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2016 (8) TMI 871 - ITAT MUMBAI

2016 (8) TMI 871 - ITAT MUMBAI - TMI - Addition of expenditure with regard to unaccounted sales from Avalon Pub though no evidence of these expenses were produced by the assessee - CIT(A) allowed claim - Held that:- CIT(A) considering the submissions of the assessee and the seized documents directed the Assessing Officer to allow deduction of 15% from the Avalon Pub sales towards cost of liquor observing that the seized materials contains the recording of sales and payments were made for purchas .....

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t is less than what has been allowed by the Assessing Officer in computing the income from Avalon Pub as per the regular books of account. Therefore, he concluded that 15% of the sales claimed by the assessee towards cost of liquor is very much reasonable. The findings of the Ld. CIT(A) are very much logical and it is commonsense that unless there are unaccounted purchases, there cannot be unaccounted sales. The Revenue is not disputed that in the regular books of account assessee has claimed th .....

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n of 15% from the gross sales made from Avalon Pub towards cost of purchases of liquor. This ground of the Revenue is rejected. - Disallowance u/s. 36(i)(iii) out of bank interest paid - CIT(A) allowed claim - Held that:- In this case it is the finding of the Ld. CIT(A) that the utilization of funds for non-business purposes stood at ₹ 8,47,88,382/- and the available funds with the assessee stood at ₹ 8,29,13,964/- and therefore it is reasonable to conclude that a sum of ₹ .....

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CIT(A). This ground of the Revenue is dismissed. - Addition made u/s. 2(22)(e) as deemed dividend - Held that:- Admittedly, the assessee is not a shareholder in M/s. Gunjyot Properties Pvt. Ltd., and therefore the provisions of Sec. 2(22)(e) are attracted only to register shareholders and since assessee is not the shareholder of lending company i.e. M/s. Gunjyot Properties Pvt. Ltd., no addition can be made u/s. 2(22)(e) of the Act in the hands of the assessee. See Kewal Kumar Jain (2013 (6) .....

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termining amount taxable u/s. 2(22)(e) - Held that:- Admittedly, there is no business relation between the assessee company and M/s. Jagjit Singh & Co.. The advances received by the assessee company are not in the course of any business connection between these two companies. In the circumstances, we do not find any substance in the submissions of the Ld. Counsel for the assessee that the transaction is outside the purview of the provisions of Sec. 2(22)(e) of the Act. We direct the Assessing Of .....

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the Assessing Officer has not made additions based on seized materials rather than going by the additional income offered by the assessee. We also see that the income from suppressed sales of Avalon Pub have been fully taxed as suppressed income and the very same income is disallowed in the hands of the Director i.e. assessee treating the same as unexplained income which would result in double addition. Therefore, we are of the considered view that it is unjust in denying telescoping of these a .....

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ng adequate opportunity of being heard to the assessee. This ground is therefore partly allowed. - I.TA Nos. 3291,3293,3384 & 3385/Mum/11, I.TA Nos. 3241 & 3243/Mum/11, I.TA Nos. 951 to 953/Mum/2013 - Dated:- 20-6-2016 - SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Appellant : Shri Rajiv Khandelwal For The Respondent : Shri G.M. Dass ORDER PER BENCH These are appeals by the assessee and the Revenue against the orders of the Ld. CIT(A) for Assessment Years 20 .....

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he business and residential premises of Shri Gunnder Singh Bawa, his family members and various family concerns including the office premises of the assessee company. Consequent to the search, notice u/s. 153A was issued to the assessee to file return of income and in response to said notice, assessee filed return of income on 29.8.2007 declaring income at ₹ 93,05,623/- for Assessment Year 2004-05. This income of ₹ 93,05,623/- includes income of ₹ 45,33,960/- which was declared .....

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expenses and reported income of ₹ 45,33,960/-. However, the Assessing Officer rejected the claim of the assessee stating that in the course of assessment proceedings, assessee was requested to produce invoices for liquor purchases which were not recorded in the books of account. But the assessee has not substantiated its claim with evidences. The contention of the assessee was that search party did not find any discrepancy in the stock of liquor and therefore there cannot be any sales of .....

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e Assessing Officer that the expenses claimed by the assessee at 15% towards cost of liquor is very much reasonable and much below the actual expenditure, therefore, should be allowed. This was not accepted by the Assessing Officer and he has treated the entire gross sales of ₹ 53,34,070/- as income of the assessee. 4. On appeal, the Ld. CIT(A) directed the Assessing Officer to allow deduction of 15% from the gross sales assessed as income. 5. The Ld. Departmental Representative before us .....

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s sales have been taxed but without purchases there cannot be sales. The Ld. Counsel for the assessee referring to page 50 to 54 of the Paper book submits that assessee has recorded payments to Vishal Wine shops for purchase of liquor and the liquor bottles purchased were also recorded and therefore the Ld. Counsel submits that the cost of liquor purchased has to be reduced. He further submits that the cost of purchase of liquor which was recorded in the regular books of account was allowed and .....

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ab). 7. We have heard the rival contentions, perused the orders of the authorities below and the materials placed before us. The Assessing Officer while completing the assessment considered the entire gross sales of ₹ 53,34,070/- from Avalon Pub as unaccounted sales from liquor. The assessee claimed before the Assessing Officer that 15% of such sales are towards cost of liquor and therefore it should be reduced and only the balance should be considered as sales and accordingly he offered & .....

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ving that the seized materials contains the recording of sales and payments were made for purchase of liquor outside the books of account and further on verification of the Foreign Liquor Register (FLR) each and every bottle of liquor sold is accounted for in the FLR. He further observed that if there were any unaccounted sales of liquor, it has to come out of unaccounted purchases of liquor only. The Ld. CIT(A) also held that as per the regular books of accounts, the cost of Bar sales is around .....

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d sales. The Revenue is not disputed that in the regular books of account assessee has claimed the cost of Bar sales in the range of 19 to 26% and such cost of sales were allowed as deduction in computing the income. It is also evident from the seized materials that the assessee paid amounts to liquor shops i.e. Vishal wines. This shows that there are unaccounted purchases of liquor. In the circumstances, we find that the claim of the assessee 15% towards cost of liquor is very much reasonable. .....

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377; 10,68,637/-. The Ld. Counsel for the assessee submits that no incriminating materials or documents were found in the course of search suggesting that there is escapement of income and therefore no addition/disallowance can be made towards interest u/s. 36(i)(iii) because addition/disallowance is not based on seized materials. Referring to page-5 at para-4 of the assessment order, the Ld. Counsel for the assessee submits that this table which was extracted by the Assessing Officer has been t .....

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2004-05 has been completed u/s. 143(3) on 28.12.2008 and this assessment has become final and as on the date of initiation of search u/s. 132, there is no pending proceedings for Assessment Year 2004- 05, the assessment is not abated and in which circumstances there cannot be any addition or disallowance without there being any seized materials. He places reliance on the decision of the Bombay High Court in the case of Murli Agro Products Ltd. (49 taxmann.com 172). 10. On merits, the Ld. Counsel .....

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n of the Jurisdictional High Court in the case of CIT Vs Reliance Utilities & Power Ltd., (313 ITR 340). The Ld. Counsel for the assessee further submits that the interest free advances made to sister concerns are for the purpose of business only and due to commercial expediency and therefore he submits that no disallowance is warranted u/s. 36(i)(iii) of the Act. 11. In so far as the contention that no addition is possible when no incriminating material is found in the course of search when .....

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roperties cannot be said to be for the purpose of business. Thus he submits that the Ld. CIT(A) is not justified in considering these assets as business assets. In reply, the Ld. Counsel for the assessee submits that under Rule 27 of the ITAT Rules, the assessee can support the orders of the Ld. CIT(A) on any of the grounds which are decided against the assessee. He places reliance on the decision of the co-ordinate Bench of the Tribunal in the case of ITO Vs Shri Rupkumar Balchand Rohra in ITA .....

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ental Representative that some of the advances given for acquiring properties cannot be considered for the purpose of business, the Ld. Counsel for the assessee submits that the properties were purchased by the assessee and they were provided as accommodation to the Directors and therefore they are business assets of the assessee. 12. We have heard rival contentions, perused the orders of the authorities below and the decision relied on. The contention of the assessee is that the assessment proc .....

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ecision of the Jurisdictional High Court in the case of Murli Agro Products (supra). Though this contention was raised before the Ld. CIT(A), we find that the Ld. CIT(A) has not decided this issue and the issue was left open. The Ld. CIT(A) has decided the issue on merits. Further, the assessee has neither filed an appeal nor petition under Rule 27 of ITAT Rules raising the above contentions before us. The assessee is making only oral submissions. In such circumstances, we are not inclined to go .....

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hould be treated as Interest free funds available with them. I find no merits in the contentions of the appellant. The current liabilities is a part of working capital and cannot be explained as interest free fund available with the appellant for making interest free loans advanced. Thus, the interest free funds available with the appellant is reworked as under: SOURCES OF FUNDS AMOUNT (Rs.) Shares 26,20,000 Reserves and surpluses 1,08,19,110/- Unsecured Loans 6,94,74,854/- Total 8,29,13,964/- 6 .....

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s. Thus the funds utilized for Non-Business purposes is computed as under: FUNDS UTILISED FOR NON BUSINESS PURPOSES AMOUNT(Rs.) Investment 3,78,96,510/- Loans and advances 4,68,91,872/- Total 8,47,88,382 6.8. In view of the above it is reasonable to conclude that sum of ₹ 18,74,418/- (i.e. 8,47,88,382/- 8,29,13,964/-) has come out of interest bearing funds. A sum of ₹ 10,68,637/- has been disallowed from the interest claimed which is more than reasonable on the facts of the case. I s .....

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its investment and at the same time assessee raised loan, it can be presumed that investments made were out of interest free funds available with the assessee only. The Jurisdictional High Court held as under: If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical .....

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had considerable force, but considering the fact that the contention, had not been advanced earlier it did not require to be answered. It then noted that in Woolcomber s case the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account .....

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s presumption is established considering the finding of fact both by the CIT(A) and I.T.A.T. 14. In this case it is the finding of the Ld. CIT(A) that the utilization of funds for non-business purposes stood at ₹ 8,47,88,382/- and the available funds with the assessee stood at ₹ 8,29,13,964/- and therefore it is reasonable to conclude that a sum of ₹ 18,74,418/- only has come out of interest bearing funds. He further concluded that since assessee himself has disallowed ₹ .....

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s dismissed. ITA No. 3293/M/2011 - A.Y. 2005-06 16. The grounds raised by the Revenue in this appeal is identical in Ground No.1&2 in ITA No.3291/M/2011 though quantum may differ. Since the first and second grounds are similar to the appeal in ITA No. 3291/M/11, the decision rendered therein applies mutatis and mutandis to these grounds. Therefore, on similar lines and for similar reasons, the grounds raised on 1st and 2nd issue of cost of liquor purchases and disallowance of interest u/s. 3 .....

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sed on 1st and 2nd issue of cost of liquor purchases and disallowance of interest u/s. 36(1)(iii) by the Revenue in ITA No. 3384/M/11 for assessment year 2006-07 are dismissed. 17. The third issue in the appeal of the revenue for Assessment Year 2006-07 is that the Ld. CIT(A) erred in deleting the addition made u/s. 2(22)(e) as deemed dividend. 17.1. Brief facts are that the Assessing Officer while completing the assessment noticed that assessee has received loan of ₹ 65,63,000/- from M/s. .....

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holder i.e. Shri Karan Veer Singh Bawa. Therefore, the Assessing Officer was of the view that provisions of Sec 2(22)(e) are attracted. When called for explanation from the assessee, the assessee contended that the assessee was not a shareholder in M/s. Gunjyot Properties Pvt. Ltd., are therefore no addition can be made towards deemed dividend. The contentions of the assessee were not accepted and an addition of ₹ 6,86,191/- was made by the Assessing Officer u/s. 2(22)(e) of the Act for th .....

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presentative vehemently supports the orders of the Assessing Officer in invoking the provisions of Sec. 2(22)(e) of the Act. 20. The Ld. Counsel for the assessee places reliance on the decision of the Jurisdictional High Court in the case of Universal Medicare Pvt. Ltd (supra). He further submits that the decision of the Mumbai Special Bench in the case of Bhaumik Colour Pvt. Ltd wherein it was held that addition in respect of deemed dividend can be made only in the hands of the registered share .....

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Court holding that the provisions of Sec. 2(22)(e) are attracted only to register shareholders and since assessee is not the shareholder of lending company i.e. M/s. Gunjyot Properties Pvt. Ltd., no addition can be made u/s. 2(22)(e) of the Act in the hands of the assessee. Thus respectfully following the said decision of the Jurisdictional High Court, we uphold the orders of the Ld. CIT(A) on this issue. This ground is therefore rejected. ITA No. 3385/M/2011 - A.Y. 2007-08 22. The first and sec .....

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re that the Assessing Officer while completing the assessment noticed that assessee has received loan of ₹ 78,85,000/- from M/s. Backbay Properties Pvt. Ltd., a company in which public are not substantially interested. He also noticed that one of the Directors Shri Karanveer Singh Bawa had substantially interested in both assessee company as well as M/s. Backbay Properties Pvt. Ltd., holding 47.7.% and 50% share holding respectively. He also noticed that M/s. Backbay Properties Pvt. Ltd is .....

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of the assessee were not accepted and an addition of ₹ 78,85,000/- was made by the Assessing Officer u/s. 2(22)(e) of the Act for the reason that an addition of ₹ 94,70,000/- has already been treated as deemed dividend in the hands of Shri Karan Veer Singh Bawa for Assessment Year 2007-08. 25. On appeal, the Ld. CIT(A) following the decision of the Hon ble Jurisdictional High Court in the case of CIT Vs Universal Medicare Pvt. Ltd (324 ITR 264) deleted the addition since the assessee .....

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Ltd wherein it was held that addition in respect of deemed dividend can be made only in the hands of the registered shareholders is affirmed by the Bombay High Court. Therefore, he submits that since assessee company is not a registered shareholder of M/s. Backbay Properties Pvt. Ltd ., addition u/s. 2(22)(e) cannot be made in the hands of the assessee. 28. We have heard the rival contentions and perused the orders of the authorities below and the decisions relied on. Admittedly, the assessee is .....

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of the Ld. CIT(A) on this issue. This ground is therefore rejected. ITA No. 3241/M/2011 - Assessee s appeal 29. The assessee has raised following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to assessed rental received as Business income as against income from House Property. Looking to the facts and in the circumstances of the case and in law the appellant submits that Ld. CIT(A) ought to have held th .....

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n. 3. On the facts and in the circumstances of the case and in law, the additions made on account of the Rental income and Deemed Dividend are beyond the scope of provisions of section 153A and hence invalid and the same ought to be deleted. 30. The Ld. Counsel for the assessee at the outset submits that ground No. 3 is not pressed therefore it is dismissed as not pressed. 31. Ground No. 1 is regarding challenging the order of the Ld. CIT(A) in directing the Assessing Officer to assess rental in .....

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focom by paying rent to the assessee for the Antenna/tower and BTS equipment erected on the terrace of hotel building of the assessee has only obtained a right to use a part of the terrace for putting up its mobile tower and has not obtained lease of the property consisting of any building or land. Therefore, he was of the view that the said income received by the assessee cannot be treated as property income u/s. 22 of the Act and the Assessing Officer assessed this income under the head Income .....

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race place and assessee has neither erected nor maintained the antenna/tower. He further submits that day today maintenance is done by Reliance Infocom Ltd., and assessee has simply let out of its terrace place for setting up of Antenna. Therefore he submits that the rental income received by the assessee is nothing but income from property only and certainly not its business income. He strongly places reliance on the decision of the Co-ordinate Bench in the case of M/s. Kamlesh Real Estates Pvt .....

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the head Income from other sources . The Ld. Counsel for the assessee also placed reliance on the decision of the Delhi Bench of the Tribunal in the case of Manpreet Singh Vs ITO (53 taxmann.com 244) and submits that the Tribunal held that income earned by the assessee from renting of terrace for installation of mobile antenna was taxable as Income from house property . The Ld. Counsel for the assessee submits that even in this case the decision of the Calcutta High Court in the case of Mukherj .....

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business . Thus, he pleads for allowing the ground and to direct the Assessing Officer to consider the income from letting out of terrace to be assessed under the head Income from house property but not under the head income from business/other sources. 34. The Ld. Departmental Representative places reliance on the decision of the authorities below. 35. We have heard both the parties, perused the orders of the authorities below and the case laws relied on. The assessee has let out on lease terr .....

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case of Mukherjee Estate (P) Ltd Vs CIT (244 ITR 01). The assessee carried the matter to the Ld. CIT(A) and the Ld. CIT(A) held that the income received by the assessee is from a commercial building therefore it has to be assessed under the head Income from business and not under the head income from house property or as assessed by the Assessing Officer under the head Income from other sources . We find an identical issues has come up before the Delhi High Court in the case of Niagara Hotels &a .....

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ng terrace is in essence for hiring space and not hiring building or land appurtenant thereto. The Hon ble High Court held that the licence fee received by the assessee for letting out the terrace space is to be taxed as income from house property. While coming to such conclusion, the Hon ble High Court also considered the decision of the Calcutta High Court in the case of Mukherjee Estate (P) Ltd Vs CIT (supra). Similar issue has arisen in the case of Manpreet Singh Vs ITO (supra) wherein the D .....

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nfocom is to be assessed under the head income from house property only and not under the head income from business or under the head income from other sources as was assessed by the Ld. CIT(A)/Assessing Officer . This ground of the assessee is therefore allowed. 36. The second ground of appeal is regarding challenging the order of the Ld. CIT(A) in confirming the addition of ₹ 41,32,500/- u/s. 2(22)(e) as deemed dividend. 37. Brief facts are that the Assessing Officer in the course of ass .....

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Co. was not having business transactions with the assessee the beneficial share holder and therefore the advance received by the assessee from M/s. Jagjit Singh & Co. was treated as deemed dividend within the provisions of Sec. 2(22)(e) of the Act since the assessee company is holding 49.5% share holding which is more than 10% of the voting power in M/s. Jagjit Singh & Co. Accordingly, the advance of ₹ 41,32,500/- was treated as deemed dividend u/s. 2(22)(e) of the Act. 38. On app .....

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m the close of the year in which the last item admitted or proved is entered in the account. In respect of advance/loan, referring to Item 19 and 21 Part II to the aforesaid Schedule submits that the period of limitation to file suit is 3 years from the day when the loan is made. Thus he submits that the provisions of Sec 2(22)(e) will not be applicable to mutual, open and current account. 39. He places reliance on following decisions in support of the above contentions. 1. DCIT Vs Lakra Bros (2 .....

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companies never declared any dividend and accumulated profits in the company itself. Since no dividend was declared the same could not be taxed. However, the companies did give loans or advances to substantial shareholders or to their concerns/companies who presumably enjoyed these funds but were not liable to pay any tax on the same as the amounts were loans or advances liable to be returned. These amounts of loans or advances are sought to be taxed as dividend by section 2(22)(e) of the Act by .....

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oup concern. These transactions are not in nature of loan or advances. These transactions are in the nature of the current account transaction flowing both ways and entered into out of commercial expediency. Under the facts and circumstance of the appellant case the provisions of Sec. 2(22)(e) are not attracted to such transactions. 39.3. Without prejudice to above, the Ld. Counsel for the assessee argued that in determining the amount taxable u/s. 2(22)(e), addition has to be restricted to such .....

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of Kewal Kumar Jain (supra). 40. The Ld. Departmental Representative heavily places reliance on the order of the lower authorities. 41. We have heard the rival contentions, perused the orders of the lower authorities and the case laws relied on. Admittedly, there is no business relation between the assessee company and M/s. Jagjit Singh & Co.. The advances received by the assessee company are not in the course of any business connection between these two companies. In the circumstances, we d .....

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cted to such percentage of accumulated profits as corresponds to assessee s share holding and in this case it is 49.5%. The Pune Bench of ITAT considered this issue in the case of Kewal Kumar Jain (supra) wherein it was held that while determining amount taxable u/s. 2(22)(e) of the Act, addition has to be restricted to such percentage of accumulated profits as corresponding to assessee s share holding in the company as was rightly done by the Assessing Officer while completing the assessment. T .....

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ssee in earlier years which are assessable as deemed dividend in the hands of the assessee in the past years while computing the deemed dividend taxable u/s. 2(22)(e) of the Act during this assessment year. This ground is partly allowed. ITA No. 3243/M/2011 - A.Y. 2007-08 42. Ground No. 1 is regarding challenging the order of the Ld. CIT(A) in directing the Assessing Officer to assess rental income received by the assessee as business income as against income from business property. 42.1. The is .....

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. 3241/M/11 for assessment year 2006-07 from para 36 to 41. Therefore, on similar lines and for similar reasons, the ground raised by the assessee in ITA No. 3243/M/11 for assessment year 2007-08 is dismissed. 44. Now we take up the appeals of Shri Karanveer Singh Bawa, who is a Director in M/s. Vijaydeep Hotels Pvt. Ltd. The only issue in all these appeals of the assessee is that the Ld. CIT(A) erred in not allowing the benefit of telescoping in respect of unexplained income against the substan .....

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the assessee for giving relief on the principles of telescoping with a direction to reconsider the plea of the assessee since admittedly the assessee has made substantial disclosure of income in respect of the assessee and their group concerns. The Assessing Officer passed orders u/s. 143(3) r.w. s. 254 of the Act, denying the benefit of telescoping observing that assessee group declared additional income of ₹ 9.10 crores only in the returns as against additional income of ₹ 12.50 cr .....

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erved that the unexplained amount is in round figures and therefore telescoping cannot be given against suppressed sale of Avalon Pub relating to Vijay Deep Hotels Pvt. Ltd. Thus, he denied possibility of giving telescoping of unexplained income for all the three years and brought to tax. 46. On appeal, the Ld. CIT(A) agreed with the view taken by the Assessing Officer. The Ld. Counsel for the assessee submits that the Assessing Officer failed to carry out the directions of the Tribunal in allow .....

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und for rejecting the plea of the assessee for telescoping. The Ld. Counsel for the assessee submits that the assessee has made disclosure of ₹ 9.10 crores in the hands of various group concerns of the assessee therefore the telescoping should be given in the hands of the assessee and its group concern. 47. The Ld. Departmental Representative submits that the direction of the Tribunal was only for considering alternative plea as to whether telescoping can be allowed or not. There is no spe .....

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round of appeal directed the Assessing Officer to consider the alternative plea of the assessee to give the benefit of telescoping. In the second round, the Assessing Officer denied telescoping for the reason that these receipts are generated out of suppressed sales from Avalon Pub of Vijay Deep Hotels Pvt. Ltd., which is a separate entity. The second reason for denial of telescoping is that the figures are round figures and therefore they cannot be proved that they are from suppressed sales of .....

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in the group as a whole and this has been accepted by the Revenue and therefore telescoping cannot be denied simply because the concerns and the assessee are separate entities. We also do not find any valid reason for denying telescoping simply because the figures are round figures. It is also pertinent to note that the Assessing Officer accepts that these unaccounted income is generated from out of the suppressed sales of Avalon Pub of Vijay Deep Hotels Pvt. Ltd and this suppressed sales have .....

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