DEPUTY COMMISSIONER OF INCOME TAX v. THANGAVEL SPINNING MILLS LTD
[Citation -2005-LL-0624-1]

Citation 2005-LL-0624-1
Appellant Name DEPUTY COMMISSIONER OF INCOME TAX
Respondent Name THANGAVEL SPINNING MILLS LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 24/06/2005
Assessment Year 1997-98
Judgment View Judgment
Keyword Tags annual general meeting • audited accounts • audit report
Bot Summary: The learned counsel of the assessee has averred that s. 115JA provides that the book profit is to be in accordance with provisions of Part II and Part III of Sch. VI of Companies Act. The apex Court s exposition in the case cited supra, frames yardsticks for the AO to follow which does not mandate any adjustment in the book profits shown by the final accounts after the same have been certified by the auditors and adopted in the annual general meeting and filed with the Registrar of Companies, except the specific adjustments permitted by Explanation to s. 115JA of the IT Act. The assessee-company s management and shareholders cannot accept and reject the same book profits for Companies Act and income-tax purposes. The learned counsel for the assessee s plea is further enervated by considering the panoply of law emergent from s. 115JA read with the requirements of Companies Act. The proviso to s. 115JA(2) states that provided that while preparing PL a/c, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the PL a/c laid before the company at its annual general meeting in accordance with the provisions of s. 210 of the Companies Act, 1956. The learned counsel of the assessee s pleas are further found devoid of any dollop of cogency by a perusal of Sch. VI, Part II, of the Companies Act, 1956, dealing with requirement as to PL a/c. Considering the entire conspectus of the case, we adjudicate that the adjustment in book profit for providing depreciation as claimed by the assessee is neither permitted by Companies Act pro tanto referred in s. 115JA of the IT Act, nor mandated by the Hon ble apex Court in the case cited supra.


SHAMIM YAHYA, A.M.: This appeal by Revenue is preferred against order of CIT(A), dt. 9th June, 2000. germane assessment year is 1997-98. remonstration in appeal is that CIT(A) erred in directing AO to recompute profit under s. 115JA of Act after allowing deduction for depreciation of Rs. 1,05,76,176 which was not claimed in P&L a/c as per annual report. To briefly stratify case, while computing book profits under s. 115JA, assessee had deducted depreciation amounting to 1,05,76,176 from book profits as depicted in audited accounts. AO held that since assessee had not claimed depreciation in P&L a/c, claim of depreciation of assessee can only be rejected. On assessee s appeal, CIT(A) accepted assessee s plea and made order impugned against in this present appeal. learned counsel of assessee has averred that s. 115JA provides that book profit is to be in accordance with provisions of Part II and Part III of Sch. VI of Companies Act. He further stated that aforesaid adjustment of depreciation was necessitated to bring book profits of assessee in line with requirement of provisions of Part II and Part III of Schedule to Companies Act. In his opposition to this plea, learned Departmental Representative placed reliance on Hon ble apex Court decision in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521: (2002) 255 ITR 273 (SC). In this decision, apex Court had held that AO, while computing book profits of company under this section has only power of examining whether books of account are certified by authorities under Companies Act as having been properly maintained in accordance with Companies Act. It was further enunciated that while so looking into accounts of company, AO has to accept authenticity of accounts with reference to provisions of Companies Act which obligates company to maintain its account in manner provided by Act and same to be scrutinized and certified by statutory auditors and approved by company in its general meeting and thereafter, to be filed before Registrar of Companies. apex Court further held that this section does not empower AO to embark upon fresh enquiry in relation to entries made in books of account of company. Hence, apex Court s exposition in case cited supra, frames yardsticks for AO to follow which does not mandate any adjustment in book profits shown by final accounts after same have been certified by auditors and adopted in annual general meeting and filed with Registrar of Companies, except specific adjustments permitted by Explanation to s. 115JA of IT Act. From facts of present case, we find that adjustment of depreciation in book profit claimed by assessee does not come under realm of aforesaid Explanation. learned counsel for assessee in his expatiation tried to distinguish facts of this case from aforesaid decision. He averred that in this case auditors of company in their remark in audit report had commented that depreciation amount has not been provided to arrive at book profits and assessee has only rectified this to arrive at book profits correctly as per Sch. VI of Companies Act. We have heard rival contentions in light of materials produced before us and precedents relied on. Considering facts of this case, we hold that this plea of learned counsel of assessee is on shallow grounds as t h e audited accounts showing book profits without amount of depreciation under dispute has been accepted and adopted by shareholders in annual general meeting. assessee-company s management and shareholders cannot accept and reject same book profits for Companies Act and income-tax purposes. In holding so we draw support from doctrine of approbate and reprobate. law enshrined in this principle is that no party can accept and reject same instrument. learned counsel for assessee s plea is further enervated by considering panoply of law emergent from s. 115JA read with requirements of Companies Act. proviso to s. 115JA(2) states that "provided that while preparing P&L a/c, depreciation shall be calculated on same method and rates which have been adopted for calculating depreciation for purpose of preparing P&L a/c laid before company at its annual general meeting in accordance with provisions of s. 210 of Companies Act, 1956". Sec. 210 of Companies Act, 1956, deals with period of balance sheet and P&L a/c to be laid down before annual general meeting and penal consequences of not laying down final accounts at annual general meeting. It does not deal with depreciation to be charged. Hence, by this scheme of law no tinkering in book profit is envisaged on account of depreciation. learned counsel of assessee s pleas are further found devoid of any dollop of cogency by perusal of Sch. VI, Part II, of Companies Act, 1956, dealing with requirement as to P&L a/c. It is mentioned in cl. 3(iv) that if no provision of depreciation is made fact that no depreciation has been made shall be stated. Hence, Sch. VI does not specify that depreciation adjustment is mandatory. It only requires appropriate disclosure. Considering entire conspectus of case, we adjudicate that adjustment in book profit for providing depreciation as claimed by assessee is neither permitted by Companies Act pro tanto referred in s. 115JA of IT Act, nor mandated by Hon ble apex Court in case cited supra. As such we are satisfied that expostulation of Revenue is on terra firma and ex consequenti we set aside order of CIT(A). In result, Revenue s appeal is allowed. *** DEPUTY COMMISSIONER OF INCOME TAX v. THANGAVEL SPINNING MILLS LTD.
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