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2016 (6) TMI 206 - ITAT PUNE

2016 (6) TMI 206 - ITAT PUNE - TMI - Partial denial of deduction under section 80-IB(7A) - Leave and Licence Agreement entered - Held that:- In the facts of the present case, the assessee had entered into a Leave and Licence Agreement with Pantaloon Retail (India) Ltd. on 01.03.2008, copy of which is placed at pages 80 to 93 of the Paper Book. As per the Leave and Licence Agreement, the assessee acknowledged to have constructed a shopping mall on the land owned by it and the same was agreed to b .....

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obligation of assets owner was to install and handover the assets to Pantaloon on which it was also to provide the insurance. Further, it was agreed that the owner shall install the nominal upgrades as required by Pantaloon at Pantaloon’s cost. Further, Pantaloon had undertaken the operation and maintenance of the said assets and also exercised the usage rights in terms of usage guidelines. Further, it was agreed that Pantaloon shall promptly inform the owner any damage caused to the assets

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see, income from which, is assessable under the head ‘Income from property’. It may be kept in mind that the assessee had developed his project for a multiplex theatre, where the basic requirement is not only building, owning and running the cinema but also commercial establishments along with it. Merely because those commercial areas are exploited by leasing out the same to the third party does not mean that the assessee has not commercially exploited the same. In the totality of the above said .....

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e assessee is entitled to claim the deduction under section 80IB(1) of the Act. The CIT(A) has already allowed the deduction under section 80IB of the Act against the running of multiplex cinemas, but the definition of multiplex theatre includes both the activities of running multiplex cinemas and commercial shops. In the absence of either, the assessee is not entitled to claim the deduction under section 80IB of the Act.

Merely because the assessee has prepared two separate Profit & .....

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rcumstances, in case expenditure has been incurred by the assessee may be in cash, which in turn, is recorded in the books of account of assessee, then there is some merit in the claim of assessee. Further, the assessee during the course of appellate proceedings has furnished confirmation by way of additional evidence which has not been admitted as these were not filed before the Assessing Officer. Thus we direct the assessee to furnish necessary details and also establish its case by way of ent .....

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he Assessing Officer shall decide after affording reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes.

Revaluation of closing stock by the assessee - Held that:- The perusal of Balance Sheet of Adinath Developers at page 22 of the Paper Book does not reflect any closing stock, but work-in-progress, cash in hand and negative capital account of proprietor had been declared in the Balance Sheet as on 31.03.2009. The plea of the asse .....

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e succeeding year for sum of ₹ 6,50,000/-. The revaluation is on the basis of scientific method i.e. the report of valuer and the loss booked by the assessee is allowable as business loss in the hands of assessee - Decided in favour of assessee - ITA No.1061/PN/2013, SA No.08/PN/2016 - Dated:- 29-4-2016 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant: Shri C.H. Naniwadekar For The Respondent : Shri Dheeraj Kumar Jain ORDER PER SUSHMA CHOWLA, JM: This appeal filed .....

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ltiplex theatre' within the meaning of sec. 80-IB(7A) of the Act, as claimed by the assessee and consequently erred in denying deduction u/s 80-IB(7A) of the Act on the said income. He failed to appreciate the issue in its proper perspective. He also failed to appreciate the scheme of sec.80-IB(7A) r.w.s. 80-IB (14)(da) and rule 18DDB of the I.T. Rules. He further failed to appreciate that commercial shops is a mandatory requirement for building, owning and operating a multiplex theatre. 2. .....

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O while calculating the deduction u/s 80IB(7A). b) The learned Commissioner of Income Tax (Appeals) erred on facts and in law in not allowing the depreciation on machinery such as air conditioners etc. from the alleged income from Big Bazar. 4. The learned Commissioner of Income Tax (Appeals) erred on facts and in law in upholding disallowance of cost of improvement to the extent of ₹ 67,02,224 in respect of short term capital gains on sale of plots. 5. The learned Commissioner of Income T .....

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failed to take into account the loss as per Profit & Loss account (Development activity) while disallowing the loss and Further the rectification application u/s 154 is pending with AO 7. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal. 3. The issue in grounds of appeal 1 and 2 raised by the assessee is against partial denial of deduction under section 80-IB(7A) of the Act. 4. Briefly, in the facts of the present case, the assessee for .....

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al income of ₹ 85,95,520/- and after debiting various expenses, net profit was declared at ₹ 20,45,827/-. Against the said income from Multiplex and rental income, the assessee had claimed deduction under section 80IB(7A) of the Act. The assessee had also carried out another business activity of developer under the name and style of Adinath Developers, where he had declared net loss of ₹ 23 lakhs. The assessee further had shown short term capital gains of ₹ 21,65,791/- on .....

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own on account of damages to the building at ₹ 23 lakhs. The Assessing Officer noted that in the concern Adinath Developers, the assessee had claimed deduction of ₹ 23 lakhs in work-in-progress, which was capital loss. The assessee was show caused to explain the same. In reply, the assessee pointed out that the building was constructed in assessment year 2001-02 and due to designing defects, cracks developed in the roof as well as walls and the flats could not be sold and were shown .....

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1 for ₹ 6,51,000/- and profit on sale was offered to tax in the relevant year. The assessee further pointed out that the said building was completed in the year 1998 and the market value of the said flats as remained un-sold were reduced after nearly eight years, on the basis of valuation of a registered valuer, who determined the realizable value of the said property. The Assessing Officer noted that the assessee had failed to furnish any proof in support of his contention of developing c .....

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er, the said valuation report was of survey and loss assessment report dated 17.09.2009. The Assessing Officer thus, held that even if it was admitted that there was loss, it pertains to assessment year 2004-05 and had no relevance to assessment year 2009-10. The Assessing Officer also rejected the other contention of assessee that due to insufficient designed foundation size and black cotton soil the problem of supporting the structure had become serious since in Sangli and adjacent areas, simi .....

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t on the basement and ground floor, there were big halls, which in turn, were rented to Big Bazaar. The assessee was running Multiplex on the first floor of building, which comprised 52% of the total area. The assessee had received rent from Big Bazaar of ₹ 85,95,520/- for letting out basement and ground floor of the building and the first floor was used for Multiplex. The assessee had prepared separate trading account for the rental income which is incorporated at page 6 of the assessment .....

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tivity of the nature of trade or commerce, as per the Assessing Officer, the income was required to be assessed as income from house property and assessee s claim of various expenses as per the Profit & Loss Account was not admissible. The Assessing Officer held that the said rent received from Big Bazaar is to be assessed as income from house property and admissible deduction under section 24 of the Act were computed and income from house property was calculated at ₹ 53,03,032/-. Furt .....

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ltiplex was re-casted as per Profit & Loss Account under para 6.2 at page 11 of the assessment order. The assessee was held to be entitled for deduction under section 80IB of the Act on the profit of ₹ 62,18,983/- and not on ₹ 1,01,41,664/-. The assessee was held to claim the deduction under section 80IB of the Act at ₹ 31,09,491/- as against ₹ 60,14,733/- claimed by the assessee in the computation of income. The Assessing Officer further held that the assessee was no .....

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show caused in this regard and the reply of the assessee is incorporated under para 6.5 at pages 12 and 13 of the assessment order and after noting the provisions of the Act i.e. 80IB(7A) of the Act, the Assessing Officer held that the assessee s claim of deduction under section 80IB(7A) of the Act was not acceptable for the following reasons:- a) Building is not meant for Multiplex only; b) Failure to comply with the provisions of Rule 18DB(4) of the Rules i.e. not filing the audit report in Fo .....

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interest and charges. 6. The Assessing Officer thus, re-computed deduction under section 80IB(7A) of the Act. 7. Another issue considered by the Assessing Officer was the cost of improvement of two plots sold by the assessee during the year, against which it had declared short term capital gains of ₹ 21,65,791/-. The Assessing Officer noted that while computing the short term capital gains, the assessee had declared cost of improvement in respect of plot No.1 at ₹ 65,52,239/- and in .....

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of persons and the amount paid to them for Murum filling, leveling and fencing work in order to verify the genuineness of expenses. The statements of two persons were recorded during the course of assessment proceedings. The assessee was asked to produce three persons. However, the assessee could not produce the said three persons and the Assessing Officer noted that the payments were made through cash or bearer cheques and the assessee could not produce the persons and the persons who were prod .....

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asis. The CIT(A) referred to the provisions of section 80IB(7A) of the Act, which allowed deduction in the case of Multiplex Theatre, which is not located in municipal jurisdiction. Further, reference was made to sub-section (14) of the said section, where Multiplex has been defined to be a building of a prescribed area comprising of two or more cinema theatres and commercial shops of such size and number and having such other facilities and amenities. The CIT(A) held that the assessee s case wa .....

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A) of the Act is to be allowed. Further, in respect of disallowance of cost of improvement while computing short term capital gains, the CIT(A) referred to the order of Assessing Officer as to why the said expenses should be disallowed. He further makes reference to the additional evidence filed in the form of Affidavits and fresh submissions made by the assessee in this regard, which in turn, were sent to the Assessing Officer to re-examine and to obtain a remand report. The CIT(A) vide para 13 .....

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ars that since there was not enough time before the appellant to produce details and the persons for recording statements before the Assessing Officer, the additional evidences are to be entertained by undersigned. However, the CIT(A) allowed relief of only ₹ 3,91,755/- in respect of payments made to the Municipal Corporation and regarding the balance amount, the CIT(A) agreed with the Assessing Officer that the expenses were un-substantiated and therefore, not allowed. The CIT(A) also uph .....

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issuing intimation under section 143(1) of the Act. The grievance of assessee in this regard was that rental income from the commercial shops was assessed under the head Income from property , whereas the assessee claimed the same as Income from multiplex . The learned Authorized Representative for the assessee referred to the provisions of section 80IB(1) of the Act, wherein it is provided that the deduction shall be allowed under the said section on account of any business from sub-section 3 .....

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ss of multiplex theatre. As per clause (d), the minimum area of all shops should be 3000 sq.ft. and minimum of each shop should be 250 sq.ft. He further stressed that it was not expected that the assessee should run these shops. The term used in the section and Rule is commercial shop and where the shop is used for commercial purposes, the conditions stand fulfilled. It was further clarified by him that the assessee was not running the shops itself. As per section, the terms used are theatre and .....

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allowed by the Assessing Officer because of shops being let out. Our attention was drawn to the list of facilities provided by the assessee to the lessee, which are enlisted at page 110 of the Paper Book and where it was commercially being exploited, against the receipts from multiplex activity, deduction under section 80IB(7A) of the Act was allowable to the assessee. In this regard, the learned Authorized Representative for the assessee placed reliance on the following decisions:- i) M/s. Shr .....

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eal No.3, the learned Authorized Representative for the assessee stated that the same was an alternate ground of appeal to grounds of appeal No.1 and 2, wherein the CIT(A) had not allowed the expenses including depreciation on car while calculating deduction under section 80IB(7A) of the Act. Further plea was raised on account of depreciation on machinery such as air-conditioners, etc. against income received from Big Bazaar. 12. The learned Departmental Representative for the Revenue pointed ou .....

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tiplex income. The learned Departmental Representative for the Revenue further stressed that under section 80IB(7A) of the Act, the assessee should have built up and owned building and further operated the same, which were the key words and where the assessee was not operating its commercial shops, it was not entitled to the claim of deduction under section 80IB(7A) of the Act. The learned Departmental Representative for the Revenue placed reliance on the ratio laid down by the Hon ble Supreme C .....

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essee as per their requirement, the assessee was taking risk and was engaged in business activity. 14. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the claim of deduction under section 80IB(7A) of the Act. For this purpose, the provisions of section may be considered and the relevant provisions of section read as under:- 80IB(1) - Where the gross total income of an assessee includes any profits and gains derived from any bu .....

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ip; (6)…… (7)…… (7A) The amount of deduction in the case of any multiplex theatre shall be- (a) fifty per cent of the profits and gains derived, from the business of building, owning and operating a multiplex theatre, for a period of five consecutive years beginning from the initial assessment year in any place : Provided that nothing contained in this clause shall apply to a multiplex theatre located at a place within the municipal jurisdiction (whether known as a mu .....

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the transfer to a new business of any building or of any machinery or of plant previously used for any purpose; (iii) the assessee furnishes alongwith the return of income, the report of an audit in such form and containing such particulars as may be prescribed83 and duly signed and verified by an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed. ..... 14 (da) multiplex theatre means a building of a prescrib .....

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the multiplex shall not be less than 22,500 square feet, and shall consist at least 50% of the total built-up area of the multiplex excluding the area specified for parking. (b) The multiplex theatres shall be comprised of at least three cinema theatres and at least three commercial shops. (c) Total seating capacity of all the cinema theatres comprised in the multiplex shall be at least 900 seats, and no cinema theatre should consist of less than 100 seats. (d) The total built-up area occupied .....

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ns in respect of fire and safety. (g) The cinema theatres comprised in the multiplex theatre shall use modern stereo projection systems with at least two screen speakers per screen and one surround speaker per 25 seats in a theatre. (h) The cinema theatres shall use seats with seat pitch not less than 20 (centre to centre). (i) Ticketing system employed by the cinema theatres shall be fully computerised. (j) The multiplex theatre cinema shall be centrally air-conditioned. 16. Under the provision .....

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number of years as specified in the section. Under sub-section 7A, it is provided that in respect of deduction in the case of any multiplex theatre, amount shall be 50% of the profits and gains derived from the business of building, owning and operating a multiplex theatre for a period of five consecutive years beginning from initial assessment year, in any place. It is further provided that nothing contained in this clause shall apply to multiplex theatre located at a place within municipal jur .....

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any purpose. Under clause (b) (iii), it is further provided that the assessee is obliged to furnish along with return of income, the report of an audit in such form and containing such particulars as may be prescribed and duly signed and verified by an accountant, certifying that the deduction has been correctly claimed. Further, under section 80IB(14) of the Act, the term multiplex theatre is defined under clause (da). It provides that multiplex theatre would mean a building of a prescribed ar .....

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ex theatre shall have, as per clause (a), total built up area occupied by all the cinema theatres comprised in the multiplex shall not be less than 22,500 sq.ft. and shall consist at least 50% of the total built up area of the multiplex excluding the area specified for parking. As per clause thereunder, the multiplex theatre shall be comprised of at least three cinema theatres and at least three commercial shops. Further as per clause (c), the total capacity of all the cinema theatres comprised .....

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and stereo projections systems to be used by each of the cinema theatre. 17. Reading all the provisions of the Act i.e. section 80IB(1), 80IB(7A) and thereafter, 80IB(14)(da) and the Rules prescribed thereunder i.e. Rule 18DB, it transpires that deduction from the eligible profits and gains of business of multiplex theatre are allowable to the assessee, where the profits and gains are derived from the business of building, owning and operating a multiplex theatre. The term used in section 80IB( .....

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he Act, initial assessment year in respect of each of the undertaking is specified and vide clause (5), it is provided that in case of multiplex theatre, the initial assessment year will be relevant to the year in which cinema hall being part of multiplex theatre starts operations on a commercial basis. In other words, the Act recognizes the running of cinema hall to be a distinct activity from running of commercial shops. 18. The assessee admittedly, fulfills all the conditions vis-à-vis .....

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er such a view taken by the authorities below is a plausible view. We would again refer to the definition of multiplex theatre in section 80IB(14)(da) of the Act, which clearly lays down that the multiplex means a building of prescribed area comprising of two or more cinema theatres and commercial shops of such size and number, etc. The word used between the two i.e. cinema theatre and commercial shops is and . In other words, both the activities have to be carried on by the assessee in order to .....

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which the assessee is entitled to the claim of deduction under section 80IB(1) of the Act. Where the assessee has been found to be eligible for the claim of deduction, against which the Revenue is not in appeal, the first aspect of the issue stands settled in favour of the assessee. The second aspect of the issue is that where the assessee owns commercial shops which admittedly are as per the prescribed area and merely because the same are rented out by the assessee, can the assessee be said no .....

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. Cyber City and income received from letting out the same was offered as income from business. The claim of the assessee was that in Magarpatta City Project, the development of information technology park was approved under section 80IA of the Act and was bonded area under the Software Technology Park of India (STPI) norms and had various amenities to its. Further, huge investments were made in installation of many specialized amenities / equipments like transformers for the IT Park, special po .....

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rd, held it to be organized commercial activity to be assessed under the head Income from business. The Tribunal in this regard placed reliance on the ratio laid down by several High Courts and with reference to Hon ble Bombay High Court in CIT Vs. Mohiddin Hotels (2006) 284 ITR 229 (Bom), wherein it was held that where the subject matter i.e. let out is not a bare tenement but a complex one with infrastructure facilities, the income derived therefrom, which is not separable from letting out the .....

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the infrastructure facilities, the income therefrom is to be assessed as income from business. The Commissioner in the said case was of the view that the said income is assessable from property but the order of Commissioner was set-aside. 21. Another decision which has been relied upon by the learned Authorized Representative for the assessee is the ratio laid down by Mumbai Bench of Tribunal in M/s. Shreeji Exhibitors Vs. ACIT (supra), wherein it was held that where the activity of the assessee .....

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ng of the premises is also earning substantial income from providing amenities and facilities. Such facilities are not the basic facilities required for occupation or renting of a building or premises, but these are the special facilities for running of the multiplex/ shopping mall and cinema theatre and food court etc. and are meant to attract the customers and provide comfort of shopping to them. These facilities can not be said to be basic/normal facilities required for occupation of the prem .....

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es not only to the occupants/lessees but also to provide and maintain facilities and amenities in the common areas for the attraction, convenience and comfort of the customers/visitors. In our view, as per the modern day trends of retail business and customer preferences, not only the quantum of rent/income from the multiplex but also the very letting of the premises depends upon the provisions of facilities and amenities provided taking into consideration not only the need and requirements of t .....

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mary objective of the assessee to exploit the property in a simple manner or to exploit it commercially i.e. to exploit it by way of complex commercial activities to arrive at the generation of income that could be taxed under the head income from house property or as income from business. If it is found that main intention is to simply let out property or any part of it, resultant income must be assessed as income from house property but if main intention is found to be exploitation of property .....

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tlet under the name and style of Big Bazaar. The terms of the lease were agreed upon between the parties and the assessee Lessor received lease money from the said party. In addition to the said lease agreement, an asset usage agreement was executed between the parties on 01.03.2008 itself, under which it was agreed that in addition to the lease money received per month, the assessee was to received usage right of ₹ 4,20,000/- per month. The obligation of assets owner was to install and ha .....

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ched to the Agreement, which reads as under:- LIST OF ASSETS The Asset Owner has already provided to the Pantaloon the List of Asset which is given below; a. Lighting in the common areas, viz., outside the said building; b. 100% power back up with dedicated DG Sets with KVA as per requirements and specifications of PRIL, operating costs of which will be borne by PRIL; c. Fire fighting systems, if required as per local municipal regulations; d. Benefits of all warranties and other benefits, which .....

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Authorized Representative for the assessee that in case these assets are not used by Pantaloon, then the same may not be used by the next lessee and it cannot be said that these were the general assets provided to any lessee. The learned Departmental Representative for the Revenue on the other hand, stressed that the assets provided to the lessee were in the usual course which any lessor shall provide in respect of its building. We are of the view that where the assessee has build and constructe .....

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. It may be kept in mind that the assessee had developed his project for a multiplex theatre, where the basic requirement is not only building, owning and running the cinema but also commercial establishments along with it. Merely because those commercial areas are exploited by leasing out the same to the third party does not mean that the assessee has not commercially exploited the same. In the totality of the above said facts and circumstances, we hold that where the assessee has fulfilled the .....

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Act. The CIT(A) has already allowed the deduction under section 80IB of the Act against the running of multiplex cinemas, but the definition of multiplex theatre includes both the activities of running multiplex cinemas and commercial shops. In the absence of either, the assessee is not entitled to claim the deduction under section 80IB of the Act. Accordingly, we hold so. 24. Another aspect to be taken note of is that merely because the assessee has prepared two separate Profit & Loss Accou .....

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n ground of appeal No.4 in respect of the disallowance of cost of improvement on sale of plots which was declared as short term capital gains on sale of two plots, one plot was near multiplex theatre and the second plot was in the city. While declaring income from short term capital gains, the assessee had declared cost of improvement in respect of plot No.1 at ₹ 65,52,239/- and in respect of plot No.2, at ₹ 29,06,400/-. The assessee claimed that the said amount was spent on purchasi .....

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ses in respect of plot No.1 at ₹ 49,14,179/- and ₹ 21,79,800/- in respect of plot No.2 for want of proper verification. The total disallowance made by the Assessing Officer was ₹ 70,93,979/-. 27. The CIT(A) took note of additional evidence filed by the assessee, but only allowed relief of ₹ 3,91,755/- i.e. payment made to Municipal Corporation. 28. The case of the assessee before us is that necessary details were furnished before the authorities below and certain addition .....

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sessee, where the payment made over and above two years and the same is recorded in the books of account of assessee. 29. The learned Departmental Representative for the Revenue stressed that there was no evidence filed before the Assessing Officer and hence, no justification in the claim of assessee. 30. In the entirety of the above said facts and circumstances, in case expenditure has been incurred by the assessee may be in cash, which in turn, is recorded in the books of account of assessee, .....

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y of Rule 46A of the Rules. In the entirety of the above said facts and circumstances, we direct the assessee to furnish necessary details and also establish its case by way of entries in the books of account before the Assessing Officer, who shall afford reasonable opportunity of hearing to the assessee and look into the merits of claim of assessee. It may be clarified here that the Assessing Officer in the first round had already allowed 25% as allowable in the hands of assessee and the CIT(A) .....

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ssee had re-worked the realizable value of closing stock of certain flats which remained to be unsold and claimed business loss of ₹ 23 lakhs. The case of the assessee before us was that the revaluation of stock was on the basis of report of registered valuer. In respect of certain flats, which could not be sold by the assessee for period of time, the said building was claimed to be constructed in the earlier years and because of lying vacant, certain cracks had appeared in the building an .....

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