Tribunal Upholds CIT(A) Direction on Section 10B(6) for Income Calculation

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s direction to apply section 10B(6) for computing income under section 115JB, emphasizing that brought forward depreciation should not be included in current year depreciation. The Tribunal ruled in favor of the Revenue on the normal provisions of the Act but sided with the CIT(A) on the application of section 10B(6), partially allowing the Revenue's appeal.

---

---

Issues Involved:
1. Validity of the reassessment initiated under section 148.
2. Correct computation of income under section 115JB.
3. Applicability of section 10B(6) in relation to brought forward depreciation.
4. Directions given by the Commissioner of Income Tax (Appeals) to the Assessing Officer.

Detailed Analysis:

1. Validity of the Reassessment Initiated under Section 148:
The Commissioner of Income Tax (Appeals) [CIT(A)] noted that there was no failure or omission on the part of the assessee in disclosing relevant facts for the computation of income under the provisions of the Act. The only basis for the reassessment was that the income had not been correctly computed under section 115JB. The CIT(A) found no legal basis for reopening under section 148 or for the recomputation of income, thereby questioning the validity of the reassessment.

2. Correct Computation of Income under Section 115JB:
The Assessing Officer (AO) held that brought forward depreciation had to be set off along with current year depreciation against the allowable business profits before allowing the exemption under section 10B. This was applicable both for the computation of income under the normal provisions of the Act and for the purpose of computation of income under section 115JB.

The CIT(A), however, directed that the AO was incorrect in applying the provisions of section 10B(6), which state that provisions of section 32(2) are not relevant for the purpose of computation of benefit under section 10B. This direction was supported by the Tribunal's decision in the assessee's own case for the preceding assessment year, which relied on the Hon'ble Kerala High Court's decision that book profit under section 115J has to be made on the basis of depreciation calculated in accordance with Schedule VI to the Companies Act, 1956, and not as per the provisions of the Income Tax Act.

3. Applicability of Section 10B(6) in Relation to Brought Forward Depreciation:
The CIT(A) held that the AO had not properly understood and appreciated the provisions of section 10B(6), which specifies that for the purpose of computing statutory benefit under section 10B, the provisions of sub-clause II of section 32 are not relevant. The CIT(A) emphasized that section 10B(6) overrides other provisions of the Act, and thus, the AO's observation that provisions of section 10B, sub-clause 6, have no relevance was arbitrary and misconceived.

4. Directions Given by the Commissioner of Income Tax (Appeals) to the Assessing Officer:
The CIT(A) directed the AO to apply the provisions of section 10B(6) and clarified that if depreciation pertains to assessment years ending before 1st April 2001, such depreciation will not be part of current year depreciation. The Revenue contended that the CIT(A) erred in giving this direction as it was beyond his powers.

The Tribunal upheld the CIT(A)'s direction, noting that the book profit estimate under section 115JB has to be made based on depreciation calculated in accordance with Schedule VI to the Companies Act, 1956. The Tribunal also referenced the Hon'ble Apex Court's decision in Apollo Tyres Ltd. vs. CIT, which stated that the AO cannot question the correctness of the profit and loss account prepared by the assessee company and certified by statutory auditors.

Conclusion:
The Tribunal concluded that for the purpose of computation under the normal provisions of the Act, the AO's action was justified. However, for the computation of income under section 115JB, the CIT(A)'s direction to apply the provisions of section 10B(6) was upheld. The Tribunal declined to interfere with the CIT(A)'s order, thereby partly allowing the Revenue's appeal.

(Order pronounced in the open court on 20.7.2012.)

---