1996 (11) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Enhancement of total income by Rs. 43,20,360 on account of the Buddha statue contract.
2. Non-deletion of the addition of Rs. 26,60,476 related to the Buddha statue contract.
3. Disallowance of Rs. 64,374 out of claims provision made in the past year.
4. Disallowance of depreciation on building including office and residential ownership flats.

Issue-wise Detailed Analysis:

1. Enhancement of Total Income by Rs. 43,20,360 on Account of the Buddha Statue Contract:
The assessee, a limited company, was involved in a contract for the transportation and installation of a Buddha statue. The contract was divided into two phases. The first phase was completed in the previous year, and the second phase was undertaken in the relevant year, during which an accident occurred, resulting in a loss. The assessee claimed Rs. 69,80,836 as a revenue expenditure due to the accident, which the Assessing Officer (AO) disallowed, treating Rs. 92,10,746 received from the Government of Andhra Pradesh as income. The Commissioner of Income Tax (Appeals) [CIT(A)] enhanced the income by Rs. 43,20,360, disagreeing with the assessee's claim and stating that the entire expenditure should have been shown as work-in-progress.

Upon appeal, the Tribunal considered the facts and submissions, noting that the loss was certain and not related to work to be performed. The Tribunal found that the loss was a trading loss incurred during the year and should be allowed in the year it occurred. The Tribunal vacated the CIT(A)'s order enhancing the income by Rs. 43,20,360 and directed the AO to allow the assessee's claim.

2. Non-deletion of the Addition of Rs. 26,60,476 Related to the Buddha Statue Contract:
The AO had added Rs. 26,60,476 to the assessee's income, which was deleted by the CIT(A). Since the CIT(A) had already deleted this addition, the Tribunal did not find it necessary to adjudicate this matter further and upheld the deletion.

3. Disallowance of Rs. 64,374 Out of Claims Provision Made in the Past Year:
The AO added Rs. 64,374 to the assessee's income, stating that the claims were time-barred. The CIT(A) confirmed this addition, stating that the liability was contractual and could only be allowed on settlement in court. The assessee argued that the liability was still under negotiation or pending in court and had not ceased.

The Tribunal found that the amount was not claimed as a deduction in the current year and that there was no cessation of liability. The Tribunal held that the liability had not ceased and could not be included in the total income of the assessee, thus vacating the orders of the Revenue authorities on this point.

4. Disallowance of Depreciation on Building Including Office and Residential Ownership Flats:
The AO disallowed the depreciation claim on buildings, including office and residential flats, for which the company had paid in full and obtained possession. The CIT(A) confirmed this disallowance.

The Tribunal, following its earlier decision in the assessee's own case for the assessment year 1987-88, allowed the claim of the assessee. The Tribunal found that the claim of the assessee should be allowed and directed the AO to allow the depreciation.

Conclusion:
The appeal by the assessee was allowed. The Tribunal directed the AO to allow the claim of the assessee for the loss of Rs. 69,80,836, vacated the enhancement of income by Rs. 43,20,360, upheld the deletion of the addition of Rs. 26,60,476, vacated the addition of Rs. 64,374, and allowed the depreciation claim on buildings.