2009 (4) TMI 23 - HC - Income Tax

Assessee claimed depreciation on the basis of WDV (Written down method) while calculating book profit u/s 115J and prepared book of account as certified by the Chartered Accountant whereas in the books of accounts as adopted by the AGM of the company for the 15 months, depreciation was claimed on the basis of SLM (straight line method) AO denied deprecation on WDV method and calculated depreciation on SLM method Held that action of AO is wrong answers in favor of assessee

Summary

Issues:
1. Interpretation of Section 115J of the Income Tax Act, 1961 regarding computation of book profit.
2. Validity of using Written Down Value method for claiming depreciation.
3. Authority to approve the Profit & Loss Account for computing book profit under Section 115J.

Analysis:
1. The main issue in this case revolved around the interpretation of Section 115J of the Income Tax Act, 1961, concerning the computation of book profit. The Appellate Tribunal set aside the assessment order, questioning the calculation of book profit under Section 115J and directed the Assessing Officer to consider depreciation using the Written Down Value (WDV) method. The Assessing Officer had disallowed depreciation claimed under WDV method without providing substantial reasons, leading to a dispute between the parties.

2. The Assessment Year in question was 1989-90, and the assessee, a Limited Company, had filed a return of income claiming depreciation through the WDV method. However, the Assessing Officer rejected this method and opted for the Straight Line Method based on the accounts adopted by the General Body of the company at the Annual General Meeting. The disagreement arose when computing the book profit under Section 115J, with the Revenue challenging the validity of the WDV method for claiming depreciation.

3. The case also involved the authority responsible for approving the Profit & Loss Account used to compute the book profit under Section 115J. The Revenue argued that the book profit should be calculated based on the Profit & Loss Account authenticated by a Chartered Accountant and approved by the General Body of the Company at the Annual General Meeting. Conversely, the respondent contended that the Profit & Loss Account presented, audited by a Chartered Accountant, and in compliance with the Companies Act, should be accepted for computing book profit.

In conclusion, the High Court upheld the Tribunal's decision, finding no infirmity in the order. The Court agreed with the Commissioner (Appeals) and Tribunal's findings that the Profit & Loss Account presented by the assessee was in accordance with the Companies Act and duly audited. Consequently, the Court ruled in favor of the assessee, dismissing the appeal from the Revenue.