AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (4) TMI 784
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....iled a computer generated sheet wherein an amount of Rs. 78,03,930/- was shown as incurred during the year and the balance of Rs. 3,15,75,394/- was found to be incurred prior to the date of production. Further, the assessee vide letter dated 7.11.2006 has submitted before the Assessing Officer as under; "The company was set up for manufacturing of 60,00,000 meters of yard dyed shirting fabric and started its commercial production on 8th April 2003. During implementation of the project, the company entered into an agreement with Werner International USA, a reported Textile Consultant firm specialized in recruitment and trading of workers. Accordingly, Werner International deputed their consultants from the USA and other countries along with Indian Consultants who did study on requirement of staff, made workers available, selected about 250 workers by applying special test and training them for achieving required quality parameters and quantity. The company had incurred expenses of Rs. 3,93,79,324/- on such training of this an amount of Rs. 3,15,75,394/- was incurred prior to the date of production and Rs. 78,03,930/- was incurred after commencement of the pro....
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....s 32 of the I T Act. 3. The CIT(A) was also not convinced with the explanation given by the assessee. He noted that the assessee has commenced its business on 8th April 2003 and filed its return of income for the first time for Assessment Year 2004-05 declaring loss of Rs. 5,04,31,520/-. From the various details filed by the assessee, he noted that an amount of Rs. 3,15,32,505/- was incurred between the period 1.4.2002 to 31.3.2003 and another amount of Rs. 6,51,089/- was incurred between the period 1.4.2003 to 76.4.2003. The balance amount was incurred from 8.4.2003 to 31.3.2004. The amount has been paid to M/s Werner International, USA for training. He noted that the expenditure was not incurred during the year and the expenditure was crystallized in the earlier year. Since the amount of Rs.3,15,75,394/- was incurred in earlier year; therefore, the same cannot be allowed as revenue expenditure for the current year. According to him, it is trite law that only the expenditure of the year is allowable during the year against the income of the year. He also rejected the alternate contention taken by the assessee that if the expenditure is not allowed as revenue expenditure th....
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....d in law, the provisions of sec 40(a) have not been complied with by the assessee. 6. The ld counsel for the assessee submitted that although part of the expenditure was incurred prior to commencement; however, since the business commenced only during the year; therefore, the entire expenditure should be allowed as revenue expenditure during the year. 6.1 In his alternate contention, he submitted that depreciation on this expenditure should be allowed, if the same is treated as capital in nature. He submitted that the assessee has capitalized the other expenditure in the ratio of the cost of the assets; therefore, the same formula may be applied for capitalization of training expenditure. He submitted that it is relatable to the plant and machinery; therefore, the same should be allocated to plant and machinery. 6.2 Referring to the decision of the Hon'ble Delhi High Court in the case of Shriram Refrigeration Industries Ltd vs CIT reported in 127 ITR 746, he submitted that in the light of the decision of the Hon'ble Delhi High Court, the entire expenditure should be allowed in the Assessment Year 2004-5 even though the same has been incurred during the Asses....
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....he said decision has held that foreign tour expenditure incurred by officers of the assessee company for purchase of capital asset and study of diffuser making has to be capitalized for the purpose of depreciation and development rebate. He accordingly submitted that the entire expenditure should be allowed as revenue expenditure or alternatively, the assessee should be entitled to depreciation. 6.8 The ld DR, on the other hand strongly relied on the orders of the Assessing Officer and the CIT(A. Relying on the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd vs CIT reported in 227 ITR 172 and the decisions reported in 158 ITR 25 and in the case of Orient Cosmetics Ltd v DCIT reported in 74 ITD 135 she submitted that the same cannot be allowed as revenue expenditure. Referring to the decision of the Hon'ble Delhi High Court in the case of Shriram Refrigeration Industries Ltd (supra), she submitted that the same was rendered prior to the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd (supra); therefore, the same cannot be relied upon. 6.9 As regard the alternate contention....
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....ure apart from allowing the amount of Rs. 71,95,730/- incurred by the assessee after commencement of the business i.e. during the Assessment Year. It is the submission of the ld counsel for the assessee that the amount of Rs. 3,15,32,505 should have been allowed as revenue expenditure. Alternatively, the same should have been capitalized and depreciation should have been allowed. It is the case of the revenue that since the amount was incurred prior to the commencement of the business and since it is not relevant to this year; therefore, the same cannot be allowed during the year. Further, according to the Assessing Officer, depreciation u/s 32(1) of the act can be allowed on tangible and in-tangible assets. However, since the expenditure incurred by the assessee has not created any assets; therefore, no depreciation can be allowed. We find the CIT(A) rejected the claim of the revenue expenditure. He even rejected the alternate contention of the assessee regarding allowance of depreciation on the ground that the assessee had not furnished the complete details of expenditure incurred with evidence for which the Assessing Officer had no occasion to examine the genuineness of the paym....
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....to grant depreciation and development rebate of Rs. 34 lacs. The AAC, following the decision of the Calcutta High Court in the case of CIT vs Standard Vacum Refining Co of India ltd reported in 61 ITR 799 came to the conclusion that the expenses amounting to Rs. 22 lacs are liable to be excluded from the cost of the assets for the purposes of deprecation and development rebate. 8.1 Before the Tribunal, it was argued that all these expenses related to preproduction stages of Sahu Chemicals L:td factory and that in view of the several authoritative opinions in standard books on accountancy, these amounts should be treated as forming part of the cost of the assets. It was contended that all those expenses really formed a part of the cost of assets as they were all incurred for the only purpose of creating and putting up the plant. There could not be and there was no other purpose in incurring the expenditure in question. The Tribunal, on the basis of the arguments advanced by both the parties held that every item of capital expenditure is not by itself, eligible for deprecation and development rebate though it is to be otherwise capitalized. However, under the facts and circum....