TMI Blog1982 (7) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1965-66 ? " The assessee, M/s. Incheck Tyres Ltd., is engaged in the business of manufacture of tyres. The relevant previous year of the assessee ended on 30th June, 1964, corresponding to the assessment year 1965-66. ?" The assessee company had been incorporated on April 1, 1960 the proceedings for assessment to tax for the accounting year relevant to the assessment year 1965-66, the ITO added Rs. 3,03,000 for the following reasons: " On examination of various details it was further found that the cost of the materials debited to manufacturing a/c. consumed during the course of pre-production period has not been excluded. Assessee had, of course, capitalised a sum of Rs. 49,646 on account of fuel power charges pertaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading account for the purpose of arriving at the proper gross profit. It was also stated that, after all, the items used were for the purpose of making the quality products and that even some raw materials that were used during the experimental stage were ultimately used as raw materials by manufacturing process. It was further contended that the company undertook a very big project and in a big project it could not be expected that the assessee would earn profit from the very beginning and that in the immediately subsequent years the assessee itself declared a gross profit of 17%. The Revenue, on the other hand, contended that having regard to the provisions of s. 28(1) of the Act the expenditure was not relatable to manufacture of tyr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contemplated in the different sections of the Act. The Revenue wanted to state that production should be linked up with the expenses on raw materials incurred for the purpose of production in that year. " The Tribunal, relying upon the decision of the Bombay High Court in the case of Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 and the decision of the Supreme Court in the case of CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478, held that when the assessee's business had been set up, the ITO was not justified in disallowing the expenditure on the ground that it was prior to the commencement of the assessee's business. The Tribunal referred to the directors' report that the commercial production of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the setting up of the business of the assessee. Now this argument is a departure from the stand taken before the Tribunal. Before the Tribunal it was argued that the expenditure was incurred before the actual commencement of production by the assessee-company. The Tribunal pointed out the distinction between the setting up of a business and the commencement of production and relied on a number of decisions for the purpose of bringing out this distinction. A large number of cases have been cited before us which have only reaffirmed the distinction pointed out by the Tribunal between setting up of a business and commencement of manufacturing operations. The cases reported in CIT v. Sarabhai Sons Pvt. Ltd. [1973] 90 ITR 318 (Guj), CIT v. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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