2002 (2) TMI 323 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of depreciation for the purpose of book profit under section 115J at rates higher than those specified in Schedule XIV to the Companies Act, 1956.
2. Direction to the Assessing Officer to quantify the amount of unabsorbed depreciation and allow carry forward of the same in accordance with the provisions of section 32(2) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Allowance of Depreciation at Higher Rates:

The primary issue was whether the CIT(A) was correct in allowing depreciation at rates higher than those specified in Schedule XIV to the Companies Act, 1956, for the purpose of calculating book profit under section 115J of the Income-tax Act, 1961. The Assessing Officer had disallowed the higher rate of depreciation claimed by the assessee, stating that only the rates specified in Schedule XIV were allowable. However, the CIT(A) allowed the higher depreciation based on a "Technological Evaluation Report" and a resolution by the Board of Directors. The CIT(A) referred to Circular No. 2/89 issued by the Department of Company Affairs, which clarified that the rates in Schedule XIV were minimum rates and higher rates could be justified based on bona fide technological evaluation. The CIT(A) concluded that it was permissible to provide commercial depreciation in excess of the rates specified in Schedule XIV. The Tribunal upheld the CIT(A)'s decision, noting that the Departmental Representative could not controvert the findings of the CIT(A). Thus, the appeal on this ground was dismissed.

2. Direction to Quantify and Carry Forward Unabsorbed Depreciation:

The second issue was whether the CIT(A) was correct in directing the Assessing Officer to quantify the amount of unabsorbed depreciation and allow it to be carried forward under section 32(2) of the Income-tax Act, 1961, by treating section 115J as non-existent. The CIT(A) directed the Assessing Officer to make a normal computation of total income as if section 115J did not exist and to quantify the unabsorbed depreciation for carry forward. The Judicial Member disagreed with this approach, arguing that the provisions of section 115J must be interpreted harmoniously with the rest of the Act. He cited the jurisdictional High Court's decision in CIT v. Assam Foam (P.) Ltd. and the Supreme Court's decision in Surana Steel (P.) Ltd., which emphasized the need for a harmonious interpretation of section 115J. The Judicial Member proposed modifying the CIT(A)'s order to direct the Assessing Officer to calculate depreciation in accordance with the principles laid down by the High Court and Supreme Court.

Third Member Decision:

The Third Member was called upon to resolve the difference of opinion between the Accountant Member and the Judicial Member. The Third Member agreed with the Accountant Member, stating that section 115J(2) effectively nullifies the effect of section 115J(1) for the purpose of carrying forward unabsorbed depreciation. The Third Member referred to the Karnataka High Court's decision in Widia (India) Ltd. v. CIT, which supported the view that section 115J(2) nullifies section 115J(1) and should be considered as if it does not exist for the purpose of determining amounts to be carried forward. Thus, the Third Member concurred with the Accountant Member's view, and the CIT(A)'s order was upheld.

Conclusion:

In conclusion, the Tribunal upheld the CIT(A)'s decision on both issues. The appeal by the Revenue and the cross-objection by the assessee were dismissed. The Tribunal confirmed that higher rates of depreciation could be allowed based on bona fide technological evaluation and that unabsorbed depreciation should be quantified and carried forward by treating section 115J as non-existent, in line with the harmonious interpretation of the provisions as laid down by the jurisdictional High Court and the Supreme Court.