2004 (8) TMI 32

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....fore the commencement of the actual production was allowable as a revenue expenditure and not as a capital expenditure?" Briefly stated, the facts giving rise to the present reference are as follows: The reference relates to the assessment year 1977-78. The relevant previous year ended on March 31, 1977. For the assessment year in question, the respondent filed its return of income declaring a loss of Rs. 9,86,734. As it had not commenced any manufacturing activity, the Inspecting Assistant Commissioner (Assessment) called upon the respondent to show cause as to why various expenses debited in the profit and loss account should not be disallowed and its income should be assessed at nil. The respondent submitted that it had set up its ....

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....mmenced its production during the previous year relevant to the assessment year in question as it had commenced the production only on November 4, 1978, which fell in the assessment year 1979-80 and, therefore, in the absence of any business, the expenses could not be claimed as a deduction. He referred to the express provision of section 37 of the Act. It is not in dispute that the respondent had commenced production only on November 4, 1978. Section 37 of the Act under which the expenditure incurred wholly and exclusively for the purposes of business, is allowed as deduction, presupposes that the business had commenced or is being carried on. The Bombay High Court in the case of CIT v. Industrial Solvents and Chemicals Pvt. Ltd. [19....