1986 (2) TMI 125

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....ectors' travelling expenses connected with obtaining loans etc. Since there is no business activity the expenses are not to be allowed as travelling expenses. 2. On appeal, the Commissioner of Income-Tax (Appeal) held that, commercial production was infact carried on during this year. There was a lull in the manufacturing activity for some time. After the new management took over the business the assessee incurred expenses on machinery, repairs, maintenance of office establishment and in connection with the conducting of trial run of production. It has also utilised the opening stock of raw materials for the purpose of carrying out the trial production. There was also sale of old stock of tyres and tubes amounting to Rs. 73,000. Further ....

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....ave to be capitalized. The Commissioner of Income-tax (Appeal) was wrong in allowing depreciation and pre operative expenses. The learned counsel for the assessee strongly urged that due to financial difficulties the business was temporarily stopped and there was only a lull in the business. But the assessee did not close down its business. After a new management took over the business, the machinery was repaired and trial production was done during this year. Old stocks of tyres and tubes were sold. The opening stock of raw materials was consumed for trial production during this year. Thus the machinery was put to use during this year. Directors have to make frequent trips to outstations in connection with the obtaining of loans and contac....

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....utinise the expenses and allow the same. This would also clearly show that, the business was not closed down. Thus, the machinery was put to use during this year as the trial production was carried on though commercial production as such was not there. Thus in our view the assessee is entitled to depreciation. The directors of the assessee company had to go on frequent tours in connection with obtaining of loans and also to contact the dealers who purchase tyres and tubes manufactured by the assessee. Further the assessee had to incur certain incidental expenses and repairing charges. Thus, the expenditure of Rs. 60,218 incurred as pre-operative and incidental expenses would be allowable as business expenditure. 5. In CIT v. Viswanath Bh....

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.... the purpose of business. In L. V. Vairavan Chettiar v. CIT (1969) 72 ITR 114 the Madras High Court held that, as the assessee was maintaining the establishment and was waiting for improved market conditions in arecanut business which he had temporarily stopped and there was nothing to show that he completely abandoned or closed that business, the business must be deemed to have continued. 6. The ratio laid down in the above cases squarely apply to the instant case. The assessee had temporarily stopped the business in 1977 due to financial difficulties. After the new management took over, it made all efforts to obtain loans and participation of A. P. I. D. C. in which it succeeded. Then it repaired the machinery and carried on trial prod....