Valuation of a completed cold storage in a subsequent year cannot furnish the basis for the valuation of the land, building, structures, plants, machinery, and other accessories in the process of construction and setting up of the cold storage during the years of construction.

( 1 ) THE petitioners Nos. 3 to 7 along with Kantilal Jivanlal Shah and Manganlal Chhaganlal Shah, both since deceased, were partners of M. Ambica Cold Storage, a partnership firm constituted on the 23rd April, 1958, and registered under the Indian Partnership Act. The firm has since been dissolved. The case of the petitioners is that the firm commenced business in the middle of February, 1959, and was for the first time assessable and assessed to income-tax for the assessment year 1960-61. The accounting period of the firm was the English calendar year ending on the 31st December of each such year and under the deed of partnership the first accounting period for completion of the accounts of the firm was 31st December, 1959. On the 25th July, 1958, the firm purchased 3 bighas 7 cottahs 5 chittaks more or less of land at Sheoraphully for Rs. 19,857. 19, and on the 25th April, 1961, it purchased further 1 bigha 5 cottahs 7 chittacks of adjacent land for Rs. 10,225. Although the land was first purchased in July, 1958, as the negotiations for the purchase were completed by May, 1958, the purchase of materials for construction as well as the work of construction of cold storage on the said land was started from May, 1958, and such construction was fully completed by December, 1963, and minor repairs were made thereafter from time to time. The cost of construction was met mostly from borrowings. The first accounts of the firm was closed on 31st December, 1959, and the income-tax return for the assessment year 1960-61 disclosing a loss of Rs. 65,714 was filed. At the hearing of the said assessment, Jayantilal Umedlal Doshi, the authorised representative and accountant of the firm, produced before the assessing ITO full particulars and other evidence as to purchase of the land, expenses and cost of construction, who considered the same and after ascertaining the actual cost of the said cold storage building assessed the loss at Rs. 15,043 after allowing depreciation on the said building on the basis of its actual cost and in proportion to the use thereof in accordance with the then I. T. Rules. Similarly, all particulars of the construction of the cold storage were filed before the assessing ITO at the time of the assessments for the assessment years 1961-62 and 1963-64. There was no omission or failure on the part of the firm to disclose fully or truly any material facts or particulars necessary for the said assessments.

( 2 ) FOR the assessment year 1961-62, the firm filed a return showing a loss of Rs. 47,534. The assessing ITO, however, assessed the total income at Rs. 1,24,911 and allowed depreciation on the written down value of the cold storage building of Rs. 1,58,508 at the rate of 21/2% and also a further depreciation at the said rate on the additional cost of construction. On appeal by the firm against the said assessment the AAC allowed depreciation at the full rate of hundred per cent. but disallowed certain other claims. From the said order of the AAC, the firm preferred a further appeal to the Income-tax Appellate Tribunal and obtained further reliefs.

( 3 ) BY a letter dated the 25th September, 1975, respondent No. 1 called upon the firm to submit details of the expenses for the construction of the said cold storage. In reply, the firm by a letter dated the 29th September, 1975, inter alia, informed respondent No. 1 that the said cold storage had been sold away to one Mayur Udyog and did not belong to the firm any more.

( 4 ) BY a letter dated the 25th November, 1975, respondent No. 1 called upon the advocate of the firm to file the details as asked for in the said letter dated the 25th September, 1975, as the liability to produce the books of account was that of the partners of the firm to whom a formal notice under Section 142 (1) of the I. T. Act, 1961, was being issued. By a letter dated the 7th January, 1977, respondent No. 1 intimated to the petitioners that it appeared from the assessment