1980 (3) TMI 121 - AT - Income Tax

Summary

Issues: Revenue appeal against AAC order for asst. yr. 1974-75, Deduction of purchase price of Rosin and Purchase tax, Liability accrual timing, Development rebate and depreciation on capitalised expenses.

Deduction of Purchase Price and Purchase Tax:
The case involved an appeal by the Revenue against the AAC order for the assessment year 1974-75. The primary issue was the deduction of a substantial sum of Rs. 24,99,176 from the taxable income, representing the purchase price of Rosin and the associated Purchase tax. The assessee contended that this amount should be deducted in arriving at the total taxable income for the year. The Revenue, however, argued that the liability did not accrue during the relevant year as the final decision on pricing was communicated after the accounting year. The AAC sided with the assessee, emphasizing that the liability should relate to the transaction within the accounting year, regardless of the formal communication timing. The Tribunal upheld the AAC's decision, noting that the communication of the final price had effectively taken place during a meeting within the relevant accounting year, allowing for the deduction.

Development Rebate and Depreciation on Capitalised Expenses:
Another issue raised by the Revenue pertained to the development rebate and depreciation on capitalised expenses amounting to Rs. 1,29,853. The ITO had excluded this amount from the Gross value of machinery for depreciation and development rebate calculations, arguing that it did not contribute to the cost of the machinery. The AAC disagreed with the ITO, directing the allowance of depreciation and development rebate on the capitalised expenses. The Tribunal concurred with the AAC, citing established legal principles that the term 'cost' includes expenses genuinely incurred for acquiring an asset. Relying on Supreme Court and High Court decisions, the Tribunal upheld the inclusion of the capitalised expenses in the cost of machinery for depreciation and development rebate calculations.

Conclusion:
Ultimately, the Tribunal dismissed the Revenue's appeal and the assessee's cross objection. The decision highlighted the importance of recognizing liabilities related to transactions within the relevant accounting year for tax deduction purposes and reiterated the principles governing the inclusion of genuinely incurred expenses in the cost of assets for depreciation and development rebate calculations, as established by precedent cases.