2017 (1) TMI 1151 - HC - Income Tax

MAT - Book adjustment u/s 115JB - adjustments made by AO while working out book profit u/s. 115JB in respect of arrears of depreciation - ITAT deleted adjustment - Held that - The Revenue is unable to point out any flaw / error in the impugned order of the Tribunal. We find that the issue as framed stands concluded by the decision of the Apex Court in Apollo Tyres Ltd (2002 (5) TMI 5 - SUPREME Court ) and the decision of this Court in Kinetic Motor Co. Ltd (2003 (1) TMI 47 - BOMBAY High Court ). The above decisions have held that it is not permissible to the Assessing Officer to tinker with the profit declared in the audited account maintained in terms of Schedule VI of the Companies Act. Whether Tribunal was correct in deleting the adjustments made by the Assessing Officer in respect of arrears of depreciation for A.Y. 2000-01 and 2001-02 while working out the book profit u/s. 115JB without appreciating the fact that clause (iia) of Explanation 1 to Section 115JB which provides for reduction of the depreciation debited to the P & L A/c. was inserted only in the Finance Act 2006 w.e.f. 1.4.2007 and is, therefore, not applicable to the year under consideration? - Held that - This issue was not urged before the authorities under the Act. Therefore in view of the decision of this Court in CIT vs. Tata Chemicals Ltd. 2002 (4) TMI 42 - BOMBAY High Court it cannot be urged before this Court for the first time. On the aforesaid facts above we see no reason to entertain this question. In any case, the question as framed proceeds on a fundamentally erroneous basis that the Tribunal has allowed the claim of the respondent-assessee by relying upon clause (iia) of explanation to Section 115JB of the Act. Therefore the grievance of the Revenue that the above clause was inserted only in Finance Act, 2006 w.e.f. 1st April, 2007 and is not applicable for the year under consideration does not carry the issue in the present facts any further.

Summary

Issues:
1. Whether the Tribunal was justified in deleting adjustments made by the Assessing Officer while working out book profit under Section 115JB of the Income Tax Act in respect of arrears of depreciation for Assessment Years 2000-01 and 2001-02.
2. Whether the Tribunal was correct in deleting adjustments made by the Assessing Officer in respect of arrears of depreciation for Assessment Years 2000-01 and 2001-02 while working out the book profit under Section 115JB without considering the applicability of clause (iia) of Explanation 1 to Section 115JB.

Analysis:

Issue 1:
During the assessment proceedings, the Assessing Officer noted that the respondent-assessee had debited an amount for arrears of depreciation for the years 2000-01 and 2001-02. The Assessing Officer added back this amount to the book profits for the purpose of Section 115JB of the Act. The respondent-assessee contended that the accounts were prepared as per the Companies Act and duly audited, citing the decision of the Supreme Court in CIT vs. Apollo Tyres Ltd. The Commissioner of Income Tax (Appeals) allowed the appeal, stating that the book profits prepared in accordance with the Companies Act should be accepted unless adjusted as per the Explanation to Section 115JB. The Tribunal upheld this decision, citing precedents and the Apex Court's ruling in Apollo Tyres Ltd. The Tribunal's order was found to be in line with legal precedents, and the Revenue failed to demonstrate any flaw in the decision. The issue was concluded based on existing legal interpretations, and as such, no substantial question of law arose.

Issue 2:
The Revenue did not raise the second issue before the lower authorities, and it was deemed inadmissible as per legal precedent. Furthermore, the Revenue's argument regarding the insertion of clause (iia) of Explanation 1 to Section 115JB in the Finance Act 2006 was found to be irrelevant to the current case. As a result, the second issue did not give rise to any substantial question of law and was not entertained. Ultimately, the appeal was dismissed without any costs being awarded.

This judgment highlights the importance of adhering to legal provisions and established precedents in tax assessment matters, emphasizing the significance of following statutory requirements and legal interpretations in determining book profits for taxation purposes.