Investment allowance claim upheld by ITAT due to denial of access to books, emphasizing natural justice principles.

The ITAT allowed the assessee's appeal, overturning the rejection of the investment allowance claim by the ITO and Commissioner (Appeals). The ITAT found that the denial of access to books for necessary entries violated principles of natural justice. Emphasizing the right to create a reserve account before assessment, the ITAT concluded that the claim should have been accepted. The decision highlighted the importance of rectifying accounts and the entitlement to legitimate deductions under the law, ultimately ruling in favor of the assessee.

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Issues:
Claim of investment allowance rejection by ITO and Commissioner (Appeals).

Analysis:
The judgment revolves around the rejection of the assessee's claim of investment allowance by the ITO and the Commissioner (Appeals). The assessee, an individual involved in the business of purchasing tungsten, added machinery worth Rs. 1,01,799 during the relevant accounting year but did not claim investment allowance initially. The assessee requested access to relevant books to create a reserve for investment allowance, which was denied by the revenue. The assessee revised the profit and loss account and balance sheet to include the investment allowance reserve, but the claim was rejected by the ITO and later by the Commissioner (Appeals).

The Commissioner (Appeals) relied on the judgment of the Supreme Court and the Explanation to section 32A(4) to reject the claim. The assessee argued before the ITAT, citing relevant case laws and circulars, emphasizing the denial of access to books by the revenue and the right to amend the profit and loss account to create a reserve account. The departmental representative contended that the relevant High Court decision was not applicable, and the claim rejection was justified based on legal provisions.

The ITAT, after considering the submissions, found that the assessee was unjustly denied access to books for necessary entries and that the claim rejection violated principles of natural justice. Referring to relevant case laws, the ITAT concluded that the assessee's claim should have been accepted based on the creation of the investment allowance reserve before assessment. The ITAT reversed the Commissioner (Appeals)'s decision and allowed the assessee's appeal, highlighting the importance of rectification of accounts and the right to legitimate deductions under the law.

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