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Issues Involved:
1. Disallowance of claim of expenses of Rs. 3,49,017 incurred by SVR Aromatic Chemicals Pvt. Ltd. 2. Disallowance of depreciation on plant and machinery and factory building. 3. Disallowance of travelling expenses of Rs. 12,946. Issue-wise Detailed Analysis: 1. Disallowance of Claim of Expenses of Rs. 3,49,017: The assessee filed a revised return claiming a loss of Rs. 3,60,210, which included expenses of Rs. 3,49,017 incurred by SVR Aromatic Chemicals Pvt. Ltd. The Assessing Officer (AO) rejected this claim, noting that there was no actual purchase of assets and liabilities from SVR Aromatic Chemicals Pvt. Ltd. The AO also disallowed the interest claim of Rs. 19,650 payable to KSSIDC due to the absence of manufacturing activity and non-use of factory premises. On appeal, it was claimed that the assessee took over assets and liabilities of SVR Aromatic Chemicals Pvt. Ltd. for Rs. 8.50 lakhs as per an agreement dated 23rd May 1987. The expenses incurred by SVR Aromatic Chemicals during the period from 23rd May 1987 to 31st March 1988 were argued to be for keeping the unit in working condition on behalf of the assessee. The first appellate authority confirmed the AO's action, noting that expenses claimed included periods prior to the takeover and were not justified as the entire assets of SVR Aromatic Chemicals were not taken over. The Tribunal observed that the agreement did not stipulate reimbursement of expenses incurred by SVR before the takeover. The expenses incurred by SVR were not wholly and exclusively for the assessee's business. The Tribunal upheld the disallowance of Rs. 3,49,017, citing decisions from the Calcutta and Allahabad High Courts, which supported the view that expenses incurred by the previous owner are not allowable to the succeeding owner. 2. Disallowance of Depreciation on Plant and Machinery and Factory Building: The AO disallowed the depreciation claim of Rs. 2,701 on plant and machinery and Rs. 28,938 on the factory shed, noting that no manufacturing activity was carried out during the year. The first appellate authority confirmed this, stating that the factory building was transferred on 1st Nov 1987, and no details of purchase of plant and machinery were provided. The Tribunal noted that the factory shed was transferred to the assessee on 1st Nov 1987, but no manufacturing activity was carried out during the year. However, the premises might have been used for commission business, preparing samples, and entertaining customers. The Tribunal allowed depreciation on the portion of the building used for business on an estimate of Rs. 8,000. Depreciation on office equipment, furniture, and fixtures used for commission business was also allowed as per rules. 3. Disallowance of Travelling Expenses of Rs. 12,946: The AO disallowed Rs. 12,946 of travelling expenses, noting that they related to the period before the company was incorporated on 22nd May 1987. The first appellate authority sustained the disallowance, observing that the nature of travel was not ascertainable from the details provided. The Tribunal found that the expenses related to the travelling of SVR employees before the assessee-company came into existence. These employees were not working for the assessee-company, and the expenses were not incurred for the assessee's business. The Tribunal upheld the disallowance of travelling expenses. Conclusion: The appeal was partly allowed. The Tribunal upheld the disallowance of expenses of Rs. 3,49,017 and travelling expenses of Rs. 12,946. Depreciation on the plant and machinery was disallowed, but partial depreciation on the factory building and office equipment was allowed.
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