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TMI Blog2002 (2) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation claim of Rs.57,06,878 allowed the depreciation of Rs.34,52,030 and computed the book profit @ 30% on the profit thus arrived. 2. Before the CIT(A) the assessee argued that the contention of the Assessing Officer is not correct. His argument was that under Schedule XlV of the Companies Act the minimum rate of depreciation required to be charged in the profit and loss account for the purpose of declaration of dividend is provided. There is no bar under the Companies Act for charging depreciation at a rate higher than what is provided in Schedule XIV. If due to technical reason or if the span of life of the asset is less than what is considered in arriving at the depreciation rate in Schedule XIV, higher rate of depreciation can be charged because, the very purpose of providing depreciation i.e. to write off of the cost of assets during the useful life of the asset. It was submitted before the CIT(A) that based oil "Technological Evaluation Report" dated 2-2-1989 of Sri T.K. Sarkar, B.E. (Mech.), Chartered Engineer, registered valuer for plant and machineries, Surveyor and Assessor, the Board of Directors of the respondent company vide resolution passed on 31-3-1989 took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's cross-objection it is found that there is no specific ground raised in it except that the appeal is barred by limitation. The Revenue has filed a petition for condonation of delay of 10 days in filing the appeal. Since we are satisfied with the reasons stated by the Revenue in the application filed for condonation of delay, we condone the delay of 10 days. In this view of the matter, the cross-objection is rejected. 6. In the result, the appeal as well as the cross-objection are dismissed. Per Shri N.R.S. Ganesan, Judicial Member -- I have the benefit of going through the draft order prepared by my learned brother, the Accountant Member. I entirely agree with the reasoning and conclusion arrived at by my brother, learned Accountant Member, in case of ground No. 1 of the appeal. The decision in respect of ground No. 1 is also supported by the decision of the Tribunal, Ahmedabad Bench, in the case of ACIT v. Bell Ceramics Ltd. (69 ITD 156) and also the Tribunal, Bombay Bench, in the case of Modern Woollen Ltd. v. DCIT (47 ITD 154). 2. However, I am not able to agree with the reasoning and conclusion arrived at by my learned brother, Accountant Member, in respect of ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h arrear of depreciation computed in accordance with section 205(2) of the Companies Act, 1956, is disclosed by way of a note and not otherwise". 4. The Hon'ble Supreme Court in the case of Surana Steel (P.) Ltd. v. CIT [1999] 237 ITR 777 held that the meaning of the term "loss" as used in the provisions of the Companies Act includes depreciation also. According to the Hon'ble Supreme Court the unabsorbed depreciation was a part of loss. The Hon'ble Supreme Court has also laid down a formula to carry forward the losses or depreciation under section 115J. So, it is very cleary that the depreciation has to be calculated and carried forward or set off in accordance with the principles laid down by the jurisdictional High Court in the case of Assam Foam (P.) Ltd. and Surana Steels (P.) Ltd. 5. The learned authorised representative of the assessee has also filed a written submission. The learned authorised representative tried to clarify the order of the CIT(A) by saying that this order is in conformity with section 115J(2) of the Income-tax Act, 1961. I am unable to understand how this direction of the CIT(A) to treat the entire provisions of section 115J as non-existent will be in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act, 1961, by treating section 115J as non-existent or by giving harmonious reading of the entire provisions of section 115J as per the rule of interpretation laid down by the Hon'ble jurisdictional High Court in the case of CIT v. M/s. Assam Foam (P.) Ltd. and also the Hon'ble Supreme Court in the case of Surana Steels (P.) Ltd." In exercise of power conferred under section 255(4) of the Income-tax Act, I am proceeding to decide the above question as Third Member. 2. With a view to appreciating the point of controversy, it would be appropriate to state succinctly the facts of the case. The assessee is a private limited company. For the assessment year 1989-90, it had debited its P&L account by depreciation calculated at rates higher than those prescribed in the relevant Schedule to the Companies Act, 1956. Return was filed declaring 'nil' income. Vide his original order under section 143(3) of the Act dated 28-3-1990, the Assessing Officer determined the total income of the assessee at nil and also quantified unabsorbed depreciation at Rs.4,81,978. Vide his order under section 263 of the Act dated 26-3-1992, the Commissioner of Income-tax, NER, Shillong set aside the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to make normal computation i.e., computation of the total income of the appellant on the basis as if the provisions of section 115J of the Income-tax Act were non-existent. and thereby, quantify the amount of unabsorbed depreciation and allow the same to be carried forward in accordance with the provisions of section 32(2) of the Income-tax Act." 2.2 The Department came in appeal before the Tribunal and took the following two effective grounds:-- "1. For that on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in facts and in law in directing the Assessing Officer to allow depreciation for the purpose of book profit under section 115J at rates higher than those specified in Schedule XIV to the Companies Act. Keeping in view the duration of the accounting period. 2. For that the learned Commissioner of Income-tax (Appeals) erred in law in directing to quantify the amount of unabsorbed depreciation and allow carry forward of the same in accordance with the provisions of section 32(2) in contravention of the provisions contained in sub section (2) of section 115J." 3. The ld. Accountant Member who proposed the order has uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(1). Suffice it to say that the said section begins with a non obstante clause, namely, "notwithstanding anything contained in any other provision of this Act". It provides that if the total income of a company determined under the Income-tax Act in respect of a previous year is less than 30% its "book profit", fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to 30% of such book profit. Section 115J(1), therefore, involves two processes. Firstly, the income of the company has to be determined under the provisions of the Income-tax Act. Secondly, in view of provisions of section 115J(1A), a P&L account is to be prepared in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act and its net profit, suitably adjusted so as to satisfy the requirements of the Explanation, is termed as "book profit". It is then to be seen whether the income determined under the first process is less than 30% of the book profit and, if so, section 115J would be invoked. Sub-section (2) of section 115J reads as under:-- "Nothing contained in sub-section (1) shall affect the determination of the amounts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member is to the use of word non-existent by the ld. CIT(A) for section 115J. I have already pointed out that in effect sub-section (2) of section 115J nullifies the effect of section 115J(1) of the Act. I am of the opinion that if in such situation, it is held that for the purposes of determination of the amounts in relation to relevant previous year to be carried forward to the subsequent year(s) under the provisions listed in sub-section (2) it has to be presumed that section 115J(1)is not existing, no injustice would be caused to the interpretation of the provisions. It has to be borne in mind that section 115J is introduced with a limited purpose and after achieving the desired object, the effect of sub-section (1) is nullified in view of the saving provisions of its sub-section (2). In this connection, I would like to refer to the following observations of the Hon'ble Karnataka High Court in the case of Widia (India) Ltd. v. CIT [2000] 242 ITR 678 made while interpreting the provisions of sub-sections (1) & (2) of section 115J of the Act:-- "For computing the income under section 115J(1), a specific provision has been made in respect of the carry forward of an unabsorbed dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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