AI Drafter 
TaxTMI 
TaxTMI 
2018 (4) TMI 47
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....sion dated 05.01.2010 has held that the 'advance against depreciation' is 'income received in advance', thus making the said income subject to 'Charge' under Chapter-II, as business income under Chapter-IV-D read with sub clause (i) of sub-section 24 of section 2 of the Income Tax Act? 2. Whether, on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in law in deleting the addition of Rs. 57,27,25,000/- made by the Assessing Officer under section 143(3) (and not under section 115JB) on account of "Advance Against Depreciation" ignoring the provisions of section 2(24) read with section 28 of the Income Tax Act, 1961, which provides that "income" includes profits and gains and the profits and gains of any business or profession carried on by the assessee at any time during the previous year is taxable? 3. Whether, on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in law in deleting disallowance of Rs. 1,10,04,534/- made by the Assessing Officer in computing the book-profit u/s 115JB in respect of depreciation claimed on land after amortization of land by the assessee because there is no depreciation a....
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....sion dated 30.09.2014 for the Assessment Year 2004-05 (Appeal before the Tribunal for the year 2004-05 vide ITA No.2449/Del/2008). 6. The assessee debited an amount of Rs. 6.12 crores to the profit and loss account on account of depreciation of land. This was under accounting policy 2.4 introduced during the year and as per notes to the accounts. This led to a reduction of profit by the said amount. The assessee contended that the claim was in accordance with accounting standard 6 and in compliance with the Companies Act. The Assessing Officer held that the assessee had not furnished any details from which it could be verified that the land amortized had a limited useful life for it. It must be noticed at this stage that a remand report was called for when the matter was carried in appeal. The Assessing Officer rejected the contention that the claim was in accordance with the provisions of the Companies Act and held that no rate for depreciation is prescribed in schedule 14 of the Companies Act. The Assessing Officer added an amount of Rs. 6.12 lakhs for amortization of land. 7. The CIT(A) allowed the appeal and deleted this addition. The Tribunal upheld the order of the CIT(....
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....deduced from the Budget speech of the then Hon'ble Finance Minister of India made in Parliament while introducing the said section which is as follows: "It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called 'zero-tax' highly profitable companies deserves attention. In 1983, a new Section 80- VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a 'minimum corporate tax' on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30% of its book profit. In other words, a domestic widely held company will pay tax of at least 15% of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores." The above speech shows that the Income Tax Authorities were unable to bring certain companies within the net of income tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within ....
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....-section empowers the authority under the Income Tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115-J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes, one for the purpose of the Companies Act and another for the purpose of income tax, both maintained under the same Act. If the legislature intended the Assessing Officer to reassess the company's income, then it would have stated in Section 115-J that "income of the company as accepted by the Assessing Officer". In the absence of the same and on the language of Section 115-J, it will have to be held that the view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the Assessing Officer while computing the income under Section 115-J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintaine....
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....ional and at the time of actual repayment of loan the position may vary resulting in a profit. He held, therefore, that this was not an ascertained liability. Accordingly, the Assessing Officer added the amount of Rs. 23 crores to the book-profit under section 115JB as well as to the normal income. 14. The Tribunal noticed that accounting standard 11 issued by ICAI deals with the issue of accounting for fluctuation in foreign exchange rates as impacting the current assets and liabilities. The Tribunal rightly placed reliance upon a judgment of the Supreme Court in Commissioner of Income Tax v. Woodward Governor India P. Ltd., [2009] 312 ITR 254 (SC). Although the ratio in paragraph 15 is sufficient to answer the questions under consideration, we intend referring to the process of reasoning leading to it as well. In that case, the Supreme Court raised the following question and made the following observations in regard thereto:- "3. In this batch of civil appeals, the following questions arise for determination: (i) Whether, on the facts and circumstances of the case and in law, the additional liability arising on account of fluctuation in the rate of exchange i....
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....ase, cover an amount which is a "loss" even though the said amount has not gone out from the pocket of the assessee. This view of the Madhya Pradesh High Court has been approved by this Court in Madras Industrial Investment Corpn. Ltd. v. CIT [(1997) 4 SCC 666: (1997) 225 ITR 802]. According to Law and Practice of Income Tax by Kanga and Palkhivala, Section 37(1) is a residuary section extending the allowance to items of business expenditure not covered by Sections 30 to 36. This section, according to the learned author, covers cases of business expenditure only, and not of business losses which are, however, deductible on ordinary principles of commercial accounting (see p. 617, Vol. I of the 8th Edn.). It is this principle which attracts the provisions of Section 145. That section recognises the rights of a trader to adopt either the cash system or the mercantile system of accounting. The quantum of allowances permitted to be deducted under diverse heads under Sections 30 to 43-C from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining the word "paid" in Section 43(2), which is used in several sections i.e. Sect....
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....ge, we need to emphasise once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where Section 145(2) comes into play. Under that section, the Central Government is empowered to notify from time to time the accounting standards to be followed by any class of assessees or in respect of any class of income. Accordingly, under Section 209 of the Companies Act, mercantile system of accounting is made mandatory for companies. In other words, accounting standard which is continuously adopted by an assessee can be superseded or modified by legislative intervention. However, but for such intervention or in cases falling under Section 145(3), the method of accounting undertaken by the assessee continuously is supreme. In the present batch of cases, there is no finding given by the AO on the correctness or completeness of the accounts of the assessee. Equally, there is no finding given by the AO stating that the assessee has not complied with the accounting standards. 15. For the reasons given hereinabove, we hold that, in the present case, the "loss" suffered by the assessee on account of the exchange difference as o....