M/s Medi Drips Carries Pvt. Ltd., Kolkata V. ITO, Wd-12(4), Kolkata, Kolkata

ITA 471/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9280 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 01-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2014
• Court: TRIBUNAL
• Department Lawyers: SAURAV KUMAR
• Assessee Lawyers: ASHISH RUSTOGI ACA
• Keywords: Capital asset; Depreciation; Retrospective amendment; Reasonable cause; Difference of opinion; Revised return; Unabsorbed depreciation
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A, BENC H KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM ./ ITA NO.471/KOL/2014 ( / ASSESSMENT YEAR:2008-2009) M/S MEDI DRIPS CARRIES PVT. LTD 8 TH FLOOR, R.NO.818, 4, SYNAGOGUE STREET, KOLKATA-700001 VS. ITO, WARD-12(4), P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA-700069 ./ ./PAN/GIR NO.: AABCM 8139 Q ( /APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI ASHISH RUSTOGI, ACA REVENUE BY : SHRI SAURAV KUMAR, JCIT / DATE OF HEARING : 01/03/2017 /DATE OF PRONOUNCEMENT 08/03/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAINI NG TO ASSESSMENT YEAR 2008-09, IS DIRECTED AGAINST THE OR DER PASSED BY LD. CIT(A)-XII, KOLKATA, IN APPEAL NO.490/XII/12(4)/10- 11, DATED 11.11.2013, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER (AO) UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961, (H EREINAFTER REFERRED TO AS THE ACT), DATED 28.12.2010. 2. THE SAID CAPTIONED APPEAL FILED BY THE ASSESSEE IS TIME BARRED BY FOUR DAYS. THE ASSESSEE FILED THE PETITION FOR CONDONATI ON OF DELAY AND EXPRESSED THE REASONS OF DELAY. AFTER VERIFICATION OF PETITION WE FOUND THAT THERE WAS A REASONABLE CAUSE FOR FOUR DAYS DELAY IN FILING THE APPEAL. EVEN LD DR DID NOT OBJECT TO CONDONE THE DELAY. THE REFORE, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 3. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30.09.2008. S UBSEQUENTLY THE ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 2 ASSESSEE COMPANY FILED ITS REVISED RETURN OF INCOME ON 9-12-2008 SHOWING TOTAL LOSS AT RS.3,19,09,797/-. THE ASSESSE ES CASE WAS SELECTED FOR SCRUTINY U/S.143(3) OF THE ACT AND THE AO HAS C OMPLETED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS INCLUDING AD DITION U/S.115JB OF THE ACT, 1961 FOR PURPOSE OF COMPUTATION OF BOOK PR OFIT. WHILE COMPUTING BOOK PROFIT U/S.115JB, THE ASSESSEE CLAIMED NEGATIV E ADJUSTMENT OF RS.5,54,25,156/- UNDER THE HEAD PROFIT DUE TO CHANGE IN METHOD FOR PROVIDING DEPRECIATION AND COMPUTED ITS BOOK PROFIT AT RS.(-) 3,27,69,574/- AS FOLLOWS: PARTICULARS AMOUNT IN RS. NET PROFIT SHOWN BY ASSESSEE 2,26,55,582 LESS: PROFIT DUE TO CHANGE IN METHOD OF DEPRECIATIO N FROM WDV TO SLM 5,54,25,156 BOOK PROFIT (NET LOSS COMPUTED BY THE ASSESSEE) U/S 115 JB OF THE ACT. (-)3,27,69,574 THE MAIN PLEA OF THE ASSESSING OFFICER WAS THAT THE NEGATIVE ADJUSTMENT DONE BY THE ASSESSEE IN THE NET PROFIT OF RS. 2,26, 55,582/- WHICH IS COMPUTED BY THE ASSESSEE AS PER PROVISIONS OF COMPA NIES ACT, 1956 (NOW COMPANIES ACT 2013) APPLYING ACCOUNTING POLICI ES, ACCOUNTING STANDARDS, THE METHOD AND RATES ADOPTED FOR CALCULA TING DEPRECIATION SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS AND WHICH IS APPROVED BY THE SHAREHOLDERS IN ANNUAL GENERAL MEETING. THAT IS, TH E NET PROFIT APPROVED BY THE SHAREHOLDERS IN AGM CAN NOT BE CHANGED EXCEP T BY THE ADJUSTMENTS GIVEN IN SECTION 115JB OF THE ACT. THE ADJUSTMENT DONE BY THE ASSESSEE PROFIT DUE TO CHANGE IN METHOD OF PROVIDING DEPRECIATION , IS NOT MENTIONED IN SECTION 115JB OF THE ACT. TH AT IS, THE ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 3 PROFIT GENERATED DUE TO CHANGE IN THE METHOD OF PRO VIDING DEPRECIATION, FROM WDV TO SLM OF RS.5,54,25,156/-, IS NOT AN ITEM OF ADJUSTMENT U/S 115JB OF THE ACT TO COMPUTE THE BOOK PROFIT. THEREF ORE, THE ASSESSING OFFICER HELD IN HIS ASSESSMENT ORDER THAT THE ASSES SEE HAS CLAIMED THE NEGATIVE ADJUSTMENT TO THE NET PROFIT OF THE COMPAN Y TO ARRIVE AT BOOK PROFIT, WITHOUT ANY SANCTION OF LAW AND HENCE THE A SSESSEE`S CLAIM FOR NEGATIVE ADJUSTMENT AMOUNTING TO RS.5,54,25,156/- I S DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE WHILE COMPUTING BOOK PROFIT FOR CALCULATION OF TAX U/S 115JB OF THE I.T. ACT,1961. THIS WAY, THE ASSESSING OFFICER DISALLOWED RS. 5,54,25,156/- FOR COMPUTATIO N OF BOOK PROFIT AND FOR CALCULATION OF TAX U/S 115JB OF THE ACT. THE AO NOTED THAT SECTION 115JB OF THE ACT ENACTED AS A SPECIAL PROVISION THAT PAYMENT OF TAX BY CERTAIN COMPANIES, AND THE ADJUSTMENT TO BOOK PROFIT BY A COMPANY IS STRICTLY GOVERNED BY AD JUSTMENT PROVIDED THEREIN. THAT IS, ONCE THE NET PROFIT OR LOSS OF TH E COMPANY, WHICH IS COMPUTED AS PER PROVISIONS OF THE COMPANIES ACT AND APPROVED IN THE AGM BY SHAREHOLDERS, THEN ONLY ADJUSTMENTS PERMIT TED BY SECTION 115JB MAY BE MADE TO ARRIVE AT BOOK PROFIT. THE PRO FIT DUE TO CHANGE IN METHOD OF PROVIDING DEPRECIATION IS NOT AN ITEM FOR ADJUSTMENTS FOR THE PURPOSE OF SECTION 115JB. AS THERE IS NO PROVISION FOR ADJUSTMENT IN SECTION 115JB, ON ACCOUNT OF PROFIT DUE TO CHANGE IN METHOD OF PROVIDING DEPRECIATION, THEREFORE, THE ASSESSEE IS NOT ENTITLED TO ADJUST THE AMOUNT OF RS.5,54,25,156/-. ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 4 THEREFORE, BY FOLLOWING THE PROVISIONS GIVEN IN SEC TION 115JB OF THE ACT, THE AO COMPUTED THE BOOK PROFIT AS FOLLOWS :- BOOK PROFIT AS COMPUTED BY THE ASSESSEE (-) RS.3,3 1,35,749/- ADD: ADJUSTMENT ON ACCOUNT OF CHANGE OF DEPRECIATION METHOD RS.5,54,25,156/- ASSESSED BOOK PROFIT AS PER SECTION 115JB RS.2,22 ,89,407/- 4. AGGRIEVED FROM THE ORDER OF ASSESSING OFFICER, T HE ASSESSEE FILED AN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), WHO HAS CONFIRMED THE ORDER PASSED BY THE AO OBSERVING THE FOLLOWINGS :- NOW, REGARDING COMPUTATION UNDER SEC. 115JB, BOOK P ROFIT IS TO BE DETERMINED ADOPTING THE NET PROFIT AS PER PROFIT AN D LOSS ACCOUNT AFTER THE POSITIVE AND NEGATIVE ADJUSTMENTS. DEPREC IATION DEBITED TO PROFIT AND LOSS ACCOUNT SHALL BE ADDED BACK. HOWEVE R, DEPRECIATION (NOT BEING DEPRECIATION WHICH ARISES BECAUSE OF REV ALUATION OF ASSETS) SHALL BE DEDUCTED. THE CUMULATIVE IMPACT OF THE ADDITION AND DEDUCTION IS THAT BOOK PROFIT WILL BE INCREASED BY DEPRECIATION (PERTAINING TO REVALUATION OF ASSETS). SOME RELIEF IS AVAILABLE IF THERE IS A WITHDRAWAL FROM THE REVALUATION RESERVE ACCOUN T AND IT APPEARS ON THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT. HOWEVER, IN THE FOLLOWING TWO CASES, THE ASSESSING OFFICER CAN RE-W RITE THE PROFIT AND LOSS ACCOUNT - (I) IF PROFIT AND LOSS ACCOUNT IS NOT PREPARED ACCO RDING TO THE COMPANIES ACT - IF IT IS DISCOVERED THAT THE PROFIT AND LOSS ACCOUNT IS NOT DRAWN UP IN ACCORDANCE WITH THE PROVISIONS OF P ARTS II AND III OF THE SIXTH SCHEDULE TO THE COMPANIES ACT, THE ASSESS ING OFFICER CAN RECALCULATE THE NET PROFIT. IN A CASE WHERE THERE I S NO ALLEGATION OF FRAUD OR MISREPRESENTATION BUT ONLY A DIFFERENCE OF OPINION AS TO THE QUESTION WHETHER A PARTICULAR AMOUNT SHOULD BE PROP ERLY SHOWN IN THE PROFIT AND LOSS ACCOUNT OR IN THE BALANCE SHEET , THE PROVISIONS OF SECTION 115JB DO NOT EMPOWER THE ASSESSING OFFICER TO DISTURB THE PROFIT AS SHOWN BY THE ASSESSEE. (LL) IF ACCOUNTING POLICIES, ACCOUNTING STANDARDS O R RATES OR METHOD OF DEPRECIATION ARE DIFFERENT - ACCORDING TO THE FI RST PROVISO TO SECTION' 115J8(2) THE ACCOUNTING POLICIES, THE ACCO UNTING STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS, THE METHOD AND RATES OF DEPRECIATION WHICH HAVE BEEN ADOPTED FOR PREPARATIO N OF THE PROFIT AND LOSS ACCOUNT LAID BEFORE THE ANNUAL GENERAL MEE TING, SHOULD BE FOLLOWED WHILE PREPARING PROFIT AND LOSS ACCOUNT FO R THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB. ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 5 IT MAY BE NOTED THAT SOME COMPANIES FOLLOW AN ACCOU NTING YEAR UNDER THE COMPANIES ACT WHICH IS DIFFERENT FROM FIN ANCIAL YEAR (I.E., PREVIOUS YEAR ENDING MARCH 31) UNDER THE INCOME-TAX ACT. THESE COMPANIES GENERALLY PREPARE TWO SETS OF ACCOUNTS - ONE FOR THE COMPANIES ACT AND ANOTHER FOR THE INCOME TAX ACT. D IFFERENT ACCOUNTING POLICIES/STANDARDS, AND METHOD OR RATE O F DEPRECIATION ARE ADOPTED IN TWO SETS OF ACCOUNT SO THAT HIGHER P ROFITS IS REPORTED TO SHAREHOLDERS AND LOWER PROFIT IS DISCLOSED TO LA X AUTHORITIES. IT IS IN ORDER TO CURB THE AFORESAID PRACTICE, IT HAS BEE N PROVIDED THAT ACCOUNTING POLICIES, ACCOUNTING STANDARDS, DEPRECIA TION METHOD AND RATES OF DEPRECIATION FOR TWO SETS OF ACCOUNT S HALL BE THE SAME. IN CASE IT IS NOT SO, THE ASSESSING OFFICER CAN REC ALCULATE NET PROFIT AFTER ADOPTING THE SAME ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND DEPRECIATION METHOD AND RATES WHICH HAVE BEEN A DOPTED FOR REPORTING PROFIT TO SHAREHOLDERS. IN THE CASE OF SRINIVAS SYNTHETIC PACKERS P LTD (AG RA BENCH) 122 TT J PAGE 832 REFERRED TO BY THE APPELLANT, CLEARLY , THE ONLY ISSUE ARISING FOR ADJUDICATION IN THE PRESENT APPEAL BY T HE REVENUE IS WHETHER THE DELETION OF THE ADDITION IN THE SUM OF RS. 15,03,991, BEING THE AMOUNT OF PROVISION FOR DEPRECIATION FOR EARLIER YEARS WRITTEN BACK IN ITS ACCOUNTS FOR THE YEAR BY THE AS SESSEE ON THE BASIS OF IT HAVING BEEN CHARGED TO THE REVENUE IN E XCESS (FOR THOSE YEARS), TO THE AMOUNT OF 'BOOK PROFIT', IN COMPUTIN G ITS TAX LIABILITY UNDER S. 115JB OF THE IT ACT, 1961 ('THE ACT' HEREI NAFTER), IS CORRECT IN LAW OR NOT. THE HON'BLE TRIBUNAL DECIDED THE QUE STION IN FAVOUR OF ASSESSEE. HOWEVER, I AM OF THE VIEW THAT THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE SAID CASE. IN THE CASE IN THE CASE GILT PACK LD (M P HIGH COURT) REPORTED IN OF 209 CTR 405, THE HON'BLE HIGH COURT HAD CONCLUDED THAT 'UPO N CHANGE OF METHOD OF DEPRECIATION, DEPRECIATION UNDER NEW METH OD CAN BE CLAIMED PROSPECTIVELY ONLY FROM THE DATE THE CHANGE HAS BEEN EFFECTED AND THE ARREARS OF DEPRECIATION CANNOT BE DEDUCTED FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER S. 115J .' IN CIT V. STERIPLATE (P) LTD.(2011) 338 ITR 547(P&H ), IT HAS BEEN HELD THAT BY VIRTUE OF C1.(I) OF EXPLANATION 1 TO S UB S. (2) OF S. 115JB,AS INSERTED BY FINANCE (NO.2) ACT, 2009 RETRO SPECTIVELY FROM 1 ST APRIL, 2001, ANY AMOUNT SET ASIDE AS PROVISION FOR DIMUNITION IN THE VALUE OF ANY ASSET WOULD NOT REDUCE THE BOOK PR OFIT OF AN ASSESSEE FOR ASSESSMENT YEAR 2002-03. IN THE CASE O F INDO RAMA SYNTHELICS(J) LTD. VS. CLT (2010) 320 ITR 340(DEL), IT HAS BEEN HELD THAT IN VIEW OF PROVISO TO CL. (I) OF EXPLANATION T O S.115JB, THE AMOUNT WITHDRAWN FROM THE REVALUATION RESERVE AND C REDITED TO P&L ACCOUNT IS TO BE INCLUDED WHILE COMPUTING BOOK PROF IT IN CASE THE AMOUNT OF SUCH RESERVE WAS NOT ADDED BACK BY THE AS SESSEE IN THE YEAR WHEN IT INCREASES THE REVALUATION RESERVE. IN THE SAME CASE IN (2011) 330 ITR 363(SC), THE HON'BLE SUPREME COURT H ELD THAT WHERE THE ASSESSEE HAD REVALUED ITS FIXED ASSETS IN THE EARLIER YEAR AND IN THE RELEVANT YEAR AND AMOUNT REPRESENTING DI FFERENTIAL DEPRECIATION WAS TRANSFERRED OUT OF THE SAID REVALU ATION RESERVE AND ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 6 CREDITED TO THE P&L ACCOUNT, THE AMOUNT TRANSFERRED FROM THE REVALUATION RESERVE TO THE P&L ACCOUNT COULD NOT BE REDUCED FOR COMPUTATION OF BOOK PROFIT AS THE AMOUNT OF SUCH RE VALUATION RESERVE HAD NOT GONE TO INCREASE THE BOOK PROFITS I N THE EARLIER YEAR WHEN IT WAS CREATED. CONSIDERING THE FACTS OF' THE CASE, AND THE MERGING LEGAL POSITION FROM THE CASES CITED ABOVE, I AM OF THE VIEW THAT T HE CLAIM OF THE APPELLANT COMPANY FOR THE NEGATIVE ADJUSTMENT TO TH E NET PROFIT OF THE COMPANY TO ARRIVE AT BOOK PROFIT AMOUNTING TO R S.5,54,25,265/- HAS BEEN RIGHTLY DISALLOWED AND ADDED TO THE INCOME OF THE APPELLANT WHILE COMPUTING BOOK PROFIT FOR CALCULATI ON OF TAX U/S 115JB OF THE I.T. ACT, 1961. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD IS CONFIRMED. 5. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL :- 1. FOR THAT THE ORDER OF THE LD. CIT (A) IS ARBITR ARY, ILLEGAL AND BAD IN LAW. 2. FOR THAT THE LD. C.LT(A) ERRED IN CONFIRMING TH E ORDER U/S. 143(3)/115JB OF THE IT. ACT, 1961 WHEN IT WAS TIME BARRED AS IT HAD BEEN SERVED ON THE APPELLANT COMPANY ON 4.1.201 0 WHICH IS WELL BEYOND THE STIPULATED PERIOD AS SPECIFIED I N THE ACT VIDE SECOND PROVISO TO SECTION 153(2) OF THE IT. ACT,196 1. 3. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C.IT(A) ERRED IN CONFIRMING THE ORDER OF THE AO IN NOT REDUCING THE SURPLUS ARISING OUT OF CHANGE IN METHOD OF DEPR ECIATION FROM WDV TO SLM METHOD WHILE COMPUTING THE BOOK PROFITS U/ S 115JB. 4. FOR THAT THE LD. C.IT(A) ERRED IN NOT CONSIDERI NG THE FACT THAT THE NOTIONAL PROFIT DUE TO CHANGE IN METHOD OF DEPRECIA TION IS RETROSPECTIVE IN NATURE AND INCLUDES SURPLUS OF A N UMBER OF YEARS WHICH HAS BEEN REFLECTED IN ONE PARTICULARS Y EAR IN THE BOOKS OF ACCOUNTS AND THUS, CANNOT BE SUBJECT TO TA X IN ONE PARTICULAR YEAR. 5. FOR THAT THE LD.CIT HAS ERRED IN NOT CONSIDERIN G THE FACT THAT THE ENTIRE PROFIT ON CHANGE IN METHOD HAS NOT ACCRUED I N A PARTICULAR YEAR AND IS FINANCIAL EFFECT FOR NUMBER OF YEARS. 6. FOR THAT THE LD.CIT HAS ERRED IN NOT CONSIDERIN G THE FACT THAT THE APPELLANT COMPANY WOULD NOT HAVE EARNED THE SURPLUS OF RS. 5,54,25,156/ - IF APPELLANT COMPANY HAD FOLLOWED TH E SAME METHOD OR RATE OF DEPRECIATION IN THE YEAR UNDER CO NSIDERATION AND THERE WAS NO IMPACT OF PAYMENT OF MAT. ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 7 7. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER OF THE CIT(A) BE MODIFIED AND THE ASSESSEE BE GIVEN TH E RELIEF PRAYED FOR. 8. FOR THAT THE ASSESSEE CRAVES LEAVE TO ADD, ALTE R OR AMEND ANY GROUND BEFORE OR AT THE TIME OF HEARING. 6. ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISE D A MULTIPLE GROUNDS OF APPEAL BUT AT THE TIME OF HEARING THE SO LITARY GRIEVANCE OF THE ASSESSEE HAS BEEN CONFINED TO THE ISSUE THAT TH E AO AND LD. CIT(A) DID NOT ALLOW THE ASSESSEE TO REDUCE THE SUR PLUS OF RS.5,54,25,156/- ARISING OUT OF CHANGE IN METHOD OF PROVIDING DEPRECIATION FROM WRITTEN DOWN VALUE (WDV) TO STRAI GHT LINE METHOD (SLM). GROUND NO.2 IS NOT PRESSED BY ASSESSEE. 6.1 LD. AR FOR THE ASSESSEE SUBMITTED BEFORE US THA T LD CIT(A) DID NOT ALLOW THE ASSESSEE TO MAKE THE ADJUSTMENT ON ACCOUN T OF SURPLUS OF RS.5,54,25,156/- WHICH AROSE DUE TO CHANGE IN METHO D OF PROVIDING DEPRECIATION FROM WDV TO SLM. THE LD.AR FOR THE AS SESSEE HAS POINTED OUT THAT THE CHANGE IN THE METHOD OF PROVIDING DEPR ECIATION IS RETROSPECTIVE IN NATURE AND IN THE CASE OF THE ASSE SSEE UNDER CONSIDERATION, THE DEPRECIATION INCLUDES A SURPLUS OF A NUMBER OF YEARS WHICH HAS BEEN REFLECTED IN ONE PARTICULAR YEAR IN THE BOOKS OF ACCOUNT, AND THUS CANNOT BE SUBJECT TO TAX IN ONE PARTICULA R YEAR. THE ENTIRE PROFIT OF RS.5,54,25,156/-, BECAUSE OF CHANGE IN METHOD OF PROVIDING DEPRECIATION HAS NOT ACCRUED IN ONE PARTICULAR YEAR AND IT HAS FINANCIAL EFFECT FOR NUMBER OF YEARS. IF THE ASSESSEE FOLLOWE D THE SAME METHOD, THEN THE ASSESSEE COMPANY WOULD NOT HAVE EARNED SUR PLUS OF RS.5,54,25,156/-, THERE WAS NO IMPACT OF PAYMENT OF MAT. SUCH ADDITION ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 8 WAS NOT OFFERED FOR TAXATION UNDER MAT UNDER SECTIO N 115JB OF THE INCOME TAX ACT, 1961 BY THE ASSESSEE, AS THE ADDITI ON WAS DUE TO RETROSPECTIVE ADJUSTMENT AND DID NOT REFLECT BOOK P ROFIT FOR THE PARTICULAR YEAR. IN ADDITION TO THIS, THE LD. AR FOR THE ASSESSEE HA S RELIED ON THE FOLLOWING JUDGMENTS :- I)GILT PACK LTD., 163 TAXMAN 331 ( MP-HC) IT WAS OBSERVED THAT THE PROVISIONS OF S. 205(1), CL. (B) OF THE FIRST PROVISO TO THE COMPANIES ACT STAND STATUTORILY INCO RPORATED IN THE IT ACT AND, THEREFORE, IN ORDER TO WORK OUT THE BOOK P ROFIT, THE LOSS AND DEPRECIATION HAS TO BE WORKED OUT IN TERMS OF THE C OMPANIES ACT AND THEREAFTER, SET OFF HAS TO BE MADE OF WHICHEVER IS LESS. IN THIS CONNECTION, WE MAY USEFULLY REFER TO THE DECISION O F APEX COURT IN APOLLO TYRES LTD. VS. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC). IN THE SAID CASE, THE SUPREME COURT H AS OBSERVED THAT THE AO WHILE COMPUTING THE BOOK PROFIT OF A CO MPANY UNDER S. 115J OF THE IT ACT, 1961, HAS ONLY THE POWER OF EXA MINING WHETHER THE BOOKS OF ACCOUNTS ARE CERTIFIED BY THE AUTHORIT IES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT AND THEREAFTER, THE AO HAS T HE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDE D FOR IN THE EXPLANATION TO S. 115J OF THE IT ACT. IT HAS SPECIF ICALLY BEEN LAID DOWN THAT THE AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE P&L A/C EXCEPT TO THE EXTEN T PROVIDED IN THE EXPLANATION TO S. 115J. 8. IN THE CONTROVERSY RAISED BEFORE US, LEARNED SENIO R COUNSEL APPEARING FOR APPELLANT HAS RAISED A SOLITARY QUEST ION AS TO WHETHER THE CHANGE IN THE METHOD OF DEPRECIATION WILL DISEN TITLE THE ASSESSEE TO CLAIM THE AMOUNT WORKED OUT IN ACCORDAN CE WITH SUCH CHANGE. LEARNED SENIOR COUNSEL SUBMITS THAT SINCE T HE DEDUCTION WAS CLAIMED ON THE GROUND THAT THE DEPRECIATION WAS WORKED OUT IN ACCORDANCE WITH THE WDV IN DEPARTURE FROM EARLIER M ETHOD OF STRAIGHTLINE, THE TRIBUNAL WAS BOUND TO ALLOW THE S AID AMOUNT AS DEPRECIATION. LEARNED SENIOR COUNSEL HAS FURTHER SU BMITTED THAT INSOFAR AS APPLICABILITY OF THE CASE OF KRISHNA OIL EXTRACTION LTD. (SUPRA) IS CONCERNED, SINCE THE SAID CASE RELATES T O THE MAINTENANCE OF ACCOUNTS OF A COMPANY IN ACCORDANCE WITH THE COMPANIES ACT, THE SAID DECISION HAS NO RELEVANCE. 9. INSOFAR AS THE QUESTION NO. 1 IS CONCERNED, WE HAV E ALREADY REFERRED TO THE DECISION IN KRISHNA OIL EXTRACTION LTD. (SUPRA) AND ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 9 THE APOLLO TYRES (SUPRA). WE ARE OF THE VIEW THAT S INCE THE CONTROVERSY HAS BEEN NARROWED DOWN, AS STATED HEREI NABOVE, THE FIRST QUESTION RELATING TO THE APPLICABILITY OR OTH ERWISE OF THE DECISION OF KRISHNA OIL EXTRACTION LTD. (SUPRA) TO THE FACTS OF THIS CASE, IS NOT RELEVANT AND, THEREFORE, THE SAME IS ANSWERED IN FA VOUR OF THE APPELLANT/ASSESSEE. 10. COMING TO THE SECOND QUESTION AS TO WHETHER THE TR IBUNAL WAS JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE PERTAINING TO THE DEPRECIATION OF RS. 9,70,663, LEARNED SENIOR COUNSE L HAS PLACED HEAVY RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN KINETIC MOTORS CO. LTD. VS. DY. CIT (2004) 186 CTR (BOM) 53 4. THE QUESTION BEFORE THE BOMBAY HIGH COURT WAS WHETHER I T WAS OPEN TO THE AO TO MAKE ADJUSTMENT TO THE BOOK PROFIT BEYOND WHAT IS AUTHORISED BY THE DEFINITION GIVEN IN EXPLANATION T O S. 115J OF THE IT ACT. IT WAS OBSERVED THAT IF THE ACCOUNTS ARE PREPA RED AND CERTIFIED IN ACCORDANCE WITH PART II AND PART III OF SCH. VI TO THE COMPANIES ACT, 1956, THE AO THEREAFTER HAS LIMITED POWERS OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXP LANATION TO S. 115J. THE BOMBAY HIGH COURT IN THE SAID DECISION WA S CONSIDERING THE FOLLOWING TWO QUESTIONS : '(1) WHETHER IN VIEW OF SPECIFIC DEFINITION OF THE EXPRESSION 'BOOK PROFIT GIVEN IN EXPLANATION TO S. 115J (1) OF THE IT ACT, IT IS PERMISSIBLE FOR THE AO TO MAKE ADJUSTMENTS TO THE B OOK PROFIT BEYOND THOSE AUTHORISED BY THE DEFINITION AND TO RE CAST THE P&L A/C ? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES AND THE TRIBUNAL WERE JUST IFIED IN REJECTING THE AMOUNT OF DEPRECIATION ACTUALLY DEBITED TO THE P&L A/C ADMITTEDLY PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCH. VI TO THE COMPANIES ACT, 1956, AND IN HOLDING THAT THE AS SESSEE OUGHT TO HAVE PROVIDED DEPRECIATION ON THE SAME BASIS AS ADO PTED IN THE EARLIER YEARS ?' 11. AFTER ANSWERING THE QUESTION NO. 1, THOUGH THE HIG H COURT OF BOMBAY OBSERVED THAT QUESTION NO. 2 HAD BECOME ACAD EMIC, IT OBSERVED THAT UNDER THE COMPANIES ACT, 1956, BOTH S TRAIGHTLINE METHOD AND WDV METHOD WERE RECOGNISED. THE OBSERVAT IONS CONTAINED IN PARA 11 OF THE JUDGMENT READ AS UNDER : '11. IN VIEW OF OUR ANSWER TO QUESTION NO. 1, QUEST ION NO. 2 BECOMES ACADEMIC. IT IS NOT IN DISPUTE THAT UNDER T HE COMPANIES ACT, 1956, BOTH STRAIGHTLINE METHOD AND WDV METHOD ARE RECOGNISED. THEREFORE, ONCE THE AMOUNT OF DEPRECIAT ION ACTUALLY DEBITED TO THE P&L A/C IS CERTIFIED BY THE AUDITORS , THEN, AS PER THE DECISION OF THE APEX COURT IN THE CASE OF APOLLO TY RES LTD. (SUPRA), QUESTION NO. 2 HAS TO BE ANSWERED IN THE NEGATIVE A ND IN FAVOUR OF THE ASSESSEE.' ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 10 12. WE MAY, AT THIS STAGE, REFER TO THE DECISION OF TH E SUPREME COURT IN THE CASE OF KARNATAKA SMALL SCALE INDUSTRI ES DEVELOPMENT CORPN. LTD. VS. CIT (2003) 179 CTR (SC) 1 : AIR 200 2 SCW 4926. IT HAS BEEN OBSERVED THAT HAD S. 115J NOT BEEN INTR ODUCED, THE ASSESSEE WOULD HAVE BEEN ENTITLED UNDER THE PROVISI ONS OF SS. 32(2), 32A(3), 72(1)(III), 73, 74, 74A(3) AND 80J T O CARRY FORWARD ONLY UNABSORBED DEPRECIATION ALLOWANCE UNDER S. 32. IT WAS OBSERVED THAT ONCE THE DEPRECIATION WAS ALLOWED IN THE PREVIOUS YEAR, IT WAS NOT OPEN TO THE ASSESSEE TO CLAIM REDU CTION WITH REGARD THERETO FOR DETERMINING WHETHER THE TOTAL INCOME SH OULD BE QUANTIFIED UNDER S. 115J(1). 13. IN VIEW OF THE ABOVE DECISION OF THE SUPREME COURT , WITH GREAT RESPECT, WE DIFFER FROM THE DECISION OF BOMBAY HIGH COURT IN KINETIC MOTORS CO. LTD. (SUPRA) INSOFAR AS IT HOLDS THAT TH E STRAIGHTLINE METHOD CAN BE BYPASSED TO SWITCH OVER TO THE METHOD OF WDV WITH RETROSPECTIVE EFFECT. WE ARE OF THE CONSIDERED VIEW THAT THOUGH UNDER THE COMPANIES ACT, THE ASSESSEE HAS THE OPTIO N OF ADOPTING STRAIGHTLINE METHOD AND WDV METHOD FOR CLAIMING DEP RECIATION, THE CHANGE FROM ONE METHOD TO ANOTHER HAS TO BE PROSPEC TIVE. UNDER THESE CIRCUMSTANCES, OUR ANSWER TO THE QUESTION NO. 2 IS THAT THE DEPRECIATION, UPON CHANGE OF METHOD, CAN BE CLAIMED PROSPECTIVELY ONLY FROM THE DATE THE CHANGE HAS BEEN EFFECTED. 14. IN VIEW OF THE FOREGOING DISCUSSION, THIS APPEAL I S DISPOSED OF WITH NO ORDERS AS TO COSTS. II) SRINIVAS SYNTHETICS PACKERS (P) LTD. (2009) 122 TTJ 832 ( ITAT AGRA BENCH) AS DISTINCT FROM A RESERVE, WHICH REPRESENTS ONLY A N APPROPRIATION OF PROFITS, SO THAT IT STANDS NECESSARILY INCLUDED IN THE BOOK PROFIT OF THE RELEVANT YEAR, I.E., IN WHICH IT IS CREATED, A PROVISION IS, BY DEFINITION, AN AMOUNT SET ASIDE OUT OF THE PROFITS/ SURPLUS TO PROVIDE FOR ANY LIABILITY, THE AMOUNT OF WHICH CANNOT BE AS CERTAINED WITH ACCURACY, OR TOWARD DEPRECIATION IN THE VALUE OF TH E ASSETS, I.E. , IN RESPECT OF DIMINUTION IN THE VALUE OF THE ASSETS ON ACCOUNT OF WEAR AND TEAR, OBSOLESCENCE, ETC. A PROVISION, THUS, LEA DS TO A REDUCTION IN THE PROFITS FOR THE RELEVANT YEAR. THE BASIC CON DITION OF THE STATUTE, I.E., AS CAST PER PROVISO TO CL. (I) OF EX PLN. 1, IS NOT SATISFIED SO AS TO ENTITLE THE ASSESSEE THE BENEFIT OF REDUCT ION OF THE RESPECTIVE PROVISION TO THE EXTENT WRITTEN BACK. WH Y, IN THAT CASE, THE ENTIRE AMOUNT PROVIDED FOR COULD BE WRITTEN BAC K IN A SUBSEQUENT YEAR, CLAIMING IT AS A REDUCTION, EVEN A S THE PROFIT FOR THE EARLIER YEAR STOOD ALSO REDUCED BY THE AMOUNT O F THE PROVISION. SO, HOWEVER, AND WHICH IS IMPORTANT, THE RE IS NO SUCH CHARGE OF THE WRITE BACK BEING A SUBTERFUGE OR NOT REPRESENTING THE EXCESS PROVISION, HAVING BEEN, AS STATED, WORKED OU T WITH REFERENCE TO THE CHANGED METHOD OF ACCOUNTING WITH RESPECT TO DEPRECIATION AND, THEREFORE, THOUGH NOT NON-SUITING THE ASSESSEE 'S CLAIM, I.E., AT THE THRESHOLD, HOWEVER, WOULD NOT OPERATE TO CIRCUM VENT THE ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 11 SATISFACTION OF THE BASIC QUALIFYING CONDITION FOR THE APPLICATION OF THE PROVISION. WE ARE, AT THE SAME TIME, ALSO CONSC IOUS OF THE FACT THAT THE LEGISLATURE HAS SPECIFICALLY PROVIDED FOR THE REDUCTION OF THE AMOUNT OF WITHDRAWAL MADE OUT OF THE PROVISION(S) ( WHICH, AS AFORESAID, BY DEFINITION, ONLY GO TO REDUCE THE PRO FITS FOR THE RELEVANT YEAR), SO THAT THEY CANNOT GO TO INCREASE THE SAME, AS IN THE CASE OF, OR IN CONTRADISTINCTION TO, THE RESERVES, I.E., TREATED THE TWO AT PAR. THE ONLY MEANINGFUL WAY TO HARMONIZE THIS APPA RENT ANOMALY IS TO INCREASE THE BOOK PROFIT OF THE RELEVANT YEAR (S); THE PROVISION OF S. 115JB (OR EVEN S. 115JA) BEING APPLICABLE, BY TH E AMOUNT OF WRITE BACK. TO THE EXTENT THE SAME DOES NOT LEAD TO INVOCATION OF S. 115JB (S. 115JA), THE AMOUNT WRITTEN BACK CAN BE VA LIDLY REDUCED FROM THE CURRENT YEAR'S PROFIT, THE BALANCE NOT, AS IT WOULD, IF ADDED TO THE BOOK PROFIT FOR THAT YEAR, RESULT IN BOOK PR OFIT TAX, WHICH STANDS NOT PAID. FOR EXAMPLE, RS. 3,68,008 WRITTEN BACK FO R ASST. YR. 1997- 98, ON ITS ADD BACK, RESULTS IN THE BOOK PROFIT FOR THAT YEAR TO INCREASE TO RS. 15.39 LACS, THE TAX (INCLUDING SURC HARGE @ 13 PER CENT) ON WHICH WORKS TO RS. 1,30,449, AS AGAINST TH E TAX LIABILITY FOR THE YEAR, WHICH STANDS ASSESSED AT RS. 4,32,146 (PA PER BOOK PP. 16-19), SO THAT S. 115JB DOES NOT GET INVOKED. AS S UCH, THE ENTIRE AMOUNT WRITTEN BACK IN THAT YEAR (RS. 3.68 LACS) CO ULD RIGHTLY BE CLAIMED AS A REDUCTION UNDER THE PROVISO TO CL. (I) OF EXPLN. 1, AND SO FORTH FOR THE OTHER YEARS. 6.4. HOWEVER, WE MAY ALSO CLARIFY THAT THE AFORESAID INT ERPRETATION, FOR WHICH WE HAVE CONSIDERED THE PROVISION, ITS INT ENT, AND ITS CLARIFICATION BY THE CBDT, SO AS TO ACCORD IT A PUR POSIVE INTERPRETATION, WOULD BE SUBJECT TO A QUALIFICATION , I.E., THE WRITE BACK OF THE PROVISION IS GENUINE. IN THE PRESENT CASE, N O RESERVATION STANDS EXPRESSED BY THE REVENUE IN THIS REGARD, AND THE ASSESSEE HAS EXPLAINED IT AS IN PURSUANCE TO THE CHANGE IN T HE METHOD OF ACCOUNTING FOR DEPRECIATION WITH EFFECT FROM THE CU RRENT YEAR, CONSEQUENT TO THE CORRESPONDING ACCOUNTING STANDARD (AS-6) (REVISED), THE ACCOUNTING STANDARDS ISSUED BY THE I CAI HAVING STATUTORY RECOGNITION (S. 211 OF THE COMPANIES ACT, 1956). III) REFERENCE IS ALSO DRAWN TO THE CASE OF CIT VS. KRISHNA OIL EXTRACTION LTD. (1998) 150 CTR (MP) 131 : (1998) 23 2 ITR 928 (MP). IN THIS CASE, THE MADHYA PRADESH HIGH COURT HAS CLE ARLY HELD THAT PRIOR PERIOD DEPRECIATION AND EXPENDITURE ARE NOT A LLOWABLE DEDUCTION WHILE COMPUTING BOOK PROFIT UNDER S. 115J OF THE IT ACT, 1961, RLW S. 205(1), PROVISO (B) OF THE COMPANIES A CT, 1956. SAME RATIO WAS LAID DOWN IN THE GILT PACK CASE DISCUSSED IN DETAIL ABOVE. IV) CIT VS HARPRASAD & CO. PVT LTD 1975 CTR (SC) 65 'FROM THE CHARGING PROVISIONS OF THE ACT, IT IS DIS CERNIBLE THAT THE WORDS 'INCOME' OR 'PROFITS AND GAINS' SHOULD BE UND ERSTOOD AS INCLUDING LOSSES ALSO, SO THAT, IN ONE SENSE 'PROFI TS AND GAINS' ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 12 REPRESENT 'PLUS INCOME' WHEREAS LOSSES REPRESENT' M INUS INCOME'[CIT VS. KARAMCHAND PREMCHAND LTD. 1960) 40 ITR 106 (SC) ,CIT VS. ELPHINSTONE SPG. & WVG. MILLS CO.LTD. (1960) 40 ITR 142 (SC)]. IN OTHER WORDS, LOSS IS NEGATIVE PROFIT, BOTH POSITIVE AND NEGATIVE PROFITS ARE OF A REVENUE CHARACTER. BOTH M UST ENTER INTO COMPUTATION, WHEREVER IT BECOMES MATERIAL, IN THE S AME MODE OF TAXABLE INCOME OF THE ASSESSEE.' 6.2 ON THE OTHER HAND, LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER , WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. IN ADDITION TO THIS, THE LD DR FOR THE REV ENUE HAS POINTED OUT THAT WHERE THE ANNUAL ACCOUNTS OF THE COMPANY INCLUDING PROFIT AND LOSS ACCOUNT HAS BEEN PREPARED AS PER COMPANIES ACT AND APPROVED BY THE SHAREHOLDERS IN AMG, THEN THE ASSESSEE, FOR THE PUR POSE OF COMPUTING BOOK PROFIT U/S 115JB, CAN DO ONLY THOSE ADJUSTMENT S, WHICH IS EXPRESSLY PROVIDED BY SECTION 115JB. SINCE THE THE NOTIONA L PROFIT CREDITED BY THE ASSESSEE IN PROFIT AND LOSS ACCOUNT RS.5,54,25,256/ -, IS NEITHER FALL IN ADD ITEMS NOR IN LESS ITEMS OF EXPLANATION 1 OF SUB -SECTION 2 OF SECTION 115JB, THEREFORE NO ANY ADJUSTMENT CAN BE D ONE FOR THE PURPOSE OF COMPUTING BOOK PROFIT OF THE ASSESSEE. 6.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMI SSIONS OF THE LD DR FOR THE REVENUE. AS LD. DR FOR THE REVENUE HAS CLEARLY POINTED OUT THAT FIRST OF ALL THE PROFIT DUE TO CHANGE IN METHOD OF DEPRECIATION FRO M WDV TO SLM IS NOT SUBJECT MATTER OF ADJUSTMENTS U/S.115JB OF THE I.T.ACT. LET US TAKE AN EXAMPLE TO UNDERSTAND THE ENTIRE GAMUT OF I SSUE UNDER CONSIDERATION. SAY, A COMPANY PURCHASED FIXED ASSETS RS.1000/- ON APRIL ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 13 1 2005 AND DECIDED TO FOLLOW WDV@10%. THE COMPANY HAS CHANGED THE METHOD OF PROVIDING DEPRECIATION FROM WDA TO SL M ON MARCH 31,2010. TABLE A: DEPRECIATION FROM APRIL 1, 2005 TO MARCH 31, 2010, BY FOLLOWING WDV @ 10%. YEAR OPINING WDV DEPRECIATION CLOSING WDV 2005 1000 100 900 2006 900 90 810 2007 810 81 729 2008 729 73 656 2009 656 66 590 2010 590 59 531 TOTAL DEPRECIATION 469 TABLE B: HAD THE COMPANY FOLLOWED SLM FOR PROVIDI NG DEPRECIATION THEN TOTAL DEPRECIATION FROM APRIL 1, 2005 TO MARCH 31, 2010, WOULD HAVE BEEN ( @10%) AS FOLLOWS: YEAR OPINING WDV DEPRECIATION CLOSING WDV 2005 1000 100 900 2006 900 100 800 2007 800 100 700 2008 700 100 600 2009 600 100 500 2010 500 100 400 TOTAL DEPRECIATION 600 (I) IF THE COMPANY CHANGES THE METHOD FOR PROVIDING DEPRECIATION FROM WDV TO SLM, THEN THERE WOULD BE GAIN OF (RS. 600 RS. 469) RS.131 (II) IF THE COMPANY CHANGES THE METHOD FOR PROVIDI NG DEPRECIATION FROM SLM TO WDV, THEN THERE WOULD BE LOSS OF (RS. 469 RS. 600) RS.(-)131 SCENARIO 1 IF THE COMPANY CHANGES THE METHOD FOR PROVIDING DEP RECIATION FROM WDV TO SLM, IN THAT CASE THERE WILL BE GAIN OF RS.131/- . THIS GAIN, THE COMPANY CREDITS IN THE PROFIT AND LOSS ACCOUNT. IT IS TO BE NOTED THAT BECAUSE OF THIS ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 14 NOTIONAL GAIN, WHICH IS NOT ACCRUED TO THE COMPANY, THE NET PROFIT OF THE COMPANY WOULD BE INCREASED BY RS.131/-. BUT THIS IS NOT AN ITEM FOR ADJUSTMENT UNDER EXPLANATION 1 OF SUB-SECTION 2 OF SECTION 115JB OF THE ACT. SCENARIO 2 IF THE COMPANY CHANGES THE METHOD FOR PROVIDING DEP RECIATION FROM SLM TO WDV, IN THAT CASE THERE WILL BE LOSS OF RS.131/- . THIS LOSS, THE COMPANY DEBITS IN THE PROFIT AND LOSS ACCOUNT. IT IS TO BE NOTED THAT BECAUSE OF THIS NOTIONAL LOSS, WHICH IS NOT AN OBLIGATION FOR THE COMPANY TO PAY OUTSIDERS, THE LOSS OF THE COMPANY WOULD BE INCREASED BY RS.13 1/-, THAT IS, THE NET PROFIT OF THE COMPANY TO THE EXTENT OF RS.131 WOULD DECREASE. BUT THIS IS NOT AN ITEM FOR ADJUSTMENT UNDER EXPLANATION 1 OF S UB-SECTION 2 OF SECTION 115JB OF THE ACT. BOTH THESE ADJUSTMENTS ( INCREASE IN PROFIT BY RS. 131 AND DECREASE OF PROFIT BY RS. 131) DUE TO CHANGE IN METHOD FOR PROV IDING DEPRECIATION ARE NOT THE SUBJECT MATTER OF EXPLANATION 1 OF SUB-SECT ION 2 OF SECTION 115JB OF THE ACT. AT THIS JUNCTURE IT IS APPROPRIATE TO REFER SECTIO N 115 JB OF THE I.T. ACT WHICH READS AS UNDER: SECTION 115JB : SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COMPANIES. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMP ANY, THE INCOME- TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEA R COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2012 IS LESS THAN EI GHTEEN AND ONE-HALF PER CENT OF ITS BOOK PROFIT,SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 15 SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF EIGHTEEN AND ONE-HALF PER CENT. (2) EVERY ASSESSEE, (A) BEING A COMPANY, OTHER THAN A COMPANY REFERRED TO IN CLAUSE (B), SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE IT S PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANI ES ACT, 1956 (1 OF 1956); OR (B) BEING A COMPANY, TO WHICH THE PROVISO TO SUB-SE CTION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 (1 OF 1956) IS APPLI CABLE, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LO SS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVI SIONS OF THE ACT GOVERNING SUCH COMPANY:] PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS I NCLUDING PROFIT AND LOSS ACCOUNT, (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS FOLLOWED FOR PREPARIN G SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 195 6 (1 OF 1956).. EXPLANATION FOR THE PURPOSES OF THIS SECTION, 'BOO K PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS IN CREASED BY (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND T HE PROVISION THEREFOR; OR (B) THE AMOUNTS CARRIED TO ANY RESERVES, BY WHATEVE R NAME CALLED, OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC ] ; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS M ADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR (D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SU BSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROP OSED; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 OTHER THAN THE PROVISIONS CONTAINE D IN CLAUSE (38) THEREOF OR SECTION 11 OR SECTION 12 APPLY; OR] (FA) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABL E TO, INCOME, BEING SHARE OF THE ASSESSEE IN THE INCOME OF AN ASSOCIATI ON OF PERSONS OR BODY OF INDIVIDUALS, ON WHICH NO INCOME-TAX IS PAYA BLE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 86; (FB) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO INCOME ACCRUING OR ARISING TO AN ASSESSEE, BEING A FOREIGN COMPANY, FROM, (A) THE CAPITAL GAINS ARISING ON TRANSACTIONS IN SE CURITIES; OR (B) THE INTEREST, ROYALTY OR FEES FOR TECHNICAL SER VICES CHARGEABLE TO TAX AT THE RATE OR RATES SPECIFIED IN CHAPTER XII, IF THE INCOME-TAX PAYABLE THEREON IN ACCORDANCE WIT H THE PROVISIONS OF THIS ACT, OTHER THAN THE PROVISIONS OF THIS CHAPTER , IS AT A RATE LESS THAN THE RATE SPECIFIED IN SUB-SECTION (1); OR (FC) THE AMOUNT REPRESENTING NOTIONAL LOSS ON TRANS FER OF A CAPITAL ASSET, BEING SHARE OF A SPECIAL PURPOSE VEHICLE TO A BUSINESS TRUST IN EXCHANGE OF UNITS ALLOTTED BY THAT TRUST REFERRED T O IN CLAUSE (XVII) OF SECTION 47 OR THE AMOUNT REPRESENTING NOTIONAL LOSS RESULTING FROM ANY CHANGE IN CARRYING AMOUNT OF SAID UNITS OR THE AMOU NT OF LOSS ON TRANSFER OF UNITS REFERRED TO IN CLAUSE (XVII) OF S ECTION 47; OR] ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 16 (FD) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO INCOME BY WAY OF ROYALTY IN RESPECT OF PATENT CHARGEABLE TO TAX U NDER SECTION 115BBF; OR';] (G) THE AMOUNT OF DEPRECIATION,] (H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION TH EREFOR, (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FO R DIMINUTION IN THE VALUE OF ANY ASSET, [(J) THE AMOUNT STANDING IN REVALUATION RESERVE REL ATING TO REVALUED ASSET ON THE RETIREMENT OR DISPOSAL OF SUCH ASSET, IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT, OR IF ANY AMOUNT REFERRED TO IN C LAUSE (J) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDU CED BY,] (K) THE AMOUNT OF GAIN ON TRANSFER OF UNITS REFERR ED TO IN CLAUSE (XVII) OF SECTION 47 COMPUTED BY TAKING INTO ACCOUNT THE COST OF THE SHARES EXCHANGED WITH UNITS REFERRED, TO IN THE SAID CLAUSE OR THE CARRYING AMOUNT OF THE SHARES AT THE TIME OF EXCHAN GE WHERE SUCH SHARES ARE CARRIED AT A VALUE OTHER THAN THE COST T HROUGH PROFIT OR LOSS ACCOUNT, AS THE CASE MAY BE;] (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVIS ION (EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL, 1997 O THERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES C REATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 S HALL NOT BE REDUCED FROM THE BOOK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF W HICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXP LANATION BELOW SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE ; OR] (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVI SIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF)]] OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH AMOUNT IS CREDI TED TO THE PROFIT AND LOSS ACCOUNT; OR (IIA) THE AMOUNT OF DEPRECIATION DEBITED TO THE PRO FIT AND LOSS ACCOUNT (EXCLUDING THE DEPRECIATION ON ACCOUNT OF REVALUATI ON OF ASSETS); OR (IIB) THE AMOUNT WITHDRAWN FROM REVALUATION RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT, TO THE EXTENT IT DOES NOT EXCEED THE AMOUNT OF DEPRECIATION ON ACCOUNT OF REVALUATION OF ASSETS REFERRED TO IN CLAUSE (IIA); OR] (IIC) THE AMOUNT OF INCOME, BEING THE SHARE OF THE ASSESSEE IN THE INCOME OF AN ASSOCIATION OF PERSONS OR BODY OF INDI VIDUALS, ON WHICH NO INCOME-TAX IS PAYABLE IN ACCORDANCE WITH THE PROVIS IONS OF SECTION 86, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LO SS ACCOUNT; OR (IID) THE AMOUNT OF INCOME ACCRUING OR ARISING TO A N ASSESSEE, BEING A FOREIGN COMPANY, FROM, (A) THE CAPITAL GAINS ARISING ON TRANSACTIONS IN SE CURITIES; OR (B) THE INTEREST, ROYALTY OR FEES FOR TECHNICAL SER VICES CHARGEABLE TO TAX AT THE RATE OR RATES SPECIFIED IN CHAPTER XII, IF SUCH INCOME IS CREDITED TO THE PROFIT AND LOSS A CCOUNT AND THE INCOME-TAX PAYABLE THEREON IN ACCORDANCE WITH THE P ROVISIONS OF THIS ACT, OTHER THAN THE PROVISIONS OF THIS CHAPTER, IS AT A RATE LESS THAN THE RATE SPECIFIED IN SUB-SECTION (1); OR (IIE) THE AMOUNT REPRESENTING, (A) NOTIONAL GAIN ON TRANSFER OF A CAPITAL ASSET, B EING SHARE OF A SPECIAL PURPOSE VEHICLE TO A BUSINESS TRUST IN EXCHANGE OF UNITS ALLOTTED BY THAT TRUST REFERRED TO IN CLAUSE (XVII) OF SECTION 47; OR ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 17 (B) NOTIONAL GAIN RESULTING FROM ANY CHANGE IN CARR YING AMOUNT OF SAID UNITS; OR (C) GAIN ON TRANSFER OF UNITS REFERRED TO IN CLAUSE (XVII) OF SECTION 47, IF ANY, CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR * (IIF) THE AMOUNT OF LOSS ON TRANSFER OF UNITS REFER RED TO IN CLAUSE (XVII) OF SECTION 47 COMPUTED BY TAKING INTO ACCOUNT THE COST OF THE SHARES EXCHANGE D WITH UNITS REFERRED TO IN THE SAID CLAUSE OR THE CARRYING AMOU NT OF THE SHARES AT THE TIME O EXCHANGE WHERE SUCH SHARES ARE CARRIED A T A VALUE OTHER THAN THE COST THROUGH PROFIT OR LOSS ACCOUNT, AS TH E CASE'MAY BE; OR']MAY BE;] (IIG) THE AMOUNT OF INCOME BY WAY OF ROYALTY IN RES PECT OF PATENT CHARGEABLE TO TAX UNDER SECTION 115BBF;';] (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSOR BED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. ON ANALYSIS OF EXPLANATION 1 OF SUB-SECTION (2) OF SECTION 115JB, WE FIND THAT PROFIT DUE TO CHANGE IN METHOD OF PROVIDING D EPRECIATION IS NOT AN ITEM OF TO BE ADDED AND DEDUCTED TO COMPUTE THE BOO K PROFIT. THIS IS ALSO INDICATIVE OF THE FACT THAT THE LEGISLATIVE INTENTI ON IS NOT TO GRANT ALL THE RELIEFS WHICH THE ASSESSEE-COMPANY WOULD HAVE B EEN ENTITLED TO IN THE COMPUTATION OF ITS TOTAL INCOME UNDER THE NO RMAL PROVISIONS OF THE ACT, WHILE COMPUTING THE INCOME UNDER S. 115JB OF THE ACT. THAT IS, THE ASSESSEE CANNOT CLAIM OTHER NORMAL RELIEF U NDER SECTION 115JB. THE ASSESSEE MAY CLAIM THE RELIEF FOR PROFIT DUE TO CHANGE IN METHOD OF PROVIDING DEPRECIATION IN NORMAL TAX COMPUTATION, BUT NOT UNDER SECTION 115JB, BECAUSE SECTION 115 JB IS A SEPARATE CODE TO COMPUTE THE BOOK PROFIT. S ECTION 115JB IS A SPECIAL PROVISION RELATING TO COM PANIES AND IT STARTS WITH A NON OBSTANTE CLAUSE AND IT SAYS THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS A CTTHEREFORE, SECTION 115JB CONTAINS THE PROCEDURE TO COMPUTE BOO K PROFIT AND OTHER PROVISIONS OF I.T.ACT DO NOT APPLY TO COMPUTE THE BOOK PROFIT. THE SCHEME OF SECTION 115JB SAYS THAT A COMPANY PRE PARES THE ANNUAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT I N ACCORDANCE WITH ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 18 PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANI ES ACT 1956 ( NOW COMPANIES ACT 2013), AND SAID PROFIT AND LOSS ACCOU NT IS APPROVED BY THE SHAREHOLDERS IN AGM. THE PROFIT AND LOSS ACCOUN T SO APPROVED BY THE SHAREHOLDERS IN AGM, THEN THE NET PROFIT OF THE SAID PROFIT AND LOSS ACCOUNT, IS TO BE INCREASED AND REDUCED BY THE ITEM S WHICH IS GIVEN IN EXPLANATION 1 TO SUB-SECTION 2 OF SECTION 115JB. FURTHER THE EXPLANATION 1 TO SUB-SECTION 2 OF SECTION 115JB IS EXHAUSTIVE IN NATURE, WHICH READS AS: FOR THE PURPOSE OF THIS SE CTION, BOOK PROFIT MEANS. THEREFORE, WHAT IS GIVEN IN EXPLANATION 1 IS TO BE TAKEN INTO ACCOUNT. THEREFORE, BASED ON THE ANALYSIS OF SECTION 115JB O F THE ACT, IT APPEARS TO US THAT PROFIT DUE TO CHANGE IN METHOD FOR PROVIDING DEPRECIATION RS.5,54,25,156/- IS NOT ELIGIBLE FOR ADJUSTMENT UNDER SECTION 115JB OF THE ACT, BECAUSE THIS ADJUST MENT IS NOWHERE MENTIONED IN EXPLANATION 1 TO SUB SECTION (2) OF S ECTION 115JB OF THE ACT. THE LD AR FOR THE ASSESSEE HAS RELIED ON JUDGMENT O F HON`BLE M.P. HIGH COURT IN GILT PACK LTD, 209 CTR 405 ( MP-HC) WHICH IS AGAINST THE ASSESSEE AND IN FAVOUR OF REVENUE. THE JUDGMENT CLE ARLY SAYS THAT CHANGE FROM ONE METHOD OF PROVIDING DEPRECIATION TO ANOTHER METHOD HAS TO BE PROSPECTIVE, THEREFORE THE ASSESSEE CAN NOT D O THIS ADJUSTMENT TO COMPUTE BOOK PROFIT. ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 19 THE LD AR FOR THE ASSESSEE HAS ALSO RELIED ON JUDGM ENT OF AGRA ITAT IN SHRINIVAS SYNTHETICS PACKERS (P) LTD, 122 TTJ 832. THE FACTS OF THE SAID CASE IS DIFFERENT FROM THE FACTS OF THE ASSESSEE`S UNDER CONSIDERATION. THE FACTS OF THE CASE IN SHRINIVAS SYNTHETICS PACKERS (P) LTD (SUPRA) WAS THAT THE RETURN FOR EACH OF THE FOUR PRECEDING YEARS, S HOWN THAT THE TAX FOR THOSE YEARS STOOD COMPUTED UNDER THE REGULA R PROVISIONS, EVEN AS THE MAT PROVISION (S. 115JB) WAS APPLICABLE FOR THE SAID YEARS, IMPLYING THAT THERE HAS BEEN NO CLAIM OF TAX REDUCTION QUA THE AMOUNT OF BOOK PROFIT REPRESENTED BY THE EXCESS DEP RECIATION RELATING TO THOSE YEARS, I.E., AS NOW WRITTEN BACK. PARA 6.3 OF THE SAID JUDGMENT CLEARLY SAYS THAT THE ONLY MEANINGFUL WAY TO HARMONIZE THIS APPARENT ANOMALY IS TO INCREASE THE BOOK PROFIT OF THE RELEVANT YEAR(S); THE PROVISION OF S. 115JB (OR EVEN S. 115J A) BEING APPLICABLE, BY THE AMOUNT OF WRITE BACK. TO THE EXTENT THE SAME DOES NOT LEAD TO INVOCATION OF S. 115JB (S. 115JA), THE AMOUNT WRITT EN BACK CAN BE VALIDLY REDUCED FROM THE CURRENT YEARS PROFIT, THE BALANCE NOT, AS IT WOULD, IF ADDED TO THE BOOK PROFIT FOR THAT YEAR, R ESULT IN BOOK PROFIT TAX, WHICH STANDS NOT PAID. THEREFORE, THIS CASE LA W DOES NOT ASSIST THE ASSESSEE`S CASE UNDER CONSIDERATION BECAUSE FAC TS OF THIS CASE IS TOTALLY DIFFERENT FROM ASSESSEE`S CASE. THEREFORE, IN THE ASSESSEE`S CASE UNDER CONSIDERATI ON, WE RELY OF THE SUPREME COURT JUDGMENT IN APPOLLO TYRES ,255 ITR 27 3 (SC), GILT PACH LTD.209 CTR 405 (MP) AND KRISHNA OIL EXTRACTION LT D. (MP) 232 ITR 928 (MP). ALL THESE JUDGMENTS CLEARLY SAY THAT AN ASSES SEE CANNOT MAKE AN ITA NO.471/KOL/2014 M/S MEDI DRIPS CARRIES PVT. LTD. 20 ADJUSTMENT ON ACCOUNT OF CHANGE IN METHOD OF PROVI DING DEPRECIATION FOR THE PURPOSE OF EXPLANATION 1 OF SUB-SECTION (2) OF SECTION 115JB OF THE I.T. ACT. THEREFORE CONSIDERING THE FACTUAL POSITION AND PREC EDENTS CITED ABOVE, WE ARE OF THE VIEW THAT ASSESSEE UNDER CONSIDERATION C ANNOT MAKE AN ADJUSTMENT FOR PROFIT DUE TO CHANGE IN METHOD OF P ROVIDING DEPRECIATION FOR THE PURPOSE OF EXPLANATION 1 OF SUB SECTION (2) OF SECTION 115JB OF THE I.T. ACT. THEREFORE, WE CONFIRM THE ORDER PASSED BY LD.CIT(A). 6.4 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08/0 3/2017. S D/ - (N.V.VASUDEVAN) S D/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; ! DATED 08/03/2017 '#$%& /PRAKASH#MISHRA ,SR.PS. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) $ % , / ITAT, KOLKATA 1. / THE APPELLANT-M/S MEDI DRIPS CARRIES PVT. LTD. 2. / THE RESPONDENT.- ITO, WARD-12(4), KOLKATA 3. 0 ( ) / THE CIT(A), KOLKATA. 4. 0 / CIT 5. 12 3 4456 , 56 , / DR, ITAT, KOLKATA 6. 3 78 / GUARD FILE. 1 4 //TRUE COPY//