1997 (1) TMI 27

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....on of law. According to the court's direction, the Income-tax Appellate Tribunal, Patna Bench, Patna, made a statement of the case and referred the following common question of law for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenditure incurred on payment of interest to partner and dealings in raw materials should be capitalised as pre-operative expenses for the purpose of allowing depreciation?" The material facts can be briefly stated as follows. At the material time, the assessee-firm was engaged in the business of manufacture and sale of Fawrah (udal). The account for the pre-operative period was closed on December 6, 1997, and a fresh a....

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....l expenditure on which the assessee was entitled to depreciation and in that view the Income-tax Officer was not justified in disallowing the claim of the assessee to the extent of Rs. 30,000. Upholding the assessee's contention, the Tribunal held that the expenditure incurred prior to the setting up of the business cannot be allowed as revenue expenditure and the same is necessarily to be capitalised. The claim of the assessee was consequentially upheld and the Income-tax Officer was directed to capitalise the amount claimed by the assessee and to allow the consequential depreciation. In support of its view, the Tribunal relied upon the decisions in Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 (Bom) and Travancore-Cochin ....