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2011 (8) TMI 352 - HC - Income TaxMAT - Adjustment to book profit u/s 115J - determination of book profit - held that the assessing officer while computing the income under Section 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. Whether the amount of depreciation being less than the amount of loss should be required to be set off in terms of Clause (iv) of the Explanation to Section 115J of the Act - Supreme Court in the case of Surana Steels Pvt. Ltd vs. Deputy Commissioner of Income-tax and others reported in (1999 -TMI - 5744 - SUPREME Court) has in this connection laid down the meaning of the word loss as used in the provisions of the Companies Act and has held that loss includes depreciation - Once loss is held to be arrived at after taking into account depreciation there is no scope of disputing the contention of Dr. Pal the learned senior counsel appearing for the appellant that the amount of depreciation of Rs. 13, 85, 66, 473/- is to be set off in terms of clause (iv) of the Explanation to Section 115 J of the Act - Decided in favor of the assessee
Issues Involved:
1. Interpretation of Section 115J(1A) and Clause (iv) of Explanation to Section 115J of the Income-tax Act. 2. Determination of the amount of loss or depreciation to be set off against the profit for the relevant previous year. Issue-wise Detailed Analysis: 1. Interpretation of Section 115J(1A) and Clause (iv) of Explanation to Section 115J of the Income-tax Act: The case revolves around the interpretation of Section 115J(1A) and Clause (iv) of the Explanation to Section 115J of the Income-tax Act, 1961. The appellant, an assessee, filed a return of income and claimed an adjustment under Section 115J to reduce the adjusted book profit to nil. The Assessing Officer did not accept the full adjustment claimed by the assessee, allowing only a partial adjustment. The Commissioner of Income-tax (Appeals) accepted the assessee's contention and directed the Assessing Officer to exclude the full amount of depreciation from the profits for the purpose of computing book profit under Section 115J. However, the Income-tax Appellate Tribunal reversed this decision, restoring the order of the Assessing Officer. 2. Determination of the amount of loss or depreciation to be set off against the profit for the relevant previous year: The core issue was whether the amount of depreciation (Rs. 13,85,66,473/-) being less than the quantum of loss (Rs. 16,48,74,073/-) should be required to be set off in view of Clause (iv) of the Explanation to Section 115J of the Act. The Supreme Court's decisions in Apollo Tyres Ltd. vs. CIT and Surana Steels Pvt. Ltd vs. Deputy Commissioner of Income-tax were pivotal. The Supreme Court in Apollo Tyres Ltd. stated that the Assessing Officer must accept the authenticity of the accounts prepared in accordance with the Companies Act and has limited power to make adjustments as provided in the Explanation to Section 115J. The Surana Steels Pvt. Ltd case clarified that the term "loss" includes depreciation and must be understood in the context of Section 115J of the Income-tax Act. Judgment: The High Court concluded that the Tribunal erred in law by not appreciating the provisions of law correctly. The court held that the amount of depreciation (Rs. 13,85,66,473/-) should be set off in terms of Clause (iv) of the Explanation to Section 115J of the Act. The Tribunal's order was set aside, and the order of the CIT (Appeals) was restored. The appeal was allowed, answering both questions in the affirmative and against the Revenue. No order as to costs was made. Conclusion: The judgment emphasized the correct interpretation of Section 115J and the necessity to follow the Supreme Court's rulings on the matter, ensuring that the depreciation amount should be set off against the profit for the relevant previous year as per the statutory provisions.
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