MUKUL KUMAR SHRAWAT,JM. -
(1.) THIS is an appeal filed by the Revenue arising from an order of learned CIT(A) -II, Baroda dated 09.03.1993. The ground which is required to be adjudicated by us in this appeal is reproduced below:
"1.(iv) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to recomputed the book profit u/s. 115J of the IT Act, as per the Profit and Loss Account to be prepared adopting the W.D.V. method for depreciation as against the straight line method consistently adopted and thus ignoring the profit declared by the assessee company as per the Annual Report. "
(2.) FACTS in brief as emerged from the corresponding assessment order passed u/s.143(3) dated 31.12.1992 were that the total income of the assessee as per the provisions of IT Act was calculated at Rs.Nil; hence, the AO has computed the income by invoking the Special provisions of Section 115J. The
AO had observed that the assessee company had claimed depreciation as per WDV method as per a
separate working of depreciation at Rs.2,71,12,046/ - as under:
"10. The assessee company has filed return of income giving working of applicability of Section 115J of the Act. As per the working given by the assessee company chargeable profit u/s.115J of the Act comes to Rs.2,51,255/ - as under:
Profit as per profit and loss a/c. (Memoranda) Rs.8,37,516
Add: Depreciation debited in the books of accounts Rs.2,71,12,046
Less: Depreciation as per separate working attached Rs.2,71,12,046
(as per provisions of IT Act)
30% of the book profit Rs. 2,51,255
It was also noted by the AO that along with a return the assessee has furnished P and L A/c. and balance sheet duly audited as per audit report u/s. 44AB of IT Act as Form No.3CB, wherein depreciation on straight line method was shown at Rs.98.04 lacs. According to AO as per Section 115J(1A), a responsibility is on the company to prepare its P&L A/c in accordance with the provisions of Part -II and Part -III of Schedule IV of Companies Act. So the depreciation was also required to be provided as per the provisions of Companies Act, commented by AO. However, the assessee had claimed depreciation as per the provisions of IT Act. According to AO under the Companies Act, there was no provision to claim the depreciation as per the provisions of IT Act; hence, the AO has ignored the assessee's separate working of WDV and thereupon computed the chargeable profit u/s.115J of IT Act as under:
"Computation u/s.115J of the Act.
Book profit as per printed copy of accounts
(before provisions, dividends, etc.) Rs.1,35,46,000.00
Less: Set off u/s.205(1) of the Companies Act (depreciation or loss whichever is less) Rs. 53,19,000.00
Total Rs. 82,27,000.00
Chargeable profit u/s.115J of the Act.
30% of the above i.e. 30% of Rs.82,27,000.00 Rs.24,68,100.00
2.1 Before we proceed further it is better to clarify that the reason for adopting Rs.53,19,000/ - by the AO; instead of adopting depreciation amount of Rs.98.04 (straight line method as per the printed Balance sheet) was given as under:
"11.2 As per the provisions of Section 115J of the Act, the assessee company is entitled to get set off of business loss of depreciation whichever is less u/s.205(1)(b) of the Companies Act, i.e. depreciation/business loss claimed by the assessee company in the previous year; whichever is less. The assessee company has shown depreciation at Rs.98.04 lakhs and business loss at Rs.53.19 lakhs, therefore, the assessee company is eligible to get deduction of business loss at Rs.53.19 lakhs, which is allowed to the company. Accordingly, chargeable profit u/s.115J of the Act comes to Rs.24.681 lakhs as per the working given in the computation of total income. "
2.2 The assessee has challenged the computation of the AO and ld. CIT(A) has directed the AO, accepting assessee's contention, as follows:
"7. The next ground of appeal pertains to the computation of book profit under the provisions of Section 115J of the Income Tax Act, 1961. The brief facts are that the appellant had been following Straight Line Method in the Annual Accounts prepared under the Companies Act, 1956 and presented before the Annual General Meeting, which has been referred to as the printed balance sheet of the company. The book profit of the company as per the said balance sheet worked out to be Rs.82.27 lakhs (after allowing deduction u/s.205 (1)(b) and 30% thereof comes to Rs.24.68 lacs. The appellant had, however, contended that the appellant had prepared separate balance sheet as required u/s.115J of the Income Tax Act, 1961 and following the written down value of the method of charging depreciation and thereby the book profit for the purpose of Section 115J came to Rs.8,37,516 and 30% thereof became RS.2,51,255. The appellant, therefore, contended that since the balance sheet, which has been filed by the appellant alongwith the return of income has been prepared in accordance with the provisions of schedule VI to the Companies Act, 1956 and, therefore, there is no reason why the same should not be accepted to be the book profit and the provisions of Section 115J to be applied accordingly...............
7.3 Sub -section (1A) clearly casts an obligation to prepare profit and loss accounts specifically for the purpose of section 115J and the only requirement for preparation of the said account is that the said account should be in accordance with the Schedule VI to the Companies Act, 1956. It is not the case that the accounts now prepared and submitted are not in accordance with the provisions of Schedule VI to the Companies Act, 1956. the case is proposed to be made out that the Accounts, which are made for the purpose of complying with the provisions of the Companies Act, 1956 must necessarily be considered for the purpose of application of Section 115J of the Act. I am unable to accept the said contentions. Since, there is no ambiguity in the legislations, intention for preparation of fresh profit and loss accounts for the purpose of Section 115J of the Income Tax Act, there should not be any limitation on the method and manner of preparation thereof so long as it is within and in accordance with the provisions of Schedule VI to the Companies Act, 1956. The explanation to sub -Section (1A) also make it clear that what is required to be considered for the purpose of ascertaining the book profits is the profit as shown in the profit and loss account prepared under sub -section 1A and for the purpose of the Companies Act, 1956.
7.4. It is also seen that the assessee has followed the WDV method of charging depreciation, which is also permitted to be followed under Schedule VI to the Companies Act, 1956 and, therefore, there cannot be any objection to the following the said method of charging depreciation.
7.5 It is also interesting to note that the AO himself has also followed all along the profit and loss account so prepared in the computation of total income and had also completed ignored the printed balance sheet, except for the purpose of Section 115J of the Income Tax Act, 1961..........................
7.7 In view of the observations made above, the AO is directed to recompute the book profit after considering the profit and loss account submitted alongwith the return of income and ignoring the profit as disclosed by the appellant in the printed balance sheet of the appellant company. "
2.3 That issue went upto the Respected ITAT 'C' Bench Ahmedabad in ITA No.1851/Ahd/1993 and decided vide order dated 24.8.1999; relevant portion is extracted as under:
"5.4 In the instant case, we are concerned with the A.Y. 1990 -91 for which Sec.115J(1) read with sub - section (1A) is applicable. The issue before us is whether the assessee, being a company, in preparing the P&L account for the purpose of Sec. 115J is to adopt the same rate or same method of depreciation which was adopted in the profit and loss account, placed before the annual general meeting..................
On a comparison it will be evident that:
(a) the main part of sub -section (2) of sec. 115JA is the same as subsection (1A) of 115J.
(b) The proviso found in sub -section (2) of sec. 115JA are not to be found in sub -section (1A) of sec. 115J.
(c) The first proviso cited supra refers to profit and loss account laid before the annual general meeting of the company, a reference not found in 115J(1) or(1A).
(d) The proviso puts a condition that at the same rate or same method of depreciation are to be adopted both in the profit and loss account prepared for purposes of sec. 115JA and in the profit and loss account laid before the annual general meeting, (such a condition is not found in 115J(1) or (1A).
(e) The second proviso to sub -sec.(2) of sec. 115JA specifically refers to a company whose financial year under the Companies Act does not coincide with the previous year under the I.T. Act - a, contingency not mentioned in 115J(1) or (1A).
5.9 For all these reasons we hold that sub -section (1A) or sec. 115J as it stood for the A.Y. 90 -91 covers every assessee being a company, no matter whether financial year under the Companies Act and the previous year under the I.T. Act coincide with each other or not or the mandate of the sub -section is for every assessee being a company to prepare its profit and loss account for purposes of sec. 115J in accordance with the provisions of Part II and III of Schedule VI to the Companies Act and that there is no further requirement that the profit and loss account so prepared should be same or similar to the profit and loss account placed before the annual general meeting of the company.
5.10 The rates of depreciation mentioned in Schedule XIV of the Companies Act are the minimum rates of depreciation and the companies are free to adopt any rate not below the rate prescribed as per the clarification of Company Law Board. Further WDV method of depreciation is also an approved method under Schedule XIV of the Companies Act. Moreover the rates mentioned in Schedule XIV are relevant for purposes of Sec. 205 (dividend declaration) and 350 (managerial remuneration) of the Companies Act. As a matter of fact Sec.350 is not applicable to the assessee, it being a private limited company. Lastly Part II and III of Schedule VI to the Companies Act does not require that the rate or method of depreciation prescribed in Schedule XIV should be adopted for preparing the P&L account.
5.11 In the light of our discussions, we uphold the order of the CIT(A) and the revenue's appeal falls on this issue. "
(3.) THE Revenue Department was not satisfied with the order of the Tribunal; hence, matter went upto the Hon'ble Gujarat High Court and in Income Tax Reference No.67 of 1999 vide an order dated
14.03.2007,the Hon'ble Court has approved the view of the Tribunal.
Revenue Department; still not satisfied; challenged the order of the Hon'ble High Court before the Hon'ble Supreme Court and in Civil Appeal No.5004 of 2009 vide an order dated 30th of July, 2009,
pronounced as under:
"Assessee is a private limited company. For the previous year ending 31st March, 1990, in the printed copy of the Profit and Loss Account as approved by the Annual General Meeting (AGM), depreciation stood calculated on Straight Line Method, whereas in the separate Accounts prepared by the assessee for the purposes of Section 115J, assessee adopted Written Down Value Method for depreciation a provided in the Income Tax Act, 1961. Whether it was open to the assessee to do so was the question which arose for determination before the Tribunal which has not been squarely answered and the High Court vide its impugned judgment has merely copied extracts from the judgment of the Tribunal. We are also not sure as to what was Net Profit of the Company during the relevant year.
In the above circumstances, we set aside the impugned judgment of the High Court and remit the matter to the Tribunal for de novo consideration in accordance with law. "