Case Law Details
Brief Facts of the case:
In the Assessment Year 1980-81, the assessee had issued 6,25,000 equity shares of Rs.10/- each. Accordingly, a sum of Rs.62.50 lakhs was raised by issue of shares The purpose of issue was to set up an unit for the manufacture of computer and OEM peripheral manufacturing project. For the issue of shares, the assessee had incurred expenses of Rs.14,21,276/- under different heads like financial consultancy, managerial fees, legal fees, underwriting commission, advertisement, issue house expenses, printing charges etc. Out of total expenditure of Rs.14,21,276/-, the assessee capitalized a sum of Rs.29,668/- on plant & machinery and factory equipment and Rs.9,79,438/- on the work-in-progress. The balance sum of Rs.4,12,170/- was treated as preliminary expenses and on these expenses had claimed relief under Section 35D of the Act in the following Assessment Year i.e. 1981-82. On the capitalized amount of Rs.29,668/-, the assessee claimed depreciation of Rs.4,203/- in the Assessment Year 1980-81 and on work in progress part claimed the depreciation Rs. 1,97,636 on capitalized value Rs. 9,79,438 in Assessment Year 1981-82.
The Assessing Officer disallowed the assessee’s claim for depreciation on the capitalized sum of Rs.29,668/- for an amount of Rs.4,203/-.and applying the same logic also rejected the claim of the assessee for AY 1981-82 for depreciation on the sum of Rs.9,79,438/- (capital work in progress) amounting to Rs.1,97,636.
Thus, for the Assessment Year 1980-81 and Assessment Year 1981-82 the Assessing Officer disallowed the Assessee’s claim for depreciation on the capitalized amount of Rs.4,176/- and Rs.1,97,636/- respectively.
The Assessing Officer further pointed out that the expenditure incurred was in the nature of expenses listed under Section 35D of the Act and thus were required to be treated in accordance with Section 35D of the Act and not in the manner as done by the assessee in claiming depreciation under Section 32.
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