2005 (6) TMI 254 - AT - Income Tax

Summary

Issues:
1. Interpretation of section 115JA for computing book profits.
2. Discrepancy in claiming depreciation in profit and loss account.
3. Applicability of Companies Act provisions in adjusting book profits.
4. Validity of adjusting book profits for depreciation without specific permission.

Analysis:

Issue 1: The main issue in this case revolves around the interpretation of section 115JA for computing book profits. The contention arises from the deduction of depreciation amounting to Rs. 1,05,76,176 by the assessee while computing book profits under section 115JA. The Assessing Officer rejected this claim as the depreciation was not reflected in the profit and loss account. However, the CIT(A) allowed the deduction, leading to the current appeal by the revenue.

Issue 2: The discrepancy in claiming depreciation in the profit and loss account is a crucial aspect of this case. The revenue argued that since the assessee did not claim depreciation in the profit and loss account, the claim for depreciation in computing book profits should be rejected. On the other hand, the assessee contended that the adjustment was necessary to align the book profits with the provisions of the Companies Act.

Issue 3: The applicability of provisions of the Companies Act in adjusting book profits was extensively discussed. The counsel for the assessee emphasized that section 115JA mandates book profits in accordance with Part II and Part III of Schedule VI to the Companies Act. However, the revenue relied on a Supreme Court decision emphasizing that the Assessing Officer's role is limited to verifying if the books of account are maintained as per the Companies Act.

Issue 4: The validity of adjusting book profits for depreciation without specific permission was a key point of contention. The revenue argued that the adjustment made by the assessee for providing depreciation was not permitted by the Companies Act or the Supreme Court decision cited. The tribunal concurred with this argument, stating that the adjustment was not mandated by law and, therefore, set aside the order of the CIT(A) in favor of the revenue.

In conclusion, the tribunal allowed the revenue's appeal, highlighting that the adjustment made by the assessee for depreciation in computing book profits was not supported by the Companies Act or legal precedents. The judgment underscores the importance of adhering to statutory provisions and established legal principles in determining book profits for taxation purposes.