Law:

Section:

Section 43(1) of the Income-tax Act, 1961 - Actual cost - Assessment year 1975-76 - Whether it is not all expenditure which have been incurred before commencement of production that is allowed to be capitalised but only such expenses as are necessary to bring plant and machinery into existence and to put them in working order that can be considered to be proper for being capitalized - Held, yes - Whether, moreover, actual cost of a particular asset is a question of fact - Held, yes - Whether, in view of aforesaid legal position, where Tribunal on basis of material on record, came to conclusion that out of total amount claimed by assessee only a certain portion of it was eligible for capitalization and formed part of actual cost of assets elegible for depreciation, development rebate etc., said finding of Tribunal could not be said to be erroneous or otherwise infirm - Held, yes FACTS The assessee-company started a business of manufacturing alcoholic liquors and established a distillery. The first purchase of raw materials for the distillery was made on 23-4-1974, and the first distillation was done on 21-5-1974. The assessee claimed that it had engaged in the business of promoting this object from July 1971, onwards and from that date up to 23-4-1974, the company incurred an expenditure of Rs. 2,79,847 and claimed it as preliminary expenditure to be capitalized for the purpose of claiming depreciation, development rebate, etc. The ITO allowed only an amount of Rs. 1,65,707 to be capitalized. On appeal the AAC directed the ITO to include further amounts in actual cost. On appeal by the revenue the Tribunal held that it was only such expenses as were necessary to bring the plant and machinery into existence and to put them in working order that could be considered to be proper for being capitalized. The Tribunal, therefore, restored the order of the ITO. On reference : HELD It is not all expenditure which have been incurred before the commencement of production that are allowed to be capitalized. Only such expenses as are necessary to bring the plant and machinery into existence and to put them in working order that can be considered to be proper for being…

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