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TMI Blog2021 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... in law and on the facts and circumstances of the case, in deleting the addition of Rs. 14,28 ,530/- made by the AO on account of preferential allotment of shares treated as deemed dividend in the hands of the assessee company." 4. " Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 1,13 ,39,786/- made by the AO on account of unexplained income u/ s 68 of the IT Act." 3. Following grounds have been raised by the assessee: " 1. That the learned Commissioner of Income Tax (Appeals)-X, New Delhi has erred, both on facts and in law in confirming addition of Rs. 84 ,88 ,000 /- as unexplained income u/ s 68 of the Income Tax Act." 4. The assessee company is engaged in the business of manufacturing, processing and fabrication of readymade garments. The assessee company exports its products mainly to countries like United States of America. It also has a branch office at New York. Apart from the above business activity, the assessee has also shown other income under other heads of income. Disallowance of Depreciation: 5. The AO found that the pre-operative expenses have been factored in, the cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses are revenue in nature cannot be accepted as in the pre-operative stage, all the expenses are capitalized irrespective their nature in the general parlance. The revenue has not been able to bring any evidence on record that any of the expenditure was not related to the plant & machinery. It is an undisputed fact that the assessee has incurred expenditure of Rs. 29 ,22,016 /- in the pre commencement period. Even if all the expenses are revenue in nature, since the expenses were incurred for setting up fixed asset, they have to be capitalised. 11. Section 43(1) defines "actual cost" to mean actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. In the case of CIT Vs. Food Specialities Limited, (1982 )136 ITR 203 (Delhi), it was held that the Tribunal was right in holding that the expenditure of test runs was a capital expenditure. Therefore, expenses involved in purchase of milk and determining that the factory was in proper working condition and making adjustment does not seem to be anything more than steps in setting up and finalisation of the factory, which is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. CIT (supra) and CIT Vs. Hindustan Petroleum Corporation, 98 ITR 167, in which it has been held that accepted accountancy standard for determining cost of fixed assets is to include of expenditure necessary to bring such assets into existence and to put them in working condition. Therefore, the question was decided in favour of the assessee and against the revenue. Having considered the facts of the case, we are of the view that the present issue is similar and, therefore, the ratio of the above case is applicable. In the instant case, the revenue has nowhere brought on record that the expenses incurred are not related to the assets so as to deviate from the established rationes'. 14. Hence, keeping in view the facts of the case, provisions of Section 43(1 ), provisions of Section 32 and the judgments of the Hon' ble Supreme Court, we hereby decline to interfere with the order of the ld. CIT (A). Interest Income: 15. The Assessing Officer has added an amount of Rs. 39 ,60,000 /- being 12 % notional interest on the amount of loan extended of Rs. 3 .3 crores to the subsidiary company of the assessee. The AO held that the assessee has claimed finance expenses of Rs. 1.89 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the revenue on this ground is hereby dismissed. Deemed Dividend and Allotment of Shares: 18. As per the balance sheet, the assessee has received an amount of Rs. 2, 05,68,000 /- during the financial year 2005-06 as share application money, pending allotment. The balance sheet filed before the AO is as under: Particulars As at 31. 03.2007 (Rs.) As at 31. 03.2006 (Rs.) Schedule- I Share Capital Authorized 10000000 Equity Shares of Rs. 10 each (Previous year 10000000 equity shares of Rs. 10 each) 100,000, 000 100,000, 000 Issues, Subscribed and Paid up: 9900000 equity shares of Rs. 10 each fully paid up in cash (Previous year 8710000 equity shares of Rs. 10 each fully paid up) 99,000, 000 87, 100, 000 Share application money (Pending allotment including share premium money) - 20, 568, 000 Forfeiture Account (100000 Zero Coupon warrant @Rs. 1. 80 per warrant) (Previous Year NIL) 180, 000. 00 - Total 99,180, 000 107,668, 000 Schedule- II Reserves and Surplus Reserves: Capital Reserve: State Capital Subsidy 1, 000,000 1, 000,000 (A) 1, 000,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction 22. The ld. CIT (A) has deleted the addition on the grounds that the assessee has discharged the primary onus by furnishing copies of confirmations, address, amount of transaction, PAN etc. The ld. CIT (A) held that the AO has not done any job to prove that the transactions of the assessee are not genuine though the regular transactions have been conducted in the subsequent year too. 23. The ld. DR for the revenue pointed out that no reply was received from sundry creditors except two of them; hence addition in the hands of the assessee. He referred to the observation of the ld. CIT (A) in para 7.3 at page 38 and pointed out that the same were not correct. 24. The ld. AR for the assessee pointed out that list of creditors was of regular trade creditors. The revenue has not prove that the parties are not existing are bogus. 25. After hearing both the parties, it transpires that the list of creditors is on account of the purchases made by the assessee during the year and amount outstanding against them. The AO made addition on the grounds that the identity, genuineness and creditworthiness of the sundry creditors because the notices issued u/s 133 (6) have not been compli ..... 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