Madras High Court
Income-Tax Officer vs M. Varadarajan. on 18 May, 1989
Equivalent citations: [1989]30ITD414(MAD)
ORDER
Per Shri R. Parthasarathy, Accountant Member - This departmental appeal and the cross-objection of the assessee are directed against the appellate order dated 21-7-1986 in IT 23/84-85/VII of Commissioner (Appeals)-VI Madras, and they are disposed of by this common order.
2. The issue involved in this case is whether the business in Tephguard Agencies had commenced during the previous year relevant to the assessment year under consideration and consequently whether the expenses relating to that business could be allowed as revenue expenditure, even though there was no purchase or sale of tephguard oil during the relevant previous year.
The assessee was carrying on business of ship chandlers. It was represented before the Income-tax Officer that during the relevant previous year the assessee had started a new line for supply of tephguard oil. The expenses claimed were establishment clearing charges, advertisement expenses etc. On the ground that there were no purchases and sales as per the statement of profit and loss account for the period 1-7-1980 to 31-3-1981, the Income-tax Officer treated the loss of Rs. 51,664 relating to the aforesaid business as capital loss.
4. In appeal before the Commissioner (Appeals), it was contended that the assessee had already started the new agency business during the relevant accounting year and, therefore, the Income-tax Officer was not correct in disallowing the assessees claim of loss. In this connection, the assessees representative pointed out that the assessee had entered into an agreement with Air Control Systems. Madras on 24- 4-1980 to take up the agency for the sale of tephguard oil, which was used in the automobiles for the protective treatment of engines. Under that agreement, Air Control Systems, would import tephguard oil from United States and transfer the same to the assessee, who would act as agent for the sales. Further under that agreement, the assessee had to make advertisements etc. for sale of the oil. Before the Commissioner (Appeals) it was the case of the assessee that he had started the aforesaid business during the relevant previous year and incurred expenses mainly by way of advertisement, bank charges, travelling etc. In support of the same, newspaper cuttings etc. were produced before the Commissioner (Appeals) to show that advertisement had been made during the relevant year. As regards the fact that there were no purchase and sales during the year, it was explained that there was delay in getting the oil imported from the United States cleared at the customs. It was then contended that merely because there was no purchase or sale during the year, it could not be said that the business had not actually been started. The Commissioner (Appeals) held that when the agency business had already been taken up and advertisements also had been given in newspapers it could not be said that there was no business in that line carried on by the assessee and, therefore, there was no justification for disallowing the loss claimed by the assessee as capital loss. However, the Commissioner (Appeals).