1988 (5) TMI 365 - AT - Income Tax

Summary

Issues Involved:
1. Retention of additions as understated and unexplained investment.
2. Disallowance of Investment Allowance on cold storage machineries.

Issue 1: Retention of Additions as Understated and Unexplained Investment

The Commissioner of Income-tax (Appeals) retained additions of Rs. 78,695 and Rs. 43,385 out of the total additions made in the assessment years 1980-81 and 1981-82. The assessee filed loss returns and provided a valuation report from a Government registered valuer, which was contested by the Departmental Valuation Officer (DVO). The DVO estimated a higher cost of construction, leading to additions as unexplained investment. The CIT(A) acknowledged that the difference in estimates arose from the application of different rates to various items and partially modified the additions.

The Judicial Member held that no addition was warranted as the books of account were not found to be defective. The Accountant Member disagreed, stating that the ITO was justified in using the DVO's report as evidence. The Third Member concurred with the Judicial Member, emphasizing that the books of account should not be rejected without pointing out specific defects. Consequently, the additions retained by the CIT(A) were deleted.

Issue 2: Disallowance of Investment Allowance on Cold Storage Machineries

The assessee claimed Investment Allowance u/s 32A of the IT Act, which was denied by the ITO on the grounds that cold storage does not qualify as an industrial undertaking that manufactures or produces any article or thing. The CIT(A) upheld this view. The Judicial Member, however, referenced various judicial precedents, including judgments from the Allahabad High Court, which recognized cold storage as an industrial undertaking. The Third Member agreed with this interpretation and directed that the Investment Allowance be allowed as per law.

Conclusion:

The appeals were allowed on both grounds. The additions retained by the CIT(A) as understated and unexplained investment were deleted, and the disallowance of Investment Allowance on cold storage machineries was overturned, granting the assessee the claimed benefits.