1985 (12) TMI 85 - AT - Income Tax

Assessment Year, Capital Employed, Industrial Undertaking, Investment Allowance, Profits And Gains, Setting Up

Summary

Issues:
1. Treatment of preoperative project expenses under section 80J of the Income-tax Act, 1961.
2. Direction to admit the assessee's claim for investment allowance in respect of specific assessment years.

Analysis:

Issue 1: Treatment of preoperative project expenses under section 80J
The appeals in question dealt with the treatment of preoperative project expenses in relation to the capital employed for the purpose of relief under section 80J of the Income-tax Act, 1961. The department contended that these expenses should be treated as preliminary expenses under section 35D and not form part of the capital employed. On the contrary, the assessee argued that these expenses were incurred after the incorporation of the company and were essential for setting up the business, thus forming part of the capital employed. The Tribunal analyzed the contentions and observed that the preoperative project expenses were distinct from preliminary expenses under section 35D as they were capitalized and reflected in the balance sheet. Consequently, the Tribunal upheld the decision of the Commissioner (Appeals) that these expenses formed part of the capital employed for the purpose of section 80J.

Issue 2: Direction to admit the assessee's claim for investment allowance
The second ground of appeal focused on the direction given by the Commissioner (Appeals) to admit the assessee's claim for investment allowance in relation to specific assessment years. The department argued that the Commissioner (Appeals) exceeded his jurisdiction by directing the allowance for years not under consideration. Conversely, the assessee contended that the creation of reserves for investment allowance was in accordance with the provisions of section 32A(3) and (4) of the Income-tax Act. The Tribunal examined the relevant sections along with Circular No. 305 dated 12-6-1981 of the CBDT. It noted that investment allowance could only be allowed based on available profits in a particular year, with unabsorbed allowance carried forward to future years. The Tribunal agreed with the Commissioner (Appeals) that the creation of reserves for investment allowance aligned with the statutory requirements, leading to the dismissal of the appeals.

In conclusion, the Tribunal dismissed all three appeals, affirming the decisions of the Commissioner (Appeals) regarding the treatment of preoperative project expenses and the direction to admit the assessee's claim for investment allowance.