TMI Blog1997 (4) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 6,00,397 and under s. 80-I at Rs. 7,50,496. The assessee also gave working of book profit as per s. 115J at Rs. 12,94,169 and taxable profit at 30 per cent thereof was shown at Rs. 3,88,251. 2.1 The AO while completing the assessment under s. 143(3) rejected the claim made under ss. 80HHA and 80-I and assessed the total income of Rs. 17,23,760. The first appellate authority restored the matter relating to deduction under ss. 80HHA and 80-I to the AO for fresh adjudication. As a consequence to the direction given by the CIT(A) the AO while completing the set aside assessment allowed the deduction claimed under ss. 80HHA and 80-I and assessed the total income under s. 143(3) at Rs. 3,72,870. 2.2 Simultaneously the AO also computed the book profit as per s. 115J at Rs. 38,25,864 and this book profit was arrived at on disallowing the depreciation charged at the rate prescribed under the IT Act and rules thereunder over that prescribed in Sch. XIV of the Companies Act of Rs. 25,31,694 as per details below: . Rs. For the period from 1st July, 1987 to 30th June, 1988 10,00,268 For the period from 1st July, 1988 to 31st March, 1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a company would prepare its P L a/c-in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. Moreover, as pointed by the appellant, ss. 348 to 354 of the Companies Act relating to ascertainment of depreciation deal with the remuneration of managing agents. It is also the appellant's contention that as per s. 355, the provisions of ss. 348 to 354 are not applicable to a private company and that the appellant is a private company. Besides, it is contended that the Companies Act and its Schedules do not debar a company for providing for a higher rate of depreciation. It is the appellant's contention that it has provided for depreciation at the rates prescribed as per the IT Rules, 1962. Considering all the relevant facts and the appellant's submissions, it is held that the appellant's action in providing for the depreciation at the rates prescribed under the IT Rules, 1962, is legally valid and proper. Moreover, it is held that the appellant's action in providing for depreciation at the rates prescribed under the IT Rules, 1962, cannot create any notional reserve within the meaning of Expln. to sub-s. (1A) of s. 115J. Considering the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that Sch. XIV to the Companies Act provides minimum rates of depreciation so that the dividend is not declared out of the capital and managerial remuneration is not paid excessive without providing for depreciation. The object of enacting Sch. XIV is that the company does not resort to window-dressing for the purpose of declaring dividend and calculation of managerial remuneration. The learned counsel also referred to Company Law Board Circular dt. 7th March, 1989 about the provisions of Sch. XIV wherein it was clarified that the rate prescribed in Sch. XIV should be viewed as the minimum rate and the company shall not be permitted to charge depreciation at rates lower than those specified in the Schedule. However, if on the basis of bona fide technological valuation the higher rates of depreciation are justified they may be provided with proper disclosure by way of notes forming part of annual accounts. The learned counsel has further submitted in this context that the machinery used by the assessee in diamond polishing are short-lived and not standardised. There is great scope for invention of diamond polishing machines. The assessee at the first instance installed manually pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 and the same was disclosed in the return filed. The AO in set aside assessment computed the income of the assessee under the normal provisions of the Act at Rs. 3,72,870 and that being less than 30 per cent of the book profit worked out by the assessee at Rs. 3,88,250 the AO proceeded to compute the book profit under s. 115J. The AO noted from the report of the auditors that the assessee-company has overcharged depreciation by an amount of Rs. 25,31,694 for both the periods at the rate prescribed under the IT Rules instead of depreciation rate prescribed in Sch. XIV of the Companies Act. The AO, therefore, disallowed the depreciation so overcharged as per the report of the auditors of Rs. 25,31,694 and thus computed the book profit at Rs. 38,25,863 against the book profits computed by the assessee at Rs. 12,94,169. The short question that arises before us for decision is whether the assessee was required to charge depreciation at the rate laid down in Sch. XIV to the Companies Act while computing the book profit or it could charge higher rate of depreciation prescribed in IT Rules having regard to the technical evaluation of machinery used in diamond polishing. As mentioned above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding for rate of depreciation through the Companies (Amendment) Act, 1988 has been explained in the commentary "Guide to the Companies Act" by Ramaiya 12th Edn., 1992 at p. 891 which is reproduced hereunder: "Changes made by the Amendment Act of 1988 (w.e.f. 15th June, 1988). Earlier, while determining distributable profits for the purposes of declaring dividend, depreciation was required to be provided at the rates specified for the various assets by the IT Act by virtue of reference thereto to s. 350, which in turn was referred to in sub-s. 2(1) of this section. In the recent years, the depreciation rates under the IT Act having undergone steep upward revision, companies were not left with sufficient profits, after providing for depreciation to enable declaration of reasonable dividend by them to their shareholders. This section has, therefore, been amended by the Amendment Act of 1988 vide note 26 of Notes on clauses which reads as follows : 'This clause seeks to amend s. 205 to provide that, in future, depreciation shall be calculated in accordance with the rates specified in Sch. XIV to the Act, thus delinking depreciation under the Companies Act from that under the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of depreciation as per IT Rules has been made by the auditors by way of a note forming part of its annual accounts. The conditions thus prescribed for charging higher rate of depreciation than those prescribed in Sch. XIV are, therefore, satisfied and the Revenue has not disputed the claim of the assessee in this behalf nor any material has been brought on record by the Revenue to prove to the contrary. In this view of the matter, we are of the opinion that the assessee-company was fully justified in charging higher rates of depreciation as per IT Rules without in anyway violating the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. This view is fully supported by the decision of the Tribunal in the case of Modern Woollen Ltd. We also note that s. 355 of the Companies Act provides that ss. 348 to 354 shall not apply to a private company unless it is a subsidiary of a public company. Admittedly, the assessee is a private company and not a subsidiary of any public company. Therefore, s. 350 which prescribes rates for depreciation in Sch. XIV of the Companies Act also does not apply in the case of the assessee company in computation of its profit and accordingly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvanced arguments in support of the order of the first appellate authority. He further submitted that advance tax is not payable on the basis of income computed under s. 115J as opined by the learned jurist Shri N.A. Palkhiwala in his commentary on p. 1049. He also cited the direct decision of the Tribunal on the issue in the case of Steel Authority of India vs. Dy. CIT (1991) 40 TTJ (Del) 559 : (1992) 38 ITD 193 (Del). 10. We have considered the facts and rival submissions. We find that the assessee computed the tax under the normal provisions of the Act at Rs. 3,88,250 and the income so computed was declared in the return filed. We also note that the assessee also computed the profit taxable under s. 115J at Rs. 3,88,250 being 30 per cent of the book profit computed at Rs. 12,94,169. As per the finding given by us above the profit computed under s. 115J would finally come to Rs. 3,88,250 whereas the income assessed by the AO under the normal provisions of the Act is at Rs. 3,72,870. There is thus a marginal difference in the income determined under s. 115J and that computed under the normal provisions of the Act. The first appellate authority has held the view that no interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an income of Rs. 15,02,733 and in the income so computed the assessee claimed deduction under s. 80HHC at Rs. 4,96,894. The AO processed the return under s. 143(1)(a) and accepted the income returned. Consequently, on going through the record the AO found that the audit report was unsigned and undated. According to the AO, this defect made the report non est. Sec. 80HHC(4) provides that such report be filed with the return. The AO, therefore, held the view that deduction as claimed is prima facie not admissible. He, therefore, withdrew the claim made under s. 80HHC by an order passed under s. 154 of the Act and the income was finally determined at Rs. 19,99,630 against the income declared and accepted earlier at Rs. 15,02,733. On appeal, it was contended that the claim was withdrawn under s. 154 without giving any opportunity to the assessee of being heard. It was also claimed that s. 80HHC(4) stipulates that deduction under sub-s. (1) would be allowable only if the assessee furnished a report from the Chartered Accountant but it nowhere provides that only signed copy of the report has to be submitted along with the return. With the filing of the requisite report along with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Departmental Representative advanced arguments in support of the order of the AO. He also submitted that the audit report having not been signed and dated was non est and that amounted to having not filed any such report along with the return. The condition prescribed for deduction under s. 80HHC is, therefore, not satisfied and the AO has rightly withdrawn the claim allowed under s. 143(1)(a). He also placed reliance on the decision in the case of Perfect Pottery Co. Ltd. vs. CIT (1996) 135 CTR (MP) 190 : (1996) 221 ITR 210 (MP) wherein disallowance of investment allowance made by way of order under s. 154 was held justified. 14. The learned counsel for the assessee on the other hand, reiterated the arguments advanced before the first appellate authority. He also placed reliance on the following decisions : (a) Lakhanpal National Ltd. vs. Dy. CIT (1996) 135 CTR (Guj) 150 : (1996) 222 ITR 151 (Guj); (b) SRF Charitable Trust vs. Union of India Ors. (1991) 100 CTR (Del) 160 : (1992) 193 ITR 95 (Del); (c) CIT vs. Gujarat Oil Allied Industries (1993) 109 CTR (Guj) 272 : (1993) 201 ITR 325 (Guj); (d) JKs Employees Welfare Fund vs. ITO (1992) 107 CTR (Raj) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowed. According to (iii) above deduction claimed could be disallowed if on the basis of information available in the return accounts or documents it is prima facie inadmissible. In the present case, the assessee otherwise satisfied the condition prescribed for claim of deduction under s. 80HHC. The claim has not been disputed by the AO on merits. The assessee also filed along with the return an audit report as required under sub-s. (4) of s. 80HHC which reads as under: "(4). The deduction under sub-s. (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income the report of an accountant, as defined in the Explanation below sub-s. (2) of s. 288, certifying that the deduction has been correctly claimed on the basis of the amount of export turnover." It would be seen from the above provision that it nowhere requires that the audit report filed should be signed and accordingly, it cannot be said that requirement of sub-s. (4) was not complied with when the assessee filed copy of the said report along with the return. Moreover, if the report was defective in anyway being not signed the AO could have got the defect r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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