1997 (4) TMI 107 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation allowance under Section 115J of the IT Act.
2. Interest under Section 234B and 234C for default of advance tax.
3. Compliance with Section 80HHC regarding the filing of an audit report.

Detailed Analysis:

1. Depreciation Allowance under Section 115J of the IT Act:
The primary issue was whether the assessee could claim depreciation as per IT Rules instead of the rates prescribed in Schedule XIV of the Companies Act while computing income under Section 115J of the IT Act. The assessee filed a return declaring income and claimed deductions under Sections 80HHA and 80-I. The AO initially rejected these claims but later allowed them upon direction from the CIT(A). However, the AO computed the book profit under Section 115J by disallowing depreciation charged at higher rates as per IT Rules, instead of the rates prescribed in Schedule XIV of the Companies Act.

The CIT(A) allowed the depreciation as per IT Rules, citing that the assessee, a private company, was not bound by Schedule XIV rates as per Section 355 of the Companies Act. The CIT(A) noted that the Company Law Board Circular No. 12 of 1989 clarified that Schedule XIV rates are minimum rates, and higher rates can be charged based on technological evaluation.

The Tribunal upheld the CIT(A)'s decision, stating that the assessee was justified in charging higher depreciation rates as per IT Rules without violating Parts II and III of Schedule VI to the Companies Act. It was emphasized that Schedule XIV rates are minimum rates and higher rates are permissible with proper disclosure.

2. Interest under Section 234B and 234C for Default of Advance Tax:
The AO charged interest under Section 234B and 234C for default in advance tax payment, based on the income determined under Section 115J. The CIT(A) held that no interest under Section 234B could be charged on income determined under Section 115J, as it is a fictional income and does not extend to advance tax provisions.

The Tribunal upheld the CIT(A)'s view, stating that Section 115J creates a legal fiction for a specific purpose and does not extend to advance tax liability. The Tribunal referenced the decision in the case of Steel Authority of India Ltd. to support this view.

3. Compliance with Section 80HHC Regarding Filing of Audit Report:
The issue was whether the filing of an unsigned audit report complied with Section 80HHC(4). The AO withdrew the deduction claimed under Section 80HHC, stating that the unsigned report made it non-est. The CIT(A) allowed the deduction, stating that Section 80HHC(4) does not explicitly require a signed report and that the assessee had complied with the condition by filing the report along with the return.

The Tribunal upheld the CIT(A)'s decision, noting that the AO could have addressed the defect under Section 139(9) but could not disallow the claim under Section 143(1)(a) or withdraw it under Section 154 without giving the assessee an opportunity to be heard. The Tribunal emphasized that the unsigned report issue is debatable and cannot be a ground for rectification under Section 154.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years 1989-90 and 1990-91, upholding the CIT(A)'s decisions on all issues. The assessee was allowed to claim depreciation as per IT Rules, no interest under Section 234B was chargeable on income determined under Section 115J, and the deduction under Section 80HHC was valid despite the audit report being unsigned.