COMMISSIONER OF INCOME TAX Vs. GABRIEL INDIA LIMITED

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961 ("the Act"), the Tribunal has referred the following question of law at the instance of the Revenue:

(2.) THIS reference relates to the asst. year 1973 74. In its assessment for the asst. year 1973 74, the assessee company had claimed deduction of a sum of Rs. 99,326 described as 'Plant relayout Expenses'. On query being made by the ITO in regard to the nature of the above expenditure, it was explained by the assessee by its letter dt. 19th Sept., 1975 that it had been incurred in connection with the merger of two existing plants for the manufacturing of shock absorber which were located side by side at its factory at Mulund. The case of the assessee was that as the layout of the two plants was not conducive, the management decided to merge those two plants and re layout the same according to the flow of operations conducive to more production. This exercise of merging the two plants necessarily called for relocation of the facilities as well as adopting the existing structure and other services necessary for the plant as a whole. The above expenditure had been incurred by the assessee for that purpose. Under the circumstances, according to the assessee, it was a business expenditure allowable as deduction in computation of his income. The ITO accepted the explanation of the assessee and allowed the deduction as claimed by it.

(3.) THE assessee appeared before the Commissioner and raised objection in regard to the initiation of proceedings under S. 263 of the Act itself on the ground that there was no error whatsoever committed by the ITO in allowing the deduction of the above amount as it was a business expenditure and not an expenditure of capital nature. It was also pointed out that the assessee had not derived any new asset nor any enduring benefit by incurring the expenditure in question. It was submitted that the Commissioner was not correct in his opinion that the ITO did not apply his mind to the facts of the case before allowing the aforesaid claim in as much as the ITO had raised a specific query in the course of assessment proceedings in regard to the same and the assessee had submitted its written explanation by means of a letter dt. 19th Sept., 1975. It was, therefore, contended by the assessee that S. 263 of the Act had no application to the facts of the case and the proceedings initiated by the Commissioner thereunder should be dropped.