TMI Blog2005 (11) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... us assets. 2. The facts of the case are that the assessee-company filed its return on 29.11.2006 declaring loss of ₹ 30,94,980/-. The return was processed u/s 143(1) of the Income-tax Act, 1961, on 13.10.2007. A notice u/s 143(2) dated 10.10.2007 was served on the assessee for making scrutiny assessment. It was found that .the assessee is engaged in the business of manufacturing and trading in cakes, pastries, biscuits, bread, other bakery products, chocolate products, confectioneries and allied foods products. These products are directly supplied to institutional customers. It is also operating a restro named Choko la . 2.1 On perusal of the accounts and notes thereto, it was found that .the assessee company commenced commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated to various assets in the ratio of the cost of the asset to the total cost. However, the Assessing Officer did not accept this contention. It has been held that the expenses are revenue in nature and not linked to any asset used for the purpose of business after 13.10.2005. Therefore, the deduction of depreciation on these expenses was disallowed. The learned CIT(A) confirmed this finding by mentioning that the assessee has not been able to substantiate that the expenses were incurred for acquisition of any fixed asset. U/s 32 of the Act, the deduction for depreciation can be granted only in respect of specified assets subject to the condition that the expenditure is incurred for its cost. 3. Before us, the learned counsel drew our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinarily commercial manner. Thus, it will include the cost incurred to bring the asset to the running condition. It was further submitted that expenses such as legal charges and stamp duty in the case of land, architect fees in case of building, wages and salary paid for installation of machinery and interest on borrowed capital used for purchase of machinery upto the date of installation thereof are capital expenses. From the above, it would transpire that any expenditure on putting up fixed asset will amount to the cost of fixed asset. It was also submitted that AS-10 regarding accounting for fixed assets issued by the ICAI specifies the components of cost of a fixed asset. Thus, the purchase price of an asset includes import duties, le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has incurred expenditure of ₹ 16,93,153/- in the pre5549- commencement period, which has been debited under 8 heads, the details of which have already been furnished. Prima facie all the expenses are revenue in nature. The assessee has not been able to link any of the expenditure with a particular fixed asset. However, its case is that in this period, it was only engaged in putting up fixed assets on rented land. Since the expenses were incurred for setting up fixed asset, they had to be capitalized. The assessee has capitalized the expenses in the ratio of the cost of the asset to the total cost, which is a reasonable basis. On the other hand, the of the learned DR is that in absence of any corelation of any expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, on which depreciation and development rebate are admissible. From this decision it can be said that if an expenditure which is otherwise of revenue in nature, has been incurred towards acquisition of a capital asset, it will be the cost of the asset provided it has been incurred upto the date of installation of the asset. However, it is also clear that there should a direct nexus between expenditure and putting up of the asset, which is missing in this case. Therefore, the ratio of this decision does not advance the case of the assessee. 4.4 In the case of CIT Vs. Lucas-TVS Limited ( No.2), (1977) 110 ITR 346, one of the questions before the court was whether, on the facts and in the circumstances of the case, it has been rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure necessary to bring such assets into existence and to put them in working condition. Therefore, the question was decided in favour of the assessee and against the revenue. Having considered the facts of the case, we are of the view that they are similar and, therefore, the ratio of this case is applicable. As the aforesaid decision directly covers the issue at hand, we do not think it necessary to go into the case of Sangroor Vanaspati Limited Vs. CIT (2007) 288 ITR 222 (Punjab Haryana). 4.6 In a nutshell, it is held that the expenses incurred by the assessee are required to be capitalized in the light of the decision in the case of Food Specialties Limited and Lucas-TVS Limited ( no.2) (supra). We are also of the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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