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Select Infrastructure Pvt. Ltd. Versus Addl. CIT, DCIT, New Delhi

2017 (10) TMI 314 - ITAT DELHI

Rental income received by the appellant from letting out of retail space in mall - “business income” or “income from house property” - legal owner - Held that:- Qua the retail space, the assessee was not carrying on any systematic or organized activity of providing service to the occupiers of the shops, albeit other service charges pertaining to the common maintenance, event and advertising, parking fees, etc., has been offered separately for tax under the head profits and gains of business of p .....

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xed under the head “income from house property” under section 22; and consequently, the assessee is liable for deduction under section 24(a) and other deductions of interest of pre-construction period and interest on loan which are to be allowed while computing the income from house property. Accordingly, disallowance made by the Assessing Officer for the sums aggregating to ₹ 18,19,71,202/- is directed to be deleted. - Disallowance under section 14A read with rule 8D - Held that:- Sin .....

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emed dividend under section 2(22)(e) - interest payment on OFCD held by Select Holiday Resorts Pvt. Ltd. which is one of the holding company of the assessee-company - Held that:- We are unable to appreciate such a hypothesis of the Revenue to approach the payment of interest to holding company/ sister concern; firstly, payment of interest on OFCD can never be reckoned as loan or advance given as stipulated in section 2(22)(e), as OFCD is one of the mode of securing an unsecured loan and there is .....

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cordingly, ground raised by the revenue is dismissed. - Disallowance of depreciation on plant and machinery - assessee had not produced relevant purchase bills and evidences and assessee did not put to use the aforesaid assets during the relevant previous yea - Held that:- Journal entry for capitalization of plant and machinery from capital work-inprogress passed on 31/3/2008 does not in any manner can lead to an inference that assets were installed and put to use on that date only and were .....

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ng the assets like lift, parking equipments, etc. and such income has been accepted by the Assessing Officer, then depreciation on such assets cannot be disallowed. Such a finding of the ld. CIT (A) is based on correct appreciation of facts and law and we do not find any reason to deviate from such a finding or set aside the issue to the file of the AO as contended by the Ld. CIT-DR, because all the relevant material to corroborate the claim are already on record and confronted to the AO. Accord .....

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impugned order dated 28/3/2013, passed by the Ld. CIT(Appeals)-XI, New Delhi for the quantum of assessment passed under section 143(3) of the Act; appeal for assessment year 2009-10 has been filed by the assessee against the impugned order dated 28/3/1013; appeal for assessment year 2010-11 has been filed by the assessee against the impugned order dated 31/7/2014; cross-appeals for the assessment year 2011- 12 have been filed by the assessee as well as by the Revenue against the impugned order d .....

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ll the succeeding appeals, as similar facts are permeating through in all the years. In the assessee appeal following grounds of appeal have raised:- 1. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in treating rental income of ₹ 27,37,99,940 received by the appellant from letting out of retail space in mall, as business income , as opposed to income from house property declared by the appellant in the return of inc .....

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e under the head business income instead of income from house property under section 22 of the Income Tax Act, 1961 ( the Act ). 1.3 That the Commissioner of Income-Tax (Appeals) officer erred on facts and in law in consequentially upholding disallowance of deduction aggregating to ₹ 20,49,46,6191- , claimed on account of 30% of the annual value, interest on borrowed capital, from the rental income under section 22 read with section 24 of the Act. 2. That the Commissioner of Income-Tax (Ap .....

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ciating that application of Rule 8D was not automatic in the present case, since the preconditions for applying the said rule as prescribed in subsections (2)/ (3) of section 14A of the Act were not satisfied in as much as the assessing officer did not record any satisfaction as to the incorrectness of the amount of suomoto disallowance made by the appellant in the return of income. 2.3 Without prejudice that the Commissioner of Income- Tax (Appeals) erred on facts and in law in not deleting the .....

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s completed construction of complex called as Select City Walk at Saket, New Delhi, which became operational from 29th September, 2007. The commercial area of the said complex was divided into following categories by the assessee:- * Shopping mall / Retail space *Service apartments * Office space * Multiplex * Parking * Surplus business space for general/common use. 5. Out of the aforesaid categories of constructed /developed space, the assessee; firstly, had given retail space on lease to vario .....

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earned from sale of such stock-in-trade have been offered to tax under the head business income . Lastly, the income arising from the balance space, which were retained by the assessee and used for the purpose of business, viz., common maintenance charges, advertising revenue, parking fees, etc., were offered to tax as business income under the head profits and gains of business or profession . Thus, the assessee had bifurcated its income from various commercial areas of the said complex into tw .....

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ity Walk is a very famous shopping mall in Saket, New Delhi, which is purely a commercial property and not a residential property; and secondly, the assessee has developed the entire complex for multi use and sale of the spaces and, therefore, the entire receipts have to be taxed under the head business income. He also noted that during the year the assessee had sold constructed space for ₹ 154.74 crores and the same has been reflected in the Income & Expenditure account, which is much .....

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hich may or may not be extended and also had certain terms and conditions, but these lease license agreement does not prevent the assessee in selling the balance constructed space. After referring to various judgments like; Karanpura Development Co. Ltd. Vs. CIT reported in 44 ITR 362 (SC); CIT vs. Halai Nemon Association reported in 243 ITR 439 (Mad.) and some Tribunal decisions, AO held that the income shown by the assessee under the head income from house property should be taxed as business .....

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acts and background of the case, submitted that the assessee was granted perpetual lease in respect of commercial plot in District Centre, Saket, New Delhi, vide lease deed dated 14/10/2004 for the purpose of construction and development of retail space, service apartments, multiplex, etc. It was submitted that in order to retain the ownership in the shopping mall and to ensure better control and continued management interest, the assessee right from the construction of the project had decided t .....

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provided only on lease and license and other area would be sold out rightly. The assessee also referred to the relevant portion of disclosure in the accounts for the financial year 2005-06 which has a great significance in understanding the intention and purpose for constructing the Mall. The same reads as under:- Space at Select CITYWALK is only being licensed and not sold like most other malls In National Capital Region. ... ... it is also India's first turnover-rental-based up-market sho .....

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ility of sale of certain components of the project, they have been bifurcated as Inventory being project components intended to be sold and Capital Work in progress being components intended to be retained by the Company. Accordingly, the cost of construction has been appointed and allocated to the constituents of the project on the basis of technical evaluation of area intended to be used for respective purposes. We shall be one of the first few Retail Shopping Centres in India that would be fu .....

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ees were also filed before the ld. CIT(Appeals) just to point out that the intention of the assessee was always to own the retail space. Thus, from these facts and material, the assessee pointed out that rental income earned by the assessee from letting out retail space has rightly been offered under the head income from house property. In support, the assessee had also relied upon catena of decisions, which have been dealt and incorporated by the ld. CIT (A) from pages 8 to 16 of the appellate .....

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l asset it owns. The appellant is also using portions of the mall for its business. The appellant has given on rent retail shops situated in the mall. The appellant provides services to the tenants for which it charges amounts which are offered to tax under the head profits and gains of business and profession. The mall is being used mainly for the business of the appellant. The main intention of the appellant is not to earn rental income from the mall by letting out the retail shops. The appell .....

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itation of ownership of property, but to earn business income by exploitation of the commercial asset. If the appellant derived income from a commercial asset which was capable of being used as a commercial asset, then it would partake character of income from his business, whether he uses that commercial asset himself or lets it out to somebody else to be used. The asset would not cease to be a commercial asset simply because temporarily it was let out to another person for their use. So long a .....

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pellant as income from business and profession and not from House Property. The addition made is confirmed. The ground of appeal is ruled against the appellant. 10. Before us, the ld. Sr. Counsel for the assessee, Shri Ajay Vohra, submitted that the main distinctive feature in the assessee s case is that it has divided the entire complex into various categories and only leasing of retail space alone has been treated as income from house property and receipts from sale and exploitation of other c .....

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lance receipts from other spaces have been shown as business income. Mr. Vohra submitted that now this issue stands squarely covered by the judgment of the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT, reported in [2017] 248 Taxman 1 (SC). In the said judgment, the Hon'ble Apex Court has analysed this issue threadbare and has also discussed and distinguished its earlier judgments in the case of Chennai Properties and Investments Ltd. vs. CIT, reported in [2 .....

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the appellant. After referring to the facts of that case as discussed in para 3, he pointed out that the Hon'ble Apex Court held that, wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, if the provisions of section 22 are satisfied. Their Lordships further held that merely there is an entry in the object clause of the business showing a particular object, would not be the determinative factor t .....

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that this judgment clearly clinches the issue in favour of the assessee. 11. So far as reliance placed by the ld. CIT(A) in the case of S.G. Mercantile Corporation P. Ltd. Vs. CIT reported in [1972] 83 ITR 700 (SC), he submitted that in that case assessee was not the owner of the property and on this background the judgment was rendered and would be inapplicable on the present case. 12. On the other hand, the ld. CIT-D.R., strongly relying upon the orders of the Assessing Officer as well as the .....

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a business adventure and renting of space is part of such activity. Ld. CIT-DR also tried to distinguish the judgment of the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT (supra) on the ground that in that case there was no intention by the appellant to sell the said shop as he got the license/lease for managing the market for 12 years which he had constructed and sub-licensed to various shopkeepers. He also strongly relied upon the judgment of the Hon'ble D .....

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of retail space is to be taxed under the head income from house property or business income ? Briefly recapitulating the relevant facts which have a very vital bearing on the issue involved are that, during the relevant financial year 2007-08, the assessee completed the construction of complex known as Select City Walk in Saket, New Delhi which became operational from 29th September 2007. The commercial area of the aforesaid complex has been bifurcated by the assessee into following categories: .....

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on maintenance, event and advertising revenue, parking fees, etc., was again offered to tax under the head profits and gains of business of profession. So far as the taxability of receipts from these activities and spaces are concerned, there is absolutely no dispute that they are to be taxed as business income. So far as the license fee from letting/ lease of retail space is concerned, it is seen from the records that right from the conception of the complex and the initial years when the compl .....

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end/ object, the assessee during the construction period only had entered into a MoU with various prospective lessees to provide retail space on lease and to earn rental income. These facts have not been disputed either by the Assessing Officer or by the ld. CIT (A). Ostensibly when assessee has constructed a property solely with an intention and purpose to give it on lease and to earn rental income/ license fee, then the income has to be assessed under the head income from house property , beca .....

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Rs. Amount Rs. Licence Fee 1,064,732,734 944,402,018 815,868,034 753,245,472 273,799,940 Sale of Constructed space - 1,547,164,866 Electricity, AirConditioning& Water Ch. 112,332,735 98,947,355 104,378,313 121,076,611 33,529,374 Common Area Maintenance Charges 173,905,187 148,353,011 134,022,750 138,413,554 54,794,000 Parking Charges Received 42,012,165 38,845,204 37,654,420 35,805,060 10,781,330 Misc. Event and Signage Income 142,638,087 123,224,960 99,381,380 67,237,517 11,137,973 Sale of .....

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8 Miscellaneous Income 833,008 1,749,810 8,430,185 1,361,972 - Total Income ( Rs.) 1,708,827,007 1,378,853,005 1,222,790,064 1,131,595,335 1,935,074,645 14. From the above it is quite apparent that only license fee has been shown by the assessee as income from house property under section 22. One of the main allegation of the Assessing Officer as well as the ld. CIT (A) is that, since mall is being used for the business of the assessee and was constructed with purpose to earn profit and assessee .....

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purpose of leasing it out and that is why these spaces were never entered as stock-in-trade in the books of account. The business motive if any, is evident from sale of other spaces like service apartments, offices, multiplex theater, which assessee did sold in this year and sum amounting to ₹ 154.47 crores from sale of such spaces has been already offered it as business income in this year. The receipts from other activities like marketing and & advertising, holding events, arranging .....

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adarkar & Associates vs. ACIT (supra). One of the main substantial question of law for consideration before the Apex Court was as under:- Whether in the facts and circumstances of the case, and in law, the Tribunal was right in holding that the income earned by the appellant from the shopping centre was required to be taxed under the head income from House Property instead of the head Profits and Gains from the Business or profession as claimed b the Appellant? 15. The relevant facts as note .....

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on on a monthly license [stallage charges] basis to run municipal market. The assessee firm participated in the auction to acquire the right to conduct the market. The assessee was the successful bidder and was handed over possession of the market portion. * The terms and conditions subject to which the market portion to run and maintain municipal market contained in the terms and conditions of the auction. The premises allotted to the assessee was a bare structure, on stilt, that is, pillar/col .....

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. The assessee constructed various shops and stalls of different carpet areas on the premises. * The assessee collected the Receipt from the sub-licensees in form of leave & license fees and service charges for providing various services, including security charges, utilities etc. * The assessee filed the return wherein income from the aforesaid shops and stalls sub-licensed by it was offered to tax under the head 'Profits and gains of business or profession'. * The Assessing Officer .....

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ase deposits'; property tax had been levied on the assessee. * The Tribunal also held that assessee had not established that it was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business income. The assessee received income by letting out shops/stalls, and therefore, the same had to be held as income from house property. 16. On these facts, the Hon'ble Apex Court, after analyzing var .....

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tances where a particular income may appear to fall in more than one head. These kind of cases of overlapping have frequently arisen under the two heads with which we are concerned in the instant case as well, namely, income from the house property on the one hand and profits and gains from business on the other hand. On the facts of a particular case, income has to be either treated as income from the house property or as the business income. Tests which are to be applied for determining the re .....

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chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. Owner of the house property is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be deemed owner of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the .....

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an entry in the object clause of the business showing a particular object, would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. Such a question would depend upon the circumstances of each case. It is so held by the Constitution Bench of this Court in Sultan Bros. (P) Ltd. v. CIT, (1964) 5 SCR 807 and we reproduce the relevant portion thereof: 7. … We think each case has to be looked at from a businessman's point of v .....

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in the cases referred, to support the proposition that certain assets are commercial assets in their very nature. Finally, the Apex Court, after analyzing various judgments, concluded that where assessee has obtained a property on lease, constructed various shops and stalls and gave the same to various persons on sub-license basis, then the income from sub-license was to be taxed as income from house property and not as business income. 17. Here in this case also, qua the retail space, the asses .....

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ages 157 to 187 and also the copies of MoU, the copy of which are appearing at pages 149 to 156 of the paper book. Thus, on the facts of the present case and also relying upon the principle laid down by the latest Supreme Court judgment in the case of Raj Dadarkar & Associates vs. ACIT (supra), we hold that the receipts from the lease rent/license fee from lease of retail space in the shopping mall is to be taxed under the head income from house property under section 22; and consequently, t .....

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stinguishing the same, because, on the facts, the assessee s case strongly indicates that lease rent income from leasing of retail space is purely a rental income and the principle and ratio laid down by the Hon'ble Apex in the case of Raj Dadarkar & Associates vs. ACIT (supra), which has been rendered taking into consideration various judicial precedents and analysis of the statutory provisions is squarely applicable on the facts of present case. Thus, we are refraining from entertainin .....

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-. He submitted that the disallowance under section 14A should be restricted to the extent of exempt income earned and no further relief is sought for. In support of this proposition, he strongly referred and relied upon the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT, reported in (2015) 372 ITR 694 (Delhi). 20. The Ld. CIT-D.R., on the other hand, relied upon the orders of the Assessing Officer as well as the Ld. CIT (A). 21. Since the assessee s only gri .....

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23. Now we shall take up the Revenue s appeal for assessment year 2008-09, vide which following grounds have been raised:- 1. The ld. CIT(A) has erred in deleting the addition of ₹ 2,63,55,191/- made by the Assessing Officer on account of interest on optionally fully convertible debentures after applying the provisions of section 2(22)(e) of Income Tax Act, 1961. 2. The ld. CIT( A) has erred in deleting the addition of ₹ 8,16,38,515/- made by the Assessing Officer on account of disa .....

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e deposits and refundable in nature. As against these loans, the assessee had debited sum of ₹ 8,99,95,318/- as interest on fixed loans; sum of ₹ 3,76,50,274/- as Optional Fully Convertible Debenture (OFCD); and ₹ 99,19,273/- as bank and finance charges. The Assessing Officer, from the perusal of the balance sheet, noted that the assessee had issued 100 OFCDs totaling to ₹ 100 crores with fixed interest liability. Out of the said OFCDs, 70 OFCDs were held by Select Holida .....

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two counts namely; firstly, the amount equivalent to ₹ 2,63,55,191/- is disallowable because the Assessee-company has borrowed another interest bearing secured loans amounting ₹ 95,52,51,207/- and is paying ₹ 3,99,95,318/-, hence it is a case where the assesseecompany is borrowing interest bearing loans and paying certain interest to its related company in the form of OFCD s interest and that too, to its Holding Company, therefore, it is a clear cut case of diversion of interes .....

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uction of commercial complex, the income from which has been assessed and brought to tax in the assessment order. Inflow and utilization of borrowed fund by the holding company is not in dispute and the payments on account of interest cannot be held to be bogus or mere diversion of funds simply because OFCDs have been subscribed by the holding company. In any case, the holding company is a separate entity from the assessee in the eyes of law and therefore, presumption of diversion of fund does n .....

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d. 27. The ld. CIT (A), held that AO has made the addition u/s 2(22)(e) only and the provisions of deemed dividend cannot be applied in this case, as there is no loan or advance given, it is just payment of interest on loan. Therefore, section 2(22)(e) cannot be attracted. 28. The ld. CIT D.R., strongly relied upon the order of the Assessing Officer and submitted that such a payment of interest has to be seen from the point of view of payment to a sister concern in the nature of advance for non- .....

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er considering the rival submissions and on a perusal of the relevant finding given in the impugned order, we find that it is an undisputed fact that, what has been disallowed by the Assessing Officer is in fact interest payment on OFCD held by Select Holiday Resorts Pvt. Ltd. which is one of the holding company of the assesseecompany. The assessee for generating of funds had offered 100 OFCDs totaling to ₹ 100 crores, out of which 70 OFCDs have been subscribed/ held by Select Holiday Reso .....

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s of the Revenue to approach the payment of interest to holding company/ sister concern; firstly, payment of interest on OFCD can never be reckoned as loan or advance given as stipulated in section 2(22)(e), as OFCD is one of the mode of securing an unsecured loan and there is no payment of loan or advance from accumulated profits; and secondly, there is no diversion of any interest bearing fund, because assessee has offered OFCD to a separate entity which has been subscribed by them, on which a .....

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CIT D.R. submitted that assessee has made a claim of depreciation on second set of plant and machinery, which has been disallowed by the Assessing Officer on the ground that evidence of purchase of assets has not been filed nor original purchase bill with proof of payments by account payee cheque have been produced for verification. Out of the details furnished of various plant and machineries, the assessee could not furnish the details with regard to purchase of plant and machinery amounting t .....

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see filed entire details of purchase of plant and machinery along with copy of ledger accounts, etc. The said details were sent to the Assessing Officer to submit his remand report and for examining the same. However, the Assessing Officer objected to the admission of additional evidence instead of examining the same. The ld. CIT (A), duly took note of the additional evidence and allowed depreciation of plant and machinery on the ground that once the AO has assessed the business income and plant .....

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nery for the purpose of assessee s business. When Ld. CIT (A) called for AO s comment and to examine the details, he chose not to verify and instead opposed for its admission which cannot be appreciated. 34. We have heard the parties at length on this issue and also perused the relevant material placed before the ld. CIT (A) as well as before the AO. The Assessing Officer has disallowed the claim of depreciation on the ground that the assessee had not produced relevant purchase bills and evidenc .....

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details of addition to plant and machinery and the date on which they are being put to use were verified and reported by the Auditors in Annexure -4 to the Tax Audit Report in Form no. 3CD which provided all the items of plant and machinery which were installed and put to use on 29/9/2007 itself, which was the date of commencement of operation of the complex. Before the ld. CIT (A), assessee had filed various evidences to substantiate and corroborate the claim of depreciation on plants and mach .....

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regating to ₹ 54,42,56,799/- were not only installed but also put to use on 29/9/2007, when the complex started its operation and huge business income has been shown and assessed by the AO, then depreciation on such plant and machinery has to be allowed. Journal entry for capitalization of plant and machinery from capital work-inprogress passed on 31/3/2008 does not in any manner can lead to an inference that assets were installed and put to use on that date only and were not installed or .....

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e lift, parking equipments, etc. and such income has been accepted by the Assessing Officer, then depreciation on such assets cannot be disallowed. Such a finding of the ld. CIT (A) is based on correct appreciation of facts and law and we do not find any reason to deviate from such a finding or set aside the issue to the file of the AO as contended by the Ld. CIT-DR, because all the relevant material to corroborate the claim are already on record and confronted to the AO. Accordingly, ground No. .....

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raised in I.T.A. No 3751 / DEL/2013 for assessment year 2008-09, except for the variation in the amount. No other ground and issues have been raised in these years, which is evident from the bare perusal of grounds of appeal raised by the assessee in these years. Since similar facts and findings of the AO and ld. CIT (A) are permeating in these years also, therefore, our findings given above in I.T.A. No 3751/DEL/2013 for the assessment year 2008-09 qua this issue will apply mutatis-mutandis in .....

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