M/S Gita Forging (P) Ltd v. Commissioner Of Income Tax, Patiala And Another

ITA No.134 of 20001] IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITA No. 134 of 2000Date of decision: February 05, 2020 M/s Gita Forging (P) Ltd. .. Appellant V. Commissioner of Income Tax, Patiala and another .. Respondents CORAM:HON'BLE MR. JUSTICE AJAY TEWARIHON'BLE MR. JUSTICE AVNEESH JHINGANHON'BLE MR. JUSTICE AVNEESH JHINGAN Present: |Mr. Alok Mittal, Advocate for the appellant.Mr. Rajesh Katoch, Senior Standing Counsel andMs. Pridhi Jaswinder Sandhu, Junior Standing Counsel for the,LTE@EVeEMr. Rajesh Katoch, Senior Standing Counsel andMs. Pridhi Jaswinder Sandhu, Junior Standing Counsel for the,LTE@EVeE AVNEESH JHINGAN, J. By this common order, four appeals bearing ITA Nos. 120 and134 of 2000, 8 of 2001 and 19 of 2002 are being disposed of as similarissue is involved. For the sake of convenience, facts from ITA No. 134 of2000 have been taken. Following substantial questions of law have beenclaimed: “(1) Whether in the facts and circumstances of the case, theorders Annexure P-1 and P-3 are legally sustainable?orders Annexure P-1 and P-3 are legally sustainable? ?++@Whether in the facts and circumstances of the case, oncorrect interpretation of Section 115J of the Income TaxAct for determing the book profit, the appellant had thecorrect interpretation of Section 115J of the Income TaxAct for determing the book profit, the appellant had the ITA No.134 of 2000|2]| option to adopt the depreciation rates prescribed in theIncome Tax Rules, 1961 in preference to the ratesprescribed in Schedule XIV of the Companies Act,1956? (111) Whether in the facts and circumstances of the case, thedepreciation for purposes of Section 115J of the IncomeTax Act had to be worked out as per Schedule VI of theCompanies Act or as per the Income Tax Rules, andIncome Tax Act?”depreciation for purposes of Section 115J of the IncomeTax Act had to be worked out as per Schedule VI of theCompanies Act or as per the Income Tax Rules, andIncome Tax Act?” The relevant facts are that the assessee filed return for theassessment year 1990-91 showing nil income. The case was taken up forscrutiny. The assessment under Section 115J of the Income Tax Act, 1961(for short, ‘the 1961 Act’) was framed on 31.12.1991 at an income of41,80,450/-. The depreciation was allowed but only as per the provisions ofthe Companies Act, 1956 (for short, ‘the 1956 Act’). The AppellateAuthority vide order dated 20.4.1992 allowed the appeal and remanded thematter back to the Assessing Officer to re-compute the income by allowingdepreciation for the written down value method and also by providingdepreciation pertaining to the earlier years. The revenue preferred an appealbefore the Tribunal, the same was allowed on 16.2.2000. It was held thatthe issue that depreciation is to be provided as per the provisions of the1956 Act is concluded in favour of the revenue, the order of the AppellateAuthority was set aside, hence the present appeal. The issue in a narrow compass is whether while computingincome under Section 115J of the 1961 Act, the depreciation is to beallowed only as the provisions of the 1956 Act and not as per the Income ITA No.134 of 2000}3]] Tax Rules, 1962 (for short, ‘the Rules’). Learned counsel for the appellant argued that the matter iscovered in favour of the assessee by a decision of this Court inCommissioner of Income Tax v. Sona Woollen Mills (P) Ltd.5(2008)300 ITR 202 In the aforesaid judgment, this Court following the decision ofthe Supreme Court inApollo Tyres Ltd. v. CIT5(2002) 255 ITR 273dis-agreed with the view taken by Kerala High Court inCIT v. DynamicOrthopedics (P) Ltd., (2002) 257 ITR 446 (Ker.)and Madhya PradeshHigh Court in-CIT v. Vandana Rolling Mills Ltd,5(1998) 234 ITR 693)(MP)holding that depreciation could not be calculated as per the provisionsof the Rules. ITA No.134 of 2000}3]] Tax Rules, 1962 (for short, ‘the Rules’). Learned counsel for the appellant argued that the matter iscovered in favour of the assessee by a decision of this Court inCommissioner of Income Tax v. Sona Woollen Mills (P) Ltd.5(2008)300 ITR 202 In the aforesaid judgment, this Court following the decision ofthe Supreme Court inApollo Tyres Ltd. v. CIT5(2002) 255 ITR 273dis-agreed with the view taken by Kerala High Court inCIT v. DynamicOrthopedics (P) Ltd., (2002) 257 ITR 446 (Ker.)and Madhya PradeshHigh Court in-CIT v. Vandana Rolling Mills Ltd,5(1998) 234 ITR 693)(MP)holding that depreciation could not be calculated as per the provisionsof the Rules. InApollo Tyres Ltd.;Scase (supra),the Apex Court dealtwith the following question:“Can an AO while assessing a company for income-tax'under s. 115J of the IT Act question the correctness of theP&L a/c prepared by the assessee-company and certified bythe statutory auditors of the company as having beenprepared in accordance with the requirements of Parts II andIII of Sch. VI to the Companies Act?” The Supreme Court considered Section 115J of the 1961 Act,examined the objects of introducing the said provision, considered thebudget speech and held as under: “5.....we find it difficult to acept the argument of theRevenue that it is still open to the AO to re-scrutinise thisaccount and satisfy himself that these accounts have been ITA No.134 of 20004] maintaained in accordance with the provisions of CompaniesAct. In our opinion, reliance placed by the Revenue on sub-s.(1A) of s.l15J of the IT Act in support of the abovecontention is misplaced. Sub-s. (1A) of s. 115J does notempower the AO to embark upona fresh inquiry in regard to}the entries made in the books of account of the company.The said sub-section, as a matter of fact, mandates thecompany to maintain its account in accordance with therequirements of the Companies Act which mandate,according to us, is bodily lifted from the Companies Act intothe IT Act for the limited purpose of making the said accountSO maintained as a basis for computing the company'sincome for levy of income-tax. Beyond that, we do not thinkthat the said sub-section empowers the authority under the ITAct to probe into the accounts accepted by the authoritiesunder the Companies Act. If the statute mandates thatincome prepared in accordance with the Companies Act shallbe deemed income for the purpose of s. 115J of the Act, thenit should be that income which is acceptable to theauthorities under the Companies Act. There cannot be twoincomes one for the purpose of Companies Act and anotherfor the purpose of income-tax both maintained under thesame Act. If the legislature intended the AO to reassess thecompany's income, then it would have stated in s. 115J that“income of the company as accepted by the AO. In theabsence of the same and on the language of s. 115J, it will ITA No.134 of 20005 ]| have to held that view taken by the Tribunal is correct andthe High Court has erred in reversing the said view of theTribunal. ITA No.134 of 20005 ]| have to held that view taken by the Tribunal is correct andthe High Court has erred in reversing the said view of theTribunal. Therefore, we are of the opinion, the AO while computingthe income under s. 115J has only the power of examiningwhether the books of account are certified by the authoritiesunder the Companies Act as having been properlymaintained in accordance with the Companies Act. The AOthereafter has the limited power of making increases andreductions as provided for in the Explanation to the saidsection. To put it differently, the AO does not have thejurisdiction to go behind the net profit shown in the P&L a/cexcept to the extent provided in the Explanation to s. 115J.”The Supreme Court in|Malayala Manorama Co. Ltd. v.Commissioner of Income<‘Ta5(2008) 300 ITR 251while dealing with thequestion: “Whether in respect of a company consistently chargingdepreciation in its books of account at the rates prescribed in the Income-taxRules, the Income-tax Officer has jurisdiction under section 115J of theIncome-tax Act, 1961, to rework net profits by substituting the ratesprescribed in Schedule XIV to the Companies Act, 19562” allowed theappeal of the assessee and Set aside the view taken by Kerala High Court, Learned counsel for the revenue was not able to dispute theabove discussed legal position, however, placed reliance on a decision ofthis Court in ITA No. 78 of 2005--.Commissioner of Income Tax I,Ludhiana v. M/s Oswal Sugar Limited5decided on 2.11.2012 and arguedthat it has been held that the Assessing Officer is entitled to adjust the profit ITA No.134 of 2000160] where he finds that the profit is not determined as per Schedule VI to the1956 Act. The reliance on the aforesaid judgment is of no help to therevenue. The judgment of the Supreme Court inApollo Tyres Ltd.,;SsCase (supra)was found to be not applicable in the facts of that case. The issuerelated to profit and loss not being determined in accordance with Part Iland Part Ill of Schedule VI to the 1956 Act was the bone of contentionwhereas in the present case, the controversy is as to whether depreciationcan be claimed as per the Rules or has to be restricted as per Schedule VI tothe 1956 Act.| In view of the decision of this Court inSona Woollen Mills (P)Ltd.;Scase (supra),the question is answered in favour of the assessee. Thematter is remanded back to the Assessing Officer to compute the incomeunder Section 115J of the 1961 Act in accordance with law/ The parties through their counsel are directed to appear beforethe Assessing Officer on 15.4.2020. The appeals are disposed of accordingly. (AVNEESH JHINGAN)(AJAY TEWARI)JUDGE JUDGE February 05, 20209* Whether speaking/reasoned:Yes/NoWhether reportable:Yes/No