TaxTMI 
TaxTMI 
1988 (5) TMI 365
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.... (i) Business loss 77,691 (ii) Investment allowance u/s 32A of IT Act 66,729 (iii) Deduction u/s 80J 24,186 2. In respect of the assessment year 1981-82 the return projected loss of Rs. 4,07,927 including carry forward loss of Rs. 90,915. The assessee-firm started construction of cold storage in July, 1979 and completed the same in July, 1981. The expenditure incurred as per account books maintained amounted to Rs. 11,44,554 as follows: Rs. (1) July 1979 to 31-3-1980 (A.Y. 1980-81) 7,43,240 (2) April 1980 to 31-3-1981 (A.Y. 1981-82) 3,92,662 (3) 1-4-1981 to July 1981 (A.Y. 1982-83) 8,652 11,44,554 3. In the course of assessment proceedings for 1980-81 the assessee filed a valuation report dated 23rd October, 1982 from one Shri Y.P. Gupta, Government registered valuer showing expenditure in the construction of two chambers of the cold storage up to 31-3-1980 at Rs. 7,62,063. The ITO, however, referred the valuation to the Departmental Valuation Officer, Lucknow, who vide his report dated 15-3-1984 reported the estimated cost of construction up to 1981 consisting of three chambers an....
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....: "3.a I have gone through the, assessment order and have examined the matter. It is clear that the difference in the two estimates arises mainly on account of application of different rates of estimate to different items of work. There is no observation that the appellant had not correctly stated the extent of the construction or the quality of the construction in any significant respect. The appellant has given a list of six items out of which on consideration, I find that following items really represent a difference of opinion for which no addition should have been made. Sl. No. Item Difference (Rs.) 1. Contractors profit 35,862 2. Item No. 7 M.S. Reinforcement 32,593 3. Item No. 19 Insulation with fibre glass 6,808 4. Architect's fee 14,903 90,166 The remaining three points mentioned by the learned authorised representative represent an examination of technical details and specification which are difficult for a laymen to evaluate. It Is, however, clear that the appellant is entitled to a reduction of at least Rs. 90,166 as worked out above and bifurcation of this amount will be, in the two y....
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....investment In the construction of two chambers of the cold storage as on 31-3-1980 at Rs. 7,62,663 as against an investment of Rs. 7,51,892 shown by the assessee in its books of accounts. It may be noted that the construction of the cold storage consisting of three chambers with outer verandahs was completed before 31-3-1981 whereas the assessee's approved valuer valued the property in respect of the construction up to 31-3-1980 only although he had personally inspected the property on 13-10-1982 as per part III. Declaration of his report, i.e., much after the entire construction had been completed. It is not clear what prevented him from valuing the entire property consisting of three chambers and verandahs." We find that the report dated 23rd October, 1982 in terms was requested in respect of assessment year 1980-81 and the second report dated 2-4-1984 in respect of the period ending 31-3-1981 was obtained on 3-4-1984 and submitted before the assessment, in which the cost of construction was worked out at Rs. 11,54,800 as against the book version of Rs. 11,44,554. Such difference, according to us, was only natural and could be a minus or plus factor for which neither any addit....
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....t purport to embark upon the estimate of the likely investment in the construction. Further, the mere opinion of the Departmental Valuer that the value of the construction was more than what was declared by the assessee could not show that there was unexplained investment on the part of the assessee." 9. For the Revenue Shri N.B. Singh though very strongly sought to support the orders of the lower authorities, was not in a position to controvert that the assessee had filed a report from registered valuer in respect of 31-3-1981 also. Therefore, keeping all aspects in close focus and by holding that since the details of cost of construction in the books was not even alleged to be wrong and further in view of the learned CIT(A) observations which were not controverted we hold that no addition whatsoever was called for and the assessee's version should have been accepted, which we now direct. The result would that the additions retained in respect of cost of construction shall stand deleted. 10. As stated in the assessment orders the assessee claimed Investment Allowance under sec. 32A of the Act at Rs. 66,729 @ 25 per cent of the value of machinery amounting to Rs. 2,66,916 for....
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.... involve processing, it was contended that the necessary corrollary was that there was manufacturing operation and thus, benefits of section 32A could not be denied. 14. The Hon'ble Allahabad High Court in the case of Krishna Kumar Mittal's case (supra) vide judgment dated 20th September, 1979, extract of which was given to us at page 45, held by following its earlier judgment in Farrukhabad Cold Storage (P.) Ltd.'s case (supra) that the Explanation to sec. 5(1)(xxxi) is identical with definition of the words 'industrial undertaking' given in sec. 2(7)(d) of the Finance Act, 1967. Thus, a cold storage is an 'industrial undertaking' within the meaning of Explanation to sec. 5(1)(xxxi) of the Wealth-tax Act. 15. In view of the abovenoted judgments and particularly those of the Allahabad High Court, which Is jurisdictional High Court in the case of the assessee, we hold that the assessee has been wrongly denied investment allowance claim. Directing that the same be allowed as per law, the assessee's appeals are allowed on second ground also. 16. In the result appeals allowed. Per S. K. Chander (Accountant Member) I have carefully gone through the proposed judg....
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....on and as such no valuation is called for from either side. The additions are, therefore, confirmed. 5. The arithmetical error as pointed out by my learned brother is apparent and cannot be disputed. 6. In so far as question of investment allowance on the cold storage is concerned, the assessee being from Moradabad, the issue is apparently covered by the judgment of the Allahabad High Court in the case of Farrukhabad Cold Storage (P.) Ltd. (supra) and other Judgments noted in the order by my learned brother. As we have differed the following point of difference is referred to the Hon'ble President, Income-tax Appellate Tribunal under sec. 255(4) of the Income-tax Act, 1961 : "Whether on the facts and in the circumstances of the case the Judicial Member has been correct in holding that there was no justification for retaining additions of Rs. 78,695 and Rs. 79,385 in respect of assessment years 1980-81 and 1981-82 as understated and unexplained investment in the construction of cold storage, or the view taken by the Accountant Member that the CIT(A) rightly retained such additions, is Justified ? THIRD MEMBER ORDER Per Ch. G. Krishnamurthy (President) This....
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....ambers and outer verandahs. There was thus a variation between the cost of construction shown by the books and the cost of construction estimated by the Departmental Valuation Officer. The difference worked out to Rs. 2,02,246. The Income- tax Officer wanted the assessee to explain the difference, in response to which the assessee stated that the valuation report filed by him from his approved valuer was correct and that the valuation made by the Departmental Valuation Officer was incorrect because he estimated the cost of construction by applying very high rates, which were never ruling at the relevant period of construction. It was also pointed out before the Income-tax Officer by filing the technical drawings and comparative charts with a view to show as to how the rates adopted by the Departmental Valuation Officer were far in excess of the cost of construetion estimated by the assessee's valuer, who was also a Govt. approved valuer. It was prayed that the cost of construction shown by the books being proper should be accepted. The Income-tax Officer did not accept this explanation. According to him the assessee had not filed technical data showing how the Departmental Valuatio....
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....erving that the assessee was entitled to the relief on this score, he deleted this Rs. 90,166 from the estimate made by the Departmental Valuation Officer and apportioned Rs. 54,166 to the assessment year 1980-81 and Rs, 36,000 to the assessment year 1981-82 and reduced the additions made by the Income-tax Officer to that extent. 4. Still aggrieved by the order of the Commissioner (A), the assessee came up before the Tribunal in a further appeal. The learned Judicial Member held after hearing the parties that there was no basis for the estimate nor was there any basis for the rejection of the books of account. In coming to this conclusion, the learned Judicial Member relied upon an order of the Tribunal In the case of Anupam Talkies (supra) in which case the Tribunal observed that when the account books were properly maintained and when the Income-tax Officer had not rejected the account books as unreliable or untrue or false and when vouchers were available in respect of the expenditure incurred for construction, the books of account should not be refused as evidence of cost of construction merely on the ground that the Departmental Valuation officer had shown a higher valuatio....
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.... account books maintained by the assessee, it was not open to the Income-tax Officer to reject the accounted version merely on the basis of the report of the Departmental Valuation Officer treating that as the foundational evidence for rejecting the accounted version. The evidence gathered by the Income-tax Officer in the shape of a valuation report can be relied upon only if (a) the account books were found to be defective and external evidence became necessary to arrive at the cost of construction : and (b) the report was a fair and true estimate of the cost of construction. If either of these factors are absent, the valuation report given by the Departmental Valuation Officer remains only a piece of paper. In the eyes of law, it has no sanctity at all. The Income- tax Officer not having found fault with the account books should not have rushed to obtain a report from the Departmental Valuation Officer and then say that the accounted version was wrong only by comparing the figures and not by examining the cost of construction with reference to vouchers, quantity of work done etc. The assessee stated that he maintained vouchers of the expenditure incurred by him but they do not se....
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....rk because the valuation of a property for the purposes of ascertaining the cost of construction would always be after the event was over. Thus contemporaneous evidence to arrive at the cost of construction would never the be available if the books of account are not relevant as urged by the learned Departmental Representative. Since guess work becomes vague, unreliable and uncertain and since that should never form the basis of an assessment and contemporaneous evidence should always be preferred, books of account are always relevant to find out the cost of investment. That was the reason why section 69 under which the unexplained investment could be added as the income of the assessee from undisclosed sources, placed greatest defiance upon the maintenance of accounts as well as upon the disclosure of investments in the books of account maintained. That was why section 69 provided : "69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the Investments....
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....rn. The assessee can therefore offer the books of account maintained by him In support of his cost of construction and the Income-tax Officer must look into that evidence become making an assessment. When the Income-tax Officer looks into that evidence, he must record his observation as to the reliability, authenticity and correctness of the evidence. It becomes therefore imperative by reading sections 69 and 143(3) together, that the Income-tax Officer must, rather he has a statutory duty, to examine the evidence produced by the assessee in support of his cost of construction, namely, the books of account, record a finding about the falsity or unrellability, not just by expressing a capricious view but by pointing out evidence, material and flaws in the evidence, If any. It is only after the evidence is rejected that the Income-tax Officer will get the power to estimate the cost of construction. It is at that point of time that he can rely upon the report of the Valuation Officer. To this extent, namely, relying upon the report of the Valuation Officer, the learned Accountant Member is right in his observation but before he comes to the stage of relying upon the Valuation Officer'....