Law:

Section:

Section 28(i), read with section 3(1)(d), of the income-tax act, 1961-business deduction/loss-assessee had newly set up business which began commercial production in december 1963-for assessment year 1965-66, relevant to accounting period ending 30-6-1964, ito added back amount of expenditure on raw materials shown as opening stock and used during pre-production stage -tribunal deleted addition after finding that assessee's business had been set up before commencement of commercial production and that value of opening stock could be considered in arriving at manufacturing and trading results relating to assessment year 1965-66-whether tribunal justified-held, on facts, yes Facts The assessee's business had been newly set up. In the assessment proceedings for the accounting year ending 30-6-1964, relevant to the assessment year 1965-66, the ITO found that the cost of the materials debited to manufacturing account consumed during the course of pre-production period had not been excluded though the assessee had capitalized certain amounts on account of fuel and power charges. The ITO, accordingly, made an estimated addition of Rs. 3,03,000. The assessee did not succeed in the appeal to the AAC. On further appeal, the Tribunal observed that in view of the provisions of section 3(1)( d), the previous year in the case of a newly set up business would begin with the date of setting up of the business. The Tribunal found, that in the instant case, the business had been set up before commercial production commenced in December 1963, and held that there was no reason for disallowing the expenses in this case on the basis that the expenditure was incurred earlier than the commencement of commercial production. According to the Tribunal, when the assessee had incurred expenses for the purpose of arriving at a manufacturing and trading account, the entire debits with reference to the opening stock along with the purchase price of raw material during the year were to be considered in the matter relating to computation of manufacturing profit and loss of the assessee-company. On reference, the only argument advanced by the revenue was that the impugned expenditure had been…

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