1982 (7) TMI 141 - AT - Income Tax

Summary

Issues:
1. Rejection of investment allowance claim by ITO and CIT (Appeal)
2. Denial of access to books for passing necessary entries
3. Justification of rejection based on statutory provisions and judicial precedents

Detailed Analysis:

1. The primary issue in this case is the rejection of the assessee's investment allowance claim by the Income Tax Officer (ITO) and the Commissioner of Income Tax (CIT) on appeal. The assessee, engaged in the business of purchasing tungsten, added machinery worth Rs. 1,01,799 during the relevant accounting year but did not initially claim investment allowance. The dispute arose when the assessee sought to create a reserve for investment allowance after the assessment proceedings had commenced. The ITO and CIT (Appeal) rejected the claim, citing non-compliance with statutory reserve provisions and judicial decisions.

2. Another crucial issue raised in the case was the denial of access to books by the revenue authorities for passing necessary entries related to the investment allowance reserve. The assessee requested access to the books during assessment proceedings to make the required entries but was refused permission by the ITO. Subsequently, the assessee revised the profit and loss account and balance sheet to include the investment allowance reserve, which was rejected by the ITO. The denial of access to books was a key factor in the dispute over the validity of the claim.

3. The justification for rejecting the investment allowance claim was based on statutory provisions and judicial precedents. The CIT (Appeal) relied on the Explanation to section 32A(4) and the decision of the Supreme Court in Indian Overseas Bank Ltd. vs. CIT. The revenue authorities contended that the conditions for claiming investment allowance were not met, particularly regarding the creation of a reserve as required by law. However, the assessee argued that the denial of access to books and the subsequent rejection of the claim were unjust, citing relevant judicial decisions and circulars supporting the allowance of revised profit and loss accounts.

4. In the final analysis, the Appellate Tribunal disagreed with the CIT (Appeal) and held that the assessee's claim for investment allowance should have been accepted. The Tribunal emphasized the denial of access to books as a violation of natural justice and highlighted the permissibility of amending profit and loss accounts to create reserve accounts. The Tribunal's decision was influenced by judicial precedents, including the Punjab and Haryana High Court decision, and the interpretation of statutory provisions governing investment allowance claims. As a result, the assessee's appeal was allowed, overturning the earlier rejections by the revenue authorities.