1998 (6) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Determination of Annual Letting Value (ALV) of the property.
2. Disallowance of various expenses claimed by the assessee.
3. Admissibility of additional evidence under Rule 46A of the IT Rules.
4. Allowability of interest paid to Gulab Beneficiary Trust.

Issue-wise Detailed Analysis:

1. Determination of Annual Letting Value (ALV) of the property:

The assessee challenged the adoption of the ALV of the property at Rs. 2,68,800 against the declared value of Rs. 48,000. The property was rented to Gulab Beneficiary Trust, which sublet it at a higher rent. The AO concluded that the trust was created to divert income and reduce tax liability, thus adopting the higher ALV. The CIT(A) upheld this view, considering the rent received by the trust as the ALV for the assessee.

On appeal, the assessee argued that the trust was genuine, the rent was reasonable based on municipal valuation, and the trust's income had been assessed substantively. The Tribunal found no fresh evidence to support the AO's conclusion of income diversion and noted that the Municipal Corporation of Delhi (MCD) fixed the rateable value at Rs. 54,000, close to the rent declared by the assessee. The Tribunal also highlighted that the trust's income had been consistently assessed by the Revenue, and double taxation should be avoided. The Tribunal directed the deletion of the addition made on this count.

2. Disallowance of various expenses claimed by the assessee:

The assessee contested the disallowance of specific expenses, including traveling, scooter maintenance, machinery repairs, freight, telephone expenses, and depreciation. The Tribunal reviewed each disallowance:

- Traveling expenses: Sustained Rs. 1,000 disallowance.
- Scooter maintenance expenses: Sustained 1/6th disallowance of the claim.
- Machinery repair expenses: Disallowance deleted.
- Freight expenses: Sustained Rs. 10,000 disallowance.
- Telephone expenses: Sustained 1/10th disallowance of the total expenses.
- Depreciation: Sustained 1/6th disallowance.
- Depreciation on machinery at C-45 and C-45/1 Lawrance Road: Sustained Rs. 2,861 disallowance.

Regarding the disallowance under Section 43B, the Tribunal restored the issue to the AO to verify the payment of Central Sales Tax (CST) within the allowable period for filing the return and decide accordingly.

3. Admissibility of additional evidence under Rule 46A of the IT Rules:

The Revenue argued that the CIT(A) erred in allowing relief out of freight expenses after admitting additional evidence against Rule 46A. The AO had disallowed Rs. 40,000 for lack of supporting vouchers, which the CIT(A) reduced to Rs. 10,000. The Tribunal found no material to justify the AO's disallowance and noted that no additional evidence influenced the CIT(A)'s decision. The Tribunal upheld the CIT(A)'s reduction of the disallowance.

4. Allowability of interest paid to Gulab Beneficiary Trust:

The AO disallowed interest of Rs. 67,800 paid to the trust, arguing that the loan belonged to the assessee-firm. The CIT(A) allowed the interest, recognizing the trust as a separate legal entity. The Tribunal, in line with its earlier findings on the genuineness of the trust, upheld the CIT(A)'s decision to allow the interest claimed.

Conclusion:

The assessee's appeal was partly allowed, with the Tribunal directing the deletion of the addition related to the ALV and modifying the disallowances of various expenses. The Revenue's appeal was dismissed, upholding the CIT(A)'s decisions on freight expenses and interest paid to the trust.