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TMI Blog2015 (11) TMI 1759X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to setting up of plant and machinery and the gains reduced from the expenses to be capitalized resulting in lesser capitalization to that extent. Our view is further supported by the decision of Hon’ble Supreme Court in the case of Challapally Sugar Ltd. (1974 (10) TMI 3 - SUPREME COURT). No infirmity in assessee’s claim for setting of gains on such forward contracts from the cost of plant and machinery during pre-commencement stage. With regard to unrecognized gain in forwarding contracts, we find that gain arising on forward contract is an unrealized gain on account of restatement of the liability at the year end. The said forward contracts were entered into in connection with the purchase of Turbines. The nature of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and considering the recurrence of similar issue in subsequent assessment years. Hence, delay of 314 days has occurred in filing the present appeal before the Tribunal, which may kindly be condoned. 3. We have gone through the application for condonation of delay and found that there is sufficient cause mentioned in the application for delay and considering the same, we condone the aforesaid delay and this appeal is heard on merits. 4. Rival contentions have been heard and record perused. Facts in brief are that assessee is a company engaged in the business of special purpose vehicle formed to facilitate the acquisition of land and complete preliminary formalities including the required statutory clearance for establishing the 4000 MW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny has capitalized all the expenses incurred in relation to setting up its plant and the gains on forward contracts were reduced from the expenses to be capitalized resulting in lesser capitalization to that extent. He further contended that during the process of installation of plant and machinery , the assessee has received amount which is inextricably linked with the plant and machinery, such receipts will goes to reduce the cost of assets. These receipts are capital in nature and cannot be taxed as income. For this proposition, he placed reliance on the decision of Hon ble Supreme Court in the case of Challapalli Sugars ltd. vs. CIT, [1975] 98 ITR 167 (SC) wherein it was held that expenses incurred in connection with the acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT in his order u/s 263 observed that the assessee has earned ₹ 62,91,30,554/- on account of cancellation of forwarding contracts entered in foreign exchange. This income earned has been reduced from the total financial charges debited in the accounts since the business of the assessee has not yet started. In the year under consideration following the ratio of Challapally Sugar Ltd., the CIT was not justified in holding that these gains arising from cancellation of forward contract in foreign exchange is to be assessed as income from other sources and taxed accordingly. The CIT was also incorrect in observing that these gains on cancellation of forward contract are pursuant to actual settlement and therefore, assessee was boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, the assessee company correctly capitalized all the expenses incurred in relation to setting up of plant and machinery and the gains reduced from the expenses to be capitalized resulting in lesser capitalization to that extent. Our view is further supported by the decision of Hon ble Supreme Court in the case of Challapally Sugar Ltd. (supra). Accordingly, we do not find any infirmity in assessee s claim for setting of gains on such forward contracts from the cost of plant and machinery during precommencement stage. With regard to unrecognized gain in forwarding contracts, we find that gain arising on forward contract is an unrealized gain on account of restatement of the liability at the year end. The said forward contracts w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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