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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 ..... the assessee has incurred expenditure of ₹ 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. 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 capital asset. After tests have been carried out, it can be said that the factory had been set up and it is ready for commercial production. Therefore, the expenses can be said to have been incurred as cost of the plant and machinery. In the case of Challapalli Sugars Limited [ 1974 (10) TMI 3 - SUPREME COURT] it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earlier assessment year 2006 -07 . The AO has mentioned (page 8 of AO) that the amounts have been introduced in the earlier year but went ahead making variation u/s 68 during the instant year. Hence, the addition made by the Assessing Office u/s 68 in the assessment year 2007-08 of the monies received in the earlier assessment year 2006-07 is liable to be quashed. Appeal of the revenue on this ground is allowed. Addition of sundry creditors - sundry creditors have not complied to the notices issued u/ s 133(6 ) - HELD THAT:- List of creditors is on account of the purchases made by the assessee during the year and amount outstanding against them. 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 complied with. The notices have been duly received by the parties and their failure to reply cannot be attributed as a cause of default by the assessee. The fact that the notices have been duly served demonstrate the existence of the parties - the assessee has been continuously dealing with these parties in subsequent years which could have been verified by the AO as the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case, in deleting the addition of ₹ 39,60 ,000/- made by the AO on account of interest income deemed as income from other sources. 3. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of ₹ 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 ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. Thus, the purchase price of an asset includes import duties, levies and any other cost directly attributable to the asset for bringing it to the working condition. The contention of the learned DR referring to the findings of the Assessing Officer that these expenses 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 ₹ 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses amounting to BB were in no way connected with installation of assets. Therefore, he excluded this amount and recomputed the cost of assets. The Honourable Court held that the question is covered by the decision of Supreme Court in the case of Challapalli Sugars Limited 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Capital Subsidy 1, 000,000 1, 000,000 (A) 1, 000,000 1, 000,000 Surplus: Share Premium Account 24 , 000, 000 15 , 512, 000 Profit and Loss Account 257 , 666 , 720 246 , 625 , 993 (B) 281 , 666 , 720 262 , 137 , 993 Total (A+B) 282 , 666 , 720 263 , 137 , 993 17. We have examined the balance sheet and found that the assessee has got paid up capital of ₹ 8 .7 crores for the year ending 31.03 .2006 and ₹ 9 .9 crores for the year ending 31.03.2007. Further, the reserves surplus of the assessee varied between ₹ 26 .3 crores to ₹ 28 .2 crores for the two years. Since, the assessee has indisputably been proven to be hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve: State Capital Subsidy 1, 000,000 1, 000,000 (A) 1, 000,000 1, 000,000 Surplus: Share Premium Account 24 , 000, 000 15 , 512, 000 Profit and Loss Account 257 , 666 , 720 246 , 625 , 993 (B) 281 , 666 , 720 262 , 137 , 993 Total (A+B) 282 , 666 , 720 263 , 137 , 993 19. From the above, it is clear that the share application money was received in the earlier assessment year 2006 -07 . The AO has mentioned (page 8 of AO) that the amounts have been introduced in the earlier year but went ahead making variation u/s 68 during the instant year. Hence, the addition made by the Assessing Office u/s 68 in the assessment year 2007-08 of the monie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial No. 11 have complied to the notice. When the Assessing Officer queried the assessee about the non- compliance, the assessee has submitted that they have provided the correct address of the parties and mere non-compliance from a third party cannot form the basis of addition in the assessee s case. Then the AO proceeded to make addition of the amount being shown as the outstanding sundry creditors u/s 68. While making the addition, the AO held that the assessee has not discharged the onus to prove, 1. Identity of the creditor 2. Capacity of the creditor 3. Genuineness of the transaction 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. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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