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TMI Blog2021 (9) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... ildings as the expenses were incurred during the time of construction of building in the form of hotel which was yet to commence. Section 32 of the Act allows depreciation on actual cost of the asset, which means the actual cost to the assessee. This cost should be construed in ordinarily commercial manner. AS-10 regarding accounting for fixed assets issued by the ICAI specifies the components of cost of a fixed asset. Purchase price of an asset includes import duties, levies, non-refundable taxes and any other cost directly attributable to the asset for bringing it to the working condition. The examples given in AS-10 are site preparation, initially delivery and handling cost, installation cost, such as laying foundations, and prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for deduction of a sum of ₹ 8,84,829 towards depreciation. The AO added a sum of ₹ 8,84,829/- being depreciation claimed on capitalisation of ₹ 88,48,290/- being pre-commencement rent and other expenditure incurred under various heads which were capitalized to the building as the same is incurred before the commencement of the operation of the Assessee. 3. The plea of the Assessee was that since the hotel work was still under construction, the same ought to be capitalized. The Assessee incurred various expenditure which are essential for starting a business like rent, salaries and other administrative expenses. The assessee capitalized the same to building as the same was incurred in relation to the asset coming into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) concurred with the view of the AO for the following reasons: 5.4.1 All the expenses incurred before the commencement of business cannot be capitalised. Generally any expenditure should be capitalised if its value is retained in the form of an asset. When any expenditure is incurred on services such as rent, salary and other utilities they do not become as asset because they don't have-any marketable item in exchange for their outlay. Only the services that increase the value of an asset e.g. construction or renovation of the building are capitalised. On the other hand depreciation is an expense to the cost of a capitalised asset overtime. The decay in assets value, which is predictable, is claimed as depreciation expenses. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very and handling cost, installation cost, such as laying foundations, and professional fees for architects and engineers. The preliminary project expenditure, indirect expenditure relating to construction and other indirect expenditure not related to construction have been included in the cost of the asset. Accordingly, the expenses are required to be capitalised and that the allocation has been made by the assessee on a reasonable basis in the ratio of cost of the asset to the total cost. Section 43(1) of the Act 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. 6. In the case of CIT Vs. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also clear that there should a direct nexus between expenditure and putting up of the asset. 8. In the case of CIT Vs. Lucas-TVS Limited (No. 2), (1977)110 ITR 346, one of the questions before the court was - whether, on the facts and in the circumstances of the case, it has been rightly held that the sum of ₹ 1,30,768/- representing indirect expenditure on salaries, rent, lighting, etc. and allocated to various assets formed part of the capital asset for the eligibility of depreciation allowance and in relation to the cost of the machinery was eligible for development rebate also? The facts of the case are that the assessee-company acquired land near Madras and erected buildings, plant and machinery etc. It also took on lease adjo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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