TaxTMI 
TaxTMI 
2004 (9) TMI 330
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....ity Biscuits Ltd. v. CIT [2000] 243 ITR 519 and since no fresh clarification on facts is needed, therefore, the same may be admitted. 5. The ld. D.R. submits that he has no objection on the admission of this Additional Ground of Appeal. 6. After hearing the rival parties and perusing the records, we find that this issue was decided by the CIT(A) against the assessee but the assessee did not consider to agitate this issue further and now in view of the decision in the case of Kwality Biscuits Ltd., the assessee wants to raise the issue before us. Since no new evidence or investigation is required and the facts are already on record, we, therefore, entertain this Additional Ground of Appeal, as raised by the assessee, as Ground No. 3. 7. In the Ground No. 1, the assessee claims that the deductions under sections 80HH and 80-I are to be allowed out of profits and gains of the Industrial Undertakings without deducting therefrom the depreciation, unabsorbed losses, unabsorbed depreciation etc. 8. The Assessing Officer was of the view that the assessee company has returned net loss at Rs. 1,11,559, after deducting depreciation of Rs. 72,28,897, therefore, the resultant figure....
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....n the case of Motilal Pesticides (I) (P.) Ltd. v. CIT [2000] 111 Taxman 83 (SC) and by the Hon'ble Rajasthan High Court in the case of CIT v. Loonkar Tools (I) Ltd. [1995] 213 ITR 721 and also in CIT v. Vishnu Oil & Dal Mills [1996] 218 ITR 71 but still he feels that the said decisions require reconsideration and review, therefore, lie is agitating this issue in order to keep the matter alive. 12. On the other hand, the ld. D.R. strongly supports the orders of the authorities below and submits that now the Hon'ble Supreme Court of India has settled this issue in favour of the Department as cited by the ld. A.R. and also in the following cases: 1. CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604 (SC) 2. H.H. Sir Rama Varma v. CIT [1994] 205 ITR 433 (SC) 3. CIT v. Swaran Singh Kanwar [1998] 232 ITR 350 (SC) 4. Modern Suitings Ltd. v. Asstt. CIT [IT Appeal No. 206 (Jp.) of 1993 dated 30-11-1999]. 13. We have heard the rival parties and have gone through the various case laws relied upon by them. We are of the opinion that scheme of the Act is such that the gross total income as defined under section 80B(5) for the purpose of Chapter VIA mea....
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....mputation of book profits under section 115J as made by the Asstt. Commissioner of Income-tax by recasting the Profit & Loss A/c., which was prepared in accordance with the Schedule VI Parts II and III of the Companies Act, 1956." 16. The brief facts of this Ground of Appeal are that the Assessing Officer found that the assessee company has shown book profit as nil in the Return of Income whereas the assessee company was required to compute book profit in accordance with the provisions of the Companies Act, 1956. He further noticed that the assessee company has not drawn the computation of depreciation in accordance with the provisions of Part II and Part III of the Sixth Schedule to the Companies Act, 1956 to avoid the levy of income-tax under section 115J of the Income-tax Act, 1961. Accordingly, the Assessing Officer computed the book profit under section 115J as under: Declared net loss as per P & L Account (-) 1,11,559 Add: Excess depreciation debited in P & L A/c. in contravention of Schedule XIV of the Companies Act, 1956 as per following Chart:  ....
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.... 9391 @ 15% 4227 5164 Furniture & Fixture 43289 4328 @ 10% 4328 - Vehicle 23250 7749 @ 20% 4650 3099 ----------------------------------------------------------------------- 7228897 2768990 4459907 Book Profit for the purpose of section 115J of the Income-tax Act: 4348348 Since the book profit was more than the total income computed otherwise, the tax was levied on the 30% of the book profit by t....
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....l as a justification in claiming a higher rate of depreciation on account of any bona fide technical evaluation. The claim of depreciation at higher rates in the case of the appellant is not supported by any bona fide technical evaluation which is a sine qua non for such a claim. In view of this, the circular issued by the Company Law Board, as also the guidelines provided by the Institute of Chartered Accountants of India referred to above cannot come to the rescue of the appellant inasmuch as they specifically provided for giving a note by way of such evaluation. As such, the reference made by the appellant to the circular as also the guidelines of the Institute of Chartered Accountants of India is of no avail. As per the provisions of Companies Act, providing of depreciation is necessary and if no depreciation is provided, then the reasons thereof are to be given. In the case of the appellant, depreciation was provided for but in contravention of the Schedule XIV of Indian Companies Act, 1956. In view of this, the plea of the appellant of there being no mandatory provisions for providing of depreciation or having provided for depreciation correctly is misconceived notion. The....
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....debited the depreciation by taking into consideration the different factors as per Auditors' opinion. However, the depreciation as per Income-tax Rules was claimed. Reference was also made to Part II to Schedule VI of the Companies Act. It was also stated that if no provision is made for depreciation, this has to be stated and the quantum of arrears of depreciation computed in accordance with section 205(2) of the Companies Act will also be disclosed by way of a Note in the Auditors' Report. It is further stated that the only requirement is for providing depreciation and if no provision is made, a Note is to be given. It was further submitted that while giving the Note for non-provision of depreciation, the calculation is to be made as provided in section 205 of the Companies Act. In view of this, it is not mandatory on the company to provide such depreciation and it also does not provide the rate at which the depreciation is to be provided for. If no depreciation claim is shown by way of a Note, only then it can be said that the accounts have not been drawn in accordance with the requirements of Part II of Schedule VI of the Companies Act. The provisions of section 205 of the Comp....
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....ccount the depreciation. Then alone the formula prescribed in this clause would make sense and it would be consistent with the object sought to be achieved by enacting section 115J of the Income-tax Act, 1961. If 'loss' were to be taken as pre-depreciation loss then the resultant computation will not be in conformity with the tenor of the provisions of section 205. The language of clause (b) of the proviso to section 205(1) is clear. It applies to those cases where the depreciation has been provided in accordance with the provisions of sub-section (1) of section 205. The depreciation is provided for in the profit and loss account. The loss is arrived at after taking into account the depreciation provided. It is therefore clear that the word 'loss' as used in the proviso, clause (b) to section 205(1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of section 115J of the Income-tax Act, 1961. We do not agree with the view taken by the High Court that in case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit under section 115J ca....
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....would be after the book profits are determined in accordance with the Companies Act. Hence, there was no default on the part of the assessee so far as the provisions of advance tax are concerned, and, therefore, interest cannot be charged under sections 234B and 234C. In support of his argument, the ld. A/R strongly relied upon the judgment of Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd. 29. On the other hand, the ld. D/R supported the orders of the authorities below as charging of interest is consequential and as per the scheme of the Act. 30. We have carefully considered the rival submissions of the parties and we find that the Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd., has held as under: "Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of sections 207, 208, 210 or 210 cannot be made applicable, until and unless the accounts are audited and the balance-sheet is prepared even the assessee may not know whether the provision of section 115J would be applicable or not. The liability would be after the book profits arc determined in accordance w....
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....has charged excess depreciation in the profit and loss account in contravention of Sch. XIV of the Companies Act, 1956 by Rs. 44,59,907. This was done by calculating depreciation at the rates provided under Sch. XIV of the Companies Act. Thus the book profit for the purpose of section 115J of the Income-tax Act has been worked out at Rs. 43,48,348, 30% of the book profits so arrived at has been treated as income liable to tax for the year under appeal. The assessee challenged this action of the Assessing Officer before CIT(A) and pleaded before him that the only requirement of the Companies Act is for providing of depreciation but there is no requirement about the rate at which the depreciation for the current year has to be provided for preparing its profit and loss account as per parts II and III of the Companies Act. His contention that the Assessing Officer has erred in re-casting the profit and loss account by providing depreciation as per Schedule XIV was not allowed by the CIT(A). It has however been observed by him that under the provisions of the Companies Act, higher rate of depreciation can be claimed by making bona fide technical evaluation, but as the claim of deprecia....
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....epreciation as per rate applicable in income-tax and not for the purpose of preparation of profit and loss account for the relevant previous year. The question before the Apex Court in the case of Surana Steels (P.) Ltd. was decided in the context of the interpretation of the word "Loss" as used in the proviso clause (b) of section 205(1) in relation to clause IV of the Explanation to section 115J of Income-tax Act, 1961. While interpreting it the Apex Court has laid down two important principles as under:- 1. The word 'loss' as used in the proviso clause (b) to section 205(1) signifies the amount arrived at after taking into account the amount of depreciation. 2. The provisions must be construed in the sense it bore in statute from which it was taken. 3. In Surana Steels (P.) Ltd.'s case the Apex Court did not deal with the situation as to the rate at which depreciation has to be provided for preparation of profit and loss account for the relevant previous year. It also did not give an omnibus direction to all types of companies be it a public limited company or a private limited company to conform to the provisions of section 205(1)(b) of the Companies Act and universall....
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.... depreciation so charged by the appellant, which the Companies Act itself did not require or permit. In view of this aspect of the matter, the CIT(A) is found to have erred in confirming the recasting of profit and loss account by the Assessing Officer by way of substituting the depreciation as per Sch. XIV of the Companies Act, 1956 in place of higher depreciation charged by the assessee in the profit and loss account prepared as per provisions of parts II and III of the Sch. VI of the Companies Act, 1956. The claim of the assessee is thus found to be in conformity with the requirement of the law. The authorities below were not justified in preparing the profit and loss account of the relevant previous year by allowing a different rate of depreciation as per Sch. XIV of the Companies Act, 1956 so as to arrive at a figure of profit of Rs. 43,48,348 which in fact was a loss of Rs. 1,11,559 and which required no further adjustment as the appellant was not seeking any set off of loss or depreciation against the profit of the relevant previous year in terms of clause (iv) of Explanation to section 115J of the Income-tax Act, 1961. There being no book profits, the income of the appellan....
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....ed the profit and loss account prepared as per parts II and III of Schedule VI of the Companies Act by reducing the depreciation charged by way of applying proviso clause (b) of section 205(1) of the Companies Act, 1956 and whether the issue could be said to be identical and covered by decision of the Apex Court in the case of Surana Steels (P.) Ltd. v. DCIT [1999] 237 ITR 777 and Gauhati High Court in the case of CIT v. Mech. Technik India (P.) Ltd. [2000] 245 ITR 60." 2. The facts of the case are recorded by the ld. Members in their respective-proposed orders in detail and need not be repeated here. I would briefly refer to them as are necessary for disposing of this difference between the two Members. The assessee-company, for purposes of computing "book profit" under section 115J of the Income-tax Act, had provided depreciation of Rs. 72,23,897 which was equal to the amount it was entitled under the Income-tax Rules. If above provision was taken into account, the net loss of assessee came to Rs. 1,11,559. The Assessing Officer had determined assessee's loss at Rs. 95,754 and thereafter recasted assessee's profit and loss account and restricted the claim of depreciation to Rs....
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....gh Court in the case of Mech. Technik India (P.) Ltd. He, accordingly, held that matter stood finally concluded against the assessee and depreciation by revenue authorities was rightly computed under the Companies Act for computing book profit under section 115J of Income-tax Act. The ld. Judicial Member also rejected the claim of the assessee that triple shift allowance was wrongly not allowed while computing book profit. The ld. Judicial Member held that no such claim was made by the assessee before Assessing Officer or Commissioner of Income-tax (Appeals) and, therefore, such a claim was not tenable. 6. The ld. Accountant Member did not agree with the proposed order of the ld. Judicial Member. He noted the contention advanced on behalf of the assessee that depreciation was provided as per Parts II and III of Schedule VI of the Companies Act, which placed no bar to charge of higher depreciation, nor depreciation was required to be charged under provision of section 205 of Companies Act for preparing profit and loss account for the current year. The books of account prepared by the assessee were duly approved by the Board of Directors of the Company while approving annual accou....
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.... been referred to me in the abovementioned background. I have heard both the parties. The ld. counsel for the assessee relied upon the order of the ld. Accountant Member. He pointed out that it was first year of business of the assessee. The provision of Parts II and III of Schedule VI of the Companies Act was relevant if no amount of depreciation was provided. The assessee was obliged to show the method adopted for making provision as aforesaid. However, no rate of depreciation was provided in Parts II and III of Schedule VI of the Companies Act. Provision of section 205 of Companies Act, which Assessing Officer sought to invoke in the present case, had no application. The decision in the case of Surana Steels (P.) Ltd., was also misconducted by the ld. Judicial Member. The ld. counsel further submitted that Balance Sheet and Profit & Loss Account adopted by assessee for purposes of section 115J of Income-tax Act stood approved by Board and also at the General Meeting. There is no further dispute that these were filed with authorities under the Company Law. The Assessing Officer had no authority to interfere with books of account prepared by the assessee. The controversy stood set....
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....ve the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company. Held accordingly, th....