2008 (5) TMI 453 - AT - Income Tax

Summary

Issues Involved:
1. Adoption of depreciation figure on revalued assets for computing book profit under section 115JA of the Income-tax Act, 1961.
2. Validity of net profit distribution as per the decision of the Apex Court.
3. Admissibility of depreciation on revalued assets as per CBDT guidelines and pending SLP.
4. Reassessment proceedings.

Detailed Analysis:

1. Adoption of Depreciation Figure on Revalued Assets:
The primary issue revolves around whether the depreciation of Rs. 9,70,596 on revalued assets should be included while computing the book profit under section 115JA of the Income-tax Act, 1961. The Assessing Officer (AO) recomputed the book profit by excluding this depreciation, citing CBDT letter No. 385/76/88-IT(B) dated 31-1-1989. However, the CIT(A) directed the AO to adopt the figure of depreciation as claimed by the assessee, including the depreciation on revalued assets, relying on the Supreme Court decision in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273. The Tribunal upheld the CIT(A)'s decision, noting that the accounts were prepared in accordance with Accounting Standard-6 (AS-6) and certified by auditors without any qualification regarding non-adherence to AS-6.

2. Validity of Net Profit Distribution:
The CIT(A) accepted the assessee's explanation that the net profit shown in the Profit & Loss (P&L) account cannot be distributed, in line with the decision of the Apex Court in Apollo Tyres Ltd. The Tribunal agreed, emphasizing that the AO does not have the jurisdiction to go behind the net profit shown in the P&L account except to the extent provided in the Explanation to section 115JA. The Tribunal cited the Supreme Court's ruling in Malayala Manorama Co. Ltd. v. CIT [2008] 300 ITR 251, reinforcing that the AO's power is limited to examining whether the books of account are certified by the authorities under the Companies Act.

3. Admissibility of Depreciation on Revalued Assets:
The AO argued that depreciation on revalued assets is not admissible while computing book profit under section 115JA, referencing the pending SLP and CBDT guidelines. However, the Tribunal noted that the adjustment for depreciation on revalued assets was not permissible under section 115JA for the relevant assessment year. The Tribunal highlighted that the specific provision excluding depreciation on revalued assets was introduced in section 115JB by the Finance Act, 2006, effective from 1-4-2007, and did not apply to the assessment year in question. The Tribunal also referenced several case laws, including Punjab Fibres Ltd. v. Dy. CIT [2000] 72 ITD 68 and Amrit Vanaspati Co. Ltd. v. Dy. CIT [2000] 111 Taxman 186 (Delhi) (Mag.), which supported the assessee's position.

4. Reassessment Proceedings:
Although the issue regarding reassessment was raised before the CIT(A), it was not dealt with in detail as the assessee was granted relief on merits. The Tribunal did not address this issue further, given the resolution of the primary issues in favor of the assessee.

Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing the inclusion of depreciation on revalued assets in the computation of book profit under section 115JA and confirming that the AO does not have the jurisdiction to adjust the net profit shown in the P&L account beyond the specific provisions of the Explanation to section 115JA. The Departmental appeal was dismissed.