Challapalli Sugars Ltd. v. CIT

98 ITR 167Supreme Court of India1975#514 most cited

What is Challapalli Sugars Ltd. v. CIT authority for?

Interest on borrowed capital utilized for acquiring a capital asset is capitalized until business commences. Once business is set up, this interest is deductible under section 36(1)(iii) even if the asset has not yet been put to use, accepting commercial accounting standards in the absence of contrary statutory provisions.

185

judgments rely on this decision, according to BharatTax’s citation analysis of 366,470 Indian tax judgments — from 2007 to 2026.

Also referred to as

Challapalli Sugars Ltd. v. CIT · 98 ITR 167 · Section 36(1)(iii) · Section 32 · capitalization of interest · actual cost · borrowed capital · commencement of business · asset put to use · deductibility of interest · accounting standards · mercantile system

Also reported as

3 SCC 572

Sections most often in play

Section 37(1)Section 115JBSection 234ASection 250Section 40A(2)(b)Section 43BSection 139(1)Section 143(3)

Issues it is cited on

section 10(5)section 32(1)(iia)section 32(1)demergeradditional depreciationright to receivesection 92bsection 32section 22section 57put to usemercantile system of accounting

Judgments citing Challapalli Sugars Ltd. v. CIT

Deputy Commissioner of Income Tax, Circle - 2, Dibrugarh vs. M/S. Brahmaputra Cracker & Polymer Ltd., Dibrugarh

In the result, all the appeals of the revenue are dismissed and all the appeals of the assessee are allowed

ITA 89/GTY/2018[2011-12]Status: DisposedITAT Guwahati22 Oct 2020AY 2011-12

Bench: Shri A. T. Varkey, Jm & Dr. A. L. Saini, Am]

…commercial activity has started and only from February, 2016, the project has been set up and commenced operation only from AY 2016-17, so up to AY 2015-16 no P&L Account was prepared by the assessee. We note that in the case of Chellapali Sugars ltd. Vs. CIT 98 ITR 167 the Hon’ble Supreme Court examined the question whether interest paid before the commencement of production by a company on amount borrowed for the acquisition and installation of plant and machinery would form part of the actual cost of the asset to the assessee within the meaning of expression of section 10(5) of the Income Tax Act, 1922 and whe…

DCIT, New Delhi vs. M/S Samtex Fashions Ltd., New Delhi

In the result, the appeal of the revenue is partly allowed and the appeal of the assessee is allowed

ITA 2810/DEL/2010[2007-08]Status: DisposedITAT Delhi19 Oct 2020AY 2007-08

Bench: Ms. Sushma Chowladr. B. R. R. Kumarita No. 2810/Del/2010 : Asstt. Year : 2007-08 Addl. Cit, Vs Samtex Fashions Ltd., Range -7, G- 321, Chirag Delhi New Delhi New Delhi (Appellant) (Respondent) Pan No. Aabcs3233M

For Appellant: Sh. Salil Kapoor, AdvFor Respondent: Dr. Anjula Jain, Sr. DR
Section 32Section 68

…ages of workers have been capitalized and depreciation @ 7.5% is claimed on the pre-operative expenses as the capitalization was made in the month of March 2007. He relied on the judgment of the Hon’ble Apex Court in the case of Challapalli Sugars Ltd. Vs CIT 98 ITR 167. 9. Heard the arguments of both the parties and perused the material available on record. 10. Coming to the legal issue, it was submitted that depreciation u/s 32 of the Act is allowed on actual cost of the asset, which means the actual cost to the assessee. This cost should be construed in ordinarily commercial manner. Thus, it will include the…

M/S. Samtex Fashions Ltd., New Delhi vs. ACIT, New Delhi

In the result, the appeal of the revenue is partly allowed and the appeal of the assessee is allowed

ITA 2556/DEL/2010[2007-08]Status: DisposedITAT Delhi19 Oct 2020AY 2007-08

Bench: Ms. Sushma Chowladr. B. R. R. Kumarita No. 2810/Del/2010 : Asstt. Year : 2007-08 Addl. Cit, Vs Samtex Fashions Ltd., Range -7, G- 321, Chirag Delhi New Delhi New Delhi (Appellant) (Respondent) Pan No. Aabcs3233M

For Appellant: Sh. Salil Kapoor, AdvFor Respondent: Dr. Anjula Jain, Sr. DR
Section 32Section 68

…ages of workers have been capitalized and depreciation @ 7.5% is claimed on the pre-operative expenses as the capitalization was made in the month of March 2007. He relied on the judgment of the Hon’ble Apex Court in the case of Challapalli Sugars Ltd. Vs CIT 98 ITR 167. 9. Heard the arguments of both the parties and perused the material available on record. 10. Coming to the legal issue, it was submitted that depreciation u/s 32 of the Act is allowed on actual cost of the asset, which means the actual cost to the assessee. This cost should be construed in ordinarily commercial manner. Thus, it will include the…

Milan Kumar Aggarwal(HUF), Gurugram vs. ITO, Ward-2(5), Gurugram

The appeal of the Revenue is dismissed

ITA 2984/DEL/2018[2014-15]Status: PendingITAT Delhi27 Aug 2020AY 2014-15

Bench: Shri R. K. Panda & Ms Suchitra Kamblem/S Triumph Realty (P) Ltd. Vs Ito The Grand Hotel Ward-25(4) Gate No.4, Plot No-2 New Delhi Nelson Mandela Road, Vasant Kunj, Phase-Ii New Delhi-110070 (Respondent) Pan: Aacct8092L (Appellant)

Section 56

…en added to the preoperative expenditure pending capitalization, i.e. in capital WIP. There is no quarrel that the interest paid on ECB loan has been capitalized. Way back in the year 1974, Hon’ble Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT, 98 ITR 167 (SC) had examined the question whether interest paid before commencement of production by a company on the amount borrowed for acquisition, installation of plant and machinery would form part of actual cost of the asset, assessee will be entitled to depreciation allowance and development rebate with reference to such interest also. Their Lordships…

Road Infrastructure Development Company of Rajasthan Ltd, Jaipur vs. Assistant Commissioner of Income Tax, Circle-6, Jaipur

ITA 670/JPR/2019[2013-14]Status: DisposedITAT Jaipur31 Jul 2020AY 2013-14
For Appellant: Shri P.P. Pareek (C.A.)For Respondent: Shri K.C. Gupta (JCIT)
Section 14ASection 244ASection 35D

…struction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in sub- sections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it c…

Road Infrastructure Development Company of Rajasthan Ltd, Jaipur vs. Assistant Commissioner of Income Tax, Circle-6, Jaipur

ITA 669/JPR/2019[2012-13]Status: DisposedITAT Jaipur31 Jul 2020AY 2012-13
For Appellant: Shri P.P. Pareek (C.A.)For Respondent: Shri K.C. Gupta (JCIT)
Section 14ASection 244ASection 35D

…struction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in sub- sections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it c…

Road Infrastructure Development Company of Rajasthan Ltd, Jaipur vs. Assistant Commissioner of Income Tax, Circle-6, Jaipur

ITA 668/JPR/2019[2011-12]Status: DisposedITAT Jaipur31 Jul 2020AY 2011-12
For Appellant: Shri P.P. Pareek (C.A.)For Respondent: Shri K.C. Gupta (JCIT)
Section 14ASection 244ASection 35D

…struction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in sub- sections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it c…

Hazaribag Ranchi Expressway Ltd, Mumbai vs. ITO 14(2)(1), Mumbai

In the result, appeal filed by the assessee is partly allowed

ITA 6696/MUM/2017[2012-13]Status: DisposedITAT Mumbai22 Jan 2020AY 2012-13

Bench: Shri G. Manjunatha & Shri Ram Lal Negihazaribagh Ranchi Vs. Ito-14(2)(1) 4Th Floor, Expressway Ltd. The Il&Fs Financial Center Aaykar Bhawan Plot No.C-22, G Block M.K.Road Bkc, Bandra(E) Mumbai-400 020 Mumbai-400 051 Pan/Gir No.Aacch2490J Appellant) .. Respondent)

Section 234BSection 56(1)

…IN THE INCOME TAX APPELLATE TRIBUNAL “H”, BENCH MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER Hazaribagh Ranchi Vs. ITO-14(2)(1) 4th Floor, Expressway Ltd. The IL&FS Financial Center Aaykar Bhawan Plot No.C-22, G Block M.K.Road BKC, Bandra(E) Mumbai-400 020 Mumbai-400 051 PAN/GIR No.AACCH2490J Appellant) .. Respondent) Revenue by Shri Sachchidanand Dube, DR Assessee by Shri Sandeep Bhalla & Ms. Niti Agarwal, AR’s Date of Hearing 06/01/2020 Date of Pronouncement 22/01/2020 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M): This appeal filed by the assessee is…

ITO, New Delhi vs. M/S Triumph Realty Pvt. Ltd., New Delhi

In the result, the appeal is dismissed

ITA 6597/DEL/2016[2012-13]Status: DisposedITAT Delhi29 Nov 2019AY 2012-13

Bench: : Shri Amit Shukla & Shri A.N. Mishraassessment Year: 2012-13

Section 143(3)

…en added to the preoperative expenditure pending capitalization, i.e. in capital WIP. There is no quarrel that the interest paid on ECB loan has been capitalized. Way back in the year 1974, Hon’ble Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT, 98 ITR 167 (SC) had examined the question whether interest paid before commencement of production by a company on the amount borrowed for acquisition, installation of plant and machinery would form part of actual cost of the asset, assessee will be entitled to depreciation allowance and development rebate with reference to such interest also. Their Lordships…

DCIT, New Delhi vs. M/S Ircon International Ltd., New Delhi

In the result, all the three appeals of the assessee for A

ITA 3805/DEL/2008[2003-04]Status: DisposedITAT Delhi31 Oct 2019AY 2003-04

Bench: : Shri Bhavnesh Saini & Shri O.P. Kant

Section 80HSection 80I

…to us. 16.8 In the past, Courts have applied rules and principles of accountancy where words and expressions used in the Act have not been given a definitive meaning. The Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) was called upon to interpret the meaning of the expression 'Actual cost' for the purposes of determining the justifiability of the assessee's claim for depreciation and development rebate under the Indian IT Act, 1961. The assessee sought to include in the cost of asset the interest paid by it for the period prior to commencement of business…

Ircon International Ltd., New Delhi vs. DCIT, Circle-11(1), Delhi

In the result, all the three appeals of the assessee for A

ITA 705/DEL/2006[2002-2003]Status: DisposedITAT Delhi31 Oct 2019AY 2002-2003

Bench: : Shri Bhavnesh Saini & Shri O.P. Kant

Section 80HSection 80I

…to us. 16.8 In the past, Courts have applied rules and principles of accountancy where words and expressions used in the Act have not been given a definitive meaning. The Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) was called upon to interpret the meaning of the expression 'Actual cost' for the purposes of determining the justifiability of the assessee's claim for depreciation and development rebate under the Indian IT Act, 1961. The assessee sought to include in the cost of asset the interest paid by it for the period prior to commencement of business…

DCIT, Circle-11(1) vs. Ircon International Ltd

In the result, all the three appeals of the assessee for A

ITA 2234/DEL/2005[2001-2002]Status: DisposedITAT Delhi31 Oct 2019AY 2001-2002

Bench: : Shri Bhavnesh Saini & Shri O.P. Kant

Section 80HSection 80I

…to us. 16.8 In the past, Courts have applied rules and principles of accountancy where words and expressions used in the Act have not been given a definitive meaning. The Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) was called upon to interpret the meaning of the expression 'Actual cost' for the purposes of determining the justifiability of the assessee's claim for depreciation and development rebate under the Indian IT Act, 1961. The assessee sought to include in the cost of asset the interest paid by it for the period prior to commencement of business…

Ircon International Limited, New Delhi vs. ACIT, New Delhi

In the result, all the three appeals of the assessee for A

ITA 3804/DEL/2008[2003-04]Status: DisposedITAT Delhi31 Oct 2019AY 2003-04

Bench: : Shri Bhavnesh Saini & Shri O.P. Kant

Section 80HSection 80I

…to us. 16.8 In the past, Courts have applied rules and principles of accountancy where words and expressions used in the Act have not been given a definitive meaning. The Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) was called upon to interpret the meaning of the expression 'Actual cost' for the purposes of determining the justifiability of the assessee's claim for depreciation and development rebate under the Indian IT Act, 1961. The assessee sought to include in the cost of asset the interest paid by it for the period prior to commencement of business…

Ircon International Ltd vs. Addl. CIT, Range-11

In the result, all the three appeals of the assessee for A

ITA 1825/DEL/2005[2001-2002]Status: DisposedITAT Delhi31 Oct 2019AY 2001-2002

Bench: : Shri Bhavnesh Saini & Shri O.P. Kant

Section 80HSection 80I

…to us. 16.8 In the past, Courts have applied rules and principles of accountancy where words and expressions used in the Act have not been given a definitive meaning. The Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) was called upon to interpret the meaning of the expression 'Actual cost' for the purposes of determining the justifiability of the assessee's claim for depreciation and development rebate under the Indian IT Act, 1961. The assessee sought to include in the cost of asset the interest paid by it for the period prior to commencement of business…

Cavalcade Properties P. Ltd, Mumbai vs. ITO WD 12(1)(4), Mumbai

Accordingly, grounds raised by the assessee are allowed

ITA 4030/MUM/2017[2011-12]Status: DisposedITAT Mumbai30 Oct 2019AY 2011-12

Bench: Shri S. Rifaur Rahman, Am& Shri Ram Lal Negi, Jm आयकरअपीलसं./ I.T.A. No. 4030/Mum/2017 (निर्धारणवर्ा / Assessment Year: 2012-13)

For Appellant: Shri Madhur Agarwal, AR byFor Respondent: Shri Awangshi Gimson, DR
Section 115JSection 143(1)Section 143(2)

…IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, AM& SHRI RAM LAL NEGI, JM आयकरअपीलसं./ I.T.A. No. 4030/Mum/2017 (निर्धारणवर्ा / Assessment Year: 2012-13) ITO Ward 12(1)(4), M/s Cavalcade Properties Aayakar Bhavan, Pvt. Ltd. Churchgate, बिधम/ Plot No. C-30, G-Block, Mumbai-400 020 Opp-SIDBI, Bandra Kurla Vs. Complex, Bandra (east), Mumbai 400 051 स्थायीलेखासं./जीआइआरसं./PAN No. AACCC6226B (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : आयकरअपीलसं./ I.T.A. No. 4273/Mum/2017 (निर्धारणवर्ा / Assessment Year: 2012-13) ITO Ward 12(1)(4), M/s Cavalcade Properties Aayakar Bhavan, Pvt…

ACIT 6(2)(2), Mumbai vs. M/S.Essar Power Orissa Limited, Mumbai

In the result, this appeal is also dismissed

ITA 1504/MUM/2018[2013-14]Status: DisposedITAT Mumbai03 Oct 2019AY 2013-14

Bench: Shri Shamim Yahya & Shri Pawan Singh

For Appellant: Shri Amit Pratap Singh (DR)For Respondent: Shri Vijay Mehta (AR)
Section 143(3)Section 254(1)

…IN THE INCOME TAX APPELLATE TRIBUNAL, “E” BENCH MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 1504/Mum/2018 for Assessment Years: 2013-14 ACIT Circle-6(2)(2), Essar Power Orrisa Ltd. Room No. 504, 5th Floor, Essar House, 11 K.K. Marg, Aayakar Bhavan, M.K. Road, Vs Mahalaxmi, Mumbai-400020. Mumbai-400034. PAN : AABCE6129N (Appellant) (Respondent) ITA No. 1506/Mum/2018 for Assessment Years: 2013-14 ACIT Circle-6(2)(2), Essar Power MP Ltd. Room No. 504, 5th Floor, Essar House, 11 K.K. Marg, Aayakar Bhavan, M.K. Road, Vs Mahalaxmi, Mumbai-400020. Mumbai-400034. PAN…

DCIT Cent.Cir-1(4), Mumbai vs. M/S.International Mineral Trading Co. Private Limited, Mumbai

Accordingly grounds raised by the revenue are dismissed

ITA 615/MUM/2018[2013-14]Status: DisposedITAT Mumbai27 Sept 2019AY 2013-14

Bench: Shri S. Rifaur Rahman, Am & Shri Ram Lal Negi, Jm आयकरअपीलसं./ I.T.A. No. 615/Mum/2018 (निर्धारणवर्ा / Assessment Year: 2013-14)

For Appellant: Shri Kumar PadmapaniFor Respondent: Shri Gaurav Kabra, AR
Section 143(2)

…. Bokaro Steel Ltd. vs. CIT (1988) 67 CTR (Pat) 281 : (1988) 170 ITR 545 (Pat) : TC 38R.1012 and CIT vs. Bokaro Steel Ltd. (1988) 67 CTR (Pat) 138 : (1988) 170 ITR 522 (Pat) : TC 38R.1011 affirmed; Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) ' 98 ITR 167 (SC) : TC 17R.834 applied; Addl. CIT vs. Indian Drugs & Pharmaceutical Ltd. (1983) 141 ITR 134 (Del) : TC 13R.668 approved; Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT (1997) 141 CTR (SC) 387: (1997) 227ITR 172 (SC) distinguished." 5.10 Since, in the present case at hand, the receipts are inextricably linked with the setting up of the p…

Deputy Commissioner of Income- Tax, Circle - 1(1)(2), Bangalore vs. M/S. Bangalore Airport Rail Link Limited, Bangalore

In the result, the appeal of the revenue is treated as allowed for statistical purposes

ITA 957/BANG/2019[2013-14]Status: DisposedITAT Bangalore17 Sept 2019AY 2013-14

Bench: Shri B.R Baskaran & Smt. Beena Pillaiassessment Year: 2013-14

For Appellant: Shri H.N Khincha, C.AFor Respondent: Shri Vinod Sharma, JCIT (DR)

…onstructing a project, all the expenses are incurred in connection there with are called pre-construction expenses and they are required to be capitalised as per the decision rendered by Hon’ble Supreme Court in the case of Challapalli Sugar Ltd (1975 AIR 97, 98 ITR 167). Hence the alternative view expressed by the AO is accordingly upheld. Accordingly, the order passed by Ld CIT(A) on this issue is set aside. 8. Before us, the Ld A.R has raised a new contention that the “other income” should not be assessed separately, but it has to be reduced from the pre-construction expenses. However, we notice that this cla…

Sri Ramadas Paper Boards (P) Ltd., Hyderabad vs. DCIT, Circle-3(2), Hyderabad

In the result, appeal of the assessee is allowed

ITA 1514/HYD/2016[2012-13]Status: DisposedITAT Hyderabad09 Aug 2019AY 2012-13

Bench: Smt. P. Madhavi Devi & Shri S. Rifaur Rahmanassessment Year: 2012-13 Sri Ramadas Paper Boards (P) Vs. Dy. Commissioner Of Income- Ltd., Hyderabad. Tax, Circle – 3(2), Hyderabad. Pan – Aadcs2140M (Appellant) (Respondent)

For Appellant: Shri G.V.N. HariFor Respondent: Date of hearing
Section 143(1)Section 143(2)Section 211

…nto rupee loan. 6. The ld. DR, on the other hand, submitted that the CIT(A) has elaborately discussed the facts of the case and came to proper conclusion. He relied on the judgment of the Hon’ble Supreme Court in the case of Challapalli Sugars Vs. CIT [1975] 98 ITR 167. Further, he submitted that term loan conversion into FCNR and back in rupee loan is only a conversion of capital and it is capital in nature, as such conversion cannot be allowed as revenue expenditure. 7. Considered the rival submissions and perused the material on record. In the given case, assessee availed term loan from Syndicate Bank for th…

Sugam Vanijya Holdieng P.Ltd, Bengluru vs. DCIT, Circle-24(2), New Delhi

In the result, the appeal filed by the assessee is partly allowed

ITA 6722/DEL/2017[2013-14]Status: DisposedITAT Delhi26 Jul 2019AY 2013-14

Bench: Shri R.K. Panda & Ms Suchitra Kambleassessment Year: 2013-14 Sugam Vanijya Holding P. Ltd., Vs Dcit, Vr Bengaluru, No.11B, Survey Circle-24(2), No.40/9, Dyvasandra Industrial Area, New Delhi. 2Nd Stage, Kr Puram Hobli, Bengaluru. Pan: Aaacs1883J (Appellant) (Respondent) Assessee By : Shri Deepak Chopra, Shri Kanchan Kaushal, Cas & Shri Harpreet Ajmani, Advocate Revenue By : Shri S.S. Rana, Cit, Dr Date Of Hearing : 07.05.2019 Date Of Pronouncement : 26.07.2019 Order Per R.K. Panda, Am: This Appeal Filed By The Assessee Is Directed Against The Order Dated 25.09.2017 Passed U/S 143(3) Read With Section 144C(13) Of The Income-Tax Act, 1961, Relating To Assessment Year 2013-14. 2. Facts Of The Case, In Brief, Are That The Assessee Is A Company Engaged In The Business Of Construction Of Mixed Commercial Development Projects At Whitefield, Bangalore. It Filed Its Return Of Income On 26.11.2013 Declaring The Total Income At Rs.13,24,24,139/-. Since The Assessee Had Entered Into Certain International

For Appellant: Shri Deepak ChopraFor Respondent: Shri S.S. Rana, CIT, DR
Section 143(3)Section 144C(13)

…for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in Section (2) to (7) of Section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd vs CIT (1975) 98 ITR 167. The Supreme Court went on to observe at page 175 as follows: "We have already referred to section 208 of the Companies Act which makes provision for payment of interest on share capital in certain contingencies. Clause (b) of sub-Section (1) of that section provides that in case interest is paid on share capital issued for the purpose of raising…