1999 (8) TMI 126 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of Business Loss, Unabsorbed Depreciation, and Unabsorbed Investment Allowance for A.Y. 1988-89.
2. Disallowance of Depreciation and Business Loss for A.Y. 1989-90.

Summary:

Issue 1: Disallowance of Business Loss, Unabsorbed Depreciation, and Unabsorbed Investment Allowance for A.Y. 1988-89

The CIT(A) confirmed the action of the Dy. Commissioner of Income Tax in disallowing the business loss of Rs. 2,67,502, unabsorbed depreciation of Rs. 8,24,865, and unabsorbed investment allowance of Rs. 5,16,334 on the ground that there was no commencement of commercial production during the relevant previous year. The Assessing Officer (AO) had asked the assessee to produce production registers and details of actual production, but the assessee failed to provide sufficient evidence. The AO concluded that the assessee had not started commercial production and disallowed the claimed losses and depreciation. The Tribunal upheld this view, stating that the plant and machinery were not used for business purposes but only for trial production, which does not amount to commercial production. Hence, the expenses incurred were considered capital expenditure and not allowable as deductions.

Issue 2: Disallowance of Depreciation and Business Loss for A.Y. 1989-90

For A.Y. 1989-90, the CIT(A) confirmed the disallowance of depreciation of Rs. 8,68,557 and business loss of Rs. 8,90,715 on the grounds that there was no production during the relevant previous year and the plant and machinery were not put to use. The AO observed that the assessee did not maintain a production register and admitted that no production was done during the year. The Tribunal noted that the assessee had not sold any goods in the relevant years and had not provided sufficient details of expenses such as salary, wages, electricity, and rent. The Tribunal agreed with the AO's conclusion that there was no commercial production and therefore, the depreciation and business loss claims were not allowable. The Tribunal also highlighted that the additional evidence submitted by the assessee was not decisive and did not warrant admission.

Conclusion:

The Tribunal dismissed the appeals for both assessment years, upholding the disallowance of business loss, unabsorbed depreciation, and unabsorbed investment allowance for A.Y. 1988-89, and the disallowance of depreciation and business loss for A.Y. 1989-90. The Tribunal emphasized that trial production does not equate to commercial production and the expenses incurred during the trial phase are capital expenditures, not deductible business expenses.