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2016 (8) TMI 730 - ITAT VISAKHAPATNAM

2016 (8) TMI 730 - ITAT VISAKHAPATNAM - TMI - Addition u./s 40(a)(ia) - assessee has failed to deduct TDS under respective TDS provisions - Held that:- Following the coordinate bench decision of ITAT, Visakhapatnam in the case of Merilyn Shipping & Transporters Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) held that no disallowance can be made under the provisions of section 40(a)(ia) of the Act, if expenditure incurred is already paid during the same financial year. However, the CIT(A) has s .....

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(A) has rightly held that no disallowance can be made, if the expenditure incurred is paid during the same financial year even though no TDS has been deducted. We do not see any reason to interfere with the order of the CIT(A). Hence, we inclined to upheld the order of CIT(A) and reject the ground raised by the revenue. - Disallowance of bad debts claim - Held that:- Once the debt is written off in the books of accounts, no need to prove that the debt has become bad in the year in which the .....

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ebt claim made by the assessee is part of revenue receipts in the earlier years. In case the same is offered to tax in the earlier years, then claim made by the assessee towards bad debt should be allowed. The CIT(A) has rightly decided the issue. We do not see any error or infirmity in the order passed by the Ld. CIT(A). Hence, we inclined to upheld the CIT(A) order and reject the ground raised by the revenue. - Higher rate of depreciation - commercial vehicles - A.O. disallowed the claim o .....

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offices - Held that:- When the unexplained income has been assessed based on material detected during the course of search and seizure operation, the A.O. is not correct to disbelieve and ignore the expenditure reflected in the same document. When income and expenditure are relating to the same business and the branch it is difficult to reject and read both the items as separate and isolated. We find force in the arguments of the assessee for the reason that the assessee has maintained a cash bo .....

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. should have telescoped the sources available in the form of income to the expenditure. The CIT(A) after considering the explanations furnished by the assessee directed the A.O. to set off the expenditure against additions made towards unexplained income based on the seized documents. We do not see any error or infirmity in the order passed by the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. - Addition on account of admission of income u .....

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77; 1,55,30,000/- for the assessment year 2010-11 which is based on the books of accounts as on the date of search. Therefore, we are of the opinion that the additions made by the A.O. based on the assessee’s admission u/s 132(4) of the Act without any incriminating material cannot sustain in the eyes of law. The A.O. failed to bring on record any material evidences to show that these additions represents undisclosed income of the assessee. The CIT(A) after considering the explanations furnished .....

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asset is put to use for more than 180 days or less than 180 days, then it is eligible for 100% or 50% depreciation as the case may be, irrespective of the fact that the assets is purchased or put use on any date between 1st day of the financial year or last day of the financial year. Under the given facts and circumstances, there is a little possibility of double claim by both the assessee’s for those eleven days. Though, assessee claims that it has claimed depreciation for eleven days, the A.O .....

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/2012, I.T.A.No.315 to 317/Vizag/2012, C.O. Nos.2 to 4/Vizag/2016, I.T.A.No.318 to 321/Vizag/2012, C.O. Nos.5 to 8/Vizag/2016 - Dated:- 29-6-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri G.V.N. Hari, AR For The Respondent : Shri Bhupal Reddy, DR ORDER PER BENCH: These are appeals filed by the revenue, as well as the assessee and cross objections filed by the assessee are directed against the separate, but identical orders of Commissi .....

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firm and later converted into a private limited company on 12.4.2006 under the provisions of Companies Act, 1956. The assessee has filed regular returns of income for the respective assessment year s u/s 139(1) of the Income Tax Act, 1961 (hereinafter called as the Act ). A search and seizure operation u/s 132 of the Act was conducted in the case of M/s. Mahamaruthi Logistics Pvt. Ltd., Visakhapatnam on 4.2.2010. Consequent to search, the case of the assessee was centralised to DCIT, Central Cir .....

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ailed questionnaire were issued. In response to show cause notice, the authorised representative of the assessee appeared from time to tome and furnished books of accounts and other details called for. The A.O. after considering the details furnished by the assessee, completed assessment u/s 143(3) r.w.s. 153A/153C of the Act and made following additions/disallowances: a) Disallowance of various expenditure under the provisions of section 40(a)(ia) of the Act for non-deduction of TDS. b) Disallo .....

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ing the explanations furnished by the assessee partly allowed the appeals filed by the assessee for all the assessment years. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 4. The revenue has raised common grounds for all the assessment years. From these grounds of appeal, the revenue has agitated five issues i.e. (1) Deletion of disallowance of expenditure u/s 40(a)(ia) of the Act. (2) Deletion of bad debts (3) Deletion of disallowance of higher rate of depreciation on comme .....

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not deducted TDS on transportation charges, handling charges, hire charges and other charges under the respective TDS provisions. Therefore, issued a show cause notice and asked to explain why the expenditure shall not be disallowed under the provisions of section 40(a)(ia) of the Act for non-deduction of TDS. In response to show cause notice, the assessee submitted that it has deducted TDS on transportation charges, handling charges and hire charges wherever applicable in accordance with the r .....

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charges, transportation charges and hire charges. The assessee has defaulted in deducting TDS on amounts payable to a contractor or sub-contractor for carrying out the work of transportation, watch and ward services and also handling charges, therefore, in view of the provisions of section 40(a)(ia) of the Act, disallowed the amount for non deduction of TDS. The A.O. was of the opinion that the assessee ought to have deducted TDS on these expenses, however failed to deduct TDS under the provisi .....

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n the case of M/s. Merlyn Shipping and Transporters (2012) 136 ITD 23, no disallowance can be made for non-deduction of TDS, if the expenditure is paid within the financial year. 6. We have heard both the parties and perused the materials available on record. The A.O. disallowed expenditures under the provisions of section 40(a)(ia) of the Act, for the reason that the assessee has failed to deduct TDS under respective TDS provisions. The A.O. was of the opinion that the assessee has not complied .....

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g the same financial year. We find force in the arguments of the assessee for the reason that any expenditure incurred on which TDS has not been deducted, but the same has been paid during the same financial year, no disallowance can be made under the provisions of section 40(a)(ia) of the Act. This view was upheld by the coordinate bench of this Tribunal, in the case of M/s. Merilyn Shipping and Transporters Vs. ACIT (supra), wherein the coordinate bench held that no disallowance can be made un .....

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e the assessee has failed to deduct TDS under the respective provisions of the Act. We have considered the arguments of the Ld. D.R. in the light of the facts of the Hon ble A.P. High Court, which has suspended the operation of special bench decision of Merilyn Shipping & Transporters Vs. ACIT and find that the coordinate bench of this Tribunal in the case of Mukundara Engineers & Contractors Vs. ACIT, has considered the issue and after considering the revenue objection with regard to th .....

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Court in the case of Janapriya Engineering Syndicate, we are of the opinion that the provisions of section 40a(ia) of the Act cannot be made applicable in respect of the amounts already paid before 31st March. In other words, the A.O. is directed to restrict the disallowance to the amounts payable after 31st March. With these observations, ground no.3 of the assessee is treated as partly allowed. 8. The CIT(A) after considering the explanations furnished by the assessee and also following the c .....

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me financial year, then no disallowance can be made u/s 40(a)(ia) of the Act. In view of the clear factual position recorded by the CIT(A) and also legal position clarified by the coordinate bench of this Tribunal in the case of M/s. Merilyn Shipping & Transporters (supra), we are of the view that the CIT(A) has rightly held that no disallowance can be made, if the expenditure incurred is paid during the same financial year even though no TDS has been deducted. We do not see any reason to in .....

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to prove that the income pertains to claim of bad debt has been offered to tax in the preceding years. The A.O. further was of the opinion that the assessee has failed to prove that the debt has become bad. It is the contention of the assessee that it has claimed the bad debt and written off the debt in the books of accounts. Once the debt is written off in the books of accounts, no need to prove that the debt has become bad in the year in which the claim is made. We find force in the arguments .....

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enue receipts in the earlier years. In case the same is offered to tax in the earlier years, then claim made by the assessee towards bad debt should be allowed. The CIT(A) has rightly decided the issue. We do not see any error or infirmity in the order passed by the Ld. CIT(A). Hence, we inclined to upheld the CIT(A) order and reject the ground raised by the revenue. 10. The next issue that came up for our consideration is disallowance of higher depreciation claim in respect of commercial vehicl .....

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laimed depreciation as per entry III(3)(ii) of Part -A of New Appendix-1 of Income Tax Rules 1962, which is applicable to Commercial and New Commercial vehicle used in the business of running them on hire. The assessee claims that it owns the vehicles and operates the vehicle in its business of transport, handling and clearing and forwarding and also in some times it gives the vehicles on hire. The assessee involved in the business of handling and transportation of goods in respect of contracts .....

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rther observed that the assessee is in to the business of handling and transportation of goods and the process of transportation is incidental to composite works contract undertaken by the assessee. The higher rate of depreciation prescribed under the Income Tax Act is applicable to assesses, where they are involved in the business of running them on hire. The A.O. further observed that on perusal of the contract agreement entered into by the assessee with M/s. RINL and others, the main work inv .....

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n persual of the agreement, it is clear that nowhere the consideration is paid for transportation of goods. The transportation of goods is incidental to main activity undertaken by the assessee which is storage and handling of goods. The A.O. has given elaborate discussion for coming to the conclusion that the assessee is not involved in the business of hiring commercial vehicles. The A.O. further opined that higher depreciation for commercial vehicles under the Income Tax Act is applicable to t .....

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claim higher rate of depreciation on commercial vehicles, as the assessee is not involved in the business of running commercial vehicles on hire. The D.R. further submitted that higher rate of depreciation is allowable to those assessees who are involved in the business of hiring of commercial vehicles. The assessee used the vehicles in its business of handling and storage of goods, therefore, it cannot be held that the main activity of the assessee is hiring of commercial vehicles, thereby it i .....

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goods as a consignment agent for various clients. The assessee neither involved in the business of transportation of goods nor in the business of running them on hire. The transportation of goods is incidental to the main contract undertaken by the assessee i.e. storage and handling of goods. Once commercial vehicles are used in assessee s own business of storage and handling of goods, it cannot be considered that the assessee is involved in the business of hiring of vehicles, thereby eligible f .....

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ble ITAT in assessee s own case for the assessment years 2004-05 to 2006-07, wherein the ITAT clearly held that the assessee is in to the business of transportation of goods, however, the issue has been set aside to the file of the A.O. for the limited purpose on verification of technicalities of the commercial vehicles for higher claim of depreciation. Therefore, the A.O. was not correct in holding that the assessee is not in the business of transportation of goods thereby not eligible for high .....

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ng the goods to containers and unloading the goods from containers. The main activity of the assessee is to transport goods and these vehicles are used for the purpose of transportation of goods from one place to another place. Once the vehicles are used for transportation of goods, the assessee is eligible for claiming higher depreciation. 14. We have heard both the parties and perused the materials available on record. The factual matrix of the case is that the assessee is involved in the busi .....

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es to the stock yard. The assessee main activity is handling and transportation of goods from stock yards to containers. The A.O. disallowed the claim of higher depreciation for the reason that the main activity of the assessee is not transportation of goods or hiring of vehicles. The assessee is involved in the business of storage and handling of goods and the transportation activity is incidental to the composite contract undertaken by the assessee. The A.O. further held that higher depreciati .....

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siness of transportation of goods. It is the contention of the assessee that its dominant activity is transportation and handling goods belonging to others. The assessee handling and transports goods from stock yards to containers. It is further contended that these commercial vehicles are used in the business of transportation of goods, therefore, it is eligible for higher rate of depreciation. 15. There is no dispute with regard to the ownership and rate of depreciation on these commercial veh .....

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iscussed at length the nature and method of conducting the business and analysing the contracts entered into with the parties. At the end of the discussion, the A.O. accepted that the assessee is engaged in the business of transportation of goods of others on hire. The only objection raised by the A.O. is that the assessee main business activity is not transportation of goods. The assessee is involved in the business of storage and handling of goods and in the process the transportation of goods .....

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ereafter stacking the same from one container to another container or from one place to another place. The Reach Stackers are mounted on a moving assembly having wheels/tyres and its mechanical components are designed for heavy duty work. It has a hydraulic mounted lifting boom to which a separator is also attached. Hydraulic cylinders inside the boom would carry the lifting and extenion of functions of the boom. On a whole, it is heavy duty machinery equipment which is mounted on a moving assem .....

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he same from one place to another is wheel mounted. The lifting and moving assembly is hydraulic and mechanical powered. The mobile crane is heavy duty machinery equipment mounted on wheels and they are registered with the RTO. As far as fork lifts are concerned, the A.O. opined that they are similar vehicles with capacity for lifting and moving cargo up to 10 tonnes. The Forklifts are used for transporting the cargo from one place to another place in the yard. It is hydraulically and mechanical .....

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perated with hydraulical and mechanical power and also mounted on wheels. The A.O. also held that these vehicles are registered with RTO, however, disputed the fact that though these vehicles are used in the business of transportation of goods, the assessee main activity is not transportation of goods. 17. The question that needs to be answered is whether higher claim of depreciation can be allowed to commercial vehicles which are used in assessee own business of transportation of goods. The fac .....

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eciation, normal vehicles are coming under the general category of plant and machinery and hence eligible for normal rate of depreciation. Similarly, the income tax Act prescribes higher rate of depreciation for commercial vehicles which are used in the business of running them or hire or transportation of goods. As per the schedule of depreciation, commercial vehicles which are purchased in a specified period are eligible for higher rate of depreciation, if they are put in the business of runni .....

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hese commercial vehicles are considered as heavy duty vehicles and also registered with the RTO. The assessee has used these vehicles in its business of transportation of goods. On perusal of the details filed by the assessee, we find that the dominant activity of the assessee is to transport goods from one place to another place. These commercial vehicles are used in the business of transportation of goods from one place to another place. Therefore, we are of the view that these commercial vehi .....

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es on behalf of the clients. There is no bar as per law to deny higher rate of depreciation, if the vehicles are not plied on roads. What is required to be seen is whether these vehicles are used for transporting the goods as well as for loading and unloading purposes. One has to examine and consider the nature of receipt in the hands of the assessee on account of usage of these vehiclews. The goods and containers handled and carried by the assessee vehicles are belonging to the clients such as .....

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time. When the commercial vehicles are used in the business of transportation of goods and also in the business of running them on hire the rate of wear and tear is more, accordingly, these vehicles are entitled for higher rate of depreciation. 20. The assessee gets rates for handling activities which contains rates for handling of containers, transportation of containers for transhipment and round trip transportation of containers both ways loaded for factory stuffing/restuffing. From these fac .....

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to third parties. The assessee has used these commercial vehicles for the exclusive purpose of transportation and handling and also loading and unloading of goods to the containers and tippers for onward transmission of goods. Therefore, we are of the view that the assessee is engaged in the business of transportation of goods belongs to third parties. In the process it has employed commercial vehicles for the purpose of transportation of goods and loading and unloading of goods from stock yard .....

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Vehicles Act and the rules thereunder clearly fell within the expression Motor Lorries in entry 3-E(1A) of the table in Appendix 1 of I.T. Rules, since it was used by the asessee in its business of running it on hire, the assessee entitled for higher depreciation. The relevant portion of the order is extracted below: As per Webster's II New River Side University Dictionary, the word 'lorry' in the meaning relevant to the present context, would mean, 'a motor truck As per the Enc .....

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signed for such services. Thus, a lorry i.e., truck adapted or designed to carry a crane is meant for special services of lifting load, moving it side by side, rotating it or moving it horizontally. Most industrial trucks permit mechanized pick-up and deposit of the loads, eliminating manual work in lifting as well as transporting. The crane truck is a portable boom crane mounted on an industrial truck. It will, thus, be clear that motor vehicles like fire trucks, fork lift trucks and crane truc .....

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ds and the hoisting machinery is mounted so as to counterpoise part of the load on the boom and thereby, preventing the entire crane from overturning while carrying the load. The fork lift truck, widely used for moving goods between warehouse storages and shipping vehicles, "is a highly manoeuvrable crane adaptable to handling drums, crates, or loaded skids or pallets." A crane is usually typed according to its undercarriage. Some of the cranes which undercarriage is not a truck are, & .....

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a statutory equipment. Thus, a mobile crane mounted on a truck constitutes a single unit known as a 'truck crane' which is adapted for use upon roads for special services. The truck on which the crane is mounted is constructed and adapted specially to carry the crane. In the instant case, truck is adapted for use solely for carriage of the crane mounted on it. The mounted crane is attached to the truck which carries it. The test of carrying goods such as potatoes and tomatoes that requi .....

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pted for use solely for its carriage and such truck crane is used for special service of lifting and moving heavy objects. This is why such mobile crane is registered as a heavy motor vehicle which is a heavy goods vehicle as defined in s. 2(16) of the Motor Vehicles Act. The approach of the Tribunal and the authorities below it that cranes are not mentioned specifically as an independent item falling in the categories for which higher depreciation allowance at the rate of 40 per cent when used .....

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which Court or Tribunal can take judicial notice. Lack of effort and knowledge sufficient for taking such judicial notice should not be a burden on the citizens in judicial proceedings. As provided by s. 56 of the Evidence Act, no fact of which the Court will take judicial notice, need be proved. This equally applies to the Tribunals which are not in fact strictly bound by the rules of evidence. The mobile crane of the assessee which admittedly was registered as a heavy motor vehicle, would for .....

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401. The coordinate bench of this Tribunal, under similar circumstances held that commercial vehicles used in the business of transportation of goods on hire as well as transportation of goods are eligible for higher rate of depreciation. The relevant portion of the order is extracted below: ITAT found that the Tribunal in Assessee's own case earlier has decided the issue in favour of the Assessee. In this regard the Tribunal's decision in Assessee's own case in ITA NO.334/Kol/2001 f .....

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a penalty under the default clause had to be paid. It is not a penalty for breach of any law. The payment was made on account of the contractual obligation under the agreement. When the goods were not delivered within the stipulated period, an extra amount, designated 'penalty' had to be paid. This was done in course of carrying on the business by the assessee. Usually, time is not of the essence of the contract, but the parties are entitled to make it so by inserting a specific clause i .....

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ing goods. One fails to see how this payment made under a contractual obligations cannot be allowed as business expenditure. Amount paid for non-delivery of goods in time is allowable as deduction even though such amount is designated as 'penalty' in the supply contract, time being the essence of the contract. " ( Para 6) Thus ITAT find that when the amounts are paid on contractual obligation the same have to be allowed as business expenditure. The amount paid for non delivery of go .....

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lar circumstances held that equipments like pay loaders, JCBs, 400V loaders are covered within the expression motor lorries which are used in the business of running them on hire and the A.O. had correctly allowed the claim of depreciation u/s 32 of the Act applying the rate of 30% assigned to entry no.III(3)(ii) of part A of appendix 1 of Income Tax Rules 1962 applicable as motor basis, motor lorries and motor taxes used in the business of running them on hire. Relevant portion of the order is .....

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e of CIT Vs. Gupta Global Exim Pvt. Ltd. (2008) 305 ITR 132 and submitted that once commercial vehicles are used in assessee s own business, then the assessee is not eligible for higher rate of depreciation. We have considered the case law relied upon by the D.R, in the light of the facts of the present case and come to the conclusion that the case law relied upon by the Ld. D.R. is not applicable to the facts of the present case. The facts of the case before the Hon ble Supreme Court was that i .....

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ng relevant year in a busienss of running them on hire. In the present case on hand, the dominant activity of the assessee is to transportation and handling goods belonging to third parties. The assessee employed the commercial vehicles for the exclusive purpose of transportation, loading and unloading of goods. Therefore, we are of the view that the facts of the present case stands in a different footing, therefore held that the case law relied upon by the Ld. D.R. is not applicable to the fact .....

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and circumstances, the coordinate bench held that the dominant object of the assessee was to carry on the business of steel and cement and also provide value added services to the customers purchasing steel and cement. There was nothing on record to suggest that substantial income of the assessee was from running the vehicles on hire, therefore, held that the assessee is not eligible for higher rate of depreciation. The facts of the case relied upon by the D.R. is altogether different from the .....

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re eligible for higher rate of depreciation. We do not see any error or infirmity in the order passed by the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. 27. The next issue that came up for our consideration is addition on account of unexplained expenditure of branch offices. During the course of search, certain incriminating documents found reveals that the assessee has maintained cash book wherein receipts and expenditure are recorded. Duri .....

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was of the opinion that these income and expenditure is kept outside the regular books of accounts therefore, opined that the assessee has not included these receipts in the regular returns filed for the respective assessment years. With these observations, made separate additions towards receipts and expenditure. It is the contention of the assessee that once addition is made towards income, the A.O. was not correct in making separate addition towards expenditure. When the unexplained income h .....

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s to its business activity is recorded. Once income is assessed based on a particular seized document, the A.O. was not correct in making separate additions towards expenditure by holding that the assessee has failed to prove the sources for expenditure. In our considered opinion, the A.O. was completely erred in making separate additions towards income and expenditure. When the income and expenditure is part of a single seized document, the A.O. should have telescoped the sources available in t .....

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count of admission of income u/s 132(4) of the Act. The facts relating to the issue are that during the course of search and seizure operation, the Managing Director of the company admitted that he would deisclose additional income of ₹ 1,00,00,000/- crore and ₹ 1,55,30,000/- respectively, for the assessment year 2009- 10 & 2010-11, accordingly, filed return in response to notice u/s 153A/153C of the Act. The A.O. made separate additions towards income admitted during the course .....

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p further enquiries by the investigating department. Therefore, the assessee was not correct in explaining that the income has been offered in different assessees names and also telescoped against the regular income declared for the assessment year 2010-11. It is the contention of the assessee that it has admitted income of ₹ 1,00,00,000/- in the name of M/s. Venkatarama Engineering for the assessment year 2009-10 and ₹ 1,55,30,000/- for the A.Y. 2010-11. The assessee further contend .....

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d on the admission of the assessee and not based on any material found during the course of search. Therefore, the A.O. was not correct in making separate additions u/s 132(4) of the Act based on the admission of assessee, when he had made various additions in the assessment proceedings. 29. Having heard both the sides, we find that the A.O. has made various additions to returned income in respect of disallowance of expenditure, short accounting of receipts and other additions after thorough exa .....

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the Act, the Managing Director never mentioned about declaration of additional income in addition to the income disclosed in the books of accounts. In the absence of any evidence brought on record suggesting income relating to the assessee in these two years, except the unexplained income of Hyderabad, Nagpur and Visakhapatnam branches, which are already assessed as income of the assessee, the additions made purely on the basis of statement recorded u/s 132(4) of the Act will not stand. The A.O. .....

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sessment year 2010-11 which is based on the books of accounts as on the date of search. Therefore, we are of the opinion that the additions made by the A.O. based on the assessee s admission u/s 132(4) of the Act without any incriminating material cannot sustain in the eyes of law. The A.O. failed to bring on record any material evidences to show that these additions represents undisclosed income of the assessee. The CIT(A) after considering the explanations furnished by the assessee deleted the .....

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d style of Maruthi Transports, later became Maha Maruthi Logistics Pvt Ltd by way of conversion of partnership firm into Private Limited Company under part IX of Companies Act, 1956. The assessee firm was converted in to Private Limited Company on 11-4- 2006, i.e. the firm was in existence for eleven days. The assessee claimed depreciation on block of assets for a period of eleven days. The A.O. was of the opinion that when a firm is converted into Company all assets and liabilities have been ta .....

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ed for the remaining period, therefore, the A.O. was not correct in holding that there is double claim. 31. We have heard both the parties and perused the materials available on record. The assessee was initially came in to existence as a partnership firm, later became private limited company on 11-4-2006, by way of part IX conversion under the provisions of Companies Act, 1956. The firm was in existence for eleven days. The assessee claimed depreciation on block of assets for a period of eleven .....

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event of dissolution of firm, the assets and liabilities of the firm has to be revalued and excess of assets over liabilities should be taken as income for the purpose of computation of income. We find force in the arguments of the assessee for the reason that when a partnership firm converted in to private limited company as a going concern, the question of dissolution of firm and revaluation of assets and liabilities does not arise. 32. In the present case on hand, on perusal of the facts, we .....

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siness. However, as per the proviso provided to sec. 32(1)(ii) of the Act, there is concept of less than 180 days and more than 180 days for the purpose of allowing depreciation. In case, asset is put to use for more than 180 days or less than 180 days, then it is eligible for 100% or 50% depreciation as the case may be, irrespective of the fact that the assets is purchased or put use on any date between 1st day of the financial year or last day of the financial year. Under the given facts and c .....

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