M/S ALPHA TOYO LTD. FDABAD vs. C.I.T RTK

ITR/109/1992HC Punjab & HaryanaPHHC01021946199227 October 2006Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE RAJESH BINDAL3 pages
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What did the High Court hold?

The High Court held that the Tribunal was not justified in rejecting the assessee's application for admission of additional grounds. Citing Supreme Court judgments in Jute Corporation of India Limited and National Thermal Power Co. Limited, the Court stated that additional grounds can be allowed if bona fide and for good reasons. The Court found the additional ground raised by the assessee to be bona fide, especially in light of the reasoning for the second issue. Regarding the second issue, the Court followed its own prior decision in CIT v. Punjab Tractors Limited, which in turn relied on the Supreme Court's ruling in Challapalli Sugar Limited. The principle established is that expenditure necessary to bring an asset into existence and put it in working condition, including interest on borrowed money incurred before production, can be capitalized and added to the cost of fixed assets. The Court also noted that Explanation 8 to Section 43 was not attracted when interest was part of the cost under the IDBI scheme, not paid as a separate charge. The question was answered in favour of the assessee. The reference was disposed of accordingly.

What were the facts?

The assessee, M/s Alpha Toyo Limited, Faridabad, is in appeal before the High Court of Punjab and Haryana at Chandigarh, arising from an order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench. The assessment year in question is 1984-85. The dispute concerns the disallowance of Rs. 2,58,900/- by the Assessing Officer and CIT(A), representing the interest component in instalments paid to IDBI under its Rediscounting Scheme. This exclusion from the cost of plant and machinery led to consequential disallowances of depreciation, investment allowance, and additional depreciation. The assessee had sought to raise an additional ground before the ITAT to challenge this exclusion, which was rejected.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee’s application for admission of additional grounds? (Question of law and fact, concerning procedural fairness before the ITAT). 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of interest paid/payable by the assessee to the Industrial Development Bank of India under IDBI Rediscounting Scheme was not includible in the cost of plant and machinery for purposes of allowance of depreciation, investment allowance and additional depreciation? (Question of law and fact, concerning the computation of actual cost of assets under Section 43(1) of the Income-tax Act, 1961). Assessee's contentions: The assessee argued that the additional ground raised before the ITAT was bona fide and should have been admitted. For the second issue, the assessee contended that the interest component was an integral part of the cost of acquiring the plant and machinery and should be capitalised. Revenue's contentions: The revenue contended that the additional ground was rightly rejected as the assessee had previously given up the ground before the CIT(A) and also relied on Explanation 8 to Section 43 of the Act. For the second issue, the revenue supported the exclusion of interest from the cost of machinery.

Which sections of the Income-tax Act were involved?

Section 43(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.R. No.109 of 1992 Date of decision: 27.10.2006 M/s Alpha Toyo Limited, Faridabad. ---Applicant Vs. The Commissioner of Income Tax, Rohtak. -----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MR JUSTICE AJAY KUMAR MITTAL Present: Mr. Yogesh Putney, Advocate for the revenue. -----

ORDER: This reference has been made at the instance of the assessee by the Income Tax Appellate Tribunal, Delhi Bench ‘E’, Delhi arising out of its order dated 28.11.1990 in I.T.A. No.3455(Del)/1987 for the assessment year 1984-85 referring following questions of law for opinion of this Court:- “1. Whether on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee’s application for admission of additional grounds?

2.

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of interest paid/payable by the assessee to the Industrial Development Bank of India under IDBI Rediscounting Scheme was not includible in the cost of plant and machinery for purposes of allowance of depreciation, investment allowance and additional depreciation?” The

The order continues below.

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