Reliable books and composite letting of premises governed tax treatment; estimated construction addition deleted, receipts taxed under residuary head.

Reliable books of account prevailed over an estimated later valuation, because the assessee had recorded construction expenditure and no defect in the books was shown; the addition for alleged suppression in construction cost was therefore deleted. Composite letting of shopping premises together with furniture, fixtures and utilities was treated as inseparable, so the receipts were not assessed as income from house property or business income but under the residuary head of income from other sources. Depreciation was allowed only to the extent of actual user of the let asset, resulting in partial relief to the assessee.

---

---

Issues: (i) Whether the addition made on account of alleged suppression in the cost of construction of the building was sustainable; and (ii) Whether the rental receipts from the shopping premises, let out along with furniture, fixtures and utilities, were assessable as income from house property, business income, or income from other sources, and whether depreciation was allowable.

Issue (i): Whether the addition made on account of alleged suppression in the cost of construction of the building was sustainable.

Analysis: The construction had commenced in 1990 and was completed in 1992, whereas the valuation relied upon by the Assessing Officer proceeded on a later date. The assessee had maintained regular books of account showing the construction expenditure and the Assessing Officer did not record any finding that the books were defective or unreliable. The valuation report was accepted mechanically without dealing with the assessee's objections regarding date of valuation, departmental construction, and area adopted for valuation. Where proper books are maintained and no defect is shown, the recorded expenditure is to be preferred over an ary valuation.

Conclusion: The addition on account of alleged suppression of construction cost was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether the rental receipts from the shopping premises, let out along with furniture, fixtures and utilities, were assessable as income from house property, business income, or income from other sources, and whether depreciation was allowable.

Analysis: The letting was not confined to bare premises. The shop was let out together with extensive furniture, fixtures and utilities, and the letting was therefore composite and inseparable. In such a case the receipts do not fall under the head 'income from house property' or as business income on the facts found. Applying the principle governing inseparable letting, the proper head of income is residuary income from other sources. Since only the first floor with stilt was actually let and used, depreciation is allowable only to the extent of actual user under the statutory restriction.

Conclusion: The rental income was assessable as income from other sources and depreciation was allowable to the limited extent indicated, in part favour of the assessee and in part in favour of the Revenue.

Final Conclusion: The addition for alleged understatement of construction cost was deleted, while the rental receipts were directed to be assessed under the residuary head with limited depreciation relief, resulting in partial relief to the assessee.

Ratio Decidendi: Where an assessee maintains reliable books of account and no defect is found, an estimated valuation cannot displace the recorded construction cost; and where the letting of premises is inseparably combined with furniture and fixtures, the receipts are taxable under the residuary head with depreciation confined to actual user.

---