1991 (3) TMI 227 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessments under Section 147(b).
2. Entitlement of a restaurant to investment allowance under Section 32A.
3. Classification of the restaurant building as a plant.
4. Levy of interest under Section 217.
5. Tax rate applicable to the assessee.
6. Disallowance of advertisement expenditure under Section 37(3A).

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments under Section 147(b):
The reopening of assessments for the assessment years 1982-83 and 1983-84 was contested by the assessee on several grounds, including that the reopening was based on an audit objection, which is not entitled to pronounce upon any question of law, and that there was no fresh material available to justify the reopening. The Tribunal found that the reopening was not valid under Section 147(b) because the audit objection did not constitute valid information for reopening. The Tribunal held that the reopening amounted to a mere change of opinion by the successor ITO, which does not justify reopening under Section 147(b).

2. Entitlement of a Restaurant to Investment Allowance under Section 32A:
The main question involved was whether a restaurant is entitled to investment allowance under Section 32A. The Tribunal held that the restaurant run by the assessee qualifies as an industrial undertaking engaged in the production of articles or things. The Tribunal distinguished between the terms "goods" and "articles or things" and concluded that the restaurant produces articles of food, which are not low priority items listed in the Eleventh Schedule. Therefore, the assessee was found to be rightfully entitled to investment allowance for the assessment years 1982-83 to 1986-87.

3. Classification of the Restaurant Building as a Plant:
The assessee contended that the restaurant building should be treated as a plant because it is an apparatus with which the business is carried on. The Tribunal agreed, holding that the building is designed to attract customers and is used as a tool of trade. The Tribunal relied on previous decisions that considered hotel buildings as plants and concluded that the restaurant building qualifies as a plant, entitling the assessee to extra shift depreciation allowance.

4. Levy of Interest under Section 217:
For the assessment year 1983-84, the Tribunal held that interest under Section 217 could not be charged in a reopened assessment, relying on the decision of the Andhra Pradesh High Court in CIT vs. Padma Timber Depot. The interest of Rs. 3,342 levied under Section 217 was set aside.

5. Tax Rate Applicable to the Assessee:
The assessee raised a ground that tax should be levied at the rate applicable to an industrial company instead of a trading company. However, no arguments were addressed to substantiate this ground, and it was dismissed as not substantiated.

6. Disallowance of Advertisement Expenditure under Section 37(3A):
The assessee contested the disallowance of 20% of advertisement expenditure exceeding Rs. 1 lakh. Since no arguments were addressed on this ground, the Tribunal upheld the disallowance, finding it correctly made.

Conclusion:
The appeals for the assessment years 1982-83, 1985-86, and 1986-87 were allowed, while the appeals for the assessment years 1983-84 and 1984-85 were partly allowed. The Tribunal concluded that the reopening of assessments under Section 147(b) was invalid, the restaurant was entitled to investment allowance, the building qualified as a plant, and interest under Section 217 was not chargeable in the reopened assessment.