2000 (12) TMI 17 - HC - Income Tax

Summary

Issues:
The judgment involves the following Issues:
1. Whether the Appellate Tribunal was correct in canceling the order passed by the Commissioner of Income-tax u/s 263 of the Act?
2. Whether the Appellate Tribunal was correct in holding that the depreciation calculated by the assessee based on income-tax records and debited to the profit and loss account did not violate the provisions of the Companies Act?

Issue 1:
The controversy arose regarding the applicability of section 115J of the Income-tax Act, 1961. The assessee calculated depreciation on plant and machinery at 33.33% under Income-tax Rules, 1962, instead of the 30% depreciation required under Schedule XIV to the Companies Act, 1956. The board of directors passed a resolution justifying the higher rate of depreciation due to the corrosive nature of chemicals used, resulting in a shorter life of machinery. The Commissioner of Income-tax disallowed the excess depreciation claimed by the company, leading to an appeal before the Tribunal. The Tribunal held that the company's disclosure and justification for higher depreciation were bona fide and based on technological evaluation, thus dismissing the Revenue's appeal.

Issue 2:
The Assessing Officer allowed depreciation as claimed by the company, but the Commissioner u/s 263 held it to be in excess of the Companies Act rate, adding the excess amount to the book profit. The Tribunal, however, upheld the company's higher depreciation claim, emphasizing proper disclosure and bona fide evaluation. The Revenue argued that the excess depreciation claimed was impermissible, while the company justified the higher rate based on the corrosive nature of chemicals used, leading to the Tribunal's decision in favor of the assessee. The Tribunal's findings were deemed to be based on the specific facts of the case, and the appeal was ultimately dismissed based on the Tribunal's reasoning.

This judgment highlights the importance of proper disclosure and bona fide justifications for deviations from statutory depreciation rates, emphasizing the factual context of each case in determining the applicability of tax laws and company regulations.