697/CBDT. - Income Tax - 697/CBDT

INSTRUCTION NO. 697/CBDT Dated : May 31, 1974 A non-resident company carrying on its business in India having its assets situated in India filed its accounts in sterling pound showing also the corresponding rupee figures. The depreciation schedule of fixed assets furnished by the company to the ITO was all along kept in sterling. While the company actually reduced the sterling value of the fixed assets in its books of accounts to give effect to the devaluation of the rupees on 6.6.66 and of the sterling in the depreciation schedule for income-tax purposes was not done. The assessing officer did not notice this omission and allowed depreciation accordingly which resulted in excess allowance of depreciation to the extent of Rs.2.19 crores leading to an under-assessment of tax of Rs.1.53 crores for three years from assessment years 1967-68 to 1969-70. 2. Under the provision of IT ACT, 1961 no obligation is cast to maintain books of account in Indian Currency. However, when it comes to computation of income under the IT Act, the provisions of the IT Act and Rules are to be strictly adhered to. Under the IT Rules, the form of return of income has been statutorily prescribed. In the Return of income, the profit or loss as per profit and loss Account along with addition and subtraction is to be shown in terms of rupees. Similarly, the depreciation and development rebate is also to be shown in terms rupees in the Annexure provided. The resultant income under various heads is to be shown in terms of rupees in Part I of the Return of Income as specifically required. That being the case, the ITO in the instant case should have insisted on furnishing of the depreciation schedule in terms of Indian rupee from the very beginning had the depreciation schedule been maintained by the ITO in terms of rupees from the very-beginning the mistake could have been easily avoided as in that case the devaluation of the sterling would not have had any effect on the rupee value of the assets as correct written down values of the assets would have been reflected in the schedule. 3. Necessary instructions may please be issued to all the ITO for the maintenance of depreciation schedule in terms of rupees and for insisting on the assessee to conform to the requirement of the IT Rules as prescribed in the form of return of income. 4. A review of the past completed assessment may also be undertaken to retrieve the loss of revenue in cases where such mistakes have so far gone unnoticed. A report on the result of the review undertaken, indicating the number of cases in which the mistake has been detected and the IT effect thereon may be submitted to the Board by 10th July, 1974 positively.