COMMISSIONER OF INCOME TAX Vs. BHARAT AGRICO COMPANY

JUDGEMENT

(1.) THESE cases have come on references made as directed by this court under Section 256(2) of the Income-tax Act, 1961, at the instance of the Revenue. THESE cases relate to the assessment years 1978-79, 1979-80 and 1980-81. The three appeals arising for the aforesaid assessment years were disposed of by the Income-tax Appellate Tribunal by a common order. Three reference cases were, therefore, filed in this court though they involved a common question of law. According to the court's direction, the Income-tax Appellate Tribunal, Patna Bench, Patna, made a statement of the case and referred the following common question of law for the opinion of this court :

(2.) THE material facts can be briefly stated as follows. At the material time, the assessee-firm was engaged in the business of manufacture and sale of Fawrah (udal). THE account for the pre-operative period was closed on December 6, 1997, and a fresh account was started from December 7, 1977, the date from which the firm commenced its business. In its first account for the assessment year 1978-79, the assessee claimed depreciation on a sum of Rs. 6,12,070 being the cost of machinery. On scrutiny, the Assessing Officer found that the actual cost of machinery amounted to Rs. 5,72,004 over which a sum of Rs. 40,066 was added as "pre-operative expenses". A further examination of the "pre-operative expenses" disclosed that it included a sum of Rs. 25,226 as interest paid to the partners, as also expenses connected with the dealings in raw materials for the period prior to the start of the business. THE Income-tax Officer deducted an estimated sum of Rs. 30,000 from the account of pre-operative expenses shown by the assessee and allowed only the sum of Rs. 10,066 to be added as pre-operative expenses to the actual cost of machinery for the purpose of allowing depreciation at 10 per cent. According to the Income-tax Officer, the interest of partners and expenses connected with the dealings in raw materials were not in a real sense pre-operative expenses incurred for installation of machinery.