1992 (8) TMI 154 - AT - Income Tax

Issues Involved:
1. Quantification of capital considering the difference between depreciation allowed under the Income-tax Act and provided in the books of accounts.
2. Adjustment of capital by excess tax liability assessed over the tax liability provided in the books of accounts.
3. Non-disposal of specific grounds by the CIT (Appeals).

Issue-wise Detailed Analysis:

1. Quantification of Capital Considering the Difference Between Depreciation Allowed Under the Income-tax Act and Provided in the Books of Accounts:

For the assessment year 1983-84, the Sur-tax Officer computed the capital at Rs. 27,31,444 by deducting the difference in depreciation allowed as per the Income-tax Law (Rs. 22,80,576) from the capital worked out in the return (Rs. 50,12,020). The Assessing Officer relied on the Bombay High Court's decision in CIT v. Zenith Steel Pipes Ltd. [1978] 112 ITR 215 (Bom.), which supported this method. The CIT (Appeals) upheld this action, citing the same judgment.

The Tribunal, in the case of Maharashtra Scooters Ltd. v. IAC, followed the same reasoning, reducing the difference between depreciation allowed under the Income-tax Act and provided in the books from the general reserves for capital computation. The Tribunal upheld the CIT (Appeals) order, emphasizing the Bombay High Court's interpretation that if the depreciation provided in the books is less than that allowed by the ITO, the difference must be deducted from the general reserves.

2. Adjustment of Capital by Excess Tax Liability Assessed Over the Tax Liability Provided in the Books of Accounts:

The Assessing Officer found that the assessed tax was higher than the tax provided in the books for earlier years and proposed an adjustment in the capital. The CIT (Appeals) agreed, stating that the taxable income and tax liability finally determined should replace the income and tax provided in the books. The CIT (Appeals) rejected the contention that additional income confirmed by the Tribunal should increase the capital, as this was not provided for in the Sur-tax Act.

The Tribunal referenced the Supreme Court's decision in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, which held that a provision for a known liability, even if quantified later, is not a reserve. The Tribunal upheld the CIT (Appeals) order, noting that the excess tax liability allowed while computing chargeable profits must reduce the general reserve or capital base.

3. Non-disposal of Specific Grounds by the CIT (Appeals):

For the assessment year 1983-84, the assessee claimed that the CIT (Appeals) did not address grounds 3A, 3B, and 3C. The Tribunal noted that since these grounds were not dealt with by the CIT (Appeals), they do not arise from the order and cannot be entertained. The assessee was advised to approach the CIT (Appeals) for remedy.

Separate Judgment for Assessment Year 1982-83:

For the assessment year 1982-83, the issues were similar to those for 1983-84. The Assessing Officer reduced the capital by the difference in depreciation (Rs. 24,73,259), resulting in a capital of Rs. 19,58,882. The CIT (Appeals) confirmed this reduction, and the Tribunal upheld the decision, following the reasoning for 1983-84.

Regarding the levy of interest under section 7(C)(1), the Tribunal noted that the CIT (Appeals) had not dealt with this ground, and no specific argument was advanced. The assessee was advised to take up the matter with the CIT (Appeals).

Conclusion:

In both appeals, the Tribunal upheld the CIT (Appeals) orders regarding the quantification and adjustment of capital, following the principles established in relevant judicial precedents. The appeals were dismissed.

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