V.K.SINGHAL, J. - (1.) THE Tribunal has referred the following three questions of law arising out of its order dt. 12th Feb., 1987, in respect of asst. year 1979 -80 under S. 256(1) of the IT Act, 1961 : "1. Whether the Tribunal was right in law in disallowing dismantling charges incurred by the assessee -company at Rs. 71,748? 2. Whether the Tribunal was right in law in holding that dismantling charges of Rs. 71,748 is of capital nature particularly when no new construction was ever done either in the year or in the succeeding years and even till date of hearing? 3. Whether the Tribunal had material to hold that the scrapped value of dismantling asset was Rs. 25,000 -
(2.) THE brief facts of the case are that the assessment in this case was completed on 14th Sept., 1982, and, thereafter the CIT(A) has issued directions to reconsider certain issues and on that basis order was passed on 17th Oct., 1984. The CIT(A) directed to check -up the written down value as on 31st March, 1978, and to work out the claim under S. 32. The scrap value and the expenditure on demolition of the asset was also directed to be examined with reference to the books maintained by the company. Opportunity was given to the assessee and after considering the reply, the ITO came to the conclusion that the P&L account filed along with return of income, the assessee has shown the cost/written down value of items scraped at Rs. 1,95,289. It was only at this later stage that the bifurcation of the said figure unsupported by auditors report was given; wherein dismantling charges were shown at Rs. 71,748. It was found that this amount cannot be part of the cost of the scrapped asset. No new erection was made. The amount was considered to be capital expenditure. For determining value of the scrap item the assessee has not furnished full details. It was found that the building was constructed in the year 1969 -70 and the cost of the material and construction has increased thereafter tremendously. The wood -work, painting, varnishing, stones, etc., were valued at Rs. 25,000.
(3.) THE appeal before the CIT(A) was rejected and in second appeal before the Tribunal it was found that the assessee had not given the bifurcation earlier. The fact of use of the stone for the construction of wall was not denied by the assessee. Wood -work was also considered as not fully destroyed by white ants in a five star hotel. The estimated value of the scrap was considered to be reasonable and not excessive. The Tribunal also came to the conclusion that the reason for demolition could only be that the land underneath the building would be required by the assessee for some other purpose. The advantage received was considered to be an enduring nature. We have considered over the matter. The assessee has shown the cost/written down value of the items scrapped at Rs. 1,95,289. The details of this figure bifurcating into two; pertaining to written down value of scrapped asset and dismantling charges were not shown at any stage either in the P&L account, auditors report or in the assessment proceedings, or even in the proceedings under S. 144B(iv). To be an item of revenue or capital nature, different tests have been applied. If the assessee has obtained an advantage of enduring nature, the expenditure has to be considered as capital in nature. The Tribunal has proceeded that the reason for demolition could be that the land underneath the building would be required by the assessee for some other purposes. Even the assessee has admitted in the written arguments submitted before the CIT(A) that in 1978 when the project to construct a new five star hotel on Jagmandir was undertaken, the old structures had to be demolished to give way to the new hotel building. The Tribunal, therefore, has rightly come to the conclusion that the dismantling charges are capital in nature. Even not making a new construction has rightly been dealt with by the Tribunal. Initially the ITO has disallowed the entire claim of Rs. 1,95,285 being the scrapped assets written off and debited to the P&L account on the ground that it is a 'capital loss'. The claim of the assessee was considered in terms of S. 32(1)(iii). The CIT(A) had also come to the conclusion that these charges cannot form part of the scrap as claimed by the assessee. The expenses incurred on dismantling was held capital in nature.;