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2020 (2) TMI 1064 - HC - Income TaxComputing income u/s 115J - Special provisions relating to certain companies - whether while computing income under Section 115J of the 1961 Act, the depreciation is to be allowed only as the provisions of the 1956 Act and not as per the Income Tax Rules, 1962 ? - HELD THAT - The Supreme Court in Malayala Manorama Co. Ltd. v. Commissioner of Income-Tax 2008 (4) TMI 20 - SUPREME COURT while dealing with the question Whether in respect of a company consistently charging depreciation in its books of account at the rates prescribed in the Income-tax Rules, the Income-tax Officer has jurisdiction under section 115J of the Income-tax Act, 1961, to rework net profits by substituting the rates prescribed in Schedule XIV to the Companies Act, 1956? allowed the appeal of the assessee and set aside the view taken by Kerala High Court. Learned counsel for the revenue was not able to dispute the above discussed legal position The judgment of the Supreme Court in Apollo Tyres Ltd.'s case 2002 (5) TMI 5 - SUPREME COURT was found to be not applicable in the facts of that case. The issue related to profit and loss not being determined in accordance with Part II and Part III of Schedule VI to the 1956 Act was the bone of contention whereas in the present case, the controversy is as to whether depreciation can be claimed as per the Rules or has to be restricted as per Schedule VI to the 1956 Act. In view of the decision of this Court in Sona Woollen Mills (P) Ltd.'s case 2006 (10) TMI 99 - PUNJAB AND HARYANA HIGH COURT the question is answered in favour of the assessee. The matter is remanded back to the Assessing Officer to compute the income under Section 115J of the 1961 Act in accordance with law.
Issues:
1. Whether orders Annexure P-1 and P-3 are legally sustainable? 2. Whether the appellant had the option to adopt depreciation rates from Income Tax Rules over Companies Act for determining book profit? 3. Whether depreciation under Section 115J of the Income Tax Act should be calculated as per Companies Act or Income Tax Rules? Issue 1: Legality of Orders The case involved four appeals with similar issues. The assessee filed a return for the assessment year 1990-91 showing nil income. The assessment under Section 115J of the Income Tax Act was framed, allowing depreciation only as per the provisions of the Companies Act, 1956. The Appellate Authority remanded the matter back to re-compute income by allowing depreciation based on the written down value method. The Tribunal allowed the revenue's appeal, stating that depreciation should be provided as per the 1956 Act. The main issue was whether depreciation should be allowed only as per the Companies Act and not the Income Tax Rules. Issue 2: Depreciation Calculation The appellant argued that a decision in Commissioner of Income Tax v. Sona Woollen Mills supported their position, disagreeing with other High Courts on depreciation calculation. Referring to Apollo Tyres Ltd. v. CIT, the Supreme Court emphasized that the AO's power under Section 115J is limited to examining if accounts are maintained as per the Companies Act, not to reassess income. Another case, Malayala Manorama Co. Ltd. v. CIT, allowed companies to use Income Tax Rules for depreciation calculation. The revenue's reliance on a local judgment was dismissed as the issue was different from the present case. Issue 3: Legal Position The judgment in Sona Woollen Mills case favored the assessee, stating that depreciation can be claimed as per Income Tax Rules. The matter was remanded to compute income under Section 115J in accordance with the law. The decision was based on the limited power of the AO to examine accounts under the Companies Act and make adjustments as per the Explanation to Section 115J. The parties were directed to appear before the Assessing Officer for further proceedings. In conclusion, the High Court's judgment favored the appellant, allowing depreciation calculation as per Income Tax Rules and remanding the matter for proper computation of income under Section 115J. The legal position established through various precedents supported the appellant's argument, emphasizing the limited scope of the AO's power in assessing income under the Income Tax Act.
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