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TMI Blog2004 (9) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... clarification on facts is needed, therefore, the same may be admitted. 5. The ld. D.R. submits that he has no objection on the admission of this Additional Ground of Appeal. 6. After hearing the rival parties and perusing the records, we find that this issue was decided by the CIT(A) against the assessee but the assessee did not consider to agitate this issue further and now in view of the decision in the case of Kwality Biscuits Ltd., the assessee wants to raise the issue before us. Since no new evidence or investigation is required and the facts are already on record, we, therefore, entertain this Additional Ground of Appeal, as raised by the assessee, as Ground No. 3. 7. In the Ground No. 1, the assessee claims that the deductions under sections 80HH and 80-I are to be allowed out of profits and gains of the Industrial Undertakings without deducting therefrom the depreciation, unabsorbed losses, unabsorbed depreciation etc. 8. The Assessing Officer was of the view that the assessee company has returned net loss at Rs. 1,11,559, after deducting depreciation of Rs. 72,28,897, therefore, the resultant figure of profit and gains remains negative, hence no deduction under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83 (SC) and by the Hon'ble Rajasthan High Court in the case of CIT v. Loonkar Tools (I) Ltd. [1995] 213 ITR 721 and also in CIT v. Vishnu Oil Dal Mills [1996] 218 ITR 71 but still he feels that the said decisions require reconsideration and review, therefore, lie is agitating this issue in order to keep the matter alive. 12. On the other hand, the ld. D.R. strongly supports the orders of the authorities below and submits that now the Hon'ble Supreme Court of India has settled this issue in favour of the Department as cited by the ld. A.R. and also in the following cases: 1. CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604 (SC) 2. H.H. Sir Rama Varma v. CIT [1994] 205 ITR 433 (SC) 3. CIT v. Swaran Singh Kanwar [1998] 232 ITR 350 (SC) 4. Modern Suitings Ltd. v. Asstt. CIT [IT Appeal No. 206 (Jp.) of 1993 dated 30-11-1999]. 13. We have heard the rival parties and have gone through the various case laws relied upon by them. We are of the opinion that scheme of the Act is such that the gross total income as defined under section 80B(5) for the purpose of Chapter VIA means that total income computed in accordance with the provisions of the Act wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax by recasting the Profit Loss A/c., which was prepared in accordance with the Schedule VI Parts II and III of the Companies Act, 1956." 16. The brief facts of this Ground of Appeal are that the Assessing Officer found that the assessee company has shown book profit as nil in the Return of Income whereas the assessee company was required to compute book profit in accordance with the provisions of the Companies Act, 1956. He further noticed that the assessee company has not drawn the computation of depreciation in accordance with the provisions of Part II and Part III of the Sixth Schedule to the Companies Act, 1956 to avoid the levy of income-tax under section 115J of the Income-tax Act, 1961. Accordingly, the Assessing Officer computed the book profit under section 115J as under: Declared net loss as per P L Account (-) 1,11,559 Add: Excess depreciation debited in P L A/c. in contravention of Schedule XIV of the Companies Act, 1956 as per following Chart: 44,59,907 ----------------------------------------------------------------------- Asset WDV Depreciation Depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 349 for computing the managerial remuneration. Further, for purposes of Companies Act, depreciation has now to be calculated in accordance with the rates specified in Schedule XIV. As per the rate in Schedule XIV, the claim on account of depreciation is to be debited to the profit loss account. This clearly shows that the profit loss account was not prepared in accordance with the provisions of Indian Companies Act and by making a higher claim of depreciation, the appellant wanted to hoodwink the Deptt. By showing no tax liability with reference to the book profit. It is no doubt that under the provisions of Companies Act, higher rate of depreciation can be claimed by making the bona fide technical evaluation and a note is to be given justifying the claim of depreciation at higher rates. In the case of the appellant, there is no iota of any evidence to show as to there being any bona fide technical evaluation justifying the higher rate of depreciation. On the contrary, perusal of the auditors report in Schedule K only shows that depreciation has been claimed as per the Income-tax Rules. The observation so made in the auditors report is a mere eye wash and cannot be taken at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting from Schedule XIV. Hence, the plea of the appellant in regard to the inapplicability of provisions of section 115J, being untenable, is rejected. . . ." 18. Now, the assessee is in appeal before us. 19. It was submitted by the ld. A.R. that the provisions of section 115J are not applicable in this case. The said provisions are special provisions relating to certain fiction created by the statute for the purpose of taxation with reference to book profit. The fiction so created by the statute is to be correctly interpreted and when there is no taxable profit or profit is less than 30 per cent of the book profit, the provisions of section 115J are not applicable. The sub-section (1A) of section 115J provides the company to prepare the Profit Loss Account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. As per Explanation to sub-section (1A) of section 115J, book profit means, the net profit as shown in the Profit Loss Account and it provides for certain adjustments to arrive at the book profit for the purpose of section 115J. The assessee company is a Public Limited Company and while preparing the Profit Loss Account, it d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile the same so far. 21. On the other hand, the ld. DR, while strongly relying upon the orders of the authorities below, submits that the calculation made by the Assessing Officer for charging of tax equivalent to 30 per cent of such book profit is in accordance with the provisions of section 115J, read with section 205 of the Companies Act and hence the order passed by the Assessing Officer, which was confirmed by the CIT(A) also, should be upheld. He also refers the Commentary of learned Author Chaturvedi Pithisaria's Fifth Edition, at pages 4173-74 in support of his arguments. 22. We have heard the rival submissions, perused the record and gone through the relevant records, to which our attention was drawn and also looked into the case laws cited by the parties. We find that this controversy has now been settled by the Hon'ble Supreme Court of India in the case of Surana Steels (P.) Ltd. v. Dy. CIT [1999] 237 ITR 777, wherein the Apex Court has observed as follows: "We are of the opinion that the term 'loss' as occurring in clause (b) of the proviso to section 205(1) of the Companies Act has to be understood and read as the amount arrived at after taking into account the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lternative plea that triple shift allowance should be allowed to the assessee. 26. After carefully considering the rival submissions of the parties and perusing the material on record, we find that no such claim was made by the assessee before the Assessing Officer or before the CIT(A) and no material was placed before us to show that the assessee is entitled for such claim. Therefore, in the absence of any prayer for the admission of such additional ground as per Income-tax (Appellate Tribunal) Rules, 1963, we do not find any merit in the alternative plea raised by the ld. A/R at this stage and hence it is rejected. 27. The last ground, which is an Additional Ground, is with regard lo the charging of interest under sections 234B and 234C of the Income-tax Act. 28. The ld. A/R submits that since the entire exercise of computing the income or that of book profit could be made only at the end of the financial year, the advance tax provision cannot be made applicable unless and until accounts are audited and the Balance Sheet is prepared because till then the assessee may not know whether the provisions of section 115J would be applicable or not. The liability would be after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Biscuits Ltd., are of the opinion that the interest under sections 234B and 234C are not chargeable. 32. In the result, the appeal filed by the assessee is partly allowed. Per Shri B.R. Jain, Accountant Member - After much persuasion, I have not been able to agree with the view taken by my brother Id. Judicial Member in respect of grounds 2(a) and 2(b) of the assessee's appeal which are dealt within paras 15 to 24 of his order. Briefly the facts are that the assessee prepared its profit and loss account for the relevant previous year in accordance with the provisions of parts II and III of Schedule VI of the Companies Act, 1956. After providing depreciation of Rs. 72,23,897 for the current year which was equal to the rates as prescribed under the I.T. Rules, it determined the net loss of Rs. 1,11,559. The Assessing Officer-while completing the assessment determined the total income first at a loss of Rs. 95,754 and thereafter recasted its profit and loss account so as to work out the book profit under section 115J of the Income-tax Act, 1961 by restricting the claim of depreciation of Rs. 72,28,897 to Rs. 27,68,990. He concluded that the assessee has charged excess depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efers to the rates given in the Sch. XIV of the Companies Act are not applicable in preparation of profit and loss account for the relevant previous year. The provisions of section 205(1)(b) of the Companies Act are relevant only in respect of clause (iv) under the Explanation to section 115J of Income-tax Act for arriving at the book profits after making adjustments and only when the loss/losses of earlier years are to be set off against the profits of the relevant previous year, whereas my ld. brother in para 24 of his order confirms the order passed by the CIT(A) by following the judgment of the Apex Court in the case of Surana Steels P. Ltd. and of the Hon'ble Gauhati High Court in the case of Mech. Technik India (P.) Ltd. However, I am unable to agree with him. 2. I have carefully gone through the judgment passed by the Apex Court in the case of Surana Steels (P.) Ltd. as well as Mech. Technik India (P.) Ltd.'s case who have followed the said decision of the Apex Court. The question which fell for consideration of the Hon'ble Gauhati High Court related to setting off of the amount of loss against the profit after taking into account the amount of depreciation as per rate app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year for determining profit for the purpose of declaring dividend. When construed, clause (iv) of the Explanation to section 115J of the Income-tax Act, the same adjustment in computation of book profits for the purpose of levy of minimum tax have been made applicable where loss or amount of depreciation which is required to be set off against the profits of the relevant previous year and not that for determination of the profit of the relevant previous year. In other words, it is for the purpose of set off of the loss or depreciation alone that the proviso (b) of section 205(1) has been made applicable under section 115J of the Income-tax Act and not for the purpose of preparation of profit loss account as per parts II III of Sch. VI of the Companies Act, 1956 nor any other purpose. This being so, interpretation of the word loss by the Apex Court, with due regard, cannot be understood to mean and apply for the purpose of preparation of profit and loss account also for the relevant previous year. This did not give any authority to the Assessing Officer to recast the profit and loss account for the relevant previous year and reduce the amount of depreciation so charged by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d whether the issue could be said to be identical and covered by the decision of the Apex Court in the case of Surana Steels (P.) Ltd. v. DCIT [1999] 237 ITR 777 and Gauhati High Court in the case of CIT v. Mech. Technik India (P.) Ltd. [2000] 245 ITR 60." 2. We direct the registry to place the matter before the Hon'ble President, ITAT. THIRD MEMBER ORDER Per Vimal Gandhi, President - On account of difference of opinion between Hon'ble Members of ITAT, Jaipur Bench, this case has come up before me under section 255(4) of Income-tax Act. The ld. Members have referred the difference between them as per the following questions: 1. "Whether in the facts and circumstances of the case, the issue of allowing depreciation as per rate applicable in income-tax while computing the assessee's income under section 115J of the Income-tax Act is settled issue by the decision of the Hon'ble Supreme Court of India in the case of Surana Steels (P.) Ltd. v. DCIT Ors. [1999] 237 ITR 777 and Gauhati High Court in the ease of CIT v. Mech. Technik India (P.) Ltd. [2000] 245 ITR 60. 2. Whether on the facts and in law the Assessing Officer could have recasted the profit and loss account pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law Board relied upon by the assessee had no application in this case. Accordingly, action of the Assessing Officer was confirmed by the Commissioner of Income-tax (Appeals). 5. The assessee then carried the matter in further appeal to the Appellate Tribunal. After hearing both the parties and after considering relevant case laws, the ld. Judicial Member, in his proposed order, held that the assessee, in order to avoid tax under section 115J of the Income-tax Act had shown book profit at nil. The depreciation was not provided as per Parts II and III of Schedule VI to the Companies Act. A much higher amount was provided and, therefore, Assessing Officer was justified in recasting profit and loss account and in allowing depreciation under section 205 of the Companies Act. The ld. Judicial Member further held that controversy and dispute here stood settled by the decision of Hon'ble Supreme Court in the case of Surana Steels (P.) Ltd. A portion of above decision has been reproduced at pages 10 and 11 in the order of the ld. Judicial Member. The ld. Judicial Member further supported his view by referring to another decision of Hon'ble Gauhati High Court in the case of Mech. Technik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05(1)(b) of Companies Act was to be universally applied. In other words, the ld. Accountant Member further observed in his order that it was for the purpose of set off of the loss or depreciation alone that the proviso (b) of section 205(1) has been made applicable under section 115J of the Income-tax Act. The above provision has no application for preparing profit and loss account as per Parts II III of Schedule VI of the Companies Act. The ld. Accountant Member, accordingly, held that assessing authority had no role to recast the profit and loss account for the relevant previous year and reduce the amount of depreciation so charged by the assessee. Such an action was not even justified or permitted under the Companies Act. The assessee was fully justified in claiming higher rate of depreciation in profit and loss account prepared and fully satisfied the requirement of Parts II and III of Schedule VI of the Companies Act, 1956. The ld. Accountant Member accordingly held that assessee had no book profit for purposes of section 115J of the Income-tax Act. He allowed the appeal of the assessee. 7. The difference between the ld. Members has been referred to me in the abovementione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) CIT v. Dynamic Orthopedics (P.) Ltd. [2002] 257 ITR 446(Ker.) (3) Dy. CIT v. Vardhman Fabrics (P.) Ltd. [2002] 254 ITR 431 (Guj.). 9. I have given careful thought to the rival submissions of the parties. The question involved in the present case, in my opinion, is fully covered in favour of the assessee as per decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Their Lordships, while considering a similar question relating to provision of depreciation in the accounts prepared as per provisions of Parts II and III of Schedule VI of the Companies Act for purposes of section 115J of the Income-tax Act, observed as per Head-note as under: "The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opposite side. The matter, therefore, has to be taken as fully covered in favour of the assessee as per the decision in the case of Apollo Tyres Ltd. 11. The aforesaid decision is on all force whereas the decision of Apex Court in the case of Surana Steels (P.) Ltd., is distinguishable. In that case, Their Lordships were dealing with question whether term "Loss" used in the relevant provision would cover depreciation also. Their Lordships were not dealing with question as to at what rate the depreciation should be provided to the assessee for purposes of section 115J of Income-lax Act. In the light of direct decision of Hon'ble Supreme Court, I deem it unnecessary to deal with further case cited on behalf of the revenue. I see no distinguishing feature between this case and the one decided by Their Lordships of the Supreme Court but hold that the case of Apollo Tyres Ltd. is applicable to the case in hand. 12. In the light of above discussion, I agree with the view taken by the ld. Accountant Member. The assessee has rightly shown that it had no book profit for purposes of section 115J of Income-tax Act. 13. The matter be now placed before the regular Bench for disposal o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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