2007 (2) TMI 657 - AT - Income Tax

Issues Involved:
1. Disallowance of depreciation.
2. Disallowance under Section 43B for late deposit of provident fund.
3. Disallowance of overages and shortages.
4. Disallowance of technical and consultancy fees.
5. Inclusion of service charges in turnover and related tax implications.
6. Deduction under Section 80-IA.
7. Computation of deduction under Section 80HHD.
8. Validity of reopening assessment for the assessment year 1995-96.

Detailed Analysis:

1. Disallowance of Depreciation:
The assessee challenged the disallowance of Rs. 37,037 in depreciation. The AO reduced the opening WDV of various block of assets by the value of assets sold/discarded during the year. The contention was that under Section 32 of the IT Act, 1961, depreciation is available for assets used in the business, whether sold/discarded or not. The Tribunal directed the AO to verify the usage of assets for more than 180 days and pass suitable orders. The assessee's claim was upheld.

2. Disallowance under Section 43B for Late Deposit of Provident Fund:
The AO disallowed Rs. 11,04,010 for late deposit of provident fund contributions. The deposit was made on 27th April 1998, beyond the due date of 20th April 1998. The assessee argued that the deposit was made before the filing of the return, citing the Gauhati High Court's decision in CIT vs. Assam Tribune. The Tribunal found merit in the assessee's contention and directed the AO to allow the deduction.

3. Disallowance of Overages and Shortages:
The AO disallowed Rs. 9,570 on account of overages and shortages due to lack of details or explanation. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in confirming the additions, as the assessee failed to provide necessary details.

4. Disallowance of Technical and Consultancy Fees:
The AO disallowed Rs. 10 lakhs paid for the use of marble in the central courtyard of Lallgarh Palace, considering it a capital expenditure. The assessee argued it was revenue expenditure for facilitating hotel operations. The Tribunal, referencing the Supreme Court's decision in Empire Jute Co. Ltd. vs. CIT, held that the expenditure facilitated trading operations without adding to fixed capital, thus allowable as revenue expenditure.

5. Inclusion of Service Charges in Turnover and Related Tax Implications:
The AO included service charges in the assessee's turnover and disallowed certain deductions, treating part of the service charges as income. The assessee argued that service charges collected were for and on behalf of banquet employees and not part of its income. The Tribunal remanded the issue to the AO for reconsideration, emphasizing the need to consider the customary practice in the hotel industry and the legal principles of diversion by overriding title.

6. Deduction under Section 80-IA:
The assessee claimed that income from exchange fluctuation, insurance claims, interest on KEB deposit, NSC, and scrap sales should be included in computing deduction under Section 80-IA. The Tribunal, following precedents, allowed the assessee's claim and directed the AO to recompute the deduction.

7. Computation of Deduction under Section 80HHD:
The AO computed the deduction based on the entire business income, while the assessee claimed it should be based on income from each eligible hotel. The Tribunal, referencing its earlier decision in the assessee's own case, held that the deduction should be computed for each approved hotel individually. The assessee's claim was allowed.

8. Validity of Reopening Assessment for the Assessment Year 1995-96:
The assessee challenged the reopening of assessment, arguing that no valid notice under Section 148 was served. The Tribunal found that the notice dated 28th March 2002 was not properly served, rendering the reopening invalid. The assessment order was quashed, and the appeal for the assessment year 1995-96 was allowed.

Conclusion:
The appeal for the assessment year 1998-99 was partly allowed, and the appeal for the assessment year 1995-96 was fully allowed. The Tribunal directed the AO to reconsider certain issues, verify facts, and pass suitable orders in line with the legal principles and precedents cited.

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