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TMI Blog1992 (8) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... ucting the difference in depreciation allowed as per Income-tax Law and the depreciation provided by the assessee in the books of accounts which amounted to Rs. 22,80,576 from the capital worked out in the return at Rs. 50,12,020. In this connection, the Assessing Officer called upon the assessee to explain as to why the difference between the depreciation actually allowed as per Income-tax Law which is higher than depreciation provided by the assessee in the books of accounts should not be reduced from the capital. The Assessing Officer has relied on the ratio of the jurisdictional High Court in the case of CIT v. Zenith Steel Pipes Ltd. [1978] 112 ITR 215 (Bom.). The explanation of the assessee was that the depreciation was provided in the books of accounts as per the Companies Act. As a consequence, the reserve of the company would stand reduced to the extent of excess depreciation allowed as per Income-tax Act. The Assessing Officer also relied on the decision of the CIT (Appeals), Pune in the case of Bajaj Tempo Ltd. Maharashtra Scooters Ltd. where such action of the Assessing Officer was confirmed by the CIT (Appeals). Thus he has arrived at the capital employed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the record. The Tribunal, Pune Bench, in the case of Maharashtra Scooters Ltd. v. IAC in IT Appeal No. 2(PW) of 1986, dated 24-11-1988 has reduced the difference between depreciation actually allowed under the Income-tax Act and the depreciation provided for by the assessee in the books of accounts from the general reserves for the purpose of computation of capital, by relying on the judgment of the Bombay High Court in the case of Zenith Steel Pipes Ltd. The observations of their Lordships of the Bombay High Court contained in page 223 of the judgment have been reproduced by the Tribunal in page 5 of its order in the case of Maharashtra Scooters Ltd. 7. In the case of Zenith Steel Pipes Ltd. one of the questions referred to their Lordships of the Bombay High Court was whether the entire difference between the depreciation actually allowed to the assessee for the assessment year 1964-65/1965-66 and actually provided in the accounts of the year concerned should be deducted from the respective general reserves and the balance should be taken into account in the computation of capital for the concerned years or not. Their Lordships of the Bombay High Court have entered into an inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the books of accounts. In view of the judgment of the Bombay High Court in Zenith Steel Pipes Ltd.'s case and the order of the Tribunal in the case of Maharashtra Scooters Ltd. we uphold the order of the CIT (Appeals). 8. The second ground relates to the adjustment of the capital by excess tax liability assessed over the tax liability provided in the books of accounts. The relevant facts are that the Assessing Officer found that the assessed tax of the assessee-company was higher than the tax provided by the company in the books of accounts in the earlier years. The Assessing Officer proposed to make adjustment in the capital. The assessee explained that the shortfall in the Income-tax provision was on account of various additions made by the Assessing Officer for earlier years. However, the Assessing Officer did not accept this explanation and deducted the Income-tax and surcharge actually levied at Rs. 8,56,810 in order to arrive at chargeable profits of Rs. 6,63,028. Obviously the tax deducted from the total income assessed is higher than the tax provided by the assessee on book profits and it could not have anticipated the additions ultimately sustained by the Tribunal. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 759 thereof. At page 759 of the judgment, the Bombay High Court has referred to the judgment of the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 wherein the Supreme Court held that : " an amount set apart by a company for liability to taxation in respect of profits which it has earned would have to be regarded as a provision for a known and existing liability, quantification whereof had to be done later : it had, therefore, to be regarded as a provision and not as a reserve. " Relying on the aforesaid judgment, the learned counsel for the assessee vehemently submitted that what is required to be seen is whether the provision made was ad hoc in nature or rational and even if the determined tax liability is less than the provision made, no addition should be made to the reserve. 11. The learned departmental representative, on the other hand, supported the orders of the authorities. 12. We have duly considered the rival submissions. All the authorities cited by the learned counsel for the assessee were also relied upon by the learned departmental representative in support of his contention. We have perused the aforesaid judgments r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided in the books of accounts by the assessee according to straight-line method of accounting of depreciation. While computing the capital employed, the Assessing Officer reduced the difference in depreciation actually allowed as per Income-tax Act and depreciation actually provided in the books of accounts and this difference amounted to Rs. 24,73,259. By this process, the capital employed by the assessee was reduced to Rs. 19,58,882 on which statutory deduction was allowed from the chargeable profits in order to arrive at net chargeable profits for the purpose of computation of sur-tax. The reasons adopted by the STO for reducing the excess depreciation are the same as discussed in appeal for the assessment year 1983-84. The reasons of the CIT (Appeals) for confirming the reduction of capital are the same as in appeal for the assessment year 1983-84. Since common arguments were advanced by the parties on this issue, following our decision on this point in appeal for the assessment year 1983-84, we uphold the orders of the CIT (Appeals) and reject the ground taken by the assessee. 16. The second ground is that the CIT (Appeals) erred in not disposing of the grounds relating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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