1981 (1) TMI 57 - HC - Income Tax

Dispute over plant/machinery expenses resolved in favor of assessee, expenses deemed relevant for asset creation.

The case involved a dispute over whether certain expenses, including foreign travel costs and auditor fees, could be included in the actual cost of plant ... Actual Cost, Depreciation Issues involved: Whether expenditure on foreign tours by managing director and technical adviser, along with fees paid to the auditor, could be included in the actual cost of plant and machinery for the purpose of allowing depreciation for assessment years 1961-62, 1963-64, 1964-65, and 1965-66.Summary:The case involved a consolidated reference for four assessment years concerning M/s. J. M. A. Industries Ltd., Delhi, a company engaged in manufacturing auto parts. The dispute arose over the allocation of expenses incurred before the commencement of commercial production, including foreign travel expenses and auditor fees, towards the cost of plant and machinery. The Income Tax Officer (ITO) initially excluded certain expenses, leading to appeals and subsequent Tribunal involvement.The Appellate Tribunal upheld the inclusion of most expenses in the cost of assets, citing the company's allocation method and adherence to accounting principles. The Tribunal reasoned that the expenditure related to assets in the process of installation should be considered part of the actual cost. This decision was supported by precedents from the Bombay and Calcutta High Courts.The Tribunal's conclusion was deemed justified based on the Supreme Court's ruling in Challapalli Sugars Ltd. v. CIT, which emphasized including all necessary expenditure to bring assets into existence. The Tribunal's findings on the reasonableness of expense allocation and relevance to business purposes were upheld, with the court ruling in favor of the assessee and ordering the department to cover costs.In summary, the judgment affirmed the Tribunal's decision to include the disputed expenses in the actual cost of assets for depreciation purposes, aligning with established accounting principles and legal precedents.