JUDGMENT
V.K. Singhal, J.
1. The Income-tax Appellate Tribunal has referred the following three questions of law arising out of its order dated February 12, 1987, in respect of the assessment year 1979-80 under Section 256(1) of the Income-tax 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 as 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 September 14, 1982, and, thereafter, the Commissioner of Income-tax (Appeals) has issued directions to reconsider certain issues and on that basis an order was passed on October 17, 1984. The Commissioner of Income-tax (Appeals) directed to check up the written down value as on March 31, 1978, and to work out the claim under Section 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 Income-tax Officer came to the conclusion that in the profit and loss account filed along with the return of income, the assessee has shown the cost/ written down value of items scrapped at- Rs. 1,95,289. It was only at this later stage that the bifurcation of the said figure unsupported by the 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 the 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 Commissioner of Income-tax (Appeals) 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 stone for the construction of the wall was not denied by the assessee. Wood work was also considered as not fully destroyed by white ants in a 5-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 purposes. The advantage received was considered to be an enduring nature.
4. We have considered 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 bifurcated into two, pertaining to written down value of scrapped asset and dismantling charges were not shown at any stage either in the profit and loss account, auditors’ report or in the assessment proceedings, or even in the proceedings under Section 144B(4). 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 on the footing 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 Commissioner of Income-tax (Appeals) that in 1978 when the project to construct a new 5-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 Income-tax Officer has disallowed the entire claim of Rs. 1,95,285 being the scrapped assets written off and debited to the profit and loss account on the ground that it is a capital loss. The claim of the assessee was considered in terms of Section 32(1)(iii). The Commissioner of Income-tax (Appeals) 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 as capital in nature.
5. The question with regard to the dismantled assets has to be examined on the basis of the finding which has been recorded by the Tribunal. It is an admitted position that the construction which was demolished had stone, wood work, etc. The use of the stones in the new constructions have not been denied. It was contended by the assessee before the Commissioner of Income-tax (Appeals) that the scrapped assets consisted of only truck loads of debris or broken-stone and broken brick pieces and broken sanitary-ware, etc., which have no value. It was submitted that a considerable amount for its disposal by transporting them across the lake had to be incurred. No details were furnished with regard to the expenses incurred on transportation or in support of the contention. The plea of the assessee that the construction was of inferior quality was also not accepted. The wood-work was also considered as not destroyed by white ants, as the assessee was running a 5 star hotel at Udaipur. Incurring the expenditure of Rs, 71,000 for dismantling was taken as a proof of good quality. The valuation at Rs. 25,000 in the absence of any details having been furnished by the assessee, and in the absence of denial of use of the stones in the new construction cannot be considered as without any material. If an opportunity is given to the assessee, and he fails to submit the details, or the details submitted are not found satisfactory by the Income-tax Officer, he has to make his own estimate. In a best judgment assessment guess-work is necessary and it is not required that the figure has to be proved to the exact amount determined by the taxing authorities. In these circumstances, it cannot be said that the estimation of the scrap value of Rs. 25,000 of the dismantled asset was without any material.
6. In view of the above observation, we are of the view that the Tribunal was right in isallowing the dismantling charges incurred by the assessee at Rs. 71,748, treating them as capital in nature, particularly when new construction was not done either in the year or in the succeeding years. The Tribunal was also justified in holding that the scrap value of the dismantled asset was Rs. 25,000. Accordingly, the reference is answered in favour of the Revenue and against the assessee.