Trial production does not equal commercial commencement: deductions were disallowed for lack of proof of business use.

Trial production and preparatory testing of plant and machinery do not amount to commercial production or commencement of business for income-tax deductions unless actual business use is proved with supporting evidence. The assessee's unit was found to have remained at the trial-run stage, as directors' reports, balance-sheet entries and contemporaneous correspondence showed no full commercial production or trading activity during the relevant years. The absence of the production register and other verifiable records justified an adverse inference. On that basis, depreciation, business loss and investment allowance were treated as not allowable for the assessment years under consideration.

---

---

Issues: (i) Whether the assessee had commenced commercial production or only carried out trial runs, and whether depreciation, business loss and investment allowance were allowable for the assessment years under consideration.

Analysis: The plant and machinery were found to have been used only for trial production and testing. The directors' reports, balance-sheet figures, and contemporaneous correspondence showed that the unit had not fully gone into commercial production and had not engaged in trading activity during the relevant years. The Tribunal applied the principle that trial runs are part of erection and testing of plant and machinery, but do not by themselves amount to commercial production or business commencement for purposes of allowance of depreciation and investment allowance. It also noted the assessee's failure to produce the production register and other supporting details called for by the Assessing Officer, and drew an adverse inference from the absence of verifiable evidence.

Conclusion: The claim that commercial production had commenced was rejected, and the deductions for depreciation, business loss and investment allowance were held not allowable for the relevant assessment years.

Final Conclusion: The appeals failed because the assessee had not established commencement of commercial production or business activity during the relevant previous years, and the disallowances were sustained.

Ratio Decidendi: Trial production and preparatory testing of plant and machinery do not amount to commercial production or commencement of business for income-tax deductions unless the assessee shows actual business use and supporting evidence.

---