1982 (4) TMI 173 - AT - Income Tax

Tribunal affirms pre-operative expenses, business commencement date, rejecting departmental appeal.

INCOME TAX OFFICER. Versus GREAT SEA TRAWLERS BUILDING YARD MANDAPAM LTD.

The tribunal upheld the first appellate authority's decision to allow the pre-operative expenses claimed by the assessee in the computation of business ... - Issues:1. Disallowance of pre-operative expenses by the Income Tax Officer (ITO).2. Claim of business commencement date by the assessee.3. Interpretation of setting up and commencement of business.4. Comparison with relevant legal precedents in similar cases.5. Decision on the departmental appeal.Analysis:Issue 1: Disallowance of Pre-operative ExpensesThe Income Tax Officer disallowed pre-operative expenses of Rs. 1,61,504 claimed by the assessee in the computation of business income. The first appellate authority, considering factual claims and correspondence provided by the assessee, found no basis for disallowance. The authority referred to the decision in CIT vs. Sourashtra Cement and Chemical Industries Ltd. (1973) 91 ITR 170 (Guj) to support the allowance of the expenses. The appellate authority allowed the appeal, disagreeing with the ITO's disallowance.Issue 2: Claim of Business Commencement DateThe departmental appeal contested the inference made by the first appellate authority regarding the business commencement date. The appellant argued that since a nil return was filed for the year ending 31st March, 1975, the business could not have started in February 1975 as claimed. The appellant contended that as the dry dock was completed on 1st Jan, 1976, the business could not have commenced before that date. The departmental representative cited legal precedents to support their position.Issue 3: Interpretation of Setting up and Commencement of BusinessThe tribunal analyzed the activities and facts presented by both parties. It noted that the assessee had wide business objects related to repairs of ships and construction of vessels. The tribunal emphasized that setting up and commencement of business are distinct concepts. Referring to the case law of CWT vs. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC), the tribunal clarified that expenditure incurred after setting up the business must be allowed. The tribunal found that the first appellate authority's conclusion aligns with the facts presented, indicating that the business had commenced by April 1, 1975.Issue 4: Comparison with Legal PrecedentsThe tribunal distinguished the cited legal precedents from the current case. It highlighted that in the cases of CIT vs. Forging & Stamping Pvt. Ltd. and Bhogilal Menghraj and Co. Pvt. Ltd., the businesses were not poised for production despite machinery installation. In contrast, the assessee in this case had ongoing activities, including ship repairs, receipt of contracts, and participation in tenders, supporting the claim of business commencement from April 1, 1975.Issue 5: Decision on Departmental AppealAfter careful consideration of the records and arguments, the tribunal dismissed the departmental appeal. It upheld the first appellate authority's decision, emphasizing the factual activities and correspondence indicating the commencement of business by the assessee from April 1, 1975. The tribunal found the cited legal precedents by the departmental representative inapplicable to the current case due to the ongoing business activities demonstrated by the assessee.In conclusion, the tribunal's decision affirmed the commencement of business by the assessee from April 1, 1975, based on the presented facts and activities, thereby dismissing the departmental appeal.