1993 (7) TMI 109 - AT - Income Tax

Tribunal upholds CIT decision on construction cost, depreciation rate, refers interest deduction for fresh examination

The Tribunal upheld the CIT (Appeals)'s decisions on the cost of construction and depreciation rate, while referring the issue of interest deduction for ... Business Disallowance Issues Involved:1. Cost of construction of a cinema building and unexplained investment.2. Deduction of interest paid to M/s Udyog Finance & Chit Fund (P.) Ltd.3. Depreciation rate on fittings, fixtures, and electric fittings.4. Cross objection by the assessee.Issue-Wise Detailed Analysis:1. Cost of Construction of a Cinema Building and Unexplained Investment:The Revenue objected to the cost of construction of a cinema building by the assessee-firm and the addition made on account of unexplained investment. The ITO added Rs. 6,56,186, representing the difference between the cost of construction as per the Departmental Valuation Officer (DVO) at Rs. 23,76,505 and the cost as per assessee's books at Rs. 17,20,320. The CIT (Appeals) noted that the DVO made five valuations, each with different results. The third valuation report fixed the cost at Rs. 23,76,505, while a subsequent report dated 11-8-1983 fixed it at Rs. 21,17,923, reducing the difference to Rs. 3,97,603. The Tribunal found that even this difference should be reduced further due to admissions by the DVO before the CIT (Appeals), resulting in a final difference of Rs. 1,64,000 after considering various adjustments and deductions. The Tribunal upheld the CIT (Appeals)'s decision to accept the cost of construction as per the assessee's books, rejecting the Revenue's grounds of appeal.2. Deduction of Interest Paid to M/s Udyog Finance & Chit Fund (P.) Ltd.:The Revenue contested the CIT (Appeals)'s allowance of a deduction of Rs. 12,150 on account of interest paid to M/s Udyog Finance & Chit Fund (P.) Ltd. The ITO disallowed the interest, arguing that the loans were raised by the partners and not the firm. The CIT (Appeals) allowed the deduction based on the Tribunal's decision in Damodar Doss Jai Chand Aggarwal's case. The Tribunal noted the need for a proper inquiry into the facts and set aside the CIT (Appeals)'s findings for fresh disposal. However, the Judicial Member disagreed, asserting that the interest payment was for the benefit of Udyog Finance & Chit Fund Pvt. Ltd., and thus allowable. The matter was referred to a Third Member, who agreed with the Accountant Member, noting the jurisdictional High Court's decision in CIT v. Agra Tannery, which resolved the controversy, leading to the matter being placed before the regular Bench for disposal.3. Depreciation Rate on Fittings, Fixtures, and Electric Fittings:The Revenue argued that electric fittings, etc., should be treated as part of the building with a depreciation rate of 10%. The CIT (Appeals) allowed 15% depreciation, treating these items as part of the machinery. The Tribunal upheld the CIT (Appeals)'s decision, referencing the Supreme Court decision in CIT v. Taj Mahal Hotel, which supported treating such items as 'plant' and allowing a 15% depreciation rate.4. Cross Objection by the Assessee:The assessee's cross objection was not pressed by their counsel and was dismissed accordingly.Conclusion:The Tribunal's judgment addressed the major issues concerning the cost of construction and unexplained investment, the deduction of interest payments, and the depreciation rate on fittings and fixtures. The Tribunal upheld the CIT (Appeals)'s decisions on the cost of construction and depreciation rate, while the issue of interest deduction was referred for fresh examination, ultimately aligning with the jurisdictional High Court's decision. The assessee's cross objection was dismissed as it was not pursued.