2009 (11) TMI 817 - AT - Income Tax

Tribunal allows appeal, modifies additions on capital gains, municipal tax, telephone, and inspection expenses.

Panchiram Nahata Versus Joint Commissioner of Income-tax

The Tribunal allowed the assessee's appeal partly by setting aside the additions made by the authorities. The Tribunal held that Section 50 should have ... - Issues Involved:1. Application of Section 50C vs. Section 50 for computation of short-term capital gain (STCG).2. Addition of Rs. 1,42,980 for municipal tax paid.3. Addition of Rs. 12,000 under the head 'Telephone expenses'.4. Addition of Rs. 10,000 out of inspection expenses.Summary:Issue 1: Application of Section 50C vs. Section 50 for computation of STCGThe assessee challenged the order of the learned CIT(A) in applying s. 50C instead of s. 50 for the computation of STCG. The assessee disclosed STCG of Rs. 22,27,367 on the sale of office premises, but the AO took the full value of consideration at Rs. 45,66,600 as adopted by the registering authority for stamp duty purposes, resulting in an addition of Rs. 23,39,233 to the income. The CIT(A) upheld this addition. The Tribunal noted that s. 50, which starts with a non obstante clause, applies to depreciable assets forming part of a block of assets on which depreciation has been allowed. The Tribunal found that the conditions of s. 50 were satisfied and that there was no conflict between ss. 50 and 50C. Therefore, the authorities below should have computed the STCG as per s. 50. The Tribunal set aside the orders of the authorities below and deleted the entire addition, allowing Ground No. 1 of the assessee's appeal.Issue 2: Addition of Rs. 1,42,980 for municipal tax paidThe AO disallowed the claim of municipal tax paid on the grounds that the property was acquired in 1986 but the sale deed was executed in 1997, and the demand did not crystallize during the year. The CIT(A) confirmed this addition. The Tribunal found that the property was used for office purposes, and the bill was raised in the assessment year in question. Since the assessee followed the mercantile system of accounting, the municipal tax crystallized during the assessment year, making it an ascertained liability. The Tribunal set aside the findings of the authorities below and deleted the addition, allowing this ground of appeal.Issue 3: Addition of Rs. 12,000 under the head 'Telephone expenses'The AO disallowed 50% of the telephone expenses, and the CIT(A) reduced the disallowance to Rs. 12,000. The Tribunal found that no specific details were given by the AO for personal use of the telephone by the partners. Therefore, the disallowance was considered excessive. The Tribunal modified the orders of the authorities below and restricted the disallowance to Rs. 5,000, partly allowing this ground of appeal.Issue 4: Addition of Rs. 10,000 out of inspection expensesThe AO noted that the expenses were incurred for visits to different tea gardens and were supported by self-made vouchers. The CIT(A) confirmed the addition. The Tribunal found that the expenses were incurred for business purposes and that the vouchers were duly signed by the employees. Therefore, a 10% disallowance was not justified. The Tribunal set aside the orders of the authorities below and deleted the entire addition.Conclusion:The appeal of the assessee is partly allowed.