9911796707
|
Home
Issues:
- Disallowance of expenses claimed by the assessee for the assessment year 1974-75. Analysis: The assessee contended that the disallowance of Rs. 6,399.00 made by the Income Tax Officer (ITO) and confirmed by the Appellate Assistant Commissioner (AAC) was incorrect. The assessee, an individual, had started a business under the name Pharma Chem but did not produce anything during the relevant year. The ITO disallowed the claimed loss as no business activity was conducted during the year. The AAC upheld this decision. The assessee's representative argued that the business under the name M/s. Pharma Chem was established in September 1973, and expenses of Rs. 6,399.00 were incurred between September 1973 and March 1974. These expenses were claimed as business expenditure. The representative emphasized the difference between commencing business and setting it up, stating that for income tax purposes, setting up the business was crucial. The business premises were acquired, machinery installed, and a drug license obtained by December 14, 1973. However, due to the unavailability of raw materials, actual production did not commence. The assessee contended that the expenses incurred before December 14, 1973, should be allowed. The Departmental Representative argued that until goods were manufactured, the expenses could not be claimed. They contended that actions such as obtaining a building, installing machinery, or applying for a drug license did not constitute manufacturing. The Departmental Representative maintained that the assessee could not claim the expenses until the date the license was obtained, i.e., December 14, 1973. The Tribunal acknowledged the distinction between setting up a factory and commencing business. They noted that actions taken before December 14, 1973, when the license was issued, did not strictly constitute the commencement of business. However, they recognized that the business could not start due to the unavailability of raw materials. The Tribunal decided to reject the expenses incurred before December 14, 1973, but allowed the expenses thereafter. The ITO was directed to verify the expenses incurred before December 14, 1973, and disallow only those expenses. Consequently, the appeal was partly allowed.
|
