2001 (4) TMI 180 - AT - Income Tax

Issues Involved:
1. Allowability of plantation expenses.
2. Addition on account of valuation of closing stock of Sal seeds.
3. Disallowance of conventional expenses under the head 'entertainment'.
4. Claim of investment allowance on addition of plant and machinery.
5. Disallowance of guest house expenses.
6. Addition in respect of Mahua seeds.
7. Treatment of rental income from house property.
8. Charging of interest.

Summary:

1. Allowability of Plantation Expenses:
The primary issue across the appeals was the allowability of plantation expenses incurred by the assessee, an undertaking of the Orissa Government, engaged in exploiting forest products. The Assessing Officer (AO) disallowed these expenses, considering them unconnected with the business and of agricultural and capital nature. The CIT(A) upheld these disallowances for most years, except 1985-1986 and 1986-1987, where the expenses were allowed as revenue expenses. The ITAT, in a common order, remanded the matter back to the AO for re-examination, emphasizing the need to determine if there was a binding obligation on the assessee to implement government policies. Upon re-assessment, the AO maintained the disallowances, which were upheld by the CIT(A). The Tribunal, however, found that despite the lack of a statutory obligation, the assessee, being a government undertaking, was under a binding obligation to follow government directives related to afforestation, which were closely connected with its business operations. The Tribunal concluded that the plantation expenses were revenue in nature and directed their allowance in all years under consideration.

2. Addition on Account of Valuation of Closing Stock of Sal Seeds:
For the assessment year 1979-80, the assessee challenged the addition on account of the valuation of closing stock of Sal seeds. The CIT(A) upheld the addition, noting the lack of material evidence to support the assessee's changed valuation claim. The Tribunal declined to interfere with the CIT(A)'s order.

3. Disallowance of Conventional Expenses under the Head 'Entertainment':
The assessee challenged the disallowance of conventional expenses treated as 'entertainment' for the assessment years 1979-1980 to 1984-1985 and 1987-1988. The CIT(A) allowed 30% of the claimed amount as conventional expenses u/s 37, treating the balance as entertainment expenses due to lack of details. The Tribunal upheld the CIT(A)'s order.

4. Claim of Investment Allowance on Addition of Plant and Machinery:
For the assessment years 1979-1980 to 1984-1985 and 1987-1988, the assessee's claim for investment allowance on plant and machinery was initially disallowed due to lack of details and reserve creation. The CIT(A) allowed the claim subject to verification of reserve creation. The Tribunal upheld the CIT(A)'s order.

5. Disallowance of Guest House Expenses:
For the assessment years 1988-1989 and 1990-1991, the assessee challenged the disallowance of guest house expenses. The CIT(A) sustained the disallowances based on the provisions of the Income-tax Act. The Tribunal upheld the CIT(A)'s order.

6. Addition in Respect of Mahua Seeds:
For the assessment year 1981-1982, the assessee objected to the addition in respect of Mahua seeds. The CIT(A) upheld the addition, noting that the ITAT had not directed re-examination of this point. The Tribunal upheld the CIT(A)'s order.

7. Treatment of Rental Income from House Property:
For the assessment year 1991-1992, the assessee claimed that rental income should be assessed as business income. The CIT(A) treated it as income from house property, directing the AO to allow deductions u/s 24. The Tribunal upheld the CIT(A)'s order.

8. Charging of Interest:
A common ground in all appeals was the challenge to the charging of interest. The assessee admitted the liability towards interest, seeking consequential relief. The Tribunal dismissed this ground as infructuous.

Conclusion:
The appeals for all years except 1979-80 were partially allowed, directing the allowance of plantation expenses as revenue expenses. The appeal for the assessment year 1979-80 was dismissed.

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