TaxTMI 
TaxTMI 
2013 (1) TMI 59
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....reciation on revalued asset is not permissible for computation of income under Section 115J of Income Tax Act, 1961? 2. Whether on the facts and circumstances of the case, the Tribunal was justified in upholding the order of CIT (A) who directed to allow a reduction of Rs. 17,29,809/- within the meaning of Clause (1) read with proviso thereto of the Explanation to Section 115J which was already allowed by the A.O.?" 3. We have heard Shri Dhananjay Awasthi, learned counsel appearing for the income tax department. Shri Rupesh Jain and Shri R.S. Agrawal appear for the respondent-assessee. 4. Brief facts necessary for deciding this appeal are that the assessee company is engaged in the manufacture and sale of Industrial alcohol; Indian made foreign liquor; and country liquor. The assessee company filed a return of income on 31.12.1990, showing Nil income after setting off carry forward loss of Rs. 2,31,67,914/-. The return was processed under Section 143 (1) (a) vide intimation dated 31.8.1991, following prima facie adjustment in the return income. The book profits under Section 115J of the Act was determined at Rs. 81,26,600/- and the tax was levied on the total a....
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.... no deduction under Section 205 (1) (b) of the Companies Act is liable to be set off against the book profits. 8. The Tribunal on the question of depreciation on revaluation reserve held in para 21 to 23 as follows:- "21. The facts are that while computing the book profits u/s 115-J of the Act, the AO had added to the profits an amount of Rs.17,26,809/- which was transferred from revaluation account. The assessee challenged this working before the ld. CIT (A) who decided the issue in favour of the assessee in the following manner:- "15.2 I have carefully considered the submissions of learned A.R. and I have also perused the computation of book profits made by the AO u/s 115J. As per the provisions of section 115J the computation of book profits has to be made with reference to the book profits as per the books of account as further adjusted by the additions and deductions enumerated under the Explanation to sec.115J. From a perusal of the profit and loss account for the relevant asstt. year under appeal it is seen that the appellant has debited depreciation in the books to the extent of Rs. 1,32,20,584/- which also includes depreciation on revalued assets to the extent of ....
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....e like amount transferred from the revaluation reserve and credited to the profit and loss accounts. He submits that depreciation on revalued asset is not permissible for computation of income under Section 115J of the Act. He has relied upon CIT v. SRF Ltd. [2012] 342 ITR 106 in which it was held after referring to the scheme of Chapter XII-B by which minimum alternate tax (in short MAT) was introduced to get over the situation whereby the companies, which were otherwise earning large profits and distributing huge amounts in the form of dividend to its shareholders were paying no tax or negligent amount of tax by virtue of deduction and exemptions made available to them under various provisions of the Income Tax Act. Relying on Indo Rama Synthetics (I) (P.) Ltd. v. CIT [2011] 330 ITR 363 the Delhi High Court observed that the legislature in the scheme introduced for MAT companies devised methodology whereby atleast 30% of the book profits was made taxable. In reply to the submissions as to whether depreciation can be allowed to revaluation reserve, the Delhi High Court held that where credit is made to the profit and loss accounts in the first instance at the time of creation of t....
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....t, 1961 in the computation made by the A.O. as follows:- "Computation of Book Profit u/s 115-J of I.T. Act, 1961 The book profit u/s 115-J of I.T. Act, 1961 was computed vide intimation u/s 143 (1) (a) of I.T. Act dated 31.8.1991. Profit after taxation = 2,53,61,866 Add: Transfer from revaluation account = 1,726,809 Add Depreciation for separate consideration = 1,32,20,584 4,03,09,259 Less: (a) Depreciation excluding the depreciation on revalued amount of fixed assets (1,32,20,584-17,26,809) = 1,14,93,775 (b) Withdrawal from revaluation account = 17,26,809 1,32,20,584 Balance 2,70,88,675 Less: Deduction u/s 205 (1) (b) of Companies Act 1956 as computed below Nil Book Profit 2,70,88,675  ....
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....ditions/deductions and the total depreciation provided upto the end of each accounting period. When a company revalues its fixed assets, it is necessary for the company to show separately the date of revaluation and, for a period of five years thereafter, the amount of increase made. 3. When a company revalues its fixed assets, depreciation should be provided on the basis of the revalued figures. 4. A view has been expressed in some quarters that, for measurement of profits, revenue is deemed to have arisen when it is actually collected or when a justifiable claim to collect it arises (e.g. credit sale) or when there is knowledge and evidence that it is capable of being collected if a sale were to be made (i.e. prevailing market price). According to this view, this principle will apply equally to current and fixed assets and, therefore, when fixed assets are written up to their present value, the corresponding Revaluation Reserve cannot be considered as an unrealised reserve. It is, therefore, argued that past accumulated losses as well as depreciation for the year or arrears of depreciation for earlier years which are required to be provided under Sec....
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....o disclose the result of working of the company during the period covered by the account. 8. When accumulated losses and depreciation (including arrears of depreciation) are adjusted against Revaluation Reserve it will amount to setting off actual losses against unrealised gains. If dividend is declared out of the current profits after adjusting accumulated losses or arrears of depreciation against the Revaluation Reserve, it will mean that dividend is declared out of profits which should, in fact, have been utilised in setting off past losses and arrears of depreciation. In effect, the company will be declaring dividend out of profits which are not available for distribution. By adopting this method, the company will be declaring dividend out of unrealised gains appearing in the accounts in the form of Revaluation Reserve. Accordingly, accumulated losses or arrears of depreciation should not be set off against Revaluation Reserve. 9. A question may arise, as to whether the additional depreciation provision required in consequence of revaluation can be adjusted against "Revaluation Reserve". As stated earlier, depreciation is required to be provided wi....