| Thursday, July 21, 2011 |
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I. What's New of the day :
1. M/s EARTH CASTLE Vs. DEPUTY COMMISSIONER OF INCOME TAX, ITA No. 3064/Mum/2008, Assessment Year: 2006-2007, Dated: 17th June 2011 ITAT–Mumbai Whether when assessee fails to rebut the addition made by the AO in respect of undisclosed income found during the search and also chooses not to file appeal against the huge quantum addition, penalty is warranted in such circumstances. No assessee would accept such huge additions running into crores in case no sale had taken place and there was no income. It is not a case of addition of few thousands which the assessee may not pursue in appeal as it may not be cost effective but not disputing additions running into crores which the assessee thinks that there was no income at all, does not conform to normal human conduct. Considering the entirety of the facts and circumstances and applying the test of human probability, the explanation of the assessee that the sales had not materialized which is not supported by any reliable evidence cannot be considered as bonafide. Thus, the case of the assessee is covered by the provisions of Explanation 1 to section 271(1)(c) and the penalty has been rightly levied. (Please click here for judgment)
2. M/s COSMIC KITCHEN PVT LTD Vs. ASST COMMISSIONER OF INCOME TAX ITA No. 5549/Del/2010, Assessment Year: 2006-2007, Dated: 13th May 2011 ITAT–New Delhi Whether the depreciation on preoperative expenses allocated to fixed assets is to be allowed u/s 32 as the expenses incurred were for setting up the fixed assets and were incurred during the running trail. Section 43(1) defines “actual cost” to mean actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. The expenses incurred by the assessee are required to be capitalized as the expenditure of test runs was a capital expenditure. The expenses involved in determining that the factory was in proper working condition and making adjustment does not seem to be anything more than steps in setting up and finalization of the factory, which is the capital asset. 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. Thus, the expenses incurred on kitchenware and consumption of material during trial run is to be capitalized towards the cost of plant and machinery.
(Please click here for judgment)
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