2007 (2) TMI 653 - HC - Income Tax

Summary

Issues:
The judgment involves the disallowance of depreciation claimed by the appellant for the assessment year 1990-91 under Section 260A of the Income Tax Act, 1961.

Depreciation Claim Disallowance:
The appellant, a limited company, claimed depreciation of Rs. 9,70,663 for past years. The Assessing Officer disallowed this claim, stating that adjustments for computing book profit must be made as per the Companies Act, 1956. The AO held that the appellant incorrectly debited the sum for arrears of depreciation due to a change in the method of calculating depreciation. The CIT(A) directed the AO to allow the claim of arrears of depreciation, citing relevant provisions of the Companies Act and a Tribunal decision supporting the appellant's method of depreciation calculation.

Appellate Proceedings:
The CIT(A) allowed the depreciation claim, emphasizing the appellant's compliance with the Companies Act and the legitimacy of the method used for claiming depreciation. The Revenue appealed to the Tribunal, which disallowed the claim based on the change in depreciation method. The Tribunal relied on a previous judgment and rejected the claim for earlier years' depreciation to determine book profit under Section 115J of the Act.

Judicial Interpretation:
The High Court analyzed the applicability of the judgment in a similar case and emphasized the need to comply with the Companies Act for calculating book profit. Reference was made to the Supreme Court's stance on the AO's limited power in computing book profit under Section 115J. The Court differentiated between prospective and retrospective claims for depreciation method change, concluding that the change must be applied prospectively from the date of implementation.

Conclusion:
The High Court ruled in favor of the appellant, allowing the depreciation claim prospectively from the date of method change. The judgment highlighted the importance of adhering to the Companies Act provisions and the limited powers of the AO in adjusting book profit. The appeal was disposed of with no costs awarded.