1996 (5) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the CIT's action under section 263 of the Income-tax Act, 1961.
2. Interpretation of section 115J of the Income-tax Act, 1961.
3. Treatment of unabsorbed depreciation versus unabsorbed loss.
4. Binding nature of High Court decisions on Tribunals.

Issue-wise Detailed Analysis:

1. Legality of the CIT's action under section 263 of the Income-tax Act, 1961:
The CIT, Rohtak, invoked section 263 of the Income-tax Act, 1961, to set aside the assessment order dated 24-1-1989. The CIT observed that the Assessing Officer had erroneously allowed the set-off of Rs. 1,21,59,314 on account of depreciation against the profits and permitted the carry forward of Rs. 11,60,225 to subsequent years. The CIT held that the assessment order was prejudicial to the interests of the revenue as it did not comply with the provisions of section 115J, which mandates that unabsorbed loss or unabsorbed depreciation, whichever is less, should be deducted from the book profits.

2. Interpretation of section 115J of the Income-tax Act, 1961:
The CIT interpreted section 115J to mean that only the lesser of unabsorbed loss or unabsorbed depreciation should be deducted from the book profits. Since the assessee had no brought forward unabsorbed loss but only unabsorbed depreciation, the CIT concluded that no deduction could be allowed. The CIT's interpretation was based on the Board's Circular No. 495, dated 22-9-1987, and the provisions of section 205(b) of the Companies Act, 1956.

3. Treatment of unabsorbed depreciation versus unabsorbed loss:
The Tribunal noted that the CIT distinguished between actual business loss and notional loss after depreciation. The CIT held that the brought forward unabsorbed depreciation should not be considered while working out the book profit for section 115J purposes. The Tribunal referred to the decision of the Hon'ble Andhra Pradesh High Court in V. V. Trans-Investments (P.) Ltd./Surana Steels (P.) Ltd., which clarified that "loss" under section 115J does not include "unabsorbed depreciation." The High Court observed that unabsorbed depreciation and unabsorbed loss are distinct concepts under the Income-tax Act.

4. Binding nature of High Court decisions on Tribunals:
The Tribunal discussed whether it was bound by the decision of the Hon'ble Andhra Pradesh High Court. The learned counsel for the assessee argued that the Tribunal should follow its earlier decision in the assessee's case and the Special Bench decision in Surana Steels (P.) Ltd. The learned DR argued that the Tribunal should follow the Andhra Pradesh High Court's decision as there was no contrary decision from any other High Court, including the Punjab & Haryana High Court. The Tribunal concluded that it was bound to follow the Andhra Pradesh High Court's decision, as there was no contrary ruling from any other High Court.

Conclusion:
The Tribunal upheld the CIT's order, agreeing with the interpretation that "loss" for the purposes of section 115J does not include "unabsorbed depreciation." The appeal was dismissed, affirming that the assessment order was erroneous and prejudicial to the interests of the revenue.