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TMI Blog2015 (4) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... iate that section 115JB mandates certain adjustments to the book profit of a company and the assessing officer is not allowed to carry out any adjustments beyond the ones mandated under the Act. 3 (c) The Id. CIT(A) erred in ignoring the detailed submissions made by the appellant, vide their letters dated 14.7.2011 and 12.6.2012. 2. Ground no. 1 is regarding validity of reopening of assessment. 3. The assessee filed its return of income on 31.10.2005, declaring total loss of Rs. 2,36,77,306/-. The assessment was completed u/s 143(3)/115JB on 31.12.2007, whereby, the Assessing Officer accepted the returned loss and book profit of Rs. 1,35,21,987/-. Subsequently, the Assessing Officer reopened the assessment by issuing a notice u/s 148 on 18.03.2010 on the ground that there was a significant change in the accounting policy regarding depreciation, as during the previous year, the assessee company revised the rate of depreciation which are higher than the rate prescribed under schedule VI of the Companies Act, in respect of all fixes assets resulting increased depreciation charged at Rs. 9,07,59,966/-. Thus in view of the Assessing Officer, during the year the assessee had not prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as referred the accounting standards (AS) on depreciation accounting and submitted that where the management's estimate of the useful life of an asset of the enterprise is shorter than that envisaged under the provisions of the relevant statute, the depreciation provision is appropriately computed by applying a higher rate. If the management's estimate of the useful life of the asset is longer than that envisaged under the statue, deprecation rate lower than that envisaged by the statue cane be applied only in accordance with requirements of the statute as provided in para 13 of the Accounting Standards (AS) 6. The Ld. Authorized Representative thus submitted that the requirement of statute is only in the case when the management decided to apply the depreciation rate lower than that envisaged by the statute and not in the case of higher rate of depreciation applied by the management. The Ld. Authorized Representative has relied upon the Judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. V/s. CIT (2002) 255 ITR 273 (SC) and submitted that the accounts are prepared as per the provisions of part II and III of the Companies Act then the Assessing Officer has to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted to reopen the assessment to revise his own assessment order on such an issue where the Assessing Officer was having discretion. Therefore, in a case where a claim which is not permissible under the law is allowed by the Assessing Officer without applying the mind and ignoring the crucial facts than the legal proposition barring the jurisdiction of the Assessing Officer on the issue where the Assessing Officer can exercise his discretion is not applicable because in such cases, the Assessing Officer has no discretion either to allow or disallow the claim. In the case in hand, the change of policy with respect to the higher rate of depreciation applied by the assessee during the year under consideration. It is a significant departure of the accounting policy followed by the assessee consistently in past. Thus it is manifest from the record that such a significant fact whereby the assessee has increased the rate of depreciation resulting decrease of profit by an amount of Rs. 9,07,59,966/- was completely ignored by the Assessing Officer while passing the assessment order u/s 143(3). Further this fact has not been disclosed by the assessee in the return of income or any explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or presentation of financial statement of enterprise. It further requires that when such change in method of depreciation is made, it should be treated as a change in accounting policy and its affect should be quantified and disclosed. Thus the change in the accounting policy regarding the method of depreciation and rate of depreciation should be based on a proper evaluation of useful life of an asset. Such a decision should be based on a proper report in respect of useful life of the asset and should be taken by the board of directors through the proper resolution as per the requirement under the Companies Act. Such a decision of board of director is also required to be approved under the general body meeting. In the case in hand, the assessee has not furnished such record based on which the decision of change of policy regarding the method of depreciation and increase of rate of depreciation during the year has been taken by the board of Directors. Even the assessee has not produced any resolution of board of Directors. Only disclosure of the assessee is in the form of notes on accounts, which also does not indicate any decision taken by the board of Directors or any resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer to reopen the assessment in the present case is evident from the record. For instance, as we have noted earlier, in respect of one of the grounds, ground (ii), the reasons which have been disclosed to the assessee would indicate that reliance has been placed on paragraph 6.1 of the notes forming part of the accounts in Schedule 17. Paragraph 6.1 posits that an amount of Rs. 27.96 crores is the estimated amount of recovery expected out of the claims paid or payable by the assessee which had been recognized on an individual assessment/estimate basis on the basis of the accounting practice followed by the assessee. During the year in question, there was a change in accounting policy as a result of which the provision for estimated recovery in respect of claims paid and outstanding for recovery for a period of three years or more as on the balancesheet date has been estimated at Rs. 100 for each claim in substitution of the individual assessment/estimate made earlier. The assessee has stated that the change in policy has the effect of the existing provision for estimated recovery being written off by about Rs. 20 crores to the revenue account and reducing the profit of the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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