GLASS LINES EQUIPMENTS CO LTD vs. COMMISSIONER OF INCOME-TAX

ITR/140/1986HC GujaratGJHC24010764198612 July 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA7 pages
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What were the facts?

The assessee, Glass Lines Equipments Co. Ltd., is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1974-75. The assessee capitalized expenditure of Rs. 10,25,050/- related to fabrication of its factory. The Income Tax Officer disallowed Rs. 3,45,563/-. The CIT(Appeals) allowed Rs. 1,39,995/- but rejected Rs. 1,69,218/-. The assessee withdrew a claim of Rs. 38,349/- via an affidavit. The ITAT confirmed the CIT(Appeals)'s order without independent findings. The High Court was asked to decide if the Tribunal was right in holding that Rs. 1,69,218/- was not part of the actual cost of the plant.

What did the High Court hold?

The High Court held that the Tribunal was not justified in law in holding that the expenditure, except for the item of depreciation, was not part of the actual cost of the plant. The Court found that the CIT(Appeals) and the Tribunal had misdirected themselves by not properly considering the affidavit filed by the Director. The affidavit contained a categorical averment that all other items of expenditure were relatable to setting up the plant, which remained uncontroverted. The Tribunal's order was silent on this part of the affidavit. Following the Supreme Court in *Mehta, Parikh & Co.*, if the deponent is not cross-examined, the statement in the affidavit cannot be disregarded. The CIT(Appeals) selectively accepted one part of the affidavit while ignoring the rest. The Court emphasized that a document must be read as a whole. Regarding depreciation (Rs. 53,957/-), the Tribunal held it cannot be capitalized as it's a notional allowance. The High Court agreed that an assessee cannot claim double benefit for depreciation. However, as the factual position regarding whether the assessee claimed depreciation on revenue account was uncertain, the Court directed the Tribunal to ascertain this fact. If depreciation was not claimed on revenue account, it could be capitalized. The question referred to the court was answered in the negative, in favor of the assessee, subject to the direction on depreciation.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure of Rs. 1,69,218/- was not part of the actual cost of the plant? Assessee's Contentions: - The Tribunal failed to apply its mind to the facts, including the Director's affidavit and written submissions before the CIT(Appeals). - Following the Supreme Court in *Challapalli Sugars Ltd. vs. Commissioner of Income Tax, A.P.*, expenditure incurred for construction and erection of a plant at the pre-commencement stage must be capitalized and added to the cost of fixed assets. - Relying on *Commissioner of Income Tax, Bombay City vs. Polychem Ltd.*, *Commissioner of Income Tax, Delhi vs. J.M.A.Industries Ltd.*, and *Commissioner of Income Tax vs. Standard Polygraph Machines Pvt.Ltd.*, the test should be what a contractor would incur on a turnkey project. - As per *Mehta Parikh & Co. vs. Commissioner of Income Tax, Bombay*, if an affidavit's contents are not disproved by cross-examination, revenue authorities cannot disregard its averments. The Allahabad High Court in *L.Shohan Lal Gupta vs. Commissioner of Income Tax, U.P., Lucknow* applied this ratio even when the assessee filed the affidavit. - The affidavit stated that all remaining expenditure was for setting up the plant, and this part remained uncontroverted, thus the CIT(Appeals) and Tribunal could not take a different view. Revenue's Contentions: - The judgment records no specific contentions for the Revenue regarding the Rs. 1,69,218/- expenditure. However, it notes the Revenue's submission that out of the total expenditure, depreciation of Rs. 53,957/- stood on a different footing.

Which sections of the Income-tax Act were involved?

Section 256(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 140 of 1986

For Approval and Signature:

Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements?

2.

To be referred to the Reporter or not? : YES

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO --------------

The order continues below.

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