TMI Blog2023 (3) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... ated:- 23-3-2023 - Shri Rajesh Kumar, Accountant Member And Shri Sonjoy Sarma, Judicial Member For the Appellant : Shri Manoj Kataruka, A.R For the Respondent : Shri Vijay Kumar, Addl. CIT ORDER PER RAJESH KUMAR, AM: This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-4, Kolkata (hereinafter referred to as the Ld. CIT(A) ] dated 19.08.2019 for the AY 2012-13. 2. The only issue raised by the assessee in the various grounds of appeal is against the part confirmation of disallowance to the extent of Rs. 4,55,83131/- as made by the AO u/s 2(22)(e) of the Act. 3. Facts in brief are that the assessee filed return of income on 27.09.2012 declaring total income of Nil. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. During the course of assessment proceedings, the AO noted that the assessee has received advance of Rs. 8,58,26,789/- from P N Memorial Neurocentre Research Institute Ltd. against which no interest was paid or provided. The AO also observed that on the basis of reply received in response to notice u/s 133(6) from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of section 2(22)(e) of the Act. The Ld. A.R submitted that the accumulated profit means the profit as accumulated as per Companies Act and as adjusted by the amount of depreciation as per the Act. The Ld. A.R., in defense of arguments, relied on the following decisions: i) Navnitlal C. Jhaveri vs. CIT in [1971] 80 ITR 582 (Bom) ii) CIT vs. Jamnadas Khimji in [1973] 92 ITR 105 (Bom) iii) ACIT vs. Yasin Hotels Pvt. Ltd. in ITA No. 1888/Mad/2007 for AY 2004-05 / [2009] 121 TTJ 713 (Chennai) iv) CIT vs. Pushparthy Packs P Ltd. [2014] 221 TAXMAN 403 (Bom) The Ld. A.R submitted that in all the above decisions it has been held that the accumulated profit has been ascertained after allowing depreciation as per Income Tax Act and therefore the appeal of the assessee may kindly be allowed by reversing the order of Ld. CIT(A). 6. The Ld. D.R. on the other hand relied on the order of authorities below. The ld DR contended that the accumulated profits were not defined in the Act and therefore the meaning has to be drawn and interpreted as per Companies Act. The ld DR argued that if this argument of the ld is accepted , the provisions of deemed dividend would become otiose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the depreciation as provided under the Companies Act and not as per the Income Tax Act. Learned Counsel further submits that the profits and losses of an Assessee are determined by the accounts maintained by the Assessee which is a Company in the present case. She further submits that while arriving at a taxable income, the authorities ought to have taken into consideration the percentage of depreciation as provided under the Companies Act. Learned Counsel further submits that the Apex Court in the Judgment in the case P.K. Badiani v.CIT[1976] 105 ITR 642, has laid down a distinction between profits in the commercial sense and profits as under the provisions of the Income Tax Act . The learned Counsel therefore submits that the impugned Orders deserve to be set aside and the Order passed by the Assessing Officer needs to be reviewed. 3. The CIT(A) while considering the submissions on behalf of the Revenue, has found that while considering a taxable income of an Assessee, the Assessee is entitled to the depreciation as provided under the Income Tax Act. It has been found that while considering a case of an Assessee for assessment, it will be governed by the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment in the case of P.K. Badiani (supra), will not be applicable to the facts of the present case. The Appeal is, therefore, dismissed with no further orders as to costs. Similarly the Co-ordinate Bench of the tribunal in the case of ACIT vs. Yasin Hotels Pvt. Ltd.(supra) has also taken a view in favour of the assessee. The operative part is extracted below: 7. Having observed for the purpose of section 2(22)(e) that the accumulated profits would mean commercial profits, but then question arises what is meaning commercial profits . Whether commercial profits should include charge of normal depreciation as per Income-tax Act or depreciation as per Companies Act or no depreciation at all. After careful perusal of the decision of Hon'ble Madras High Court in the case of G.R. Govindarajulu Naidu (supra), we find that the decision related to reduction of initial depreciation from the profits, the Hon'ble High Court was of the opinion that such initial depreciation is required to be reduced for calculating the accumulated profits for determining the deemed dividend. However, this position seems to have been overruled by the Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge. It is often deemed a more or less imaginary and hypothetical element, and is sharply contrasted with the regular 'out-of-pocket' operating costs. As a matter of fact there is nothing at all imaginary about depreciation as a cost of business operation and at bottom it is just as much an out-of-pocket cost as any other. The depreciation charge is merely the periodic operating aspect of fixed asset costs, and there is no doubt as to the reality of such costs. Far from being a non-out-of-pocket charge depreciation represents the extreme example of pre-payment.' Mr. S.T. Desai, the learned counsel for the revenue, drew our attention to the decision of the Calcutta High Court in CIT v. Bibhuti Bhusan Dutt and submitted that it has taken a view different from the one taken by the Gujarat High Court even in regard to the nature of normal depreciation allowance. The Calcutta case seems to be one of a property holding company, the profits of which were assessable under section 9 wherein the question of depreciation was not relevant. It is not necessary for as to examine in this case the exact nature of the normal depreciation allowance and whether it is deductible fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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