Judgment 1. Heard learned Counsel for the applicant. 2. This is an application under Section 256 (2) of the Income Tax Act, 1961. The application under Section 256 (1) of the Act filed by the Revenue was rejected by the Tribunal for referring certain question of law framed by the Revenue in its application under Section 256 (1) to this Court alongwith statement of case for its decision. 3. The question relates to determination of cost of acquisition of the capital asset which has been transferred by the Assesses during the accounting period relevant to assessment year 1985-1986 for the purposes of computing capital gains under the provisions of Income Tax Act, 1961. In computing the cost of acquisition the Tribunal has allowed the increase in cost of acquisition by adding provisions of interest and land development etc. made by the assessee for determining the cost of acquisition by adding the same to the consideration paid by the assessee. The contention of the Revenue had been that these costs has been incurred by the purchaser of the land. The assessee has acquired the land in question during the previous year relevant to the assessment year 1971-1972 and has incurred expenses on account of registration, stamp duty etc. He has claimed expenses incurred on establishment and development of land in question amounting to Rs.1,04,828/-up to 31st March, 1973. The total cost of acquisition as adjusted above was at Rs.12,75,201.67 as on 31st March, 1973. It is the position accepted by the Department. 4. After 31st March, 1976, no return was filed by the assessee nor any books of account were produced by the assessee. However, on 31st March, 1985, the assessee claimed the cost of land at a increased figure of Rs. 30,98,396.43 on account of provision of inertest and other development charges amounting to Rs.18,23,094.81. The assessee had entered into an agreement with M/s. Naveen Grah Nirman Sahakari Samittee Limited on 010.1974. However, for some reasons, the sale-deed was executed only during the account period relevant to assessment year 1985-1986. The assessee has held the land in question and has computed capital expenditure. The assessee had entered into an agreement with M/s. Naveen Grah Nirman Sahakari Samittee Limited on 010.1974. However, for some reasons, the sale-deed was executed only during the account period relevant to assessment year 1985-1986. The assessee has held the land in question and has computed capital expenditure. This position was accepted by the Revenue up to assessment year 1976-1977 and the assessment was reopened under Section 148 and the additions in costs on account of provision of interest and development charged, as aforesaid, was sought to be reduced from the cost of acquisition paid by the assessee for the periods in question. 5. The Tribunal has accepted the appeal and has determined the cost of acquisition by including the provision of interest and expenses for development charges and accordingly computed the cost on that premise. .6. Aggrieved against the order dated 29.09.1994 passed by the ITAT, in the first instance, the Revenue preferred Reference Application for directing the Tribunal to state the case and refer the substantial questions of law arising out from the order of Tribunal to this Court. The questions as framed by Revenue in its application are as under:- 1.Q.1. "Whether on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the assessees claim that all expenses on account of provisions of interest, development of land etc. were in the nature of capital expenditure. 2.Q.2. Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the assessees claim that all expenses on account of provision of interest, development of land etc. prior to the assessment year under consideration are includable in the cost of land. 3.Q.3. Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the expenses of earlier years to be deducted from the revenue receipts of current year despite holding that these expenses are of capital nature? 4.Q.4. Whether, on the facts and in the circumstances of the case, the finding of the ITAT that all expenses on account of provisions for interest, land development etc. 4.Q.4. Whether, on the facts and in the circumstances of the case, the finding of the ITAT that all expenses on account of provisions for interest, land development etc. incurred after the date of sale agreement should be added to the cost of land, is not perverse in as much as expenses on development had been incurred by the purchaser and further the assessee having transferred the land in 1984 on the same consideration as was agreed upon in the agreement made in 1974 was neither bound nor supposed to incur any expenditure on the land? 7. The Tribunal declined to state the case and refer the questions, and rejected the application of the Revenue by observing that no question of law arises out of its order. Hence, this application under Section 256 (2) of the Income Tax Act, 1961. 8. We have heard learned Counsel for the Revenue and having perused the order of the Tribunal and considered the provisions of Section 55 of Income Tax Act, 1961 which relates to the determination of cost of acquisition and adjusted cost of acquisition, we are of the opinion, that the Tribunal has erred in rejecting the application of the Revenue under Section 256 (1) for stating the case and refer the questions of law to this Court for its decision, which, in our opinion do arise out of its Appellate Order. .9. We accordingly allow this reference application and direct the Tribunal to state the case and refer following question of law which in our opinion arise out of the Tribunals order:- 1.Q.1. " Whether on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the assessees claim that all expenses on account of provisions of interest, development of land etc. were in the nature of capital expenditure. 2.Q.2. Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the assessesss claim that all expenses on account of provision of interest, development of land etc. prior to the assessment year under consideration are includable in the cost of land. 3.Q.3. Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the expenses of earlier years to be deducted from the revenue receipts of current year despite holding that these expenses are of capital nature? prior to the assessment year under consideration are includable in the cost of land. 3.Q.3. Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the expenses of earlier years to be deducted from the revenue receipts of current year despite holding that these expenses are of capital nature? 4.Q.4. Whether, on the facts and in the circumstances of the case, the finding of the ITAT that all expenses on account of provisions for interest, land development etc. incurred after the date of sale agreement should be added to the cost of land, is not perverse in as much as expenses on development had been incurred by the purchaser and further the assessee having transferred the land in 1984 on the same consideration as was agreed upon in the agreement made in 1974 was neither bound nor supposed to incur any expenditure on the land? 10. The reference application is accordingly allowed. 11. No order as to costs.