Section 115J: Loss for tax assessed after depreciation from audited book profits; advance tax and interest not chargeable

HC held that for section 115J purposes the company's "loss" must be reckoned after allowance of depreciation, following the SC precedent, and answered issues in favour of the assessee and against the Revenue. The court ruled that the deeming fiction in section 115J yields a deemed income only after book profits are determined from audited accounts, so sections 207-210 (and advance tax liability) cannot be invoked pre-emptively; consequently interest under sections 234B and 234C should not have been charged. Amounts written back due to a change in accounting system were properly included in book profits. References disposed.

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Issues Involved:

1. Interpretation of "loss" u/s 115J of the Income-tax Act read with section 205(1)(b) of the Companies Act.
2. Levy of interest u/s 234B and 234C when income is computed u/s 115J.
3. Carry forward of unabsorbed depreciation, investment allowance, and business loss when provisions of section 115J are applied.
4. Determination of written down value for subsequent years when section 115J is applied.
5. Treatment of depreciation absorbed in a notional assessment u/s 143(3)/144.
6. Exclusion of Rs. 83,61,301 written back to the profit and loss account for computation of profits u/s 115J.

Summary:

Issue 1: Interpretation of "loss"
The court held that for the purpose of section 115J of the Income-tax Act read with section 205(1)(b) of the Companies Act, the expression "loss" is to be reckoned after allowance of depreciation. This was based on the apex court's decision in Surana Steels Pvt. Ltd. v. Deputy CIT [1999] 237 ITR 777, which clarified that "loss" refers to the amount arrived at after taking into account the depreciation provided in the profit and loss account. This question was answered in favor of the assessee and against the Revenue.

Issue 2: Levy of Interest u/s 234B and 234C
The court concluded that the Income-tax Appellate Tribunal was not justified in directing to charge interest u/s 234B and 234C. It was observed that the deemed income under section 115J cannot be considered as income defined u/s 2(24) of the Act, and the liability for advance tax under sections 207, 208, 209, or 210 cannot be applied until the accounts are audited and the balance-sheet is prepared. This question was answered in favor of the assessee and against the Revenue.

Issues 3, 4, 5, and 6: Carry Forward and Written Down Value
The court referred to its earlier decision in ITRC Nos. 144-145 of 1995 (Widia (India) Ltd. v. CIT [2000] 242 ITR 678) and held that:
- The amounts to be carried forward like unabsorbed depreciation, unabsorbed investment allowance, and business loss should be those available at the commencement of the previous year relevant to the assessment year unaltered by the assessment u/s 115J.
- Carried forward amounts should be reckoned as if a regular assessment is made u/s 143(3)/144.
- The written down value for the subsequent year should remain the same as at the commencement of the relevant previous year.
- Depreciation absorbed in a notional assessment reducing the income to nil should be deemed to have been actually allowed for working out the written down value for the subsequent year.

These questions were answered in favor of the Revenue and against the assessee.

Issue 7: Exclusion of Rs. 83,61,301
The court held that the amount of Rs. 83,61,301 written back to the profit and loss account for the assessment year 1987-88 should not have been excluded for the purpose of computation of profits u/s 115J read with section 205 of the Companies Act. This was based on the commercial concept as contemplated by the Companies Act, which should prevail over the concept referred to in the Income-tax Act. This question was answered in favor of the Revenue and against the assessee.

Conclusion:
The references were disposed of with the above observations.

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