Dipak Kumar Sen, J. - (1.) Messrs. Kanoria General Dealers (P) Ltd., the assessee, was assessed to income-tax for the assessment years 1966-67 and 1969-70, the accounting periods ending on June 30, of the calendar years of 1965 and 1968. In the said assessment year 1966-67, the assessee claimed allowance on depreciation and deduction of business expenditure. The Income-tax Officer found that during the accounting period ending on June 30, 1965, the total purchase of raw materials was worth only Rs. 1,220, consumption of raw materials was worth only Rs. 120 and stores and spares to the extent of only Rs. 70 had been consumed. The Income-tax Officer held that the assessee had not commenced manufacturing and that production, if any, during the period was only on an experimental basis. On that ground, the Income-tax Officer disallowed depreciation and deduction of business expenditure.
(2.) For the assessment year 1969-70, the Income-tax Officer found that the plant and machinery of the assessee did not work for the whole year. Total consumption of raw material during the year was also low and a very limited quantity of finished goods were produced. On the ground that the factory of the assessee had worked for less than thirty days, the claim of the assessee for depreciation was disallowed.
(3.) Being aggrieved, the assessee went up in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner considered the directors' report as also the profit and loss account of the assesses and found that the plant and machinery of the assessee were in use though on a very small scale in the assessment year 1966-67. He held that the assessee had set up its business during the relevant accounting year as it had commenced production and following the decision of the Bombay High Court in Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151, and of the Supreme Court in the case of CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478, held that the Income-tax Officer was not justified in disallowing the depreciation and expenditure on the ground that it was prior to the commencement of the assessee's business.;