Rameshwaram Cotton Industries(Guj.)Pvt.Ltd., Ahmedabad V. The Income tax Officer, Ward-8(3), Ahmedabad

CO 18/AHD/2007

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4556 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-04-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 06-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 115JB

Judgement Text

C.O.NO.18-07. A.Y.. 2003-04 1 IN THE INCOME_TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI T.K. SHARMA AND SHRI D.C. AGRAWAL. C.O. NO. 18/AHD/2007 (ARISING OUT OF ITA.NO.2710AHD/2006) (ASSESSMENT YEAR:2003-04) INCOME TAX OFFICER, WARD 8(3) AHMEDABAD. VS RAMESHWARAM COTTON INDUSTRIES (GUJ.)PVT.LTD., 16UMIYA VIJAY SOCIETY, SATELLITE ROAD,AHMEDABAD. (APPELLANT) (RESPONDENT) PAN: AADCS9761N APPELLANT BY : SHRI SANJAY R. SHAH, C.A. RESPONDENT BY : SHRI RAJEEV AGARWAL, CIT(DR) ( (( ( )/ )/)/ )/ ORDER PER: SHRI T.K. SHARMA THIS CROSS OBJECTION IS FILED BY THE ASSESSEE IS ARISING OUT O F I.T.A. NO.2710AHD/2006 FOR THE ASSESSMENT YEAR 2003-04. THE GROUNDS OF C.O. ARE AS UNDER :- 1. THE LD. C.I.T.(A) ERRED IN LAW AND ON FACTS IN UP HOLDING THE ACTION LD. ASSESSING OFFICER IN INVOKING PROVISIONS OF MAT U/S. 115JB AND IN CALCULATING BOOK PROFIT OF THE APPEL LANT AT RS.11,25,891/-. C.O.NO.18-07. A.Y.. 2003-04 2 2. THE LD. C.I.T. (A) FAILED TO APPRECIATE THAT AUDITED ACCOUNTS OF THE APPELLANT WERE QUALIFIED BY STATUTORY AUDITORS REGARDING NON-PROVISION OF DEPRECIATION OF RS.18,88,450/- IN THE BOOKS AND TO THAT EXTENT BOOK P ROFIT HAD TO BE REDUCED. 3. THE LD. C.I.T.(A) WRONGLY APPLIED THE RATIO OF HON BLE S.C. IN THE CASE OF APOLLO TYRES LTD., 255 ITR 273 TO THE CASE OF THE APPELLANT. IT IS SUBMITTED THAT THE SAID DECISION DOES NOT APPLY TO THE FACTS OF THE CASE OF THE APPELLANT PARTICULARLY WHEN THE AUDITORS HAVE QUALIFIED THE AUD IT REPORT WITH REGARD TO NON-PROVISION OF DEPRECIATION. IT IS SUBMITTED THAT IT BE SO HELD NOW AND UN-PROVIDED DEPRECIATION OF RS.18,88,450/- BE ALLOWED TO BE DEDUCT ED FROM BOOK PROFIT. 2. AT THE TIME OF HEARING ON BEHALF OF ASSESSEE SHRI SA NJAY R. SHAH, C.A. APPEARED AND CONTENDED THAT APPEAL OF THE ASSESSEE HAS ALREADY BEEN DECIDED BY ITAT A-BENCH ON 17-7-2009. 3. WITH REGARD TO CONTROVERSY INVOLVED IN VARIOUS GROU NDS RAISED IN CROSS OBJECTION, THE COUNSEL OF THE ASSESSEE EXPLAINED THAT AS PER P & L ACCOUNT, THE PROFIT WAS SHOWN IN THE BOOKS OF ACCOUNTS I S RS.11,25,892/- WITHOUT CHARGING DEPRECIATION OF RS.18,8 8,450/- IN THE BOOKS OF ACCOUNTS. HOWEVER, WHILE FILING THE RETURN OF INCOME, THE ASSESSEE HAS SHOWN BOOK PROFIT BY DEDUCTING DEPRECIATION OF RS.18,88,450/- FROM THE PROFIT SHOWN IN THE BOOKS OF A CCOUNTS OF RS.11,25,892/- AND TAKEN THE BOOK PROFIT AND TAX PAY ABLE UNDER MAT AS NIL. THE A.O. HELD THAT FOR COMPUTING THE 115JB P ROFIT SHOWN IN THE BOOKS HAS TO BE TAKEN WHEN THE ASSESSEE HAS NOT DEBITED IN ITS BOOKS C.O.NO.18-07. A.Y.. 2003-04 3 DEPRECIATION IT CAN NOT BE DEPRECIATION FOR COMPUTING THE BOOK PROFIT U/S. 115JB, WHILE FURNISHING THE RETURN OF INCOME. 4. ON APPEAL, BEFORE THE LD. C.I.T.(A) IT WAS CONTEND ED THAT AS MENTIONED IN SECTION 115JB THE BOOK PROFIT IS TO BE CA LCULATED AS PER PART-II & PART-III OF SCHEDULE-VI OF THE COMPANIES ACT . NO DEPRECIATION WAS DEBITED IN THE BOOKS, THE AUDITOR HAS MENTIONED IN THE NOTES THAT DEPRECIATION IS NOT DEBITED IN THE BOOKS AND THIS NOTE SHOULD BE READ ALONG WITH THE PROFIT AND LOSS ACCOUNT AND CORRECT WAY T O COMPUTE THE INCOME AS PER SEC. 115JB IS TO DEDUCT DEPRECIATION FROM THE PROFIT SHOWN IN THE BOOKS. 5. AFTER CONSIDERING THE AFORESAID SUBMISSION, THE LD. C IT (A) IN THE IMPUGNED ORDER UPHOLD THE ACTION OF THE A.O. FOR THE REASONS GIVEN IN PARAGRAPH 2.3 WHICH READS AS UNDER :- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSION OF THE APPELLANT. HOWEVER, I DO NOT AGREE WI TH THE APPELLANTS CONTENTION. FOR THE PUR[POSE OF COMPUTING T HE INCOME U/S. 115JB, THE BOOK PROFIT SHOWN IN THE BOOKS H AS TO BE TAKEN WHICH HAS BEEN PREPARED AND APPROVED IN THE BOA RD MEETING. EVEN THE HON. SUPREME COURT HAS HELD IN THE CASE OF APOLLO TYRES LTD., VS. CIT 255 ITR-253 THAT THE A.O. SHOULD NOT GO BEYOND THE BOOK RESULT AND ADOPT THE PROFIT AS APP EARING IN THE BOOKS AND APPROVED BY THE DIRECTORS AND AUDITORS I N THE BOARD MEETING. HENCE, IT IS HELD THAT THE ACTION OF THE A.O. IS JUSTIFIED AND NO INTERFERENCE WHATSOEVER IS CALLED FOR. 6. AGGRIEVED BY THE LD. C.I.T.(A), THE ASSESSEE HAS FILE D CROSS OBJECTION BEFORE US. 7. AT THE TIME OF HEARING ON BEHALF OF ASSESSEE SHRI S ANJAY SHAH, APPEARED AND CONTENDED THAT CONTROVERSY INVOLVED IN TH IS CROSS OBJECTION IS SQUARELY COVERED BY THE DECISION OF I.T.AT. B-BENCH, C.O.NO.18-07. A.Y.. 2003-04 4 BOMBAY IN THE CASE OF DY. C.I.T. VS. M/S. BOMBAY DIAM OND CO. LTD., REPORTED IN 2009-TIOL0760-ITAT-MUM. HE DREW OUR ATTE NTION TO THE HEAD-NOTES OF THE SAID DECISION WHICH READS AS UNDER :- INCOME TAX ASSESSING OFFICER CANNOT GO BEYOND THE BOOK PROFITS AS PER THE AUDITED ACCOUNTS PROVIDED THEY ARE PR EPARED AS PER THE MANNER PROVIDED IN PART-II AND PART-III O F SCHEDULE VI TO THE COMPANIES ACT,1956 AND ARE ADOPTED IN THE AGM :- HOWEVER, IN THE INSTANT CASE, ADMITTEDLY THE ACCOUNTS ARE NOT PREPARED IN THE MANNER PROVIDED IN PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT,1956 SINCE THE PROFIT ON SALE OF INVESTMENTS AMOUNTING TO RS.10,38,13,765/- WHICH ISD A MATERIAL AMOUNT, HAS NOT BEEN ROUTED THROUGH THE PRO FIT AND LOSS ACCOUNT. THEREFORE, THE ASSESSING OFFICER HAS THE POWER TO RE- WORK THE BOOK PROFIT BY RECASTING THE ACCOUNTS IN THE MA NNER PROVIDED AS PER PART II AND PART III OF SCHEDULE VI T O THE COMPANIES ACT,1956. 8. THE LD. COUNSEL OF THE ASSESSEE FURTHER EXPLAINED AS A S PER PART- II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT,1 956, THE ASSESSEE WAS REQUIRED TO SHOW BOOK PROFIT. ADMITTEDLY THIS HA S NOT BEEN PROVIDED. IN THESE CIRCUMSTANCES, ASSESSEE OR A.O. CAN RECAST THE ACCOUNTS IN THE MANNER PROVIDED AS PER PART II AND PART -III OF THE SCHEDULE VI OF THE COMPANIES ACT,1956. IN THIS CASE THI S IS WHAT EXACTLY ASSESSEE HAS DONE AND CLAIMED THE DEPRECIATION. TH EREFORE, FOLLOWING THE DECISION OF CORDINATE BENCH IN THE CASE OF DY. C.I.T. VS. M/S. BOMBAY DIAMOND CO. LTD., (SUPRA) IT MAY BE HELD THAT SINCE THE ACCOUNTS OF THE ASSESSEE COMPANY WERE PREPARED BY QUALIFIED STATUTORY AUDITOR AFTER MAKING PROVISION OF RS.18,88, 450/- IN THE BOOKS OF ACCOUNTS AND TO THAT EXTENT BOOK PROFIT HAS TO BE REDUCED FOR COMPUTING THE BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT,1961. RELIANCE WAS ALSO PLACED ON JUDGEMENT OF HONBLE DELHI HI GH COURT IN C.O.NO.18-07. A.Y.. 2003-04 5 THE CASE OF C.I.T. VS. SAIN PROCESSING & WEAVING MILLS (P) LTD., (2009) 221 CTR (DEL.) 493 9. ON THE OTHER HAND SHRI RAJEEV AGARWAL, LD. D.R. VEHEMENTLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. THE LD. D.R . POINTED OUT THAT MATTER IS SQUARELY COVERED BY THE DECISION OF APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT REPORTED IN 265 ITR-2 73. THEREFORE, THE VIEW TAKEN BY LD. C.I.T.(A) BE UPHELD. 10. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GON E THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ITAT B-BENCH IN T HE CASE OF DY. C.I.T. VS. M/S. BOMBAY DIAMOND CO. LTD., (SUPRA) HO LD THAT WHEN ACCOUNTS ARE NOT PREPARED IN THE MANNER PROVIDED IN PA RT-II AND PART- III OF THE SCHEDULE VI OF THE COMPANIES ACT,1956, A.O. HAS POWER TO RE-WORK BOOK PROFIT IN THE MANNER PROVIDED AS PER PA RT II AND PART-III OF SCHEDULE VI OF THE COMPANIES ACT,1956. RECENTLY, TH E HONBLE DELHI HIGH COURT ALSO IN THE CASE OF C.I.T. VS. SAIN PRO CESSING & WEAVING MILLS (P) LTD., REPORTED IN (2009) 221 CTR-4 93 HELD THAT DEPRECIATION EVEN IF NOT DEBITED TO P & L ACCOUNT HAS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING BOOK PROFIT U/S.115J AS LON G AS IT FORMS PART OF THE PRESCRIBED ACCOUNTS. THE HEAD NOTES OF SAID J UDGEMENT READS AS UNDER :- COMPANY BOOK PROFIT UNDER S. 115J DEPRECIATION N OT DEBITED TO P & L A/C. IT IS OBLIGATORY UNDER CL. 3(IV) OF PART II OF SCH. VI TO THE COMPANIES ACT TO GIVE INFORMATION WITH REGARD T O DEPRECIATION WHICH HAS NOT BEEN PROVIDED FOR, ALONG WI TH THE QUANTUM OF ARREARS ONCE THIS INFORMATION IS DISCLOSED IN THE NOTES TO THE ACCOUNTS,.IT WOULD CLEARLY FALL WITHIN THE AMBIT OF THE EXPLANATION TO S. 115J NOTES TO THE ACCOUNTS FORM PA RT OF P & L A/C BY VIRTUE OF SUB-S. (6) OF S. 211 OF THE COMPANIES A CT AND C.O.NO.18-07. A.Y.. 2003-04 6 THUS THE DEPRECIATION WHICH IS NOT CHARGED TO P & L A/C BUT IS DISCLOSED IN THE NOTES TO THE ACCOUNTS WOULD COME WITHIN TH E AMBIT OF THE EXPRESSION SHOWN IN THE P & L A/C OCCURRIN G IN EXPLANATION TO S. 115J FURTHER, THE NET PROFIT OF A COMPANY CAN NOT BE DETERMINED TILL ALL THE ITEMS OF INCOME AND EX PENSES AS WELL AS DEPRECIATION ARE TAKEN INTO ACCOUNT DEPRECIATI ON, EVEN IF NOT DEBITED TO THE P & L A/C HAS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING BOOK PROFIT UNDER S. 115J AS LONG AS IT FORMS PART OF THE PRESCRIBED ACCOUNTS THAT APART, S.205(1), PROVISO ( B) OF THE COMPANIES ACT R/W CL. (IV) OF EXPLANATION TO S. 115 J PERMITS REDUCTION OF NET PROFIT TO THE EXTENT OF PAST LOSSES OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS IF UNABSORBED DEPRECIATI ON CAN BE REDUCED FROM NET PROFIT TO ARRIVE AT BOOK PROFIT, THERE IS NO REASON WHY CURRENT YEARS DEPRECIATION WHICH IS NOT CHARG ED TO THE P & L A/C CANNOT BE DEDUCTED FROM THE NET PROFIT I N DETERMINING BOOK PROFIT. 11. CONSIDERING THE RATIO OF BOTH THE AFORESAID DECISI ONS, IT IS HELD THAT ASSESSEE RIGHTLY DEBITED DEPRECIATION FOR COMPUTING THE BOOK PROFIT U/S. 115JB WHILE FURNISHING THE RETURN OF INCOM E BECAUSE BY MAKING SUCH CLAIM, THE ASSESSEE IS MERELY CLAIMING THE DEPR ECIATION WHICH IS OBLIGATORY UNDER CLAUSE 3 (IV) OF PART-II OF SCHEDULE VI TO THE COMPANIES ACT,1956. WE ACCORDINGLY, DIRECT THE A.O. TO ACCEPT THE WORKING OF BOOK PROFIT U/S.115JB FURNISHED BY THE ASSESSE E. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 23 / 04 /2010. SD/- SD/- ( D.C. AGRAWAL) (T.K.SHARMA) ACCOUNTANT MEMBER. JUDICIAL MEM BER. C.O.NO.18-07. A.Y.. 2003-04 7 AHMEDABAD. DATED: 23/04 /2010. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNED. 5. THE DR.,ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD.