CIT v. Sardar Sarovar Narmada Nigam Ltd.

Income Tax Act, 1961

--Business expenditure --AllowabilitySetting up of business/commencement of business--Assessee-company was a Nigam set up by Government of Gujarat. The very objects of Nigam were to construct and set up a dam across the river Narmada and to create canal system emanating from reservoir called the Sardar Sarover and to set up power house at the foot of the dam and canal head. Gujarat State faced scarcities of drinking water in earlier years and the assessee, for the emergency supply, put to use its facilities created so far as started from 21-2-2001 the deliverance of water through its partially completed Narmada canal. In response to notice issued under section 148 assessee filed return and claimed expenditure incurred after 21-2-2001 as business expenditure. AO disallowed the expenditure on the ground that Nigam was not set up. Held: As nigam was to supply water through canal and assessee had supplied water through its main canal, as such on facts of case, it could be said that business of assessee had been set up during previous year and expenditure claimed was allowable.