1983 (3) TMI 69 - AT - Income Tax

Summary

Issues Involved:
1. Ownership and responsibility for the cost of construction of the hotel building.
2. Legitimacy of the reference to the Valuation Officer.
3. Justification for the setting aside of assessments and re-determination of the quantum of additions.

Issue-wise Detailed Analysis:

1. Ownership and Responsibility for the Cost of Construction of the Hotel Building:
The primary issue was whether the cost of construction of the hotel building should be attributed to the assessee or to Hotel Ganges Limited. The Income Tax Officer (ITO) held that the unexplained investment had to be considered in the hands of the assessee because the funds for the construction were arranged by the assessee from his account in the books of Sadiram Gangaprasad HUF. The Commissioner (Appeals) upheld this view, emphasizing that the agreement dated 2-4-1974 stipulated that the construction was to be started by the assessee using his own resources. However, the Appellate Tribunal concluded that the hotel building actually belonged to Hotel Ganges Limited. This conclusion was based on the principle that if promoters of a company buy a property or carry on a business on behalf of a company they intend to float, the company has the right to accept or repudiate the actions upon incorporation. The Tribunal noted that the agreement dated 2-4-1974 was accepted by the company in a board meeting on 27-7-1974, and the expenditure incurred by the assessee was incorporated into the company's books. Consequently, the Tribunal held that Hotel Ganges Limited was the owner of the building and responsible for explaining the source of investment. Therefore, the additions of Rs. 1,33,941 and Rs. 2,10,935 were deleted from the assessments for the assessment years 1976-77 and 1977-78, respectively.

2. Legitimacy of the Reference to the Valuation Officer:
The Commissioner (Appeals) rejected the contention that the reference to the Valuation Officer was uncalled for. However, since the Tribunal concluded that the hotel building belonged to Hotel Ganges Limited and the assessee was not responsible for explaining the source of investment, it was not necessary for the Tribunal to address this issue further.

3. Justification for the Setting Aside of Assessments and Re-Determination of the Quantum of Additions:
The Commissioner (Appeals) had set aside the assessment with regard to the quantum of the addition and directed the ITO to re-determine it. However, given the Tribunal's decision that the hotel building belonged to Hotel Ganges Limited and the assessee was not responsible for the investment, the Tribunal did not find it necessary to deal with this ground of appeal.

Conclusion:
The Tribunal allowed both appeals, concluding that the hotel building belonged to Hotel Ganges Limited, which was responsible for explaining the source of investment. Consequently, the additions made by the ITO to the assessee's income for the assessment years 1976-77 and 1977-78 were deleted.