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TMI Blog1993 (7) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the deduction under ss. 80HH and 80-I of the Act was not allowable before setting off of brought forward depreciation. (vii) The CIT(A) erred in not deciding the issue relating to 50% reduction in job work charges paid towards repairs of plant machinery. (viii) The CIT(A) erred in directing to verify the claim of Rs. 27,04,031 to allow/disallow the same. (ix) The CIT(A) erred in confirming the addition of Rs. 6,32,315 to the book profit, being alleged excess provision for depreciation. (x) The CIT(A) erred in not deciding the claim regarding allowability of deduction under s. 80-HHC. (xi) The CIT(A) erred in confirming levy of interest under ss. 234-B and 234-C of the Act. (xii) The CIT(A) erred in not holding that the additional tax or notional income assessed under s. 115-J of the Act was improper and bad in law. Ground No. (i): 2. The assessee had debited an amount of Rs. 63,43,804 to the interest account. It appears that during the course of assessment proceedings, the Assessing Officer was inclined to make disallowance of part of interest not relating to positive claim of the assessee, but relating to interest-free advances given to certain p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had interest free credits to the tune of Rs. 141 lakhs. It, therefore, cannot be said that the borrowed capital on which the interest was paid was diverted from non-business purpose; and even if it was so, the assessee-company had it's own huge capital out of which it could conveniently part with certain amount to others without charging interest. The addition of Rs. 89,170 is deleted. Ground No. (ii): 8. The claim of service charges of Rs. 6,75,000 paid by the assessee-company to its sister company, namely, M/s Souvenir Chemicals Pvt. Ltd., has been negatived concurrently by the Tax Authorities below, mainly on the ground that having regard to the relation of the assessee-company with the payee company and the nature of the job said to have been performed by the payee company it was unreasonable to make the payment of so much commission. Their inference was that the sister concern was brought in the picture in order to divert its own income. 9. We have minutely examined the material placed on record. It is pointed out by the learned counsel for the assessee that M/s Souvenir Chemicals Pvt. Ltd. did not have much business and it engaged and retained huge stock for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made during the year and on such information coupled with that of the preceding year, he computed the depreciation at Rs. 84,98,685. The conclusion of the Assessing Officer was that the assessee did not claim depreciation for oblique motive of saving tax. He, therefore, forced deduction of depreciation upon the assessee. The grievance of the assessee before the CIT(A) was met with unsuccess. He observed that the assessee could not opt not to claim depreciation for a particular year to get a higher deduction under the Act. 15. It is contended by the learned counsel for the assessee that the claim of depreciation is a right of an assessee and the assessee has option to claim it or to forego it. It is urged by him that in case the assessee does not make claim for depreciation, it cannot be forced upon the assessee. In support reliance is placed upon CIT vs. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 75 CTR (Bom) 135 : (1989) 177 ITR 443 (Bom). He also placed reliance upon BECO Engg. Co. Ltd. vs. CIT (1984) 41 CTR (P H) 249 : (1984) 148 ITR 478 (P H). In reply, the learned Departmental Representative supporting the orders of the tax authorities below contended that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds Corpn. (1989) 79 CTR (P H) 181 : (1989) 180 ITR 334 (P H) (vi) CIT vs. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 75 CTR (Bom) 135 : (1989) 177 ITR 443 (Bom) (vii) CIT vs. Kolhapur Oxygen Acetylene Pvt. Ltd. (1991) 190 ITR 574 (Bom) (viii) Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj) (ix) CIT vs. Arun Textiles 'C' (1991) 98 CTR (Guj) 117 : (1991) 192 ITR 700 (Guj) (x) CIT vs. Machine Tool Corpn. of India (1992) 108 CTR (Kar) 110 : (1993) 201 ITR 101 (Kar) Gujarat High Court in the case of CIT vs. Arun Textiles 'C' has dissented from Ascharajlal Ram Parkash vs. CIT and Dashprakash Bottling Co. vs. CIT. 18. Sub-ss. (1) (2) of s. 34 have been omitted by the Taxation Laws (Amendment Misc. Provisions) Act, 1986, w.e.f. 1st April, 1988, which provided that the depreciation would be allowed only if the prescribed particulars for the purposes of cls. (i) (ii) of s. 32(1) of the Act have been furnished in respect of the depreciable assets. However, omission of these provisions does not in any manner disturb the judicial view taken by the majority of the High Courts in India that unless the assessee asks for depreciation, it could not be thrusted upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 32-AB necessarily falls within that computation and, therefore, it cannot be left out for allowing deduction under s. 80-HHC. This ground of objection of the assessee is, therefore, dismissed. 21. Ground No. (vi): The issue as to computation of deductions in respect of profits and gains for industrial undertaking under ss. 80-HH and 80-I as to whether the profits and gains derived from the industrial undertaking should be reduced by the amount of unabsorbed depreciation has been considered by the Tribunal in the case of ITO vs. Hindustan Electrographites Ltd. (1992) 41 ITD 223 (Ind). In the light of that decision, it is directed that for the purpose of computation of the deduction allowable under ss. 80-HH and 80-I, the amount of unabsorbed depreciation shall not be deducted out of the profits and gains derived from the industrial undertaking. 22. Ground No. (vii): The assessee claimed deduction of Rs. 1,58,495 paid to Dexter Fabricators Pvt. Limited on account of job work done by them for the assessee. The Assessing officer took help of the observation in the assessment case of M/s Dextor Fabricators that the expenses of Dexter Fabricators were grossly inflated. He the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upto the asst. yr. 1987- 88. The assessee, therefore, made extra provision of Rs. 27,04,031 in the balance sheet for the period from 1st July, 1987 to 30th June, 1988, which is included in the total provision of Rs. 59,49,264. The amount of this provision has been reduced from the current year's depreciation, computed by the Assessing Officer at Rs. 84,98,685 and as such he has considered Rs. 57,94,654 only for allowing depreciation. 25. On appeal, the CIT(A) summarily disposed of the issue by directing the Assessing Officer to verify the claim and allow/disallow the same accordingly. 26. Learned Representatives of the parties are heard at length. 27. After long discussion, we find that the following questions emerge out of this issue. (i) Whether the assessee having consistently followed the straight-line method of depreciation for making the provision in the books of account, can switch over the WDV method for the purpose? (ii) If so, whether the assessee can claim the arrears of depreciation arising out of change in method adopted by the assessee? (iii) If not, whether the Assessing Officer can disturb the book profit for the purposes of s. 115J by making disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby entitled to claim extra depreciation as arrears of the past years, being the difference between the two methods, for the purpose of computation of profits under s. 115-J of the Act. The Assessing Officer is directed not to interfere with the balance sheet of the assessee in that regard. Ground No. (ix): 33. Schedule XIV has been inserted by the companies (Amendment) Act, 1988, with retrospective effect from 2nd April, 1987. In the Companies Act, Note No. 4, of the said Schedule reads as under: "Where, during any financial year, any addition has been made to any asset or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such asset shall be calculated on a pro rata basis from the date of such addition or as the case may be upto the date on which such asset has been sold, discarded, demolished or destroyed." Sec. 205 as amended by the Amendment Act of 1988, lays down that the depreciation should be calculated in accordance with the rates specified in Schedule XIV to the Act and as such depreciation under the Companies Act has been delinked from that under the IT Act. The assessee made provision for depreciation on the assets added in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is that it should be taken with reference to the liability to pay advance tax under s. 208. 40. In order to appreciate the line of reasoning of the learned counsel for the assessee, it is necessary to bear in mind that the assessed income of the assessee includes cash compensatory support on export sales amounting to Rs. 10,51,649, which, till the date of payment of advance tax, did not fall under the category of revenue receipt as per order of the Special Bench of the Tribunal in the case of Gedore Tools (India) Pvt. Ltd. vs. IAC (1988) 31 TTJ (Del)(SB) 260 and, therefore, it was taken to "General reserve" and not to the profit loss account. It became revenue receipt by virtue of insertion of cl. (iiib) in s. 28 of the Act by the Finance Act, 1990, with retrospective effect from 1st April, 1967. Thus, according to him, it was not possible for the assessee to visualize that the said amount would be taken as a revenue receipt and, therefore, it was also not possible to pay advance tax thereon. In support, the learned counsel relied upon order dt. 11th Aug., 1992 of the Tribunal in the case of Hindustan Electrographites vs. Dy. CIT in ITA No. 68/Ind/1991 vide para 7. 41. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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