2009 (7) TMI 680 - HC - Income Tax

Book Profit- A revaluation of the land and building of the assessee company was done by the valuer. Excess depreciation charged by the assessee to the profit and loss account thus the assessing authority added this depreciation in the book profit for calculating the assessee s actual income. The Commissioner (Appeals) confirm the order of Assessing officer but the Tribunal allow the appeal of assesese and held that the depreciation debited to the P&L A/c could be considered to be in the nature of reserve only when the amount written or retained by way of providing depreciation, the renewal or diminution in value of such assets was in excess of the accounts, which in the opinion of the directors was reasonably for the purpose. Thus it is in the conformity of the accounting norms. Held that- the book of account was duly certified by the authorities under the Company Act and P&L A/c also maintained as per the provisions of company Act. thus there is no infirmity in the order of the Tribunal.

Summary

Issues:
Allowability of depreciation on revaluation amounts under section 115J of the Income-tax Act, 1961.

Analysis:
The judgment deals with an income-tax appeal concerning the allowability of depreciation on revaluation amounts of assets under section 115J of the Income-tax Act, 1961. The primary question of law revolved around whether the Income-tax Appellate Tribunal was justified in holding that the assessee charged depreciation on revaluation amounts in accordance with the guidance note by the Institute of Chartered Accountants of India, while the provisions of section 115J and clause 7(2) of Part III of Schedule VI to the Companies Act should be applied to ascertain book profit. The assessing authority added the excess depreciation due to revaluation to the book profit, which was challenged by the assessee and eventually set aside by the Tribunal.

The key contention was the difference in depreciation between the revalued amount of the building and the depreciation chargeable on the actual cost. The Assessing Officer disallowed this depreciation for computing the book profit under section 115J of the Act. The Supreme Court precedent in Apollo Tyres v. CIT and Malayala Manorama Company Ltd. v. CIT clarified that the Assessing Officer's jurisdiction is limited to examining whether the books of account comply with the Companies Act and making adjustments as per the Explanation to section 115J, without delving into the net profit shown in the profit and loss account.

The Tribunal's decision favored the assessee, emphasizing that the depreciation debited on the revalued assets was not excessive and was in conformity with accounting norms. The Tribunal's reasoning was deemed convincing and satisfactory, based on evidence and material in the record. The High Court upheld the Tribunal's decision, noting that the books of account were certified under the Companies Act, and the depreciation claimed on revaluation amounts was reasonable as per the directors' opinion. Consequently, the appeal was dismissed, affirming the Tribunal's order.