2003 (2) TMI 5 - HC - Income Tax

Court upholds assessment validity under Income-tax Act, rules for Revenue. Book profit, loss set-off allowed.

The court upheld the validity of the assessment under section 147 of the Income-tax Act, ruling in favor of the Revenue against the assessee. Profit on ... Computation of the book profit under section 115J. – adjusting the loss or the unabsorbed depreciation of earlier years – sale of capital asset - clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act - held that in this clause 'loss' refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss account. Once it is found that the provisions of clause (b) of the proviso to sub-section (1) of section 205 of the Companies Act are applicable in section 115J and the object of such incorporation of the said provisions of the Companies Act in section 115J is to allow set off of the losses and unabsorbed depreciation. The Tribunal elaborately considered the said provisions and rightly found that the assessee is entitled for adjusting the loss or the unabsorbed depreciation of earlier years whichever is less in computation of the book profit under section 115J. It also considered the Board's circular. We agree with the reasoning and conclusions of the Tribunal Issues:1. Validity of reopening assessment under section 147 of the Income-tax Act.2. Inclusion of profit on sale of capital asset in computing book profit under section 115J of the Income-tax Act.3. Entitlement to set off loss or depreciation against profits for the assessment year 1988-89.4. Confirmation of assessment without restoring the case based on relevant principles of law.Analysis:1. The first issue pertains to the validity of reopening the assessment under section 147 of the Income-tax Act. The court found that despite the assessee's failure to file returns and comply with notices, the Assessing Officer had closed the proceedings as 'N.A.' The court determined that this closure amounted to an assessment under section 144, even though not communicated to the assessee. Citing legal precedents, the court upheld the validity of the assessment, ruling in favor of the Revenue against the assessee.2. The second issue involves the inclusion of profit on the sale of a capital asset in computing book profit under section 115J of the Income-tax Act. The Tribunal held that the profit on the sale of the asset should be considered for computing book profit. Consequently, the court ruled in favor of the Revenue and against the assessee on this matter.3. The third issue concerns the entitlement to set off loss or depreciation against profits for the assessment year 1988-89. The court referred to legal interpretations and precedents, including the applicability of provisions from the Companies Act in section 115J of the Income-tax Act. Relying on the Tribunal's analysis and the Board's circular, the court concluded that the assessee was entitled to adjust the loss or unabsorbed depreciation of earlier years, whichever is less, in computing the book profit under section 115J. Therefore, the court ruled in favor of the assessee against the Revenue on this issue.4. The final issue questions whether the assessment should have been confirmed without restoring the case based on relevant legal principles. The court's analysis and conclusions on the previous issues determined the outcome of this question, leading to a decision in favor of the assessee. The court disposed of the Income-tax matters accordingly, based on the detailed analysis and rulings provided for each issue.