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Issues involved: The judgment addresses three questions referred by the Income-tax Appellate Tribunal regarding the treatment of certain expenditures u/s 32 and u/s 37 of the Income-tax Act, 1961.
Question 1 - Expenditure on foundation ceremony: The assessee claimed Rs. 27,385 spent on the foundation ceremony of the factory as part of the 'actual cost' for depreciation allowance u/s 32. The ITO rejected the claim, but the AAC and Tribunal upheld it. The court referred to precedents and held that such expenditure forms part of the actual cost of assets, making it eligible for depreciation allowance. Question 2 - Interest expenditure on bank overdraft: The assessee paid Rs. 5,52,936 as interest on a bank overdraft during construction, seeking to include it in the 'actual cost' for depreciation allowance u/s 32. The ITO disallowed it, but the AAC and Tribunal supported the claim. The court noted a Supreme Court decision and ruled in favor of the assessee based on precedent. Question 3 - Expenditure on inauguration ceremony: An expenditure of Rs. 38,792 for the inauguration ceremony of the factory was disallowed by the ITO u/s 37 of the Income-tax Act, 1961. However, the AAC and Tribunal allowed it as a legitimate business expense u/s 37(1). The court agreed with this view, considering it a deductible expense under the Act. The court answered all three questions in favor of the assessee, directing the Commissioner to pay the costs of the reference to the assessee.
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