TMI Blog2005 (6) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... aw wheels as well as stock of wheels under work-in-progress." The AO held as under: "By virtue of its own admission, the assessee has confirmed that the main customer is the Indian Railways and during the year under consideration, the assessee could not get any order. The emphasis is on the word 'order'. Indian Railways is a giant who have their own independent resources to look after the needs of the Railway Industries. Normally such a big industry depends upon the reputed suppliers who have got their own manufacturing facilities and who in turn perform to the utter most satisfaction as well as the rigours of the goods to be supplied normally having an ISI mark. In this case, the assessee has neither got any manufacturing facilities of its own nor could it commence any such manufacturing activities upto the standardisation of the ISI. The assessee has failed to place on record any such documentary evidence in support of its claim that it has in any commercial exigencies commenced the business activities." The AO further observed that the assessee was in fact in the process of setting up its plant for manufacturing/assembling wheels for supply to Railways. He noted that asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance sheet and P L a/c relating to the year under consideration shows that there was no production of finished goods till the end of the year under consideration and the closing stock shown at the end of the year comprised only of raw wheels, cutting tools and work-in-progress. It is further seen that neither there was any order received by the appellant from its customers for supply of wheels nor there was sale of any goods till the end of the year under consideration. The facts of the case clearly indicate that the commercial production did not commence till the end of the year under consideration and no business was carried on by the appellant during the year. Therefore, the provisions of s. 28 of the Act cannot be invoked to compute any profits or loss assessable under the head profits and gains of business or profession. Consequently, the claim for alleged business expenses and depreciation and the resultant business loss was not allowable. On a careful consideration of the facts and circumstances of the case and the relevant provisions of the law, I am of the considered view that the AO was justified in disallowing the claim of the appellant for the alleged business loss and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that assessee did not have standardization manufacturing certificate from ISI and it is unthinkable that a Department like Indian Railways could buy wheels without having above standardisation. No sale was admittedly effected in the period under consideration nor any evidence has been filed on record to show that assessee was in a position to supply wheels to the Railways. No business was carried by the assessee in the period under consideration and, therefore, depreciation and expenses claimed were rightly disallowed. 6. I have given careful thought to the rival submissions of the parties. It is settled law that expenditure and depreciation are to be allowed to the assessee in case it is established that business has been set up even if commercial production has not started. In this connection, reference may be made to Western India Vegetable Products Ltd vs. CIT (1954) 26 ITR 151 (Bom), Sarabhai Management Corpn. Ltd. vs. CIT 1975 CTR (Guj) 111 : (1976) 102 ITR 25 (Guj) and CIT vs. Western India Seafood (P) Ltd. (1992) 107 CTR (Guj) 106 . (1993) 199 ITR 777 (Guj). Thus, in my considered view learned Revenue authorities did not apply proper test in holding that expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is provided as under: "7. Specification 7 Drawing REF . The wheels shall be supplied strictly in accordance with the latest alteration of drawings and specification stipulated in cl. 5(a) above. xx xx xx xx 10.(i) Wheel Making : Stamping (Branding) on wheels shall be done strictly in accordance with drawings and specification stipulated above. (a) For manufacturer's name code, you shall stamp words KLW. (b) Code for particular contract to be stamped on the wheels will be W399. (ii) Colour Marking : With reference to cl. 12.1(c) of the bid documents, Pt. II, Sec. II (general conditions of the contract), distinguishing colour marking is to be made asl under: Colour Item No. Dig. No. One Red Stripe D/WL-4948/R The stripe indicated above should be prominently displayed on the wheels in a prominent place to enable the same to be segregated instantaneously. 11. Inspection : Inspection of the wheels shall be carried out by RDSO. The contractor shall afford full facilities to the Inspecting officers to inspect the wheels at all stages. A copy of the notice should also be sent to the purchaser simultaneously. As safety considerations are inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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