9911796707
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Issues:
1. Refusal to refer a question of law under section 256(1) of the Income-tax Act, 1961 to the High Court. 2. Disallowance of pre-operative expenses for capitalization towards building, plant, and machinery. 3. Disagreement on the relatability of expenses to the erection of building and installation of plant and machinery. 4. Interpretation of the principles for determining the cost of fixed assets. Analysis: The judgment pertains to an application under section 256(1) of the Income-tax Act where the Tribunal refused to refer a question of law to the High Court. The dispute arose from the disallowance of pre-operative expenses claimed by an assessee company for capitalization towards building, plant, and machinery. Initially, the Income-tax Officer allowed a part of the expenses but disallowed a portion, stating they were not directly related to the erection of building and installation of plant and machinery. The Commissioner of Income-tax (Appeals) further disallowed percentages of various expense categories based on examination. The Tribunal, however, allowed the full claim for capitalization, leading to the application under section 256(1) by the Revenue, which was dismissed by the Tribunal. The crux of the issue lies in determining the relatability of expenses to the assets' creation. The Revenue contended that certain expenses were not directly linked to the building and machinery erection. On the other hand, the assessee argued that determining such relatability is a factual matter, not a legal question. The judgment discusses various expense categories and the percentage of disallowances made by the Commissioner of Income-tax (Appeals) based on their relation to asset creation. The court highlighted that the question of relatability involves factual ascertainment and the application of correct legal principles, making it a mixed question of fact and law. The judgment delves into legal precedents, citing cases like CIT v. Greaves Cotton and Co. Ltd. and Oriental Investment Co. Ltd. v. CIT to emphasize the mixed nature of such questions. It underscores the need to ascertain whether each expense was necessary for asset creation, following accepted accountancy rules. The Tribunal's failure to adequately address each expenditure item's necessity for asset creation led the court to direct the Tribunal to refer two questions of law for the High Court's opinion. These questions revolve around the validity of the Tribunal's findings on the capitalization of pre-operative expenses and the direct relation of such expenses to the building and machinery erection. In conclusion, the judgment underscores the importance of factual analysis and legal principles in determining the capitalization of expenses related to asset creation. It highlights the need for a thorough examination of each expense item's necessity for asset creation and emphasizes the mixed nature of questions regarding expense relatability to asset creation.
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