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Issues Involved:
1. Cost of Construction 2. Assessment of Rental Income Summary: Issue 1: Cost of Construction The first issue concerns the cost of construction of a building by the assessee-company. The Assessing Officer (AO) was not satisfied with the cost of construction as shown by the assessee and the registered valuer's report. The AO referred the matter to the Valuation Officer, who valued the property at Rs. 33,14,000, leading to an addition of Rs. 5,17,000 as undisclosed income. The assessee objected, arguing that the construction was completed in 1992, and the Valuation Officer incorrectly valued it as of 12-10-1995. The Tribunal found that the AO failed to address the assessee's objections and mechanically accepted the Valuation Officer's report. The Tribunal concluded that the cost of construction as reflected in the books of the assessee should have been accepted, as the books were properly maintained and no defects were pointed out by the AO. The addition of Rs. 5,17,000 was deleted. Issue 2: Assessment of Rental Income The second issue pertains to the assessment of monthly rent of Rs. 40,000 received by the assessee-company from M/s Kasat Creations. The assessee argued that the rental income should be treated as business income, while the AO assessed it as income from house property u/s 22 of the Income-tax Act. The Tribunal noted that the building and furniture were inseparably let out, making the rental income fall under the head "income from other sources" as per section 56(2)(iii) of the Income-tax Act. The Tribunal directed the revenue to assess the rental income as income from other sources and allow depreciation accordingly, but limited to the extent of actual use. This ground of the assessee was partly allowed. Conclusion: The appeal was partly allowed, with the addition of Rs. 5,17,000 on account of the alleged suppression of the cost of construction being deleted, and the rental income being assessed as income from other sources with allowable depreciation.
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