(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. At the instance of the Revenue, following questions have been referred to this Court:-
1. Whether, on the facts and in the circumstances of the case, the Income-tax, Appellate Tribunal was right in law in upholding the CIT(A)'s order deleting the addition of Rs.61,602/- being the difference in the amount of depreciation as a result of changing the method of providing the depreciation from straight line method to written down value method ?
2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in upholding the CIT(A)'s order deleting the disallowance of Rs.9,58,068/- representing the assessee's claim for depreciation as prior period adjustments as a result of the assessee's switch over from straight line method to written down value method for providing depreciation ?
2. The assessee is a Company in which public are not substantially interested. While framing the assessment for the A.Y. 1989-90, the Assessing Officer made addition of two amounts of Rs.61,602/- and Rs.9,58,068/- by disallowing depreciation as claimed by the Company, as the Assessing Officer was of the view that the Company should provide depreciation only in accordance with the rates prescribed in the Companies Act and the assessee Company could not have adopted the method of depreciation from Straight Line Method to Written Down Value method.
3. Hearing the appeal by the assessee, CIT(Appeals) accepted the stand of the assessee that for the purposes of Section 115J of the Income Tax Act, 1961 ('the Act' for short) only those adjustments, which are specified in the explanation to the said Section, can be made from the book profits and depreciation not being one of them and further that the accounts of the Company having been prepared in accordance with the Schedule VI to the Companies Act, the Assessing Officer was in error in disallowing the depreciation as claimed by the Company. Such additions as made by the Assessing Officer were thereupon deleted by the CIT(Appeals).
4. The Revenue approached the Income Tax Appellate Tribunal against the order passed by the CIT(Appeals). The CIT(Appeals) negatived the stand of the Revenue on this issue by observing that-
“2.4 The Revenue is in appeal. We have heard the rival submissions. Similar issue came up for consideration before the Tribunal Indore Bench in Beta Naphthol P. Ltd. v. Dy. CIT 50 ITJ 375 and the Tribunal after referring to exerts from a guide from the Companies Audit issued by the Institute of Chartered Accountants of India, and para-
25 and 26 of the order of Cochin Bench of the Tribunal in 44 TIJ 534 (Cochin) and 43 ITD 464 (Cochin) answered the issue in favour of the assessee.
2.5 In Dy. CIT vs. Samir Diamond Mfg.
Ltd. 51 ITJ it was held that the rates prescribed in Schedule XIV of the Companies Act are only the minimum rates for limited purposes of dividend declaration (Sec.205) and managerial remuneration (Sec. 350) and that the assessee being a private limited company, Sec. 350 is not applicable and that both part II and III of Schedule VI to Companies Act do not provide for rates of depreciation for purposes of arriving at the book profit and that the assessee is free to adopt any rate of depreciation not below the rate mentioned in Schedule XIV and any method of depreciation – straight line method or WDV method provided adequate disclosure is made in the 'notes forming part of the accounts. Reliance was also placed on the decision in 47 ITD Bombay. In Sterling Steels & Wires Ltd. vs. DCIT (80 Tax 343) the Amritsar Bench of to Tribunal has taken similar view on the issue. Thus there are decisions in favour of the order of the CIT(A). For these reasons, we uphold the order, and dismiss the departmental grounds on the issue of depreciation.”
5. Under these circumstances, the questions, as already noted, have been referred to us for our opinion.
6. Having heard the learned Counsel, Mr.Manish Bhatt for the Revenue, we find that the question is no longer res integra. The Apex Court, in the case of Apollo Tyres Ltd. v. Commissioner of Income-Tax, reported in 255 ITR, 273, held that the Assessing Officer, while computing the book profits of a Company under Section 115J of the Act has only power of examining whether the books of accounts are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the explanation to Section 115J. The Assessing Officer does not have the jurisdiction to go beyond the net profit shown in the Profit and Loss Account except to the limited extent provided in the explanation. It was further observed that while looking into the accounts of the Company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the Company to maintain its accounts in a manner provided by that Act and the same is to be scrutinized and certified by statutory auditors and approved by the Company in general meeting and thereafter to be filed before the Registrar of Companies. It was observed that Sub-section (1A) of Section 115J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company.
7. It may be noted that the CIT (Appeals), in its appellate order, in terms, held that the Assessing Officer reworked the profit of the Company for the purposes of Section 115J. From the working done, it would be observed that the Assessing Officer added depreciation of Rs.61,602/- and Rs.9,58,068/- on account of change over from Straight Line Method to Written Down Value method. The CIT (Appeals) further observed that the method followed by the Company is in accordance with the guidelines prepared by the Institute of Chartered Accountants and further that the Assessing Officer was not permitted to make such adjustments as were not covered explicitly by the explanation.
8. In view of the above findings of the CIT (Appeals), upheld by the Appellate Tribunal and not seriously challenged by the Revenue before us and in view of the ratio of the Apex Court in the case of Apollo Tyres Limited (supra), we find that the CIT(Appeals) as well as the Tribunal committed no error in upholding the stand of the assessee regarding the depreciation for the relevant assessment year.
9. In the result, we answer both the questions in the affirmative i.e. in favour of the assessee and against the Revenue. Reference is disposed of accordingly.
(Jayant Patel, J.) 04.07.2008 (Akil Kureshi, J.) vinod