1993 (4) TMI 99 - AT - Income Tax

Summary

Issues:
1. Valuation of construction for factory building.
2. Treatment of interest paid on borrowed capital for machinery.

Valuation of Construction for Factory Building:
The appeal by the Revenue related to the asst. yr. 1984-85, challenging the deletion of an addition of Rs. 4,36,780 made on account of valuation of construction. The CIT(A) found that the valuation was premature as construction of unit No. 2 was incomplete in the relevant year. The Departmental Valuation Officer (DVO) estimated the cost at Rs. 8,89,540, while a registered valuer engaged by the assessee estimated it at Rs. 4,56,900. The Revenue argued that the assessee did not cooperate during valuation, but the counsel contended that the building was incomplete and cited a Madras High Court decision. The CIT(A) directed the Assessing Officer to consider the total cost of construction, which was upheld by the Tribunal, stating that if the work was incomplete, the valuation report was flawed.

Treatment of Interest Paid on Borrowed Capital for Machinery:
The second ground of appeal related to the deletion of an addition of Rs. 1,36,573 made on account of interest paid on borrowed capital for machinery. The Revenue argued it should be treated as capital expenditure, not revenue. The counsel argued that part of the machinery purchased was not put to use, relying on a Rajasthan High Court decision and a Supreme Court decision regarding interconnection of business ventures. The Tribunal upheld the CIT(A)'s decision, stating that the interest amount should not be capitalized as there was interconnection between the borrowed money and the investment in machinery for the existing business. The Tribunal rejected the Revenue's argument, emphasizing the interdependence of the machinery purchased for the factory.

General Grounds:
Grounds 3 and 4, being general in nature without specific arguments, were not commented on by the Tribunal. Ultimately, the appeal was dismissed as having no force based on the decisions and reasoning provided by the Tribunal in relation to the valuation of construction and the treatment of interest paid on borrowed capital for machinery.