Lakshmi Precision Screws Ltd.rohtak v. Commissioner Of Income-Tax Rohtak

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARHITR No.58 of 1997Date of decision:15.1.2008 Lakshmi Precision Screws Ltd.Rohtak ......Applicant Versus Commissioner of Income-Tax Rohtak . .....Respondent CORAM:-HON'BLE MR.JUSTICE SATISH KUMAR MITTALHON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present:Mr. Akshay Bhan, Advocate for the assessee. Mr. Yogesh Putney, Advocate for the revenue. Rakesh Kumar Garg, J. The Income Tax Appellate Tribunal Delhi Bench (D) vide itsorder dated 21.2.1997 has referred the following question of law to this Court forits opinion:- “Whether the Income tax Appellate Tribunal is correct inlaw in upholding the order of the learned CIT passed underSection 263 of the Income-tax Act, whereby - (a) it was held that as there was no business loss or the losswas less than brought forward unabsorbed depreciation, thebrought forwarded depreciation was not to be taken intoaccount while working out the book profits for the purposesof Section 115 J of the Income-tax Act., 1961 ? (b) he directed the AO to determine the book profit atRs.19,09,097/- for the purpose of Section 115 J as againstthe book profit determined by the assessee at a negativefigure of Rs.1,64,54,112/- ?” Briefly the facts are that for the assessment year 1988-89, onperusal of the assessment record, the Commissioner of Income Tax found thatthe assessee Company had worked out book profits at Rs.19,09,097/-. It wasalso observed that the Assessing Officer had adjusted brought forwardunabsorbed depreciation against the current income and allowed carry forwardof the remaining unabsorbed depreciation for being set off against the income ofthe subsequent assessment years. The Commissioner of Income Tax referredto the provisions of Section 115 (J) of the Income Tax 1961 and observed thatunabsorbed loss or unabsorbed depreciation, whichever is less, was to bededucted from the book profits of Rs.19,09,097/-. He also observed that in thecase of the assessee, there was only brought forward unabsorbed depreciationwith no brought forward unabsorbed loss. The Commissioner of Income Taxalso referred to the Board's Circular No.495 dated 22.9.1987 and held that theassessment order was erroneous in so far as it was prejudicial to the interest ofrevenue. The assessee was given an opportunity vide notice dated 19.3.1991.The assessee filed written submissions which were considered by theCommissioner of Income Tax, who observed that according to the auditedaccounts submitted along with the return of income, the income as per profit andloss account was Rs.19,09,097/-. He further observed from the audited reportthat the company had only unabsorbed depreciation and that there was nobrought forward loss. He also observed that according to the Board's circularNo.495 dated 22.9.1987, the claim of the assessee was not acceptable. Thelearned CIT further analysed the provisions of sec.115-J and observed thatworking of loss and depreciation for the asstt. Years 1985-86 to 1987-88 showedthat the assessee had not suffered any actual loss in those years except thenotional loss after deduction of depreciation. He also observed that the broughtforward loss was, in fact, nil against substantial brought forward deprecation bothas per straight line method and WDV method. He, therefore, held that as therewas no business loss or the loss was less than brought forward unabsorbeddepreciation, the brought forward depreciation was not to be taken into accountwhile working out the book profit for the purpose of section 115-J of the I.T. Act, 1961. In the process he also referred to the provisions of section 205 (b) of theCompanies Act, 1956 and observed that the Companies Act differentiatedbetween the actual loss and loss after depreciation and that the assessee'scontention that the loss in its case should be taken into consideration afterproviding for depreciation was not tenable. He, therefore, cancelled theassessment order passed by the Assessing Officer and directed him to make afresh assessment according to law. The assessee filed an appeal against the said order before theIncome Tax Appellate Tribunal and invited attention to the order of the Tribunaldated 31.1.1992 in ITA No.2170 (Del) 91 in the case of the assessee for theassessement year 1989-90 and submitted that the Tribunal had consideredsimilar issue (as is involved in the present appeal for the assessment year 1988-89) in the case of the assessee and observed that there were net losses in theassessment years 1985-86, 1986-87 and 1987-88 as a result of unabsorbeddepreciation. It further observed that in that sense, there were no business loss,but only unabsorbed depreciation and since the lower of the two had to beallowed as a deduction, one view might be that no deduction should be allowed,because there was no business loss at all. It also observed that the other viewwhich was equally plausible was that there were net losses in the said years ofRs.4,66,509, Rs.8,78,333 and Rs.62,04,642 and that the said net amounts,which in common parlance were called losses were less than the depreciationfigures of Rs.45,00,334, Rs.69,98,196 and Rs.94,81,334 respectively. It alsoobserved that the lower of the two were obviously figures of net losses andsince two views were possible, the one favouring the assessee had to bepreferred. It also observed that the case of the assessee was supported by thejudgement of the Tribunal reported in 39 ITD 432. The Tribunal, therefore,directed the AO to deduct the amount of depreciation and on the resultant figurecompute 30% of the profits u/s.115-J of the I.T.Act for the asstt. Year 1989-90.The learned counsel submitted that the Tribunal has accepted the claim of theassessee in relation to asstt. Year 1989-90. He further submitted that though areference has been made to the Hon'ble High Court of Punjab and Haryana, the Tribunal should take a consistent view for the sake of judicial discipline. It is also relevant to mention that the assessee also cited variousjudgments in his favour including DCIT vs. Surana Steels Pvt. Ltd. andanothercited as 201 ITR 1 (AT) and argued that the judgement of Hon’bleAndhra Pradesh High Court in the case ofV.V. Trans-Investments (Pvt.) Ltd.vs. CIT,etc., 207 ITR 508 is not binding upon the Tribunal. However, theTribunal after considering the rival contentions held that the issue stood coveredby the decision of the Hon’ble Andhra Pradesh High Court in the case ofV.V.Trans- Investments(supra) and therefore declined to interfere with the order ofthe Commissioner of Income Tax. The assessee filed an application under Section 256 (1) of theIncome Tax Act 1961 seeking reference of the questions of law to this Court asunder:- ”(1) Whether the Tribunal is correct in law in upholding theorder passed by the learned CIT under Section 263 of the ITAct holding that the claim of the assessee company that thecash loss alone should be taken into consideration beforeproviding for depreciation is correct and sustainable. (2) Whether the Tribunal is right in law upholding the order ofthe learned CIT passed u/s.263 by directing the AO todetermine the book profit at Rs.19,09,097/- for the purposeof Section 115 J as against the book profit determined bythe assessee company at a negative figure ofRs.1,64,54,112/-?” The Tribunal vide its order dated 21.2.1997 passed in RA No.705/Del/96 in ITA No.3046/Del/91 referred the modified question as referred in para1 of the judgement to this Court for its opinion. ”(1) Whether the Tribunal is correct in law in upholding theorder passed by the learned CIT under Section 263 of the ITAct holding that the claim of the assessee company that thecash loss alone should be taken into consideration beforeproviding for depreciation is correct and sustainable. (2) Whether the Tribunal is right in law upholding the order ofthe learned CIT passed u/s.263 by directing the AO todetermine the book profit at Rs.19,09,097/- for the purposeof Section 115 J as against the book profit determined bythe assessee company at a negative figure ofRs.1,64,54,112/-?” The Tribunal vide its order dated 21.2.1997 passed in RA No.705/Del/96 in ITA No.3046/Del/91 referred the modified question as referred in para1 of the judgement to this Court for its opinion. At the time of hearing, the learned counsel for the assesseesubmitted that the question of law referred to this Court is squarely covered infavour of the assessee by a decision of the Hon’ble Supreme Court inSurana Steels Pvt. Limited vs. Deputy Commissioner of Income Tax and others237 ITR 777. Learned counsel also brought to the notice of this Court thejudgement dated 11.1.2008 passed by this Court in ITR No.125 of 1992 (arisingout of appeal No.ITA No.2170 (Del) 91 for the assessment year 1989-90)wherein the similar question of law for the assessment year 1989-90 betweenthe parties has already been answered in favour of the assessee and againstthe revenue. Learned counsel for the revenue has been unable to controvertthis factual and legal position. Hence, in view of the decision of this Court in ITRNo.125 of 1992 and the decision of the Hon’ble Supreme Court in SuranaSteels Pvt. Ltd.(supra), the aforesaid question of law referred to this Court isanswered in favour of the assessee and against the revenue. The instant reference stands answered accordingly. (RAKESH KUMAR GARG) JUDGE January 15, 2008ps (SATISH KUMAR MITTAL) JUDGE Dismissed. However, it will be open for the petitioner to 112