COMMISSIONER OF INCOME TAX Vs. MOHAN STEEL LTD

JUDGEMENT

(1.) The Tribunal, Allahabad; has referred the following question of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the expenditure incurred by the assessee before the commencement of the actual production was allowable as a revenue expenditure and not as a capital expenditure ?"

(2.) Briefly stated, the facts giving rise to the present reference are as follows : The reference relates to the asst. yr. 1977-78. The relevant previous year ended on 31st March, 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 IAC (Asst.) called upon the respondent to show cause as to why various expenses debited in the P&L a/c should not be disallowed and its income should be assessed at nil. The respondent submitted that it had set up its steel plant on 15th Feb., 1975, but could not commence the production due to non-availability of supply of electricity by the State Government and as soon as the electricity was supplied on 4th Nov., 1978, it had started its manufacturing activity within 45 minutes of the supply thereof. It also pointed out that in the immediately preceding two years, the AO had framed the assessment under Section 143(3) of the Act and had treated the expenses claimed by it as revenue expenditure and computed the loss which was allowed to be carried forward. It was submitted that once the Revenue had already accepted that it had commenced its business a couple of years back, it would not be fair and reasonable to hold that the expenses claimed by it for the assessment year in question should not be allowed and instead of loss shown by it the income should not be (sic-should be) assessed at nil. The AO did not agree with the contention of the respondent and assessed the income at nil. In appeal, the CIT(A) held that the items of expenditure shown by the respondent are revenue expenditure and are allowable. However, he remanded the matter for recomputation of loss. The Tribunal has upheld the order passed by the CIT(A).

(3.) We have heard Sri A.N. Mahajan, the learned counsel for the Revenue. Nobody has appeared on behalf of the respondent.