TMI Blog1988 (5) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,691 (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 ₹ 4,07,927 including carry forward loss of ₹ 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 ₹ 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 ₹ 7,62,063. The ITO, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect of resolving, the controversy as it was in terms stated that there was no Allegation that the assessee had not correctly stated the extent of the construction or the quality in any significant respect: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that the assessee had only filed report for the period ending 31-3-1980 and on purpose kept back report in respect of the later period. Such contention we found to be correct and are inclined to agree that the Assessing Officer s mind was influenced on that account also, as is projected from first few sentences of the assessment order under the head Unexplained investment in the construction of cold storage as follows : The assessee had filed valuation report dated 23-10-1982 from Shri Y.P. Gupta, Approved Valuer, which showed the investment In the construction of two chambers of the cold storage as on 31-3-1980 at ₹ 7,62,663 as against an investment of ₹ 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred on the building of the cinema had been filed and that the vouchers were produced for verification. It was also stated that all the books were fully verifiable and that the book results be accepted. Again in another letter dated 21-3-1978 the assessee bad stated before the CIT(A) that complete details of the material used and job done had been maintained by it. We are of the view that without finding fault with the accounts maintained by the assessee for the construction of the building in question and without rejecting the same, the ITO could not 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are exposed to the required temperature because in the absence of such operations, preservation of articles cannot be assured Yamuna Cold Storage s case, (supra). 13. The judgment of the Allahabad High Court in Farrukhabad Cold Storage (P.) Ltd. s case (supra) and Tarai Development Corpn. v. CIT (1979) 120 ITR 342 (All.) were pressed into service for the submission that wherever processing was involved it must be held that manufacturing operation existed. Since the ITO in terms stated that cold storage 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective asstt. years. 4. In my opinion nothing more has been done before us and the additions sustained by the learned CIT(A) cannot be deleted merely because the assessee feels aggrieved but does not show any evidence to justify the deletion. Its books version is no longer sacrosanct once the assessee itself gave it a go-by by filing valuation reports, one dated 23rd October, 1982 and the other dated 2-4-1984. It has not been claimed that assessee bas bills and vouchers for all cost of construction 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to support the cost of construction by filing a valuation report obtained from the Government approved valuer, Shri Y.P. Gupta dated 23-10-1982 which showed that the cost of construction of the two Chambers of the cold storage up to 31-3-1980 was ₹ 7,62,063. This was against the cost of construction shown by the books at ₹ 7,43,240 (Rs. 7,53,240 should be the figure as noted by the Members in their orders). The Income-tax Officer, however, referred the matter to the Departmental Valuation Officer, Lucknow. He vide his report dated 15-3-1984 reported the estimated cost of construction for the entire project i.e., up to July 1981 at ₹ 13,46,800, which covered the three Chambers 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 ₹ 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 incorrec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the construction was such as to adopt different rates. Referring to the list of items on which there was wide variation in the rates, the Commissioner (A) pointed out that in respect of four of those items, which were given hereunder, there could not be any difference of opinion between the two valuation reports and to that extent the assessee was entitled to the relief in the sense that the Departmental Valuation Officer had adopted a higher rate of valuation: 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. Architects Fee 14,903 90,166 Observing that the assessee was entitled to the relief on this score, he deleted this ₹ 90,166 from the estimate made by the Departmental Valuation Officer and apportioned ₹ 54,166 to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no merit in that contention. In the absence of any evidence, the additions sustained by the Commissioner (A) should not be Interfered with and they should confirmed. Thus the above difference of opinion arose between the learned Brothers, who heard the appeals and the matter was referred to the Third Member. 5. Before I proceed to express my opinion, I would like to state that the figure of ₹ 79,385 mentioned in the difference of opinion as the addition made for the assessment year 1981-82 was not correct and the correct figure should be ₹ 33,385. This appears to be an obvious clerical mistake, which the Bench will take notice of while disposing of the appeals in accordance with the opinion of the majority. 6. Now the question is, which view expressed by the learned Members is the correct view on the facts and circumstances of the case. The assessee strongly relied upon the orders of the Tribunal passed in similar cases and urged that as no discrepancy was pointed out in the 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument. The logical conclusion of this argument would be that the books of account would become totally irrelevant and perhaps need not be even maintained where cost of construction of any immovable property was involved or for that matter any investment was involved. This does not appear to be the object of the legislation. Then no one need maintain account books and take the trouble of disclosing the cost of construction or investment in the account books. Then the matters can be left to the whims, fancies and the credibility, respectability of the Valuation Officers ; be they engaged by the assessee or by the department. As it often happens, the valuation placed upon cost of construction by the Departmental Valuation Officer is always higher, and that valuation would always prevail over the cost of construction estimated by the assessee s valuer and eventually lead to a situation where additions will have to be sustained or deleted depending upon the valuation report, which means guess work 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents in those books of account become compulsory as per the legislative mandate then what is the duty of the Income-tax Officer In so far as those books of account are concerned. Is it open to him to ignore the evidence provided by those entries In the books of account and go only by the valuation report given by the Valuation Officer. When the Income-tax Officer proposes to go by the Valuation Officer s report, It means that the books of account maintained by the assessee and produced by him in support of cost of construction within the meaning of section 143(3) of the Income-tax Act, whereunder on the day specified in the notice issued u/s 143(3), after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points and after taking into account all relevant material were rejected as unreliable. The Income-tax Officer can only make the assessment after rejecting the evidence produced by the assessee in support of his return. 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 assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open to him to rely upon them in preference to the valuation reports. This inference does not therefore appeal to me. It is not therefore a case where the assessee discarded the accounted version and tried to support the cost of construction with reference to valuation reports. Now, having come to the conclusion that the account books are relevant and that the account books have not been shown to be wrong, faulty or defective the question of Placing reliance upon the opinion of experts like valuation reports, should not arise. However, the very facts that the Commissioner (A) had found that a sum of ₹ 90,166 in the valuation report given by the Departmental Valuation Officer was incorrect and excessive, shows that even that report could not be said to be a true and fair estimate of the cost of construction. When the assessee had been urging before the authorities below that the rates adopted by the Departmental Valuation Officer were high, I thought, it was the duty of the authorities below to find out whether there was any substance in the allegations made by the assessee and it is not proper to reject that allegation without examining it. Every allegation made by an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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