Rajpal Yadav, Judicial Member. - The present two appeals are directed at the instance of assessee against the orders of learned CIT (Appeals) dated 17-9-2002 and 30-9-2002 passed in assessment years 1998-99 and 1999-2000. One of the issues in both the years is common and, therefore, we heard both appeals together and deem it appropriate to dispose of them by this common order.

2. The first grievance in assessment year 1998-99 is that learned CIT(Appeals) has erred in confirming the disallowance of Rs. 26,94,550.

3. The brief facts of the case are that assessee is a private limited company, incorporated on 5-12-1997. It filed its return of income on 27-11-1998 declaring total loss of Rs. 26,94,550, for the accounting period 5-12-1997 to 31-3-1998. The learned Assessing Officer on scrutiny account, found that in the computation of loss filed by the assessee in return of income, it has shown loss from business to be carried forward at Rs. 6,51,743. According to the Assessing Officer, there are certain ambiguity and errors in the computation. Anyway, the facts relevant for the present dispute are that the assessee had incurred expenses of Rs. 26,56,199 which it claimed as revenue expenses. It has first shown interest income on FDR at Rs. 16,34,795 as income from other sources. After setting this income against the expenditure, loss was claimed at Rs. 10,21,404. But in the note, assessee taken a plea that interest income is not due to be recovered because FDRs will mature in May, 1998 and thus it is not taxable. In this way, ultimately assessee claimed the loss of Rs. 26,56,199.

4. The learned Assessing Officer directed the assessee to explain how this loss is allowable, because in his opinion assessee has not commenced the business during the accounting period. In response to the query of Assessing Officer, assessee has filed written submissions. The relevant submission has duly been noticed by the CIT(Appeals). The same read as under :

"Also, the assessee has stated in para (1) of Annexure 1 of letter dated 21-12-2000 as under :

‘We started our operations from a hotel right from the date of incorporation and later on from the residence-cum-office of MD. We have taken sales offices in Delhi, Mumbai and Bangalore on lease for three years and Chennai Sales Office for two years. Delhi lease started from 1-5-1998, Mumbai on 1-10-1998, Bangalore on 1-4-1999 and Chennai on 15-2-2000. Delhi office was operational in August, 1998 Mumbai in December, 1998, Bangalore in June, 1999 and Chennai in March, 2000. The small amount of leasehold improvements, office equipment, furniture, computer equipment etc. is invested in each sales office.

In addition of this, we have purchased machinery worth INR 2.50 crores (approx.) and constructed building for head office and training centre in Bangalore and purchased their equipments, furniture, computer equipments worth INR 2.20 crores (approx.). The order for machinery was given in May 1999 and the construction of building was also started in May, 1999. The machinery installation was completed in January, 2000 and we shifted head office in April, 2000.’"

5. In another letter dated 11-1-2001, the assessee in paras 2 and 3 has mentioned as follows :

"The date on which production commenced: The manufacture of goods dealt by the assessee company commenced in August, 2000. It is submitted that since the assessee is in business of trading as well as manufacturing and the business of trading was already set up on 5-12-1997, the first purchase of goods would not be the relevant criteria for determining the taxable loss of the assessee for the relevant financial year".

6. Considering the above facts, Assessing Officer in his assessment order has further stated that the company was incorporated on 5-12-1997 and the Managing Director of the company namely Frank Van Ooijen stayed in Hotel Hyatt Regency from 9-12-1997 to 15-2-1998 and he incurred different expenditures which have been claimed by the assessee to have bee