2000 (8) TMI 247 - AT - Income Tax

Issues Involved:
1. Computation of book profit under section 115-J of the Income-tax Act, 1961.
2. Deletion of addition of Rs. 2,06,787 related to borrowed money for the purchase of raw material.
3. Deletion of disallowance of Rs. 15,326 towards food provided to contractors.
4. Deletion of disallowance of depreciation on tubewell by treating it as plant and machinery.

Issue-wise Detailed Analysis:

1. Computation of Book Profit under Section 115-J of the Income-tax Act, 1961:
The assessee, a company, computed book profit under section 115-J at NIL, debiting arrears of depreciation amounting to Rs. 1,65,18,620. The Assessing Officer (AO) found this computation not in accordance with Parts II & III of Schedule VI to the Companies Act, 1956, and recomputed the book profits at Rs. 44,11,746. The Commissioner of Income-tax (Appeals) [CIT (A)] allowed the assessee's claim, following a prior decision for the assessment year 1989-90. The Revenue appealed against this decision.

The assessee argued that the computation was correct as per section 115-J and cited the Supreme Court's decision in Surana Steels (P.) Ltd. v. Dy. CIT [1999] 237 ITR 777 (SC), which allows for the deduction of unabsorbed depreciation. The Revenue contended that the book profit was not calculated in accordance with the Companies Act, and the AO was justified in recasting the book profit, relying on the decision in Sutlej Cotton Mills Ltd. v. Asstt. CIT [1993] 45 ITD 22.

The Tribunal noted that section 115-J involves determining the income under the Income-tax Act and then computing book profit as per the Companies Act. The Tribunal found that the assessee did not claim depreciation in preceding years due to non-availability of profit and debited arrears of depreciation in the current year. The Tribunal held that arrears of depreciation cannot be equated with unabsorbed depreciation, as the Companies Act does not contemplate making a provision for arrears of depreciation. The Tribunal upheld the AO's recasting of the book profit and reversed the CIT (A)'s order.

2. Deletion of Addition of Rs. 2,06,787 Related to Borrowed Money for the Purchase of Raw Material:
The AO made an addition of Rs. 2,06,787 on the ground that the interest on borrowed money for the purchase of raw material should form part of the closing stock. The Tribunal found no indication that the amount was borrowed specifically for the purchase of raw material or directly utilized towards the cost of production. The money was borrowed for business purposes, and the interest was debited in the profit and loss account. The Tribunal upheld the deletion of the addition by the CIT (A).

3. Deletion of Disallowance of Rs. 15,326 Towards Food Provided to Contractors:
The AO disallowed Rs. 15,326 towards food provided to contractors. The Tribunal noted that the factory was situated away from the city, and the contractors' workmen were housed in the factory premises and provided food at the cost of the assessee. This was considered a business expenditure, and the Tribunal upheld the CIT (A)'s deletion of the disallowance.

4. Deletion of Disallowance of Depreciation on Tubewell by Treating it as Plant and Machinery:
The AO disallowed depreciation on a tubewell by not treating it as plant and machinery. The Tribunal upheld the CIT (A)'s decision, which followed the Calcutta High Court's ruling in CIT v. Hindustan Motors Ltd. [1988] 170 ITR 431, treating the tubewell as plant and machinery. No contrary decision was presented to the Tribunal.

Conclusion:
The Tribunal partly allowed the appeal of the Revenue, upholding the AO's recasting of book profit under section 115-J and reversing the CIT (A)'s order on this issue. The Tribunal upheld the CIT (A)'s decisions on the deletion of the addition of Rs. 2,06,787, disallowance of Rs. 15,326 towards food provided to contractors, and disallowance of depreciation on the tubewell.

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