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TMI Blog1991 (7) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... lding and installation of plant and machinery and as such no part of it can be disallowed from being capitalised for purposes of depreciation and investment allowance ?" The Revenue has filed the application under section 256(2) of the Income-tax Act praying that the Tribunal be asked to draw up a statement and refer the aforesaid question of law for its opinion to this court. For the assessment year 1975-76, in its return, the assessee-company claimed pre-operative expenses for capitalisation towards building, plant and machinery and the Income-tax Officer, the assessing authority, allowed a part of the expenses out of the total claim of the assessee and part of the claim was disallowed for capitalisation holding that they were not dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Power, salary, wages and bonus allowances, ESI, PF, etc., rent, electricity charges, postage, telegram, telephone and telex 25 % of the claim 5. Store material consumed, insurance, interest and commission charges, guarantee commission, RC charges, repairs and maintenance, architect fees. Nil ------------------------------------------------------------------------------------------------------------------------------------------------ The assessee filed an appeal before the Income-tax Appellate Tribunal and the Tribunal, by its order dated August 19, 1988, allowed the claim of the assessee for capitalisation in full, As said earlier, an application under section 256(1) of the Income-tax Act was filed and it was dismissed by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting fees and they have been disallowed to the extent of 50%. Item No. 4 is in respect of power, salary, wages and bonus allowances, ESI, PF, etc., rent, electricity charges, postage, telegram and telex and they were disallowed to the extent of 25% and Item No. 5 is in respect of stores material consumed, insurance, interest and commission charges, guarantee commission, RC charges, repairs and maintenance and architect fees and they were allowed in full. The question is whether these expenses incurred were directly relatable to the erection of building and installation of plant and machinery and were necessary to be incurred to bring the assets into existence. In the first place, it involves ascertainment of facts and in the second place, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined, and it should be construed in the sense which no commercial man would misunderstand. For this purpose, it would be necessary to ascertain the connotation of the expression in accordance with the normal rules of accountancy prevailing in commerce and industry. The accepted accountancy rule for determining cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing fees of directors, and routine filing fees and certain administrative expenses." It will, therefore, be clear that the Tribunal, in its order, has not dealt with each and every item of the expenditure which it was required to deal with and then to arrive at a finding of fact whether and if so, to what extent, the expenditure was necessary to bring the assets into existence and to put them in working condition. As said earlier, it was the duty of the Tribunal first to determine by reference to each item of the expenditure that it was necessary to be incurred to bring the assets into existence and then to apply the proper law as enunciated by the Supreme Court in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. We are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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