COMMISSIONER OF INCOME TAX Vs. INSTRUMENTATION LIMITED

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal has referred the following two questions of law arising out of its order dated October 30, 1980, for the assessment year 1974 -75 :

(2.) THE brief facts of the case are that the assessee has claimed expenses of Rs. 1,85,460 in respect of its Palghat unit which were disallowed by the Income -tax Officer on the ground that the expenses are not incurred in connection with the business being either in the nature of preliminary expenses or expenses to be capitalised and, therefore, the claim is not allowable. During the course of assessment proceedings, it was informed on July 12, 1976, that travelling expenses do not include any expenditure incurred for the Palghat project as they have been separately indicated in schedule 5 of the annual accounts.

(3.) IN the appeal preferred to the Commissioner of Income -tax (Appeals), Rajasthan, it was held that it is an admitted fact that the Palghat unit was still under the process of construction and the machinery was still under installation and the building was under construction. In these circumstances, the Palghat unit could not be said to have been set up during the relevant previous year. All expenses pertaining to a business before it is set up have to be treated as expenditure of capital nature. Accordingly, the disallowance was confirmed. It may also be noted that the assessee has contended that this amount pertains to the salary, wages and travelling expenses of the persons working at Kota for promotion of sales of the products at the Palghat unit and these persons have to attain promotion of sales in the unit in advance so that there may not be any difficulty in regard to the sales of the product of the unit after it has commenced production.