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2013 (9) TMI 488 - AT - Income TaxDisallowance of business expenses - Repairs and maintenance expenses - CIT deleted disallowance - Held that - when a categorical finding was given by the AO in the assessment order while making the impugned disallowance that the supporting bills and vouchers were not produced by the assessee and the claim made by the assessee of having produced the said vouchers and bills during the course of assessment proceedings was contrary to the finding of the AO, the ld. CIT(A) ought to have given an opportunity to the AO to verify the claim of the assessee in the light of said documentary evidence and this position has been fairly accepted even by the ld. Counsel for the assessee - matter remanded back. Addition on basis of annual information report - Difference in the receipts as per the AIR and the receipts as shown by the assessee - Held that - assessee has not been able to prove that reconciliation was actually pre-paid and submitted before the AO - assessee thus has failed to reconcile the difference pointed out by the AO on the basis of Annual Information Report - no justifiable reason to interfere with the impugned order of the ld. CIT(A) confirming the addition made by the AO on account of said difference - Decided in against assessee. Unexplained expenditure u/s 69C - Expenditure on marriage - CIT confirmed addition - Held that - It is not in dispute that the hotel booking for the wedding guests was done in the name of the assessee company and the expenses were incurred on payment made to concerned hotels against the said bookings - if the said expenses on payment made against hotel booking done in the name of the assessee company were incurred by somebody else and not by the assessee as claimed the burden is on the assessee to prove its claim by producing the relevant documentary evidence on record - Since the hotel booking was done in the name of the assessee company, there was a presumption that expenses on payment against said hotel booking were incurred by it and the assessee having failed to rebut the said presumption by bringing any documentary evidence on record - CIT was justified in invoking section 69C - Decided against assessee. Disallowance of business income - CIT marked up the cost by 20% - Held that - In the earlier years, the AO worked out the addition by applying a net profit ret of 5% while in the year under consideration, he has applied a 20% mark-up on the total cost incurred by the assessee - Therefore addition is deleted - Decided in favour of assessee. Capital or Revenue income - Damages received on termination of rental agreement - Held that - at the time of hearing in the reply to query raised by the bench, there was no agreement entered into between the parties in writing for termination or cancelation of the live and license agreement. The amount of security deposit in question was actually forgone by the licensee as per the order of the arbitrator - It is manifest from the operative portion of the arbitrator s order reproduced that the property of the assessee was sealed by the committee of the Hon ble Supreme Court as a result of which the exiting tenant was not in a position to use the said property and even the assessee was not in the position to find out any other tenant - The said amount thus was received by the assessee on revenue account and not on capital account which constituted business income of the assessee as the rental income received from the property earlier was offered to tax as business income by the assessee itself - Decided against Assessee.
Issues Involved:
1. Disallowance of expenses due to low gross profit margin. 2. Disallowance of repairs and maintenance expenses. 3. Addition based on annual information report. 4. Addition of unexplained expenses under Section 69C. 5. Under-recovery of expenses from group companies. 6. Treatment of damages received on termination of rental agreement as business income. Detailed Analysis: 1. Disallowance of Expenses Due to Low Gross Profit Margin: The issue raised in Ground no. 2 of the appeal for A.Y. 2006-07 pertains to the disallowance of Rs.65,35,206/- made by the AO due to a lower gross profit margin. The AO argued that the assessee did not recover the entire expenses from its group companies, leading to a lower gross profit margin of 2% instead of an estimated 5%. The CIT(A) deleted the disallowance, stating that the assessee systematically recovered the expenses. The Tribunal upheld the CIT(A)'s decision, noting that similar disallowances were deleted in previous years (A.Y. 2003-04 and 2005-06) by the Tribunal. 2. Disallowance of Repairs and Maintenance Expenses: Ground no. 3 of the revenue's appeal for A.Y. 2006-07 challenges the deletion of Rs.50,02,226/- disallowed by the AO due to unverifiable repairs and maintenance expenses. The AO disallowed 20% of the total expenses as the assessee failed to produce supporting bills and vouchers. The CIT(A) deleted the disallowance, noting that the vouchers were produced during the assessment proceedings. The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for verification of the supporting documents. 3. Addition Based on Annual Information Report: The assessee's appeal for A.Y. 2006-07 involves the addition of Rs.4,87,036/- based on discrepancies in the annual information report (AIR). The AO added the amount as income since the assessee could not reconcile the differences. The CIT(A) confirmed the addition. The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to provide a satisfactory reconciliation. 4. Addition of Unexplained Expenses Under Section 69C: For A.Y. 2007-08, the assessee's appeal involves an addition of Rs.7,09,879/- under Section 69C for unexplained expenses on hotel bookings for a director's daughter's wedding. The AO added the amount as the expenses were not reflected in the assessee's books. The CIT(A) confirmed the addition, stating that the assessee failed to explain the expenditure satisfactorily. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not provide documentary evidence to prove that the expenses were incurred by other parties. 5. Under-Recovery of Expenses from Group Companies: The revenue's appeal for A.Y. 2007-08 involves a disallowance of Rs.1,58,61,009/- for under-recovery of expenses from group companies. The CIT(A) deleted the disallowance, and the Tribunal upheld the CIT(A)'s decision, following its earlier ruling for A.Y. 2006-07 on a similar issue. 6. Treatment of Damages Received on Termination of Rental Agreement as Business Income: The assessee's appeal for A.Y. 2008-09 involves the addition of Rs.5,80,00,000/- received as damages for the early termination of a rental agreement. The AO treated the amount as business income, and the CIT(A) confirmed the addition, stating that the transaction was a managed one and the damages were for rental income. The Tribunal upheld the CIT(A)'s decision, noting that the amount was received as compensation for loss of rent and constituted business income. Conclusion: - Assessee's appeals for A.Y. 2006-07 and 2007-08 were dismissed. - Revenue's appeal for A.Y. 2007-08 was dismissed. - Assessee's appeal for A.Y. 2008-09 was partly allowed. - Revenue's appeal for A.Y. 2006-07 was partly allowed. Order Pronounced: The order was pronounced in the open court on 28th June 2013.
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