Pre-production expenditure treated as part of plant cost and capital employed, supporting depreciation, rebate, and section 80J relief.

Pre-production expenditure on interest on loans, commitment charges, and legal and professional fees was treated as part of the actual cost of plant and machinery for depreciation allowance and development rebate, following the Supreme Court ruling in Challapalli Sugars Ltd. That same expenditure was also treated as part of the capital employed in the industrial undertaking for section 80J relief, as a consequential result of the first conclusion. The question was answered in favour of the assessee.

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Issues: Whether pre-production expenditure incurred by the assessee-company by way of interest on loans, commitment charges, and legal and professional charges formed part of the actual cost of plant and machinery for depreciation allowance and development rebate, and whether the same expenditure formed part of the capital employed in the industrial undertaking for section 80J relief.

Analysis: The first part of the question was covered by the Supreme Court decision in Challapalli Sugars Ltd. v. CIT, which treated such pre-production expenditure as part of the actual cost of plant and machinery for depreciation and development rebate. The second part was accepted as consequential to the first.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

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