Depreciation on pre-operative expenses allocated to fixed assets is allowable under s 32 since expenses were incurred for setting up of fixed assets during the trial run

Cosmic Kitchen Pvt. Ltd. Vs ACIT (ITAT Delhi)- The only ground taken in this appeal, filed by the assessee, is that the learned CIT(A) erred in disallowing depreciation of Rs. 2,70,744/- in respect of pre-operative expenses allocated to fixed assets. It is also mentioned that he erred in holding that the expenses were revenue in nature and not linked with installation of various assets.

The question is covered by the decision of Supreme Court in the case of Challapalli Sugars Limited Vs. CIT (supra) and CIT Vs. Hindustan Petroleum Corporation, (1975) 98 ITR 167, in which it has been held that accepted accountancy rule for determining cost of fixed assets is to include of expenditure necessary to bring such assets into existence and to put them in working condition. Therefore, the question was decided in favour of the assessee and against the revenue. Having considered the facts of the case, we are of the view that they are similar and, therefore, the ratio of this case is applicable.

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH ‘B’ NEW DELHI)

Cosmic Kitchen Pvt Ltd Vs ACIT

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