Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2013 (1) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (1) TMI 59 - HC - Income TaxClaim of depreciation on the revalued assets set off against revaluation reserve and credited to the profit & loss account - whether permissible for computation of income under Section 115J? - Held that:- As per Guidance Note on Treatment of Reserve Created on Revaluation of Fixed Assets issued by ICAI depreciation is required to be provided with reference to the total value of the fixed assets as appearing in the account after revaluation. However, for certain statutory purposes e.g., dividends, managerial remuneration etc., only depreciation relatable to the historical cost of the fixed assets is to be provided out of the current profits of the company. In the circumstance, the additional depreciation relatable to revaluation may be adjusted against "Revaluation Reserve" by transfer to Profit and Loss Account. Part II of Schedule VI to the Companies Act allows the company to provide the depreciation on the total book value of the fixed assets (including the increased amount as a result of revaluation) in the P/L Account of the relevant period, and thereafter can transfer an amount equivalent to the additional depreciation from the Revaluation Reserve. Such transfer should be shown in the P/L Account separately and an appropriate note by way of disclosure would be desirable. Such a disclosure would appear to be in consonance with the requirement of Part I of Schedule VI to the Companies Act, prescribing disclosure of write- up in the value of fixed asset for the first five years after revaluation. If a company has transferred the difference between the revalued figure and the book value of fixed assets to the "Revaluation Reserve" and has charged the additional depreciation related thereto to its Profit and Loss Account, it is possible to transfer an amount equivalent to accumulated additional depreciation from the revaluation reserve to the Profit and Loss Account or to the General Reserve as the circumstances may permit, provided suitable disclosure is made in the accounts as recommended in this guidance note - The accounting standards prescribed by the ICAI are applicable by virtue of Section 211(3)(c) of the Companies Act, until such time the accounting standards prescribed by the Central Government in consultation with the National Advisory Committee, on Accounting Standards established u/s 210A(1) which are not yet prescribed so far - Thus the Tribunal did not commit any error in law in allowing the depreciation on the revaluation reserve, which is a prescribed and statutory method of accounting, and by which the book profits do not get reduced, giving any added benefit to the companies including Minimum Alternate Tax (MAT) companies - in favour of assessee.
|