Law: Income Tax Act, 1961

Section: 256(2)

Income-tax---Reference---Business expenditure ---Assessee commissioning raw mill plant on 6-4-1982---Kiln commissioned on 28-7-1982---Cement production started on 18-12-1982---Out of expenses incurred from 28-7-1982 to 18-12-1982, Rs.54,09,885 capitalised by assessee---Balance expenses claimed as revenue expenditure---Tribunal holding total expenditure including Rs.54,09,885 revenue expenditure---Whether Tribunal was right in allowing Rs.54,09,881 as revenue expenditure is a question of law to be referred---Indian Income Tax Act, 1961, S.256(2). The assessee-company set up its cement unit plant during the year relevant to the assessment year 1983-84. The raw mill was commissioned on April 6, 1982, and the kiln was commissioned on July 28, 1982, though production of cement commenced only on December 18, 1982. Expenses incurred from July 28, 1982 to December 17, 1982, amounted to Rs.1,32,63,886 out of which a sum of Rs.54,08,994 was capitalised by the assessee and the balance of Rs.78,54,891 was claimed by the assessee as revenue expenditure. The Assessing Officer rejected the claims holding that it related to the period before the production of cement unit. On appeal, the Commissioner (Appeals) held that the business of the assessee commenced on April 6, 1982, when the raw mill was commissioned and the expenses, thereafter, would be eligible for deduction as revenue expenditure. But he confined himself only to the disallowance made by the Assessing Officer and declined to enlarge the scope of the appeal by including that part of the expenditure which was capitalised by the assessee. The Tribunal upheld the order of the Assessing Officer but did not give any specific direction regarding the capitalised amount of Rs.54,08,994. The same was, however, included in the order passed in the miscellaneous application filed by the assessee, against which the Revenue filed an application under section 256(1) of the Income Tax Act, 1961, which was rejected. On a reference application under section 256(2): Held, that whether the Tribunal was right in holding that the expenditure of Rs.54,08,995 was allowable as revenue expenditure, having been incurred after April 6, 1982,…

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