1994 (3) TMI 82

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..... of Rs. 2,42,624 arising from revaluation of items of machinery purchased by the assessee but not installed or put to use in arriving at the commercial or accounting profit of the assessee for the year concerned ? " The controversy pertains to the assessment year 1972-73, the corresponding previous year being the accounting year ended on March 31, 1971. In its assessment of income for the above assessment year, the assessee claimed a loss of Rs. 2,42,624 on account of fall in the value of the machinery lying at its Sakarwadi and Laxmiwadi factories. The contention of the assessee was that the above machinery had never been installed and was being shown as current assets as stock of stores, chemicals, spares, etc. No depreciation had also b .....

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..... deration for ascertaining the loss for accounting purposes. The Tribunal accordingly directed the Income-tax Officer to allow the claim of the assessee on that account. Hence this reference at the instance of the Revenue. Counsel for the assessee submits that the machinery in question having not been installed by the assessee or put to use ever since its purchase and the same having been described in the accounts of the assessee as "stores", the loss occasioned as a result of fall in the value thereof is an allowable deduction in computation of the commercial profits of the assessee. We have carefully considered this submission. We, however, find it extremely difficult to accept the same. The admitted position in this case is that the mach .....

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..... ng operations. This machinery, therefore, formed part of the capital assets of the assessee. The fact that pending installation, the assessee chose to describe it in its accounts as "stores and spares" cannot affect the real nature of these assets. They continue to be capital assets despite the erroneous description in the accounts of the assessee and are to be treated as such for all purposes. It is also well settled that the assessee is not entitled to revalue its capital assets at the end of the year and to deduct from its profits any fall in the value of such assets. Such loss will be a loss of capital nature. It cannot be claimed as deduction in the computation of the profits even under section 37 of the Act in view of the specific pr .....

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