1995 (1) TMI 135 - AT - Income Tax

Summary

Issues Involved:
1. Investment in hotel building (asst. yrs. 1986-87 to 1987-88)
2. Disallowance of expenses (common to all years)
3. Disallowance out of vehicle expenses (common to all years)
4. Subsidy (common to all years)
5. Penalty under s. 271(1)(a) (asst. yr. 1986-87)
6. Penalty under s. 273 (asst. yr. 1986-87)

Detailed Analysis:

(1) Investment in Hotel Building (asst. yrs. 1986-87 to 1987-88):
The assessee, a registered firm running a hotel, initially leased and then purchased a hotel building, incurring substantial expenditure on alterations and new construction. The Assessing Officer (AO) did not accept the declared construction cost and referred the matter to the District Valuation Officer (DVO), who valued the construction higher than the declared cost. The AO added the difference as unexplained investment under s. 69B of the IT Act. The CIT(A) deleted these additions, noting that the assessee maintained a complete and defect-free account of expenditures. The Tribunal upheld the CIT(A)'s decision, emphasizing that the DVO's report for wealth-tax purposes was not appropriate for determining the cost of construction for income-tax purposes.

(2) Disallowance of Expenses (common to all years):
The AO disallowed certain hotel maintenance and boarding expenses for the assessment years 1986-87 to 1988-89. The CIT(A) deleted these disallowances, noting that the expenses were fully vouched and no specific defects were pointed out. The Tribunal upheld this deletion, agreeing with the CIT(A)'s assessment.

(3) Disallowance out of Vehicle Expenses (common to all years):
The AO disallowed a portion of vehicle expenses claimed by the assessee for the assessment years 1986-87 to 1988-89. The CIT(A) restricted the disallowances to 1/6th of the total expenses. During the hearing, the assessee conceded to revise the disallowance to 1/5th, which the Tribunal directed accordingly.

(4) Subsidy (common to all years):
The AO reduced the cost of assets by the subsidy received for the purpose of allowing depreciation. The CIT(A), following a jurisdictional High Court decision, directed the AO not to reduce the cost of assets by the subsidy amount. The Tribunal upheld the CIT(A)'s decision, noting that the subsidy was not specifically referable to any particular asset and was granted for constructing a hotel in a backward area.

(5) Penalty under s. 271(1)(a) (asst. yr. 1986-87):
The AO levied a penalty for the late filing of the return. The CIT(A) cancelled the penalty, noting that the return was of a loss, which turned into positive income only due to an addition that was later deleted. The Tribunal upheld the CIT(A)'s decision, as the deletion of the addition was confirmed.

(6) Penalty under s. 273 (asst. yr. 1986-87):
The AO levied a penalty based on the addition of unexplained investment. The CIT(A) cancelled the penalty, and the Tribunal upheld this decision, noting that the addition was deleted, and the assessee could not have anticipated it while filing the return.

Conclusion:
The Tribunal partly allowed the assessment appeals by Revenue and dismissed the penalty appeals for defaults under ss. 271(1)(a) and 273.