1975 (8) TMI 3

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..... xpenditure which should be added to the cost of construction of cement plant for purposes of depreciation and development rebate ? " The assessees herein is a limited company and we are concerned with assessment year 1961-62. The assessee-company was started with the main object of establishing and undertaking of manufacture of cement at Ranavav, near Porbandar, in Gujarat State. In the year of account relevant to the assessment year 1961-62, the assessee-company had not started cement production. The only business in the year of accounting was that of extraction of lime-stone, which is a raw material for manufacture of cement. In the year of account, the expenses for electric consumption had gone up from Rs. 3,032 for the immediately prec .....

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..... eing capital expenditure towards cost of erecting cement plant and should be added to such expenditure. The main grievance of the revenue before us is that the Tribunal has allowed the amount of Rs. 11,900 particularly being expenses for the consumption of electricity for test and trial as capital expenditure. It is clear that so far as the sum of Rs. 9,000 was concerned, that was the amount which was spent by the assessee-company for factory lighting and since the factory had not yet gone into actual production, these would be preliminary expenses. We find that the matter in controversy before us is concluded by the observations of the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. Khanna J., delivering the judgment o .....

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..... cepted accountancy rule as part of the cost of assets and this being the observation of the Supreme Court regarding the accepted accountancy rule, it is obvious that in the case before us, the amount of Rs. 11,900 which was required for test and trial was necessary for putting the plant in working condition. It is commonsense and matter of common knowledge that the test and trial of the plant has to be taken before the plant goes into actual production so that any defect in the plant and machinery can be detected at an early stage and can be rectified, and, without test and trial no plant can ever go into actual regular production. Under these circumstances, the amount of Rs. 11,900 incurred for test and trial can properly be considered as .....

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