TMI Blog2018 (12) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... he depreciable assets. For a bonafide technical evaluation, it is necessary that the evaluation should be made by a competent person or body having the requisite technical knowledge and expertise. Such an evaluation leading to higher rate of depreciation is a bona fide evaluation, especially when such an evaluation results in tax benefit for the company. A self serving evaluation, which is not bonafide, leading to claim of reduced tax burden for the Assessee will be a colourable device within the meaning of the landmark decision of Hon’ble Supreme Court in the case of McDowell and Co. Ltd. vs. Commercial Tax Officer [1985 (4) TMI 64 - SUPREME COURT]. A colourable device to evade tax has to be rejected. For the purpose of determination of book profits, the statutory role of Registrar of Companies to examine and satisfy that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act, has the mandate of the Supreme Court; and further, that report(s)/opinion(s) of statutory auditor(s) and the reports / opinions / recommendations as a result of Supplementary Audit are not final : these are not only subject to approval by the company in its ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative as DR d. Dated as dtd. e. Income Tax Act as I.T. Act f. Income Tax Appellate Tribunal as ITAT g. Learned as Ld. h. Under Section as U/s i. Accounting Standard as AS (2) Return of income was filed on 29.09.2012 declaring income under the normal provisions amounting to ₹ 56,81,18,862/- after claiming deduction U/s 80IA amounting to ₹ 113,07,28,240. Tax was paid U/s 115 JB on Book Profit of ₹ 109,12,74,502/-. The return was revised on 29.03.2014 vide e-filing acknowledgment number 154755411290314 declaring income of ₹ 56,81,18,862/-, under normal computation after claiming deduction U/s 80IA amounting to ₹ 113,20,12,434/-. The income U/s 115 JB was revised to ₹ 109,69,73,347/-. Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee company are highly technical telecom and radio equipment Network devices etc. No proper justification for deviating from the standards set up by the BSNL and adopting the standards of Idea Cellular has been given. For example as admitted by tne assessee company the useful life of Radio Equipment is taken to be 12 to 15 years by the BSNL yet the committee has reduced the useful life to 3 Yrs. Section 145(1) of the Act, as amended, lays down method of accounting in respect of business income or income from other sources. The method of accounting could be either cash or mercantile. Section 13 of the 1922 Act, corresponding to section 145 of the Act, has been held to be a computation provision [CIT v. BadridasRamrai Shop [1939] 7 ITR 613 (Nag.)]. Further, section 115JA(2) lays down a method for compiling profit and loss account as well as a method for computing book profits, for the purpose of section 115JA of the Act. Section 115JA(4) of the Act makes applicable all the provisions of the Act except those provisions which are provided in the section itself. Accordingly, the provisions of section 145(1) would not apply. Section 145(2) of the Act p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndards under section 145 of the Act could be as follows : (a) In compiling the accounts, compliance with Accounting Standards will have to be ensured, and if there is inconsistency in that, some powers to Assessing Officer could arise under section 145(2) of the Act. (b) Any change in method of accounting will have to strictly comply with the requirements- If the requirements cannot be justified, as statutorily required, or otherwise as mentioned on the basis of sound commercial reasoning or application of accounting principles, such change in the method of accounting could be disregarded by the Assessing Officer. Further, the method of accounting, which is employed, has to be consistent. In the case of assessee, the company formed a committee which advised for change in useful life of the asset and corresponding depreciation amount got increased considerably. Had the depreciation change been effected from retrospective effect, and the effect of such change been given in respective years, the entire burden of depreciation would not have arrived in the current year. There needs to be consistent in the accounting method, else, the book profits can always be manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legal form. The assessee-company has deliberately deviated from the generally accepted accounting principle/ accounting standard so as to avoid paying taxes under the MAT as well. Non-acceptance; of the method of accounting as laid down by the relevant Accounting Standard issued by the Institute of Chartered Accountants of India is also a violation of Section 211(3A) and 211(3B) of the Companies Act 1956 which requires that every financial statements shall comply with the accounting standards. The relevant extracts of the section are listed below. 211. Form and contents of balance-sheet and profit and loss account . . (3A) Every profit and loss account and balance-sheet of the company shall comply with the accounting standards. (3B) Where the profit and loss account and the balance-sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balancesheet, the following, namely:- (a) the deviation from the accounting standards; (b) the reasons for such deviation; and (c) the financial effect, if any, arising due to such deviation. (3C) Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resorting to subterfuges. iv) In respect of assesee's taking refuge under the case of Apollo tyres, the following observations in the case of Padmasundara Rao v. State of Tamil Nadu, (255 ITR 147 at page 153), are being relied. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the set-ting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board, [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Similar views were expressed by the Apex Court in Sun Engg. Works, (198 ITR 297 at page 320). v) Where instances come to the light on examination that excess claims have been made (in the audited accounts), not in accordance with the provisions of Companies Act, the AO would be failing in his duty, if he does not make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation debited to the profit and loss account (excluding the depreciation on account of revlaution of assets); or In view of the above also although the nomenclature given by the assessee to the claim of ₹ 52.74 crores is change in depreciation rates, the nature is that it has resulted in diminution in the value of the assets and alternatively in the form of excess depreciation claim on account of revaluation of assets. In view of the aforesaid discussions, I hereby make an adjustment of a sum of being prior period expenses of ₹ 2,40,48,802/- , provision for Railways extraordinary items ₹ 14,09,30,283/- and adjustment due to change in depreciation rates amounting to ₹ 52.74 crores to the returned book profits of the company for the purpose of computation of income as per MAT. Relevant portion of the order of Ld. CIT(A) 4. Ground No. 2 is directed against the disallowances made by the AO while calculating book profit under section 115JB of the Act. Ground No. 2.1, 2.2 2.3 are against adjustments on account of Prior period expenses of ₹ 2,40,48,802, Exceptional item of ₹ 14,09,30,283 and Adjustment due to change in De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account except to the extent provided in the Explanation to section 115J. Further, the Hon'ble Supreme Court in the case of Malayala Manorama Co. Ltd. v CIT [300 ITR 251 ]reaffirmed the decision rendered by it in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 and has held as under: If we examine the said provision in the above background, we notice that the use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount should be prepared in accordance with the provisions Companies Act. The relevant provisions are contained u/s 211(3A) to 211(3C) of the Com pa nr Act, 1956 provide as under- 211 (1) . (2) Every profit and loss account of a company shall give a true an fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto. Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company. (3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it i necessary to grant the exemption in the public interest. Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification. (3A) Every profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the Ld. AO has applied accounting standard issued u/s 145(2) instead of AS-5. The Ld. AO has further ignored the aforesaid clear decisions of the Hon'ble Supreme Court and went on to examine what was not contemplated u/s 115JB. It may please be noted that in his order, the Ld. AO has accepted the position that prior period expenses are allowed for adjustment under Companies Act in the current period only. In addition to this, it is nowhere alleged by the Ld. AO that the accounts of the assessee are not in accordance with Part II of the Schedule of Companies Act. Also, it is imperative to note that the reliance placed by the Ld. AO on the judgment of Hon'ble Kerala High Court in Sree Bhagawathy Textiles Ltd. v. Assistant Commissioner of Income-tax [342 ITR 244]is imprudent. In the said case, it was clearly on records that prior period expenses were not debited to Profit and Loss account but to Profit and Loss Appropriation account. The Hon'ble Court examined and held in the concluding paragraph as under: What is clear from the above is that the Assessing Officer should start with the profit available in the profit and loss account prepared in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of section 115JA is to be computed only after deducting the prior period expenses/extraordinary items. The fundamental flaw that had entered into the Assessing Officer's approach was that he was under an impression that the assessee was claiming a reduction in the net profit in terms of clauses (i ) to (ix) of the Explanation to section 115JA(2). The assessee had all along contended that the net profit was to be computed on the basis of the profit and loss account which, in turn, was to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Such a computation of net profit, in view of the prescribed Accounting Standard (AS-5). requires the prior period expenses/extraordinary items to be shown separately. That did not mean that because those items had been shown separately, they did not constitute part of net profit. ' Paragraph 5 of the Accounting Standard (AS-5) specifically requires that all items of income and expenses which are 'recognized in a period' should be included in the profit or loss for the period unless an AS requires or permits otherwise, f period items', as given in AS-5. clearly stipulates that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rceived. The fact, that the assessee had adopted the alternative approach of showing such items in the statement of profit and loss after determination of current net profit or loss, did not mean that those items were not to be taken into account in computing net profit as envisaged in section 115JA. Thus, what the assessee had done was only to indicate prior period items/extraordinary items separately. That did not mean that the figure of net profit was to be arrived at de hors those items In view of the aforesaid discussion, net profit (as referred to in section 115JA) of the assessee-company was to be computed only after deducting the expenses on prior period/extraordinary items which were business expenditure, but were shown separately in the profit and loss account due to the specific requirement of the AS prescribed by the Institute of Chartered Accountants of India, (emphasis supplied) It is imperative to take note of the case of Hon'ble Delhi High Court in Commissioner of Income-tax v. Jagatjit Industries Ltd. [339 ITR 382] where the Hon'ble Court allowed prior period expenses even when the computation was under normal provisions of the Act and section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relates to the transaction of earlier year. Accordingly, he confirmed the computation of book profits made by the Assessing Officer. The ITAT Bench of Hyderabad deleted the addition and held that: Therefore, we are in agreement with the argument of the learned counsel that the starting point for computation of book profits for the purposes of section 115JB should be ₹ 660.81lakhs which is the final balance in the Profit Loss Account carried to Balance Sheet. It may also be noted from the above discussion that even extraordinary items have to be debited to the Profit Loss Account. Having adopted the figure of ₹ 660.81lakhs as the starting point, the same has to be increased by the items specified in clauses (a) to (f) and has to be reduced by the items specified in clauses (i) to (vii) given in the Explanation. No other adjustment is permitted by law and also as laid down by the Supreme Court in the case of Apollo Tyres Ltd. (supra). None of the clauses given in the Explanation provide for the increase or decrease of the book profits by extraordinary items. ITAT Bench of Hyderabad in the case of DCIT v. M/s. Ushodaya Enterprises (ITA No. 1419/HYD/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAT at pages 14 to 20 of the assessment order. His main contentions are as under: The assessee has deviated from relevant accounting standards issued by ICAI and therefore, financial statements of the assessee do not give true and fair view of the state of affairs of the company Reference has been to section 145 of the income-tax, Act. As per Ld. AO, the accounting standard prescribed u/s 145 (2) should be followed and AO can interfere in case of inconsistency in complying with these accounting standard. The Ld. AO has placed reliance on Sutlej Cotton Mills Ltd. vs. ACIT (1993) 45 ITO 22 and Rain Commodities Ltd. (ITA no. 673/Hyd/2009) to substantiate the power of AO to adjust the book profit. According to Ld. AO, the decision of Supreme Court in Apollo Tyres Ltd. vs. CIT (255 ITR 273) does not place a blanket ban on AO to question financial statements where deviation from accounting standards is apparent. The Ld. AO challenged the competency of technical committee and has placed reliance on McDowell and Co. ltd. v. Commercial Tax Officer (154 ITR 148) to hold that assessee has deliberately changed the depreciation rates to avoid paying taxes u/s 115JB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 f38 of 1949). as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A : Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this sub-section. A perusal of the above clearly rested down that as per section 211(3A) of Companies Act 1956, the profit loss account of a company should be prepared in accordance with the applicable accounting standards issued by ICAI. The applicable accounting standard with respect to disallowance of depreciation shall be Accounting Standard 6, Depreciation Accounting. The relevant paras of accounting standard 6 which allows a company to revise the useful life of an asset are reproduced hereunder25 51 Relevant paragraphs of AS-6 Para 11 The quantum of depreciation to be provided in an accounting period involves the exercise of judgement by ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us taking into account the above factors, determined the useful life of assets and accordingly the company had charged depreciation in the books of accounts during the financial year 2011-12 based on revised life of assets. The recommendations of Committee were duly approved by the Audit Committee and also by the Board of Directors. It was explained that Telecom Industry has been going through fast pace of technological changes and accordingly the company has to take into account the cost of maintenance vis-a-vis the cost of new asset and end of life in order to ensure that depreciation is charged in the books of accounts based on above factors and maintenance of assets in the long run may not become unviable. Thus, the change in the life of assets as determined by the Committee taking into account all the technological changes in regard to relevant equipment were implemented while finalizing the balance sheet for financial year 2011-12. This was done in order to ensure presentation of true and fair view of the books of accounts of the company. The books of accounts of the company are audited by statutory auditor appointed by office of CAG and the supplementary audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO and the assessee are on the same page regarding the powers of the AO to adjust the book profit as per section 115JB. Invariably, the Courts have held that AO has the power to adjust the book profit only if the profit and loss account is not prepared as per Part II of the Companies Act. In case of Sutlej Cotton Mills Limited v. ACIT [1993] 45 ITO 22, it has been held that: If in case the Assessing Officer finds that the net profit was not as shown by the profit and loss account or the profit and loss account was not prepared in accordance with Part II am. Part III or the Sixth Schedule to the Companies Act, he is entitled to adjust the profit. To this extent, the power to adjust the book profit will have to be conceded to the Assessing Officer' However, the Ld. AO has failed to point out a single instance wherein the books of accounts a prepared by the assessee are not as per Part II of schedule of the Companies Act. The tinkering in the book profits has been done by the Ld. AO on his whims and fancies and without any legal or factual support. Therefore, it is earnestly prayed that in the absence of non-compliance of Part II of the Companies Act while prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as increased by- (i) the amount or amounts set aside as provision for diminution in the value of any asset, As per the above clause, only the amount set aside as provision for diminution in the value of any asset has to be added back while computing book profits as per section 115JB. However, the Ld. AO has failed to observe that no amount has been set aside as provision by the assessee as diminution in the value of assets. The assessee has charged to the profit and loss account the actual amount of depreciation due to change in depreciation rates. Hence, the provision relied by the Ld. AO is inapplicable to the facts of the present case. Therefore, it is earnestly prayed that the even the alternative contention raised by the Ld. AO is factually incorrect and disallowance of 'adjustment due to change in depreciation rates' made by the Ld. AO may kindly be deleted. 4,2 The Ld. AR furnished further submission vide letter dated 17.02.2016 as under: Condition 1: Profit and loss should be prepared in accordance with Part II of schedule VI The provisions in relation to preparation of Profit and Loss account in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te governing an enterprise may provide the b for computation of the depreciation. For example, the Companies Act, 1956 lays dc the rates of depreciation in respect of various assets. Where the management s estimate of the useful life of an asset of the enterprise is shorter than that envisage under the provisions of the relevant statute, the depreciation provision appropriately computed by applying a higher rate. A perusal of the aforesaid provisions contained in Accounting Standard-6 clearly provides that depreciation should be claimed considering the useful life of the asset. The original estimate useful life may be revised and the rates of depreciation may be different (higher) than the rates contained in schedule XIV of Companies Act, 1956. Not only accounting standard but also Circular issued under Companies Act (dated 07/03/198 clarifies the position that the rates of depreciation charged by a company may be higher than I rates contemplated in Schedule XIV. The relevant extract of the circular as mentioned above is as under- It may be clarified that the rates as contained in Schedule XIV should be viewed as the minimum rates, and, therefore, a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The accounting policies The accounting standard adopted for preparing such accounts including profit and loss account The method and rates adopted for calculating the depreciation the assessee company has complied with the same. 4.3 The AO observed that the profit and loss A/c for purpose of computation of book profit as per section 115JB, should be prepared after considering transactions the current period and should not relate to transactions of prior years. If the expense of earlier years is allowed, it would defeat the very provisions of introduction of MAT. He relied on the decision of the Hon'ble High Court of Kerala in the case of Bhagawathy Textiles Ltd. vs. ACIT - ITA No. 74/2010. The AO also observed that as per Accounting Standard (AS) - 5 on net profit or loss for the Period, the prior period items and changes in accounting policies, the prior period items relate to the past and needed separate disclosure. He, finally, observed that the reason why AS requires for adjustment of prior period item in current year is that the Indian regulatory environment does not allow for revision of earlier year s financial statements. If prior period expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, the Court observed that it is difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. 4.6 The AO has relied on AS-5, issued by Institute of Chartered Accountant of India (ICAI) to disallow the prior period expenses. The said standard provides only for separate disclosure of prior period expenses but does not prohibit the appellant from claiming p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' are to be included in the determination of net profit or loss. If a prior period item is an expense, it will go towards reducing the net profit or increasing the loss, as the case may be. On the other hand, if the prior period item is an income, it would go towards increasing the net profit or reducing the loss, as the case may be. The same is the position with extraordinary items which may be incomes or expenses. The conclusion is that prior period items and extraordinary items form part of the net profit or loss. [Para 10] Paragraph 15 of A5-5 makes it dear that the nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the 'current'profit or loss can be perceived. Two approaches have been indicated in Paragraph 19 of the said Accounting Standard (AS-5). The normal approach is to include prior period items in the determination of net profit or loss for the current period. The alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. As indicated in the Accounting Standard, in either case, the objectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal item debited to the P L A/c as it had an element of prior period expense. Though, no specific finding has been given by the AO while disallowing the same, it is implied that the said adjustment was made on the same reasoning for disallowance of prior period expenses. Since I have held in para 4.7 above that disallowance of prior period expenses is not warranted in view of the facts of the case and the decision of the jurisdictional High Court, the disallowance made by the AO is ordered to be deleted. 4.9 The appellant claimed depreciation in accordance with the method followed consistently in the past. But it claims to have the useful life of its fixed assets examined by a technical committee and as the useful life as per the recommendation of the committee is reported to be shorter, it charged depreciation at a higher rate in order to align the duration of the depreciation charge with the expected useful life of the assets. 4.10 The AO made an adjustment on account of change in depreciation rate amounting to ₹ 52.74 crores to the book profit of the company for the purpose of determination of tax liability as per provisions of section 115JB. The AO was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 115JB of the Act is as under: i) The appellant should prepare its P L A/c for previous year in accordance with the provision of Part II of Schedule VI to the Companies Act and ii) While preparing the annual accounts including P L A/c, the accounting policies, the accounting standards adopted for preparing such accounts including P L A/c and the method and rates adopted for calculating the depreciation shall be the same as has been adopted for the purpose of repairing such accounts including P L A/c and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956. 4.12 According to section 350 of the Companies Act, 1956, The amount of depreciation to be deducted in pursuance of clause (k) of sub-section 4 section 349 shall be the amount of depreciation on assets as shown by the books of the company at the end of the financial year expiring at commencement of this act or immediately thereafter and at the end of the each subsequent financial year and rate specified in the schedule XIV . The Companies Act lays down the depreciation rate for different types of assets. According to Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the management carrying out revaluation of the useful life of an asset and, accordingly, modify the rate of depreciation so that depreciable amount and the revise useful life of the asset are aligned with each other. The appellant claims to have carried out bonafide revaluation of the useful of its assets through an expert Technical Committee consisting of its qualified personnel. The AO has not pointed out any material defect in the report of the Technical Committee. He has gone by the effect of the revised rate of depreciation applied by the appellant, i.e. the fact that the net profit as per the P L A/c is lower than what it would have been if the change in the depreciation rate had not been effected. But, as has been brought out in para 4.13, as the Companies Act and Accounting Standard permit the management to carry out such revaluation (resulting in change in depreciation rate), it is not open to the AO to challenge the validity thereof simply because it has effect of reducing the net profit. 4.15 The provisions of section 115JB is applicable to a company which shows higher profit in its accounts but computes lower or nil profit of business under the regular prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as diminution in the value of assets. The appellant has charged to its P L A/c actual amount of depreciation due to change (increase) in rate of depreciation which is permissible under the Companies Act, 1956. It has already been mentioned that impairment amount was separately calculated by the appellant at ₹ 4,01,13,063/- and was charged to the P L A/c. This amount representing impairment being in the nature of diminution in the value of assets was added back by the appellant under the referred clause for the purpose of computing book profit. 4.17 In the light of the above, it is quite clear that the appellant had correctly computed the book profit and the upward division thereof by the AO by way of adjustment due to change in depreciation rates amounting to ₹ 52.74 crores is not in as per provisions of law. It is, therefore, held that increased MAT liability on the adjusted book profits is not justified and the same is directed to be deleted. These grounds of appeal are ruled in favour of the appellant. (2.2) At the time of hearing before us, Ld. CIT (DR) relied on the Assessment order and read out the relevant portion from the same. (2.2.1) The Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets other than through reduction in value as a result of depreciation. For example, if an assessee claims diminution in value of stock in trade such as, shares etc. (which is not eligible for depreciation) as a result of expected fall in market price below the book value of the stock in trade, such claim on account of diminution in value of assets is hit by Clause (i) of Explanation 1 to Section 115JB of IT Act. Even if the assessee claims additional depreciation for earlier years because of change in method of providing depreciation retrospectively, such additional depreciation for earlier years, claimed in a subsequent year, cannot be treated as diminution in value of assets, and is not hit by Clause (i) of Explanation 1 to Section 115JB of IT Act. We may mention that the Hon ble Gujarat High Court, in CIT v. Dintex Dyechem Ltd. [2015] 55 taxmann.com 178 (Guj.) and in Dy. CIT v. Gujarat Filaments Ltd. [2014] 369 ITR 384 (Guj.) held that addition made by the AO to book profit on account of additional depreciation debited in accounts for earlier years because of change in method of providing depreciation retrospectively was liable to be deleted. A perusal of Section 115JB (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. [Emphasis added by us.] (3.2.1.1) It is thus obvious, that for the purpose of determination of book profits, the statutory role of Registrar of Companies to examine and satisfy that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act; has the mandate of the Supreme Court. It can be readily inferred that report(s)/opinion(s) of statutory auditor(s) and the reports / opinions / recommendations as a result of Supplementary Audit are not final: these are not only subject to approval by the company in its general meeting, but also subject to examination by Registrar of Companies and his satisfaction that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act. (3.3) The Ld. AR of the assessee did not bring any judicial precedents or statutory provisions to our attention in which preferential treatment for a public sector undertaking is prescribed in relation to determination of its tax liabilities. We are of the view that unless specifically provided under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956). The provisions regarding rates of depreciation charged by a company were explained in Circular dated 07/03/1989 issued under the Companies Act, the relevant portion of which is reproduced as under: It may be clarified that the rates as contained in Schedule XIV should be viewed as the minimum rates, and, therefore, a company shall not be permitted to charge depreciation at rates lower than those specified in the schedule in relation to assets purchases after the date of applicability of the schedule. However, if on the basis of a bona fide technological evaluation, higher rates of depreciation are justified, they may be provided with proper disclosures by way of a note forming part of annual account. [Emphasis added by us.] (3.4.2.1) It is, therefore, obvious that under AS-6, higher rates of depreciation for assets have to be based on bona fide technological evaluation of the useful life of the depreciable assets. For a bona fide technical evaluation, it is necessary that the evaluation should be made by a competent person or body having the requisite technical knowledge and expertise. It is further necessary that such an evaluation leading to higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of the committee is also not available on our records. On perusal of the records, we find that the query of the AO from the Assessee as to why the useful life of radio equipment has been taken by this committee to the three years, when BSNL (Bharat Sanchar Nigam Limited) considers the useful life of radio equipment to be 12 to 15 years, has remained unanswered. Importantly, the lower authorities, the AO as well as the Ld. CIT (A), have also not considered whether the Registrar of Companies has accepted the decision of the Assessee company to charge higher rate of depreciation and to reduce the useful life of certain depreciable assets with retrospective effect, as a result of which the Assessee has made additional claim of depreciation amounting to ₹ 52.74 crores. Since the relevant information is not on our records, we restore the matter to the file of the AO with the direction to pass fresh order on this issue. Thus, the order of the Ld. CIT(A) is set aside on this limited issue and the matter in dispute in the present appeal before us is restored to the file of the AO for fresh order on this limited issue. In the result, appeal of the Revenue is partly allowed for stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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