2001 (3) TMI 257 - AT - Income Tax

Issues Involved:
1. Treatment of expenditure on repairs and maintenance to furniture and fixture as capital expenditure.
2. Expenditure on replacement of cables as capital or revenue expenditure.
3. Disallowance of miscellaneous expenses.
4. Depreciation on imported cars.
5. Depreciation on Indian cars.
6. Depreciation on motor boats.
7. Depreciation on woollen rugs and carpets.
8. Disallowance of professional charges paid to architects.
9. Disallowance of expenditure on sponsoring a cricket match.

Summary of Judgment:

1. Treatment of Expenditure on Repairs and Maintenance to Furniture and Fixture:
The assessee claimed expenditures of Rs. 10,31,157 for AY 1990-91 and Rs. 8,72,262 for AY 1991-92 on repairs and maintenance to furniture and fixture. The AO treated part of these expenditures as capital, citing lack of evidence. The CIT(A) upheld the AO's decision. However, the Tribunal found that the expenditures were duly recorded and audited, with no specific capital expenditure identified by the AO. The Tribunal directed the AO to allow the entire expenditure as revenue expenditure.

2. Expenditure on Replacement of Cables:
The assessee incurred expenditures of Rs. 80,764 and Rs. 67,450 for replacing electric cables in AY 1990-91 and 1991-92, respectively. The AO and CIT(A) treated these as capital expenditures due to lack of evidence of replacement. The Tribunal upheld this treatment, citing insufficient evidence to support the claim of replacement.

3. Disallowance of Miscellaneous Expenses:
The AO made an ad hoc disallowance of Rs. 30,000 each year due to unverifiable nature and potential non-business purpose. The CIT(A) confirmed this. The Tribunal found the disallowance unsustainable due to lack of specific findings and directed the AO to delete the disallowance.

4. Depreciation on Imported Cars:
The assessee claimed higher depreciation on imported cars used for tourist transportation. The AO disallowed this, treating the use as incidental to the hotel business. The Tribunal found that the cars were used regularly for hire and allowed the higher depreciation, referencing CBDT Circular No. 609 and relevant case law.

5. Depreciation on Indian Cars:
Similar to the imported cars, the assessee claimed higher depreciation on Indian cars used for hire. The AO allowed only normal depreciation. The Tribunal, following its reasoning for imported cars, directed the AO to allow higher depreciation.

6. Depreciation on Motor Boats:
The assessee claimed higher depreciation on boats used for transporting guests to a hotel situated in a lake. The AO treated the boats as ships, allowing lower depreciation. The Tribunal upheld this, rejecting the claim to treat boats as plant.

7. Depreciation on Woollen Rugs and Carpets:
The assessee claimed higher depreciation on woollen rugs and carpets, treating them as plant. The AO and CIT(A) treated them as furniture and fixture, allowing lower depreciation. The Tribunal upheld the lower rate, noting that the expenditure was capitalized in prior years and only the depreciation rate was in dispute.

8. Disallowance of Professional Charges Paid to Architects:
The assessee paid Rs. 1,40,000 to architects for renovation design services, claimed as revenue expenditure. The AO treated it as capital expenditure. The Tribunal remanded the issue to the AO to verify if the charges were linked to actual costs of expansion and to allow the appropriate treatment based on this verification.

9. Disallowance of Expenditure on Sponsoring a Cricket Match:
The assessee incurred Rs. 1,03,000 on sponsoring a cricket match, claimed as advertisement expenditure. The AO disallowed it due to lack of evidence of business purpose. The Tribunal upheld the disallowance, finding no evidence to support the claim of advertisement expenditure.

Conclusion:
Both appeals by the assessee were partly allowed, with directions for the AO to re-evaluate certain expenditures and allow appropriate deductions as revenue expenditures where justified.

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