TaxTMI 
TaxTMI 
2026 (7) TMI 506
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....aw in reversing the order of the CIT (A) and holding that the appellant is not entitled to depreciation for the purpose of computing "book profit" on the enhanced value of assets on their revaluation?" 4. This appeal is for the Assessment Year 2004-05 with regard to the issue of entitlement to depreciation for the purpose of computing "book profit" on the enhanced value of assets on their revaluation, which issue is no more res integra. 5. The Assessing Officer has recorded in paragraph 11 of the assessment order dated 29.12.2006 that re-valuation of plant and machinery was made on 18th May 1998, determining the value as on 1st April 1997, which was carried out for technical/technological reasons by revaluing certain assets at market value or net replacement cost as per the valuation report by the assessee. 6. Since the Assessment Year 1998-99, the issue of considering depreciation on the revalued assets, charged to the profit and loss account in the books of the assessee to compute the "book profit" for the purpose of levy of Minimum Alternate Tax (MAT) under the provisions of the Act, was raised by the Assessing Officer, so as to exclude such depreciation from the "book ....
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....er so required and give a true and fair view in conformity with the accounting principles generally accepted in India; a) in the case of the Balance Sheet of the state of the affairs of the Company as at 31st March, 2004; b) in case of the Profit and Loss Account, of the Profit for the year ended on that date; and c) in the case of Cash flow statement of the cash flows for the year ended on that date." 50. Now, as per the written note submitted by the assessee which is already reproduced by us above, following contentions are raised by the Ld. A.R. in a nutshell. (a) That the audit report is not a qualified opinion of the auditors because, it nowhere states that revaluation of assets is not in accordance with accounting standard. The qualification is this that there is selective re-evaluation and hence, it does not in any way give effect of reducing the book profit. It was contended that if all the assets were revalued based on the claim made by the auditors, then there would have been higher claim of depreciation on the revalued figure. On the basis of this argument, it is contended that the comments of the auditors is restricted to the....
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....valuation, the revaluation of asset might be more for some assets and it can be less in respect of remaining assets and if only those assets are revalued which are having more value on the date of revaluation, it cannot be said that if the entire asset of a class of asset is revalued, total revaluation amount will be more and resultantly, depreciation will be more. It may be in a given case that if all the assets or a class of assets are revalued as required in AS-10 then the total revalued value of such class of assets may be less and in that situation, there will be no extra depreciation allowable to the assessee or the depreciation allowable may be less. We do not know about the facts of the present case but in the light of this qualification note of the auditors, it has to be accepted that the profits shown by the assessee in the P & L account is not giving a true and fair view in conformity with the Accounting Principles generally accepted in India and this is not said by the A.O. or by the Ld. CIT(A) or by us but it is said by the statutory auditors of the assessee company. 52. Now, regarding the second contention of the Ld. A.R. in the note given by him, it has been....
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....ial available on record. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (Supra) in clear terms has held as under: "The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J; The Assessing Officer does not have the jurisdiction to go behind, the net profits shown in the profit and loss account except to the extent provided I the Explanation. The use of words "in accordance with the provisions of Parts II and HI 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 in to the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference of the provisions of the Companies Act, which....
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....profit as per the books prepared by the qualified Chartered Accountant under the Companies Act." 86. In the facts and circumstances of the assessee case, there is no dispute that - (a) revaluation of assets is provided by the Companies Act and in accordance with the Companies Law; (b) the books of accounts are duly audited and approved by the auditors; (c) audit accounts are accepted by the AGM and authorities under Companies Act; (d) such type of adjustment is not specifically provided by Explanation-2 to Section 115J Under these circumstances, in our view, the Supreme Court judgment in the case of Apollo Tyres (supra) is fully applicable to the assessee's case, therefore, we uphold that the assessee has U> be allowed deduction of the above depreciation in respect of revaluation of fixed assets, for the purpose of determining the profits under Section 115J of the I.T. Act, therefore, the same book profits shall be worked out accordingly." 53. From the above paras of the tribunal order, we find that it is noted by the tribunal in para 86 reproduced above that there is no dispute that books of account are duly audite....
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....quantification cannot be done by the auditor and therefore, merely because no quantification is done by the auditor, it cannot be said that the comments of the auditor is not qualifying the book results of the assessee company. Therefore, this judgement of Hon'ble Apex Court is also not rendering any help to the assessee in the present case because in the present case, the auditor has given a qualified audit report. 55. In view of the above discussion, we find that even after considering the written note given by the Ld. counsel for the assessee on this issue, we are not satisfied about the allowability of depreciation on revalued fixed assets and, therefore, the order of Ld. CIT(A) on this issue is not sustainable. We, therefore, reverse the same and restore the assessment order on this issue. In the result, this ground of the revenue is allowed." 10. This Court, in the case of the assessee for the Assessment Years 1998-99 to 2001-02 in Tax Appeal No.1099 of 2006 and other allied matters, while dismissing the appeals filed by the revenue on the same question of law, held as under:- "9. Having heard learned advocates for both the sides, we are of the opinion that in ....
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....n 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 requirement 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. The Court accordingly held that while determining the 'book profits' under Section 115J, the Assessing Officer could not recompute the profits in the profit and loss account by excluding the provisions made for arrears of depreciation. 9. So far as submission of Mrs. Bhatt regarding admission of Tax Appeal No. 1102 of 2006 is concerned, we are of the view that the same does not preclude us from dismissing the appeal in view of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Limited (supra) as well as specific finding given by the appellate authorities. The CIT (A) has specifically obse....
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...., (B), (C), (E) & (F) are answered in favour of assessee and against the revenue. However issue (D) is remanded to the Assessing Officer for fresh decision. Tax Appeal No. 1099 of 2006 is accordingly dismissed." 11. It is also pertinent to note that the CIT (Appeals) has followed its order of earlier year in the assessee's own case for the Assessment Years 2002-03 and 2003-04 holding that the deduction of depreciation on the revaluation component of fixed assets from the book profit is not permissible. 12. Thus, from the facts emerging from the record and on perusal of the reasons assigned by the Tribunal while reversing the order of the CIT (Appeals) relying upon the note of the auditor cannot be accepted because in the note given by the auditor in the audit report cannot disqualify the true and fair view of the profit and loss account and balance sheet certified by the auditor. Therefore, the opinion of the Tribunal that, merely because there was a qualification note by the auditor, it would amount to the fact that the book results are not approved by the auditor, is contrary to the provisions of the Companies Act. Sub-section (2) of Section 227 of the Companies Act prescri....