2016 (11) TMI 1364 - HC - Income Tax

Permission to enhance the depreciation by revaluation of the assets upwards - whether assessee company has shown high depreciation in the Profit & Loss A/c during the year under consideration and defeated the provisions of Section 115J? - Held that - As decided in Commissioner of Income Tax-II Kanpur Vs. M/S. J.K. Synthetics Ltd. Kamla Tower Kanpur 2015 (10) TMI 397 - ALLAHABAD HIGH COURT following the decision of the Supreme Court in Apollo Tyres Ltd. Vs. Commissioner of Income-Tax (2002 (5) TMI 5 - SUPREME Court) wherein find from a perusal of the assessment order that the net profit shown in the profit and loss account of the company was prepared in accordance with Parts II and III of Schedule VI to the Companies Act. Once this finding has been given, the Assessing Officer could not go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J of the Act. Provision of Section 115J does not empower AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The Supreme Court has categorically held in Apollo Tyres (Supra) that there cannot be two incomes, one for the purpose of the Companies Act and another for the purpose of income-tax.

Summary

Issues:
1. Interpretation of Section 115J of the Income Tax Act, 1961 regarding high depreciation in the Profit & Loss A/c.
2. Permissibility of enhancing depreciation by revaluation of assets to reduce income.

Analysis:
1. The appeal was filed by the Principal Commissioner of Income Tax-I, Kanpur under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal for the Assessment Year 1990-91. The main issue raised was whether the ITAT was justified in upholding the decisions of CIT(Appeals) without considering the high depreciation shown by the assessee company in the Profit & Loss A/c, potentially defeating the provisions of Section 115J of the Act. The appellant argued that a similar issue was addressed in a previous case involving the same parties for the Assessment Year 1988-89, where the appeal was dismissed based on the Supreme Court's decision in Apollo Tyres Ltd. Vs. Commissioner of Income-Tax (2002) 255 ITR 273 (SC). The court reiterated that the Assessing Officer cannot question the correctness of the profit and loss account prepared in accordance with the Companies Act, as highlighted in the Apollo Tyres case.

2. The second issue raised in the appeal was whether the assessee could enhance depreciation by revaluing assets upwards to reduce its income. The court's decision was influenced by the previous judgment in a similar case, where it was established that the Assessing Officer cannot conduct a fresh inquiry into the entries made in the company's books of account beyond the provisions of Section 115J of the Act. The court emphasized that there cannot be two different incomes for the purpose of the Companies Act and income tax, as clarified in the Apollo Tyres case. Since the matter had already been decided against the department in a previous case, the court concluded that no substantial question of law arose for consideration in the present appeal.

In conclusion, the High Court dismissed the appeal, citing the precedent set in the Apollo Tyres case and the previous judgment involving the same parties. The court's decision reaffirmed the limitations on the Assessing Officer's authority to question the profit and loss account prepared in accordance with the Companies Act, as outlined in Section 115J of the Income Tax Act, 1961.