TMI Blog2001 (11) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... al income of the assessee at Rs.47,26,270 and imposed a tax of Rs.25,99,448 and a surcharge of Rs.1,29,972 totalling Rs.27,29,420. After adjusting the advance tax paid and the tax deducted at source, inclusive of interest, a total demand was made for Rs.26,83,327. The Assessing Authority did not allow the deduction claimed by the assessee in terms of section 80VVA of the Income-tax Act since the said provision stood omitted with effect from April 1, 1988. The assessee went up in appeal before the Commissioner of Income-tax (Appeals), Cochin. The Commissioner of Income-tax (Appeals) allowed the appeal and ordered modification of the order of assessment. The Assessing Officer was directed to consider the claim of the assessee for depreciation in the light of the decisions for the earlier years. The Assessing Officer was also directed to give effect to the orders of the appellate authority in respect of depreciation for earlier years and work out the correct depreciation admissible to the assessee for the concerned year. By order dated February 19, 1992, the Deputy Commissioner of Income tax (Assessment), Special Range, Kottayam, recomputed the income of the assessee and revised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the assessee and held that the proceedings of the Assessing Officer were valid. The appellate authority held that there was a mistake apparent from the records when the Assessing Officer gave effect to the order of the Commissioner of Income-tax (Appeals) on February 19, 1992, and hence the order dated October 9, 1992, which was being challenged in appeal was an order validly passed under section 154 of the Income-tax Act. The appellate authority held that the depreciation as computed by the assessee in its books of account had to be taken into account while computing the profit under section 115J of the Income-tax Act. The Commissioner of Income-tax (Appeals) hence directed the Assessing Officer to compute the profit under section 115J of the Act taking into account the depreciation for the year under consideration as per the Income-tax Rules. Both the assessee and the Revenue went up in appeal before the Income-tax Appellate Tribunal, Cochin Bench. The assessee filed I. T. A. No. 14 (Coch.) of 1995 and the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, filed I. T. A. No. 89 (Coch.) of 1995. The Income-tax Appellate Tribunal, Cochin Bench reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal held that in Appollo Tyres Ltd.'s case [1999] 237 ITR 706 (Ker) what was decided by the High Court was whether arrears of depreciation for earlier years were to be taken into account for computing the book profit under section 115J of the Act. There was no direction in that decision that for the current year, -depreciation was to be computed in accordance with the Companies Act and not as per the Income-tax Rules. Thus, the Tribunal refused to modify its decision in the appeal by the Revenue as sought for by the Revenue. The petition was thus dismissed. Both the Revenue and the assessee sought the reference of the questions, which according to them arose for consideration by invoking section 256(1) of the Income-tax Act. At the instance of the Revenue, the Tribunal referred the question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Commissioner of Income-tax (Appeals), directing the Assessing Officer to allow the claim of depreciation as per the Income-tax Rules for the purpose of computing the book profit under section 115J of the Companies Act?" It is this reference that is the subject-matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act had to be applied. Since the assessee was a dividend declaring company, it should have adopted the depreciation rate as per the Companies Act instead of as per the Income-tax Rules. Thus, the Assessing Officer completed the assessment fixing the total demand at Rs.54,60,170. The assessee went up in appeal before the Commissioner of Income-tax (Appeals), Cochin. The assessee questioned the reopening of the assessment under section 147 of the Act and contended that section 147 of the Act was not applicable to the Assessing Officer in the case on hand. The Commissioner of Income-tax (Appeals) noticing the relevant order regarding the invocation of section 147 of the Income-tax Act and considering the other circumstances, held that the Assessing Officer had validly reopened the assessment. But the Commissioner of Income-tax (Appeals) upheld the contention of the assessee regarding the mode of computing the depreciation. The Commissioner of Income-tax (Appeals) held that the computation under the Companies Act meant for the purpose of declaring dividend cannot be adopted for the purpose of computing the taxable income under the provisions of the Income-tax Act. In the case on han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Tribunal was right in upholding the order of the Commissioner (Appeals), directing the Assessing Officer to allow the claim of depreciation as per Income-tax Rules for the purpose of computing the book profit under section 115J of the Income-tax Act?" It is this reference that is the subject-matter of I. T. R. No. 289 of 1999. The assessee also sought a reference of the question regarding the jurisdiction of the Assessing Officer to invoke section 147 of the Act on the facts and in the circumstances of the case. At the instance of the assessee, the Tribunal referred the following question under section 256(1) of the Income-tax Act: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessment had been validly reopened under section 147 to bring to tax the deemed income under section 115J?" This is the subject-matter of I. T. R. No. 293 of 1999. Thus, the two aspects that arise are the jurisdiction of the Assessing Officer in the circumstance of the case to invoke his jurisdiction under section 154 and section 147 of the Act in respect of the respective assessment years raised at the instance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated by Explanation to sub-section (1A) of section 115J of the Act is "the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to subsection (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable." According to learned counsel for the Revenue, section 205 of the Companies Act, has been legislatively incorporated into the Income-tax Act for the purpose of section 115J of the Act and since this is legislation by incorporation, the said provision of the Companies Act has to be applied as indicated by that provision in the Companies Act. Counsel pointed out that in section 205 of the Companies Act it is provided that for the purpose of calculating the depreciation under section 205(1) of the Act, the same could be provided to the extent specified under section 350 of the Companies Act. According to counsel, a reference to section 350 of the Companies Act, would show that the amount of depreciation to be deducted shall be the amount calculated with reference to the written down value of the assets as shown by the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suitably adjusted so as to satisfy the requirements of the Explanation. We are in this case concerned with the interpretation of clause (iv) under the Explanation to section 115J." Thereafter, the Supreme Court stated that section 115J, Explanation, clause (iv), is a piece of legislation by incorporation. After dealing with the principles of statutory interpretation their Lordships stated: "Once we have ascertained the object behind the legislation and held that the provisions of section 205 quoted hereinabove stand bodily lifted and incorporated into the body of section 115J of the Income-tax Act, all that we have to do is to read the provisions plainly and apply the rules of interpretation if any ambiguity survives. Section 205(1), proviso clause (b), of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The words 'the amount provided for depreciation' and 'arrived at in both cases after providing for depreciation' make it abundantly clear that in this clause 'loss' refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115J of the Act with effect from April 1, 1989, the ascertainment of depreciation has to be in terms of section 205 of the Companies Act under stood in the light of section 350 of the Act and Schedule XIV to that Act. Learned counsel for the assessee submitted that what was relevant was to determine the book profit of the assessee. As per the books of account of the assessee, the book profit as computed in the order of the Assessing Officer dated October 9, 1992, could be seen to be Rs.17,26,617 and the question was whether the Assessing Officer could determine the book profit as Rs.51,27,865 as was sought to be done. Counsel submitted that the only increases contemplated by the Explanation to section 115J were contained in clauses (a) to (ha) and the addition of the amount to book profits did not fall under any of those categories. The assessee had always shown depreciation in its accounts as per the Income-tax Rules and there was no warrant for the addition. It is seen from the order of assessment dated October 9, 1992, that the depreciation as per the books of account of the assessee is Rs.2,95,13,873 and the depreciation as per Schedule XIV to the Companies Act is Rs.2,45,81, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned authors Kanga and Palkiwala in their Commentaries to the Income Tax Act. We are, therefore, of the view that the Income-tax Appellate Tribunal and the Commissioner of Income-tax (Appeals) were not justified in holding that the assessee was entitled to calculate depreciation as per the Income-tax Rules as opposed to the relevant provisions of the Companies Act. It has to be held that for the purpose of section 115J of the Income-tax Act, the depreciation has to be calculated in terms of Schedule XIV to the Companies Act in view of the incorporation of section 205 of the Companies Act into section 115J of the Act and the consequence arising therefrom. Though it is seen that sub-section (1A) of section 115J of the Act was inserted only with effect from April 1, 1989, in the view we have taken on the scope of section 115J of the Act with the Explanation thereof, in the light of the decision of the Supreme Court in Surana Steels Pvt. Ltd, v. Deputy CIT [1999] 237 ITR 777, we are of the view that even as regards the assessment year 1989-90 the position would be the same. The depreciation allowable has to be calculated at the rates provided in Schedule XIV to the Companies A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider the claim of the assessee for depreciation in the light of the decisions for the earlier years. The Assessing Officer was also directed to give effect to the orders of the appellate authority in respect of depreciation for earlier years and work out the correct depreciation admissible to the assessee for the concerned year. This order of the Commissioner of Income-tax (Appeals) was not appealed against by the Revenue. By order dated February 19, 1992, the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, gave effect to the appellate order and recomputed the income of the assessee and accepted the total loss as Rs.41,50,280. At the time of recomputing the income thus, the Assessing Officer did not invoke section 115J of the Act or make an assessment based on that section. But, on April 10, 1992, the Deputy Commissioner of Income-tax (Assessment) issued a notice to the assessee calling upon the assessee to furnish the computation of income in terms of section 115J of the Act and to furnish the details. The Assessing Officer also indicated that the assessee had claimed depredation as per the Income-tax Rules and also an investment allowance and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 148 of the Income-tax Act calling upon the assessee to compute the income in terms of section 115J of the Act. The assessee filed a return. But the assessee also raised a contention that the Assessing Officer could not reopen the assessment under section 147 of the Act since section 147 of the Act was not available in the case on hand. That claim was rejected by the Assessing Officer, by the Commissioner of Income-tax (Appeals) and by the Tribunal and it is in that circumstance that at the instance of the assessee, the Tribunal has referred the question whether the assessment had been validly reopened under section 147 of the Act to bring to tax the deemed income under section 115J of the Act. Under section 154 of the Income-tax Act, the assessing authority has the power to rectify any mistake apparent from the record and amend any order passed by it under the provisions of the Act. As regards the assessment year 1988-89 while giving effect to the order of the Commissioner of Income-tax (Appeals) and recomputing the income of the assessee, the Assessing Officer failed to give effect to section 115J of the Act which had dear application in the light of the order he pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said order was capable of being rectified in exercise of power under section 154 of the Act. We may also notice here that when he completed the original assessment, going by the order of assessment made by the Assessing Officer, section 115J of the Act had no application and section 115J of the Act became relevant and applicable only on the Assessing Officer giving effect to the decision of the Commissioner of Income-tax (Appeals). It was at that stage that the Assessing Officer ignored the mandatory statutory provision contained in section 115J of the Income-tax Act. In that situation, the power available to the Income-tax Officer in terms of section 154 of the Act is wide enough to justify the rectification of the mistake he had made. In view of our conclusion as above, the questions referred to us in I. T. R. No. 259 of 1999 at the instance of the assessee have to be answered against the assessee and in favour of the Revenue. Regarding the assessment year 1989-90, the Assessing Officer had while giving effect to the order of the Commissioner of Income-tax (Appeals) omitted to apply section 115J of the Act which had clear application. But regarding that year the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is the result of a different method of reasoning and not based on information. In the case on hand, when he gave effect to the order of the Commissioner of Income-tax (Appeals) and passed the order, the material available was sufficient information to enable the Assessing Officer to invoke section 147 of the Act and to rope in the income in terms of section 115J of the Act to assessment on the ground that the same had escaped assessment. The fact that the information was available even when he originally gave effect to the order of the Commissioner of Income-tax (Appeals) does not preclude the exercise of jurisdiction under section 147 of the Act since this was not a case where there was a change of opinion as a result of a different method of reasoning. This, in our view, was a case where the income at thirty per cent. of the book profit of the company had escaped assessment and the same could be brought to tax in exercise of power under section 147 of the Act. In view of this conclusion, the question referred to us in I. T. R. No. 293 of 1999 at the instance of the assessee has also to be answered against the assessee and in favour of the Revenue. We are not in a position to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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