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2021 (9) TMI 1086 - AT - Income TaxClaim of depreciation - AO added a sum being depreciation claimed on capitalisation being pre-commencement rent and other expenditure incurred under various heads which were capitalized to the building as the same is incurred before the commencement of the operation of the Assessee - plea of the Assessee was that since the hotel work was still under construction, the same ought to be capitalized - HELD THAT:- Expenditure that was capitalized were incurred prior to commencement of business when the hotel was under construction - Assessee capitalized the costs incurred prior to commencement of business to the capital asset buildings as the expenses were incurred during the time of construction of building in the form of hotel which was yet to commence. Section 32 of the Act allows depreciation on actual cost of the asset, which means the actual cost to the assessee. This cost should be construed in ordinarily commercial manner. AS-10 regarding "accounting for fixed assets" issued by the ICAI specifies the components of cost of a fixed asset. Purchase price of an asset includes import duties, levies, non-refundable taxes and any other cost directly attributable to the asset for bringing it to the working condition. The examples given in AS-10 are site preparation, initially delivery and handling cost, installation cost, such as laying foundations, and professional fees for architects and engineers. Preliminary project expenditure, indirect expenditure relating to construction and other indirect expenditure not related to construction have been included in the cost of the asset - The expenses are required to be capitalised and that the allocation has been made by the assessee on a reasonable basis in the ratio of cost of the asset to the total cost. Section 43(1) of the Act defines "actual cost" to mean actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. We accordingly hold that the expenses incurred by the assessee are required to be capitalised in the light of the decision in the case of Food Specialities Limited and Lucas-TVS Limited [1981 (3) TMI 38 - DELHI HIGH COURT]. We hold and direct accordingly and allow the appeal of the Assessee.
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