assessee carried on business of manufacture of tyres and tubes. assessee claimed depreciation of Rs. 5,10,723. It also claimed sum of Rs. 60,218 as pre-operative and incidental expenses. Income Tax Officer held that, assessee did not use any asset for carrying out business during this year and so question of depreciation allowance will not arise. expenses of Rs. 60,218 are mostly directors' travelling expenses connected with obtaining loans etc. Since there is no business activity expenses are not to be allowed as travelling expenses. 2. On appeal, Commissioner of Income-Tax (Appeal) held that, commercial production was infact carried on during this year. There was lull in manufacturing activity for some time. After new management took over t h e business assessee incurred expenses on machinery, repairs, maintenance of office establishment and in connection with conducting of trial run of production. It has also utilised opening stock of raw materials for purpose of carrying out trial production. There was also sale of old stock of tyres and tubes amounting to Rs. 73,000. Further for purpose of allowances of depreciation, word "used" appearing in section 32 should be interpreted in wide sense to include both passive and active user. Thus, he held that, assessee is entitled to allowance of depreciation to extent admissible. With regard to expenses of Rs. 60,218 he held that, assessee's business has already been set up when company was promoted in 1971 and it had started commercial production in 1976. Though there was lull in production activity it was resumed after new management took over. During this year machinery was repaired and trial production was carried on. In connection with obtaining of loans, contacting manufacturers of two and three wheelers regarding supply of tyres and tubes and for complying with statutory formalities directors of assessee-company had to make frequent trips to outstations. impugned expenditure incurred after setting up of business will have to be allowed as business expenditure. 3. Learned departmental representative kly urged that, business was stopped in 1977 and thereafter there was lull in business. Even after new management took over, no business as such was carried on during this year and machinery was not put to use. theory of passive use cannot be applied. Thus, assessee isn't entitled to depreciation. He also submitted that, assessee is not entitled to deduction of pre operative expenses. They have to be capitalized. Commissioner of Income-tax (Appeal) was wrong in allowing depreciation and pre operative expenses. learned counsel for assessee kly urged that due to financial difficulties business was temporarily stopped and there was only lull in business. But assessee did not close down its business. After new management took over business, machinery was repaired and trial production was done during this year. Old stocks of tyres and tubes were sold. opening stock of raw materials was consumed for trial production during this year. Thus machinery was put to use during this year. Directors have to make frequent trips to outstations in connection with obtaining of loans and contacting dealers regarding supply of tyres and tubes. Thus, assessee is entitled to depreciation as well as pre operative expenses and Commissioner of Income-tax (Appeals) was right in allowing same. 4. We have considered rival submissions. assessee - company was promoted in 1971. It went into commercial production of tyres and tubes in 1976. production activity was stopped in 1977 temporarily due to financial difficulties. With effect from 01-07-1979 there was change of management after which it obtained bank loans and also participation by Andhra Pradesh Industrial Development Corporation (APIDC). After new management took over name of company was changed from Jayesvee Tyres Private Limited to Stallion Tyres Private Limited das per certificate of Company Law Board letter dated 20-01-1981. Machinery was repaired and trial production was carried on during accounting year relevant to assessment year under appeal. At this stage, we may refer to directions of Inspecting Assistant Commissioner of Income-tax, Range-IV, Hyderabad in his letter dated 06-08-83 addressed to Income tax-Officer under section 144B for assessment year 1980-81 wherein he held that, factory is no doubt closed but it had not closed business as such it is evident from directors' report dated 01.03.1979 for year ending 30-06-1979 that activities were closed due to financial crisis. H e directed Income-tax Officer to scrutinise expenses and allow same. This would also clearly show that, business was not closed down. Thus, machinery was put to use during this year as trial production was carried on though commercial production as such was not there. Thus in our view assessee is entitled to depreciation. directors of assessee company had to go on frequent tours in connection with obtaining of loans and also to contact dealers who purchase tyres and tubes manufactured by assessee. Further assessee had to incur certain incidental expenses and repairing charges. Thus, expenditure of Rs. 60,218 incurred as pre-operative and incidental expenses would be allowable as business expenditure. 5. In CIT v. Viswanath Bhaskar Sathe (1937) 5 ITR 621 Bombay High Court held that, when machinery is kept ready for use it can be said that, it is used for purpose of business. word "used" in section 10(2) (vi) of Indian Income-Tax Act, 1922 should be understood in wide sense so as to embrace passive as well as active user. above decision was followed by Patna High Court in CIT v. Dalmia Cement LTD. (1945) 13 ITR 415 wherein it was held that, word "used" in section 10(2) (vi) of Indian Income Tax Act should be understood in wide sense so as to embrace passive as well as active user and consequently depreciation may be allowable in certain cases even though machinery was not in use or was kept idle. above decisions were followed by Allahabad High Court in Niranjan Lal Ram Chandra v. CIT (1963) 49 ITR 177. In Capital Bus Service (P.) Ltd. v. CIT (1980) 123 ITR 404 Delhi High Court held that, allowance for normal depreciation does not depend upon actual working of machinery. It is sufficient if machinery in question is employed by assessee for purpose of business and for no other business and it is kept by him ready for actual use. In Whittle Anderson Ltd. V. CIT (1971) 79 ITR 61'3 Bombay High Court held that, word "used" in section 10(2) (vi) of 1922 Act should be understood in wide sense so as to embrace passive as well as active user and when machinery is kept ready for use it will be said to be used for purpose of business. In L. V. Vairavan Chettiar v. CIT (1969) 72 ITR 114 Madras High Court held that, as assessee was maintaining establishment and was waiting for improved market conditions in arecanut business which he had temporarily stopped and there was nothing to show that he completely abandoned or closed that business, business must be deemed to have continued. 6. ratio laid down in above cases squarely apply to instant case. assessee had temporarily stopped business in 1977 due to financial difficulties. After new management took over, it made all efforts to obtain loans and participation of A. P. I. D. C. in which it succeeded. Then it repaired machinery and carried on trial production during this year. In fact, Inspecting Assistant Commissioner in his direction under section 144B had also observed that business as such was not stopped. Thus, in our view there was only lull in business and it was revived during this year and machinery has been used for trial production. Thus, assessee is entitled to depreciation. Commissioner of Income tax (Appeals) was right in directing Income Tax Officer to allow depreciation to extent admissible. 7. For above reasons, assessee is also entitled to deduction of Rs. 60,218 being pre-operative and incidental expenses. business was already set up and production had commenced in 1976. Thereafter production was stopped only temporarily and business has been revived in this year and trial production has been carried on. Thus, assessee is entitled to deduction of expenditure claimed. In CWT v. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478, Supreme Court held that, when unit has been put up to such shape that, it can start functioning as business or manufacturing organisation it can be said that unit has been set up. above ratio squarely applies to instant case. In our view in instant case business was already set up in 1976 when there was commercial production. Subsequently production was stopped due to financial difficulties and it was revived. During this year trial production was there. Thus business was set up and it started functioning in this year as is evident from trial production. Thus, assessee is entitled for deduction of expenditure of Rs. 60,218 being preoperative and incidental expenses. Commissioner of Income tax (Appeals) was justified in allowing same. 8. next ground is against direction of Commissioner of Income- tax (Appeals) to compute loss and carry forward same. assessee filed loss return on 03-07-1982 as against due date of 30-06-1981. Since return was filed beyond time under section 139 (1) Income-Tax Officer refused to carry forward business loss as computed in this assessment year. On appeal, Commissioner of Income-Tax (Appeals) directed Income-tax Officer to recompute total loss as per his finding and carry forward business loss available under section 72(1) of Income Tax Act. 9. We have heard both parties. This ground is covered by Order of Tribunal in ITO v. Ratanlal Bhangadia (1984) 10 ITD 182 (Hyd.) which is in favour of assessee. Following same, we uphold order of Commissioner of Income-Tax (Appeals). 10. In result, Appeal fails and is dismissed. *** INCOME TAX OFFICER v. STALLION TYRES (P) LTD.