2003 (1) TMI 47 - HC - Income Tax

High Court limits Assessing Officer's power to adjust book profits under Companies Act

Kinetic Motor Co. Ltd. Versus Deputy Commissioner of Income-Tax.

The High Court held that the Assessing Officer cannot make adjustments to book profits beyond what is authorized by law if the accounts are prepared in ... '1. Whether in view of specific definition of the expression 'book profit' given in Explanation to section 115J(1) of the Income-tax Act, it is permissible for the Assessing Officer to make adjustments to the book profit beyond those authorised by the definition and to recast the profit and loss account? - 2. Whether, on the facts and in the circumstances of the case, the Depart mental authorities and the Tribunal were justified in rejecting the amount of depreciation actually debited to the profit and loss account admittedly pre pared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, and in holding that the assessee ought to have provided depreciation on the same basis as adopted in the earlier years?' - we answer both the questions in the negative and in favour of the assessee. Issues:1. Whether Assessing Officer can make adjustments to book profit beyond authorized by lawRs.2. Whether authorities were justified in rejecting depreciation amount debited to profit and loss accountRs.Analysis:1. The case involved an appeal by an assessee against the Income-tax Appellate Tribunal's order. The issue was whether the Assessing Officer could adjust book profits beyond what is authorized by the law. The assessee, a public limited company, had changed its depreciation method from straight line to written down value. The Assessing Officer reworked the depreciation, resulting in a revised book profit figure. The Commissioner of Income-tax (Appeals) and the Tribunal upheld the Assessing Officer's decision. However, the High Court, referencing the apex court's decision in Apollo Tyres Ltd. case, held that the Assessing Officer cannot make adjustments beyond what is authorized by law if the accounts are prepared in accordance with the Companies Act. The court answered question 1 in the negative and in favor of the assessee.2. The second issue was whether the authorities were justified in rejecting the depreciation amount debited to the profit and loss account. The court noted that both straight line method and written down value method are recognized under the Companies Act. Since the amount of depreciation debited to the profit and loss account was certified by auditors, the court, following the apex court's decision, answered question 2 in the negative and in favor of the assessee. Therefore, both questions were answered in the negative and in favor of the assessee, leading to the disposal of the appeal with no order as to costs.