2008 (8) TMI 1010 - HC - Income Tax

Summary

Issues involved:
The issue involves the interpretation of Section 260A of the Income Tax Act, 1961 regarding the adjustment made by the Assessing Officer for extra depreciation on a furnace, changing from straight line method to WDV method, for assessment year 1997-98.

Summary:

Issue 1: Adjustment of Extra Depreciation
The assessee provided for extra depreciation on the furnace by changing the method from straight line to WDV. The Assessing Officer adjusted this amount while computing book profit under Section 115JA of the Act. The CIT (Appeals) deleted the adjustment, citing the judgment of the Supreme Court in Apollo Tyres Limited vs. CIT. The Revenue challenged this before the Tribunal, which upheld the CIT (Appeals) decision. The Tribunal found that the Assessing Officer's disallowance of depreciation lacked a quantitative basis and that the change in method was permissible. The Revenue contended that the change was a colorable device to reduce tax incidence, but the Court held that the assessee had followed the Companies Act provisions and the principles laid down by the Supreme Court in Apollo Tyres Limited.

Issue 2: Interpretation of Section 115JA
The Revenue argued that the change in depreciation method was not in accordance with Part-II of Schedule VI of the Companies Act and was a colorable device. However, the Court held that the Assessing Officer's power under Section 115JA is limited to examining the certified accounts and making specified adjustments. The Court emphasized that the Assessing Officer cannot recompute profits by excluding depreciation provisions. The Court also noted that the conditions of the second proviso to Section 115JA(2) were satisfied in this case, and the assessee's method of accounting was in compliance with the Companies Act.

Conclusion:
Based on the principles established in the Apollo Tyres Limited case and the compliance with the Companies Act, the Court found no substantial question of law arising from the Tribunal's order. The appeal was therefore disposed of accordingly.