Commissioner of Income Tax vs M/s Central Coalfields Limited

Heard learned counsel for the parties. This appeal was admitted on 16th February, 2001, on the following substantial questions of law:

(I) Whether the Tribunal was justified in allowing full relief to the Assessee in respect of claim of expenditure on maintenance of transit house/Guest house on the plea that the expenditure was related to transit house and not to Guest House ?

(II)Whether the Tribunal was justified in holding that the expenditure on maintenance of Guest House/Transit House was business expenditure ?

(III)Whether the Tribunal was justified in giving direction to the Assessing Officer to consider the issue of allowing depreciation of sale off assets/surveyed off assets in the light of provisions of Section 43(6) and 50 of the Income tax Act?

As per the case, the learned Assessing Officer vide assessment order dated 28th March, 1995 allowed 5% of the total expenditure as deduction on account of expenditure incurred by the assessee in maintaining the Guest house. The assessee claimed that he had to incur the said expenditure of Rs. 1,16,07,450/- to maintain the Guest House because of the peculiar situation of its location and working of the Company. However, the Assessee claimed 25% of that amount as deduction u/s 37(3) of the Income Tax Act, 1961. The Assessment Officer allowed only 5% of the total expenditure as deduction. However, from the assessment order, it is apparent that no reason has been assigned by the Assessing Officer for not allowing 25% of the expenditure for maintaining the Guest House which is meant for official use of assessee Company. Aggrieved against the said order of assessment dated 28th March, 1995, the assessee preferred appeal before the Commissioner of Income Tax(Appeals), Ranchi, who, in turn, partly allowed the appeal and increase the benefit to the extent of 7.5%. However, we found from the order of the appellate authority (Annexure-2) that the appellate authority also did not assign any reason for rejection of the claim of the assessee and for allowing of only 7.5% of the total expenditure incurred for maintaining and using the Guest House, which has been also termed as Transit house. Again aggrieved against the aforesaid two orders, the Assessee preferred appeal before the Income Tax Appellate Tribunal, Patna Bench, Patna. The appellant''s appeal was allowed by the Income Tax Appellate Tribunal, Patna after taking note of the fact that no reason has been assigned by the authorities for disallowing the expenditure claim of the assessee, which, according to the view of Income Tax Appellate Tribunal, was justified expenditure.

Aggrieved against the said order of Income Tax Appellate. Tribunal, the Revenue has preferred this appeal u/s 260A of the Income Tax Act, 1961.

Learned counsel for the appellant submitted that the Income Tax Appellate Tribunal has gravely erred in law in allowing the claim of the assessee to the extent of 25% of the expenditure incurred on and over the Guest House.

We have considered the submissions of the learned counsel for the parties and perused the facts of the case. It appears from the questions formulated that some impression may have been carried that there was some difference in between Transit House and the Guest House and that was not the issue because of the reason that it is admitted case of the Revenue that the Guest House/Transit House is the building which is being used by the assessee for its commercial use in course of business and disallowance has been not on account of it''s terminology, so as to treat it as a ''transit house'' and allowed the claim of the assessee and if the Income Tax Appellate Tribunal would have treated it as a Guest House, connected with the business activities of the assessee, then the liability would have been disallowed by the authorities. Undisputedly the property in question, which is used by the assessee, is a property used in support to business activities. As we have already noticed that neither the Assessing Officer nor the Appellate Authority have rejected the claim of the assessee which was claimed to the extent of 25% of the expenditure incurred on the building in question on this ground of name of the building, as either it be Guest House or it be a Transit House. So far the order of the Assessing Officer and Appellate Authority are concerned, on the face of it, it is clear that those orders are not the speaking orders. So far it relates to the rejection of the claim of the assessee, it has been arbitrarily rejected without assigning any reason in a fact situation where the assessee has claimed only 25% of the total expenditure as deduction and has not claimed 100% of the expenditure as deduction, which may have been exaggerated provided so would have been the view of any of the authorities below on the basis of any evidence produced by Revenue or in view of the evidence produced even by the assessee. Therefore, these two orders i.e., assessment order as well as appellate order were liable to be set aside on this ground and were rightly set aside by the Tribunal. The Income Tax Appellate Tribunal has carefully considered the issue and thereafter held that the assessee was entitled to deduction of 25% of the total expenditure referred above and, therefore, we do not find any illegality in the said finding. 8. Question nos. 1 and 2 are answered accordingly and so far question no. 3 is concerned, it is only a question, consequent to the issue raised in question nos. 1 and 2, which need not to be answered. Hence, this Tax Appeal is dismissed.