Case Law Details
It is an admitted fact that the assessee has changed the method of depreciation from straight line method to written down value method. Deprecation has been calculated in accordance with the new method from the date of assets coming into use. Therefore depreciation for the current year was higher and profit was lower by the same amount. The Hon’ble jurisdictional High Court in the case of Kinetic Motors Co. Ltd. (supra) has held that –
“it was not in dispute that under the Companies Act both the straight line method and written down value method are recognized. Therefore, once the amount of depreciation actually debited to the profit and loss account was certified by the auditor, it was not permissible for the AO to make book adjustments.”
The Hon’ble Jurisdictional High Court thus followed the ratio of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. 255 ITR 273. A perusal of the audited statement of account brought before us show that depreciation actually debited to the profit and loss account was certified by the auditors and, therefore, in view of the decision of the Hon’ble Jurisdictional High Court and the Hon’ble Supreme Court (supra), it is not permissible for the AO to make book adjustments. We accordingly direct the AO to delete the addition on account of adjustments made u/s. 115JB amounting to Rs.1,21,61,961/-.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “C”, MUMBAI
Before Shri I P Bansal, Judicial Member & Shri N K Billaiya, AM
ITA No. 7178/Mum/2011
Assessment Year 2003-04
Pune Heat Treat P. Ltd. Vs. ITO
Appellant By : Dr K Shivaram & Ms. Neelam C Jadhav
Respondent By : Shri M L Perumal
Date of Pronouncement : 30.04.2014
ORDER
Per N K Billaiya, AM:
This appeal by the assessee is directed against the order of the CIT(A)-5, Mumbai, dated 09.08.2011 pertaining to A.Y. 2003-04. The grievance of the assessee reads as under:
“1. On the facts and circumstances of the case the learned Commissioner of Income Tax has erred in confirming the appeal for re-opening of the assessment /s. 148 without giving cogent reason.
2. The learned Commissioner of Income Tax appeals has erred in confirming the application of section 115JB in-spite of the fact that the provision are not applicable in this case.
3. The learned Commissioner of Income Tax Appeals was not justified in confirming the order of the Assessing Officer allowing him to make adjustment of Rs.1,21,61,961/- U/s. 115JB in spite of the fact that no such adjustment are required to be made as per law.”
2. At the very outset the counsel for the assessee stated that he is not pressing ground no.1. Ground no.1 is accordingly, dismissed.
3. The grievance vide ground nos. 2 & 3 relates to the determination of book profit for the purposes of section 115JB of the Act. It is the claim of the assessee that no adjustments are required to be made as per law.
4. Briefly stated facts of the case are that for the year under consideration the return of income was filed on 28.10.2003 declaring total income at ‘nil’, which was accepted u/s. 143(1)(a) of the Act vide intimation dated 24.12.2003. Subsequently, on perusal of the record the AO noticed that the assessee has claimed higher depreciation @3.34% as against 1.63% prescribed in Schedule XIV of the Companies Act, 1956. According to the AO as the book profit taxable u/s. 115JB had escaped assessment, assessment was re-opened u/s. 147 of the Act and notice u/s. 148 was issued and served upon the assessee. In response to this, the assessee stated that return filed on 28.10.2003 may be treated as return filed in response to the notice u/s. 148.
5. Thereafter, the assessee was asked to explain the claim of depreciation viz-a- viz provisions of section 115JB of the Act. According to the AO the assessee did not respond to the queries raised during the proceedings. The AO was of the firm belief that as per the Companies Act normal depreciation calculated on the basis of the written down value method should be charged to the profit & loss account.
According to the AO the calculation of the depreciation and charging the same to the profit & loss account in the case of the assessee cannot be said to be in consonance with the provisions of section Part II & III of Schedule VI of the Companies Act, 1956. The AO proceeded to compute the book profit in the light of the provisions of section 115JB and computed the adjustment to be made u/s. 115JB at Rs.1,21,61,961/- The assessee carried the matter before the CIT(A) but without any success.
6. Before us the learned senior counsel for the assessee drew our attention to the audited statement of accounts, in particular , Schedule of fixed assets and depreciation. It is the say of the counsel that during the year under consideration the assessee changed the method of calculating depreciation from the straight line method to the written down value method. The counsel further stated that both the methods are acceptable under the Companies Act. The counsel concluded by saying that the AO doesn’t have any power to make adjustment accept provided in section 115JB itself. In support of his submissions the counsel relied upon the decision of the Hon’ble Bombay High Court in the case of Kinetic Motors Co. Ltd. 262 ITR 330. Reliance was also placed in the case of Garden Silk Mills Ltd. 35 CCH 135- Ahmedabad Tribunal. Per contra, DR strongly supported the findings of the lower authorities.
7. We have carefully perused the orders of the lower authorities. We have also considered the decisions relied upon by the counsel. It is an admitted fact that the assessee has changed the method of depreciation from straight line method to written down value method. Deprecation has been calculated in accordance with the new method from the date of assets coming into use. Therefore depreciation for the current year was higher and profit was lower by the same amount. The Hon’ble jurisdictional High Court in the case of Kinetic Motors Co. Ltd. (supra) has held that –
“it was not in dispute that under the Companies Act both the straight line method and written down value method are recognized. Therefore, once the amount of depreciation actually debited to the profit and loss account was certified by the auditor, it was not permissible for the AO to make book adjustments.”
The Hon’ble Jurisdictional High Court thus followed the ratio of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. 255 ITR 273. A perusal of the audited statement of account brought before us show that depreciation actually debited to the profit and loss account was certified by the auditors and, therefore, in view of the decision of the Hon’ble Jurisdictional High Court and the Hon’ble Supreme Court (supra), it is not permissible for the AO to make book adjustments. We accordingly direct the AO to delete the addition on account of adjustments made u/s. 115JB amounting to Rs.1,21,61,961/-.
8. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on this 30th day of April, 2014.
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Submitted by – CA Prarthana Jalan
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