1. ' V.V. KAMAT, J.---The following two questions expect our answer: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was failure on the part of the assessee to disclose all the primary facts relating to the purchase, sale and computation of capital gains in respect of the machinery sold at the time of filing of the original return itself warranting reopening of the assessment under section 147(a) of the Income-tax Act?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal had materials before it in restricting the capitalisation of the pre-production expenses to 50 pet cent. Of such expenses?"
2. ' The assessm ent year 1981-82. The assessee is a company in which the public are not substantially interested. It was set up some time in 1976 to manufacture the products out of latex available in the neighbourhood with the main object to establish and carry on business in the manufacture and sale of goods from natural rubber latex specified in the memorandum of association. There was one ancillary object also in regard to the business of mining and processing of china clay required for rubber industries.
3. ' Steps were taken by the company to import machinery from Sweden to manufacture the articles for the above purpose. The machinery was imported in 1977, but due to delay in clearance by the port authorities, it could only be cleared in May 1979. The undisputed position is that the machinery imported was not installed at all as the company found it not feasible to continue the project. On January 9, 1981, the machinery was sold for an amount of Rs,12,80,000.
4. ' With regard to the assessm ent year in question 1981-82, the return was filed on December 31, 1981, offering a sum of. Rs,24,314 in the computation statement. In the return the cost of the machinery as arrived at by the assessee was shown as Rs,8,33,337 and interest paid to the Kerala Financial Corporation as Rs,1,13,244, together with an item described as "pre-production expenses" amounting to Rs,3,09,106. The assessm ent for the year was completed on August 13, 1982.
5. ' It is thereafter, that the assessme nt was sought to be reopened under section 147(a) of the Income Tax Act, 1961, by issuance of a notice under section 148 of the Act, being dated January 27, 1986.
6. ' The reason for reopening the assessment under section 147(a) is that the capitalised pre- production expenses of Rs,3,09,106 claimed as cost of machinery which was allowed in the original assessm ent was not correct. This was not correct because the machinery was not at all erected or installed and, therefore, there was no question of such expenses to be taken into account for the computation of capital gains.
7. ' In the reopened proceedings the Income-tax Officer took into consideration the cost of machinery at Rs,8,33,337, interest paid to the Kerala Financial Corporation at Rs,1,13,244 and, with regard to the capitalised pre-production expenses of Rs,3,09,106, on estimate basis Rs,30,000 came to be taken and not Rs,3,09,106 as was claimed.
8. ' The question is whether the authorities were justified to hold that there was failure 'on the part of the assessee to disclose all primary facts relating to the purchase, sale and computation of capital gains in respect of the machinery in question.
9. ' We find that with regard to this amount of Rs,3,09,106 there was no question of capitalisation of the above pre-production expenses. The situation stares in the face of the record that the assessee- company itself found that it was not feasible to continue the project and, therefore, sold the machinery out and out on January 9, 1981 (during the period of the assessment year in question), for Rs,12,80,000. In such a situation, there was no question of pre-production expenses. The decision is consistently against the assessee in regard to this aspect.
10. ' In fact, the Tribunal has seen the crux of the situation and has observed in its reasoning part, commencing onwards in paragraph 18 thereof, particularly paragraph 20 in the context, in the following manner: "Thus, for all intents and purposes, what was purchased in a single machinery described above and the same was sold even before the machinery was erected and the business was set up and commenced. The assessee has furnished break up details of preproduction expenses of Rs,3,09,105.86 consisting of Rs,1,25,037 for the year ending on March 31, 1977, relevant for the assessm ent year 1977-78, Rs,97,872 for the year ending on March 31, 1978, relevant for the assessm ent year 1978-79 and Rs,86,197 for the year ending on March 31, 1979, relevant for the assessm ent year 1979-80."
11. ' It would, thus, be seen that the item related to a single machinery and it was sold as it was found to be not feasible even before the machinery was erected and the business was set up for commencement. In such a situation, the claim with regard to the amount of Rs,3,09,106 relatable to capitalisation of pre-production expenses would be a matter which will have to be understood as a failure on the part of the assessee to disclose the primary fact relating to the purchase, sale and computation of the capital gains in respect of the machinery in question.
12. ' Thus, apart from the situation that there is material staring in the face of the record showing failure, the question represents really one of pure factual existence.
13. ' With regard to the second question the authorities proceeded on estimate basis and granted deduction of Rs,30,000 with regard to the aspect in question. Since the authorities have considered this in this manner, in regard to which there is no grievance, it is not possible to take this aspect for serious consideration. At any rate, this also relates to the factual situation, pure and simple.
14. ' For the above reasons, the questions, being questions of fact, are declined to be answered.
15. ' A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forward to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
16. Reference declined to be answered.