is in the nature of the rent from letting out of the residential premises, therefore, the A.O. treated the rental receipts as income from house p .....

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income of the assessee company and the total addition on account of depreciation was made to the income of the assessee to the tune of ₹ 5,09,456/- , vide assessment orders dated 23.12.2008 passed by the AO u/s 143(3) of the Act. The A.O. noted that the assessee company has concealed its income by furnishing inaccurate particulars of taxable income and thereby initiated penalty proceedings u/s 271(1)(c) of the Act. The assessee company filed first appeal before the learned CIT(A) in quantu .....

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regarding the details of additions to the fixed assets and penalty u/s 271(1)(c) of the Act cannot be levied merely on the reason that there were non-production of documentary evidences. The assessee company relied on the decision of Chennai Tribunal reported in Gem Granites (Karnatka) v. DCIT (2009)120 TTJ 992(Chennai. Trib.). The assessee company submitted that merely because the learned CIT(A) has confirmed the quantum assessment additions, penalty cannot be levied as the Revenue has to prov .....

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hat where the total income computed under regular provisions is less than book profit and assessment is made u/s 115JB of the Act, no penalty is exigible. The assessee company further submitted that the AO stated in its assessment orders u/s 143(3) of the Act that depreciation will be allowed in respect of additions to the fixed assets on production of documentary evidences. The A.O. after considering the submissions of the assessee company, rejected the contentions of the assessee company and h .....

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Textiles Processors and Others v. UOI , (2008) 306 ITR 277 (SC). The AO further observed that the learned CIT(A) also confirmed the addition made by the A.O. in the quantum assessment as the assessee company could not produce the details/evidences of additions to the fixed asset. The A.O. observed that the assessee company is in the habit of not producing the details of additions in respect of fixed assets and the assessee company has filed inaccurate particulars of income which resulted into e .....

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efore the learned CIT(A). 7. Before the learned CIT(A), the assessee company submitted that the tax auditors have verified and certified the additions to the fixed assets u/s 44AB of the Act and it cannot be said that the assessee company has produced inaccurate particulars of income. The assessee company submitted that after the completion of the assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee company submitted the evidences for purchase of fixed assets and t .....

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n account of depreciation has been made due to non production of evidences with respect to additions to the fixed asset. With respect to the income declared from the rent received from letting out of residential premises which was given on rent for residential purposes and the assessee company declared the said rental income as business income and claimed depreciation is without any basis and hence the learned CIT(A) confirmed the penalty order passed by the A.O. u/s 271(1)(c) of the Act, vide a .....

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43(3) of the Act , vide rectification order passed by the AO u/s 154 of the Act by producing evidences with respect to additions of fixed assets before the A.O. , whereby relief was granted by the AO of ₹ 1,30,191/- vide orders u/s 154 of the Act dated 27th August, 2012 and to that extent the assessee company is entitled for relief for penalty u/s 271(1)(c) of the Act. It was submitted by the learned Counsel for the assessee company that the assessee company is a leading travel agency havi .....

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as business income under the head income from business or profession and claimed depreciation, which rental income has been brought to tax under the head income from house property and hence claim of depreciation was not allowed. The ld. Counsel submitted that the learned CIT(A) has confirmed the orders of the A.O. in quantum assessment proceedings and income has been assessed to tax under the head income from house property . The ld. Counsel submitted that the A.O. has relied on the decision o .....

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I v. Rajasthan Spinning & Weaving Mills [2009] 23 DTR 158 (SC) and other decisions of Hon ble Bombay High Court in the case of CIT v. M/s S.M. Construction , ITXA No. 412 of 2013 Bom. HC and CIT v. Dalmia Dychem Industries Ltd.[2015] 279 CTR 0133 (Bom. HC) and the decision of Hon ble Rajasthan High Court in the case of Anoopgarh Kraya Vikraya Sahakari Samiti Ltd. v. ACIT, [2015] 374 ITR 0558 (Raj. HC). 10. The ld. D.R., on the other hand, submitted that the primary onus is on the assessee co .....

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observed that the assessee company is in the business of travel agency having branches all over the country. The assessee company was incurring losses in its business and income has been stated to be brought to tax under the provisions of minimum alternate tax u/s 115JB of the Act. The assessee company had made claim for the purchase of fixed assets and assessee company has claimed depreciation on the said fixed assets. The quantum assessment was framed u/s 143(3) of the Act which has been conf .....

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whereby similar addition was made to the fixed assets. Similarly, it is observed that the assessee company has declared rental income as business income which is not accepted by the Revenue and brought to tax under the head Income from House Property . The properties were given on rent for residential purposes and godown. The assessee company has expressed its inability to produce the invoices with respect to the purchase of new fixed assets during the previous year relevant to the assessment an .....

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h the Revenue which the assessee company was not been able to produce before the authorities and hence the additions were rightly made by the AO in quantum assessment proceedings. The question before us is with respect to the leviability of the penalty u/s 271(1)(c) of the Act for furnishing of in-accurate particulars of income and whether the explanation offered by the assessee is bona-fide or not to take it out of clutches of penalty provisions u/s. 271(1)(c) of the Act. The assessee company e .....

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the tax payable on the book profits u/s 115JB of the Act, then penalty under section 271(1)(c) of the Act, is not attracted with reference to additions /disallowances made under normal provisions. It is further clarified that in cases prior to 1-4-2016, if any adjustment is made in the income computed for the purpose of MAT, then the levy of penalty u/s 271(1)(c) of the Act, will depend on the nature of adjustment. The afore-stated circular is reproduced below: SECTION 115JB, READ WITH SECTIONS .....

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m 1-4-2001. 2. Under clause (iii) of sub-section (1) of section 271 of the Act, penalty for concealment of income or furnishing inaccurate particulars of income is determined based on the "amount of tax sought to be evaded" which has been defined inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income or income in respect of which inaccurate particulars had .....

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made under normal provisions. The judgment has attained finality. 4. Subsequently, the provisions of Explanation 4 to sub-section (1) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even where the income determined under the general provisions is less than the income declared for the purpose of MAT u/s 115JB of the Act. The substituted Explanation 4 is applicable prospectively .....

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er normal provisions. It is further clarified that in cases prior to 1-4-2016, if any adjustment is made in the income computed for the purpose of MAT, then the levy of penalty u/s 271(1)(c) of the Act, will depend on the nature of adjustment. 6. The above settled position is to be followed in respect of section 115JC of the Act also. We have observed that the assessee company did raised this contention before the AO that in view of decision of Hon ble Delhi High Court in the case of Nalwa Sons .....

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e assessee company based on the decision of Hon ble Delhi High Court in the case of Nalwa Sons Investments Limited(supra) before the AO, which contention was rejected by the AO at threshold in limine without any discussion and nothing is coming from the orders of the AO and records produced before us about the substantiation of the claim of the assessee. The assessee company abandoned this plea and did not raised this plea before the learned CIT(A) or in the grounds of appeal raised before the l .....

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justice this matter is to be set aside and restored to the file of the AO for de-novo determination of the issue after considering the replies of the assessee company and the evidences on merits regarding substantiation of the claim of the assessee company in the light of circular no 25/2015 dated 31.12.2015 issued by the CBDT . Needless to say that proper and adequate opportunity of being heard will be provided to the assessee company by the AO in accordance with principles of natural justice i .....

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residential purposes. The assessee company has claimed the same as business income under the head Income from Business or Profession while the AO has assessed the same under the head Income from House Property . The assessee company has come forward and relied upon the object clause in the Memorandum of Association of the assessee company to contend that the business of the assessee company was to let out and rent properties of the assessee company which is placed at page 16 of the paper book fi .....

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ted that the depreciation has been rightly claimed on these residential properties although the said claim has not been allowed by the Revenue authorities , which has also been accepted by the assessee company but that will not make the assessee company exigible to penalty u/s 271(1)(c) of the Act. The complete particulars of income were furnished was the contention of the assessee company. In our considered view and based on facts and circumstances of the case , the assessee company had given a .....

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ed inaccurate particulars of income making it liable for penalty u/s 271(1)(c) of the Act as the assessee company duly declared all the income earned on rental income albeit under the head Income from business or profession although the claim of the assessee company did not found favour with the Revenue , will not make the assessee company exigible to penalty u/s 271(1)(c) of the Act as the explanation offered by the assessee company is bonafide and a plausible explanation albeit not accepted by .....

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d discussions and reasoning as set-out above, we order deletion of penalty levied by the AO and confirmed by the learned CIT(A) on this ground. We order accordingly. 12. In the result appeal of the assessee company in ITA No. 3416/Mum/2013 for the assessment year 2006-07 is partly allowed as indicated above. Now we shall take up assessee company s appeal in ITA No 3417/Mum/2013 for the assessment year 2007-08. 13. The grounds of appeal raised by the assessee company in this appeal read as under: .....

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"income from house property" as against business income computed by the appellant. On the facts and circumstances of the case and in law, the penalty levied on disallowance of depreciation to the extent of ₹ 1,67,426/- ought to be deleted. 3. Without prejudice to the ground no. 1 & 2 above, no penalty u/s 271(1)(c) of the Act, can be levied in respect of the disallowance made by the Assessing Officer, as the appellant had paid the tax on deemed income under the provision of .....

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shall take up assessee company s appeal in ITA No 3418/Mum/2013 for the assessment year 2008-09. 16. The grounds of appeal raised by the assessee company in this appeal read as under:- 1. Learned Commissioner of Income - Tax (Appeals) (CIT-(A)) has erred in confirming the action of the Assessing Officer (AO) in reopening the assessment u/s 147 of the Income Tax Act, 1961 (Act) by holding that income has escaped assessment. There being no escapement of income and the assessment not having been va .....

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umstances of the case, the said rental income ought to be assessed under the head "Income from Business and profession". 3. The Ld CIT-(A) has erred in confirming the action of AO in disallowing depreciation amounting to ₹ 42,014/-claimed by the appellant on certain additions made to fixed assets on the basis that proof of purchase was not submitted. On the facts and in the circumstances of the case, the disallowance made ought to be deleted. 4. The Ld CIT-(A) has erred in confir .....

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-. The return of income was processed by the Revenue u/s 143(1) of the Act on 25th June, 2009 accepting the returned income. Subsequently, the case of the assessee company was reopened and notice issued u/s 148 of the Act to the assessee company on 25th October, 2010 which was duly served on the assessee company after recording the following reasons:- Return of Income for A. Y.2008P09 has been filed on 03.10.2008 showing Nil income and claiming refund of ₹ 20,51,024/-. The computation of i .....

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d to tax 'under the head, 'business' and while computing the order u/s 143(3) this rental income was assessed as 'income from house property', which was claimed under the head business leading to the assessee disclosing a substantially lower income at Rs.NIL as against income assessed at ₹ 13,30,275/-. The assessee filed an appeal against the assessment which was dismissed by the then CIT(A). A similar situation existed in AY 2006-07 wherein the assessee had shown renta .....

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company vide letter dated 8th November, 2010 requested to consider the return of income filed with the Revenue on 3rd October, 2008 to be treated as a return of income filed in response to the notice issued u/s 148 of the Act . The assessee company also requested the AO to provide the reasons recorded for reopening of the assessment which was duly provided to the assessee company by the AO vide letter dated 30th November, 2010. On perusal of the P&L account of the assessee company, it was n .....

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rom house property . Detailed breakup was given by the assessee company from where it was clear that the residential premises/godown were let out for purely accommodation purposes and not for the purpose of running business centers, thus as per the AO , the income from this activity falls under the head Income from house property . The depreciation claimed by the assessee on such property was disallowed by the AO and added back to the business income of the assessee company. Accordingly, mainten .....

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roperty by the AO vide assessment orders dated 16.12.2011 passed by the AO u/s. 143(3) read with Section 147 of the Act. Similarly, it was observed by the A.O. that the assessee company has claimed depreciation on fixed assets of a sum of ₹ 26,91,259/- which included depreciation on addition to fixed assets at various branches. The assessee company was asked to furnish the evidences of additions to fixed assets . The assessee company furnished the evidences, however, some of the bills were .....

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assessee company was asked to provide the documentary evidence to prove the genuineness of the general expenditure of ₹ 91,48,771/- .The assessee company could not produced the details called for by the AO w.r.t. to claim of general expenditure of ₹ 91,48,771/- . The assessee company submitted that the assessee company s business have many branches all over the country and there was an administrative inconvenience to collect the details from all the branches. The A.O., however, allo .....

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d u/s. 143(3) read with Section 147 of the Act. , the assessee company has filed its first appeal before the learned CIT(A). 20. The learned CIT(A) held that re-opening of the assessment was done within four years from the end of assessment year. No assessment has been made u/s 143(3) of the Act and an intimation u/s 143(1) of the Act is not an assessment order as has been held by Hon ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., (2007) 291 ITR 500(SC) . Income .....

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s held to be valid by the learned CIT(A) vide appellate orders dated 27.02.2013. With respect to the treating rental income by the AO as income from house property against the income from business as shown by the assessee company, it was observed by the learned CIT(A) that for the assessment years 2005-06 to 2007-08 , similar receipts were treated as Income from house property and the same were confirmed by the learned CIT(A) for the assessment year 2007-08. The learned CIT(A) held that letting .....

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as given 97% of bills and vouchers which were produced and only small portion were not produced for which the A.O. cannot deny the assessee company s claim. The fixed assets have been verified by the auditors. The learned CIT(A) rejected the contention of the assessee company and held that it was incumbent on the assessee company to produce the documents/evidences which the assessee company failed to do so and hence the A.O. has rightly made the additions, as held by the learned CIT(A) vide appe .....

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s been given statutory duties and powers to scrutinize and make the assessment. The learned CIT(A) relied upon the decision of Hon ble Rajasthan High Court in the case of Jaipur Electro Private Limired v. CIT 134 CTR 237(Raj.) The learned CIT(A) held that the A.O. has the right and duty to enquire about the expenditure. The learned CIT(A) accordingly upheld the order of the A.O. vide appellate orders dated 27.02.2013. 21. Aggrieved by the appellate orders dated 27.02.2013 of the learned CIT(A), .....

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he Act. With respect to the second ground, the learned Counsel for the assessee company submitted that the assessee company s rental income from letting out residential premises and godown has been assessed to tax under the head Income from house property instead of Income from business . The learned Counsel for the assessee company submitted that the assessee company is running a travel agency and the properties owned and held by the assessee are let out for residential and godown purposes. The .....

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the Memorandum of the Association of the company wherein the object clause which is placed in paper book page 16 , the activity of letting out of property is listed as one of the objects of the assessee company and the learned counsel for the assessee company contended that the assessee company is in the business of giving properties on rent. The learned Counsel for the assessee company relied upon the decision of Hon ble Supreme Court in the case of Chennai Properties & Investments Ltd. v. .....

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and rejected the claim of the assessee company. With respect to ground No. 3, the ld. Counsel for the assessee company submitted that the depreciation has been disallowed amounting to ₹ 42,014/-. The assessee company has produced 97% of the bills and vouchers and only 3% of the vouchers could not be produced. The learned counsel for the assessee company submitted that the assessee company s business is not doing well and incurring losses , hence the vouchers could not be collected from all .....

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se incorporated in the memorandum, as claimed by the learned counsel for the assessee company and hence, the matter can be set aside to the file of the A.O. for examination and verification of this claim of the assessee company.The learned DR relied upon the orders of the authorities below. 24. We have heard the rival contentions and also perused the material available on record including case laws. We have observed that the assessee company is a travel agent having business all over the country .....

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um of Association is letting out of the properties , which object clause in Memorandum of Association of the company is placed in paper book page No. 16 filed with the Tribunal. In view of and in light of the decision of Hon ble Supreme Court in the case of Chennai Properties & Investments Ltd. (supra) , the claim and contentions of the assessee company needs examination and verification by the authorities below whether the assessee company is actually engaged in the business of letting out .....

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Properties and Investments Limited(supra). Needless to say that the assessee company be given sufficient and proper opportunity of being heard in accordance with principles of natural justice and in accordance with law.We order accordingly. With respect to the claim of the assessee regarding disallowance of depreciation amounting to ₹ 42,014/- on purchase of new fixed assets whereby the assessee company failed to produce evidences to substantiate its claim of purchase of new fixed assets, .....

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also, similar addition has been made and the assessee company has accepted these additions on confirmation of the additions by the learned CIT(A) after the first appeal stood dismissed by the learned CIT(A) against the quantum additions. In view of our above discussions and reasoning, addition of ₹ 42,014/- towards disallowance of depreciation on purchase of new fixed assets , to the income of the assessee company needs to be confirmed/ sustained. We find no infirmity in the orders of the .....

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ny s business is at many branches all over the country and there was an administrative inconvenience to produce these evidences and also owing to losses incurred by the assessee company. Since, the assessee company is not able to produce any detail with respect to the amount of general expenses of ₹ 91,48,771/- claimed by the assessee company in the return of income filed with the Revenue, the disallowance of 10% of the general expenses was made by the AO which was confirmed by the learned .....

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and circumstances of the case, the disallowance of 10% of general expenses is quite reasonable keeping in view peculiar facts and circumstances of the case and we confirm the afore-stated disallowance. We find no infirmity in the orders of the learned CIT(A) which we confirm/sustain. We order accordingly. With respect to the contentions of the assessee company regarding re-opening of the assessment, we have observed that the assessee company filed its return of income which was processed u/s 143 .....

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income at NIL . The assessee company filed appeal for the assessment year 2007-08 with the learned CIT(A) which was dismissed by the learned CIT(A). Similar and identical was the position for the assessment year 2006-07 with respect to the treatment of rental income and consequentially escapement of income . In our considered view, there is a tangible information/material which has come to the possession of A.O. having close nexus and live link with the formation of belief by the AO that income .....

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the re-opening of the assessment by the Revenue in the instant case u/s 147/148 of the Act based on our discussions and reasoning above, hence, we uphold the decision of ld. CIT(A) in which we have found no infirmity.We order accordingly. 25. In the result , appeal of the assessee company in ITA No. 3418/Mum/2013 for the assessment year 2008-09 is partly allowed as indicated above. Now we shall take up assessee company s appeal in ITA No 3419/Mum/2013 for the assessment year 2009-10. 26. The gr .....

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