TMI Blog1981 (7) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... by the relevant provisions but in accordance with the assessment of loss of utility value made by its own experts. These questions arise in the circumstances outlined in the next breath. In relation to the assessment for the year 1971-72 pertaining to the applicant assessee (The Gujarat Small Industries Corporation, Ahmedabad), inter alia, two questions arose before the ITO. One was in regard to the claim for deduction of Rs. 30,897 in connection with the expenses incurred on testing of 25 scooters manufactured by the assessee. Expenses on petrol, etc., were incurred in order to ascertain whether the scooters were road worthy and in order to take a decision whether or not to commence commercial production of the scooters. The second disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure was in the nature of capital expenditure and no deduction is permissible on the premise that it is revenue expenditure. The question has been framed in the following manner : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred on testing, exhibiting and designing of scooters was of capital nature ? " The facts are not in dispute. The assessee-Corporation was incorporated some years prior to the assessment year in question (1971-72). It was engaged in several activities and in its return for the assessment year in question the assessee had declared an income of more than Rs. 13 lakhs. Out of the numerous activities carried on by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cooters. (6) It was not a trial production in the sense of testing of the machinery or plant in order to test whether the plant or the machinery was functioning properly. (7) It was an expenditure incurred in connection with the testing of the product manufactured by the assessee-corporation which was already engaged in several activities. (8) It was not a new plant which produced some goods for the first time. If the expenditure was incurred before the commencement of the production, the matter might have stood on a different footing. The combined effect of these factors impels one to the conclusion that the expenditure was in the nature of revenue. The assessee-corporation was carrying on numerous activities for about 10 years and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted the " same business " of the assessee-company. In the present case, it is not necessary to go that far. The assessee-company was already engaged in manufacturing activities and it had started only a new line of production, namely, production of scooters, and the expenditure incurred was not in connection with the plant or machinery established in Order to produce the scooters. It was incurred in connection with the testing of the product and not in connection with the testing of the machinery or plant installed in order to manufacture the product. The decision in CIT v. Saurashtra Cement Chemical Industries Ltd., (Income-tax Reference No. 26 of 1973 decided on August 25, 1975-[1981] 127 ITR 47 (Guj)) will not, therefore, come to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scooters manufactured at the plant. The conclusion is, therefore, inescapable that the expenditure incurred is of the nature of revenue expenditure and the AAC Was Tight in upholding the claim of the assessee. The Tribunal committed an error in reversing the view taken by the AAC. This question must, therefore, be answered in the negative and against the Revenue. In regard to the remaining two questions, they require to be discussed along with each other because, in a way, they are interlinked. These two questions, referred to us, are as under: " (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in disallowing the claim of (a) Rs. 4,555, (b) Rs. 8,540, and (c) Rs. 86,561 based on revaluat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier years, depreciation was claimed at the general rate of 10% by the assessee-corporation itself. In respect of the assessment year in question a deduction was claimed for the first lime on the basis of a downward revaluation made by the technical expert justifying a claim for deduction to the aforesaid extent. The question must of necessity arise in what context the revaluation is made. The facts are not clear. Counsel for the assessee is not able to contend that the revaluation has anything to do with the fall in the value of the tools. The main basis of his argument was that these tools were of such a nature that they were losing their utility fast. If such was the case, the claim of the assessee would amount to a claim of depre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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