TMI Blog2014 (11) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... anation to the section - the AO does not have the jurisdiction to go behind the net profits shown in the Profit & Loss account except to the extent provided in the Explanation to section 115J - subsection (1A) of section 115J does not empower the AO to embark upon a fresh enquiry in regard to the entries made in the books of account of the company – the Tribunal was right in law in upholding the deletion of addition made by the AO to the book profit on account of additional depreciation debited in the books for the earlier years because of change in the method of providing depreciation retrospectively – Decided against revenue. - TAX APPEAL NO. 437 of 2000 - - - Dated:- 17-11-2014 - MR. KS JHAVERI AND MR. K.J.THAKER, JJ. MR KM PARIKH, ADVOCATE FOR THE APPELLANT MR SN DIVATIA, ADVOCATE for the RESPONDENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. While admitting the appeal on 04.12.2000, the following substantial question of law was formulated for our consideration; Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law and on facts in upholding the order of the Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessment year is 1989-90 and the relevant accounting period is the year ended on 31st March, 1989 (15 months). The Assessing Officer computed the total income of the assessee company under section 143(3) of the Act at ₹ 2,92,880/after adjusting brought forward losses and unabsorbed depreciation vide assessment order dated 24th February, 1992. The Assessing Officer separately computed the taxable profit of the Company under section 115J of the Act according to which, the chargeable profit under section 115J came to ₹ 11,11,550/. The Assessing Officer negatived the assessee's claim for additional provision of depreciation to the extent of ₹ 20,77,946/. According to the assessee, it had changed the method of providing depreciation from Straight Line Method (SLM) to Written Down Value (WDV) Method which has resulted in a short fall in the depreciation provided as per the old method as compared to the new method and the shortfall was charged to the Profit and Loss Account for the current assessment year 1989-90. The Assessing Officer disallowed the claim of the assessee on the ground that section 205 of the Companies Act, 1956 read with section 35D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the method of providing depreciation from Straight Line Method to Written Down Value Method and the resultant shortfall in depreciation was charged to the Profit Loss Account for the current year. Both the Commissioner (Appeals) as well as the Tribunal have taken note of the fact that the assessee's change of method in accounting from Straight Line Method to Written Down Value method was in accordance with the accounting standards issued by the Institute of Chartered Accountants. The Tribunal, accordingly, held that the disallowance made by the Assessing Officer was not warranted by the provisions of the Companies Act or by the provisions of section 115J of the Act as there was no bar for a change in the method of accounting standards recognised for the purpose of the Companies Act. 7. It is not in dispute that the short fall in the depreciation, was charged to the Profit Loss Account, which was computed in accordance with the provisions of the Companies Act. In the circumstances, the present case would stand squarely covered by the decision of the Supreme Court in the case of Apollo Tyres Ltd. vs. Commissioner of Income Tax, (2002) 255 ITR 273, wherein the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question is answered in the affirmative, that is, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the deletion of addition of ₹ 20,77,946/made by the Assessing Officer to the book profit on account of additional depreciation debited in the books for the earlier years because of change in the method of providing depreciation retrospectively. 10. Insofar as the second question which relates to charging of interest under sections 234B and 234C is concerned, Mr. M.J. Shah, learned advocate for the respondent invited attention to the decision of the Supreme Court in the case of Commissioner of IncomeTax vs. Kwality Biscuits Ltd., (2006) 284 ITR 434 (S.C.) wherein the Supreme Court has confirmed the decision of the Karnataka High Court in Kwality Biscuits Ltd. vs. CIT, (2000) 243 ITR 519. It was submitted that the controversy involved in the present case stands concluded by the aforesaid decision in favour of the assessee. 11. The Karnataka High Court in the said decision which came to be affirmed by the Supreme Court held thus: Section 234B casts the liability for payment of interest fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year prepared under subsection (1A) as increased by various amounts given in the section. Thus, for the purpose of assessing tax under section 115J, firstly, the profit as computed under the Incometax Act has to be prepared and thereafter the book profit as contemplated by the provisions of section 115J are to be determined and then the tax is to be levied. The liability of the assessee for payment of tax under section 115J arises if the total income as computed under the provisions of the Act is less than 30 per cent of its book profits. This exercise for determining the total income in accordance with the provisions of the Act and that of book profit can be only after the end of the relevant assessment year. It is only the deemed income for which the provisions of section 115J have been incorporated. When a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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