ITA No.134 of 2000 [1] IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 134 of 2000 Date 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 TEWARI HON'BLE MR. JUSTICE AVNEESH JHINGAN Present: Mr. Alok Mittal, Advocate for appellant. Mr. Rajesh Katoch, Senior Standing Counsel and Ms. Pridhi Jaswinder Sandhu, Junior Standing Counsel for revenue. AVNEESH JHINGAN, J. By this common order, four appeals bearing ITA Nos. 120 and 134 of 2000, 8 of 2001 and 19 of 2002 are being disposed of as similar issue is involved. For sake of convenience, facts from ITA No. 134 of 2000 have been taken. Following substantial questions of law have been claimed: (i) Whether in facts and circumstances of case, orders Annexure P-1 and P-3 are legally sustainable? (ii) Whether in facts and circumstances of case, on correct interpretation of Section 115J of Income Tax MANOJ KUMAR 2020.02.06 11:06 I attest to accuracy and Act for determing book profit, appellant had authenticity of this document High Court,Chandigarh ITA No.134 of 2000 [2] option to adopt depreciation rates prescribed in Income Tax Rules, 1961 in preference to rates prescribed in Schedule XIV of Companies Act, 1956? (iii) Whether in facts and circumstances of case, depreciation for purposes of Section 115J of Income Tax Act had to be worked out as per Schedule VI of Companies Act or as per Income Tax Rules, and Income Tax Act? relevant facts are that assessee filed return for assessment year 1990-91 showing nil income. case was taken up for scrutiny. assessment under Section 115J of Income Tax Act, 1961 (for short, 'the 1961 Act') was framed on 31.12.1991 at income of `1,80,450/-. depreciation was allowed but only as per provisions of Companies Act, 1956 (for short, 'the 1956 Act'). Appellate Authority vide order dated 20.4.1992 allowed appeal and remanded matter back to Assessing Officer to re-compute income by allowing depreciation for written down value method and also by providing depreciation pertaining to earlier years. revenue preferred appeal before Tribunal, same was allowed on 16.2.2000. It was held that issue that depreciation is to be provided as per provisions of 1956 Act is concluded in favour of revenue, order of Appellate Authority was set aside, hence present appeal. issue in narrow compass is whether while computing income under Section 115J of 1961 Act, depreciation is to be allowed only as provisions of 1956 Act and not as per Income MANOJ KUMAR 2020.02.06 11:06 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No.134 of 2000 [3] Tax Rules, 1962 (for short, 'the Rules'). Learned counsel for appellant argued that matter is covered in favour of assessee by decision of this Court in Commissioner of Income Tax v. Sona Woollen Mills (P) Ltd., (2008) 300 ITR 202. In aforesaid judgment, this Court following decision of Supreme Court in Apollo Tyres Ltd. v. CIT, (2002) 255 ITR 273 dis-agreed with view taken by Kerala High Court in CIT v. Dynamic Orthopedics (P) Ltd., (2002) 257 ITR 446 (Ker.) and Madhya Pradesh High Court in CIT v. Vandana Rolling Mills Ltd., (1998) 234 ITR 693 (MP) holding that depreciation could not be calculated as per provisions of Rules. In Apollo Tyres Ltd.'s case (supra), Apex Court dealt with following question: Can AO while assessing company for income-tax under s. 115J of IT Act question correctness of P&L a/c prepared by assessee-company and certified by statutory auditors of company as having been prepared in accordance with requirements of Parts II and III of Sch. VI to Companies Act? Supreme Court considered Section 115J of 1961 Act, examined objects of introducing said provision, considered budget speech and held as under: 5......we find it difficult to acept argument of Revenue that it is still open to AO to re-scrutinise this MANOJ KUMAR account and satisfy himself that these accounts have been 2020.02.06 11:06 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No.134 of 2000 [4] maintaained in accordance with provisions of Companies Act. In our opinion, reliance placed by Revenue on sub-s. (1A) of s.115J of IT Act in support of above contention is misplaced. Sub-s. (1A) of s. 115J does not empower AO to embark upon fresh inquiry in regard to entries made in books of account of company. said sub-section, as matter of fact, mandates company to maintain its account in accordance with requirements of Companies Act which mandate, according to us, is bodily lifted from Companies Act into IT Act for limited purpose of making said account so maintained as basis for computing company's income for levy of income-tax. Beyond that, we do not think that said sub-section empowers authority under IT Act to probe into accounts accepted by authorities under Companies Act. If statute mandates that income prepared in accordance with Companies Act shall be deemed income for purpose of s. 115J of Act, then it should be that income which is acceptable to authorities under Companies Act. There cannot be two incomes one for purpose of Companies Act and another for purpose of income-tax both maintained under same Act. If legislature intended AO to reassess company's income, then it would have stated in s. 115J that income of company as accepted by AO. In absence of same and on language of s. 115J, it will MANOJ KUMAR 2020.02.06 11:06 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No.134 of 2000 [5] have to held that view taken by Tribunal is correct and High Court has erred in reversing said view of Tribunal. Therefore, we are of opinion, AO while computing income under s. 115J 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. AO thereafter has limited power of making increases and reductions as provided for in Explanation to said section. To put it differently, AO does not have jurisdiction to go behind net profit shown in P&L a/c except to extent provided in Explanation to s. 115J. Supreme Court in Malayala Manorama Co. Ltd. v. Commissioner of Income-Tax, (2008) 300 ITR 251 while dealing with question: Whether in respect of company consistently charging depreciation in its books of account at rates prescribed in Income-tax Rules, Income-tax Officer has jurisdiction under section 115J of Income-tax Act, 1961, to rework net profits by substituting rates prescribed in Schedule XIV to Companies Act, 1956? allowed appeal of assessee and set aside view taken by Kerala High Court. Learned counsel for revenue was not able to dispute above discussed legal position, however, placed reliance on decision of this Court in ITA No. 78 of 2005-- Commissioner of Income Tax I, Ludhiana v. M/s Oswal Sugar Limited, decided on 2.11.2012 and argued MANOJ KUMAR that it has been held that Assessing Officer is entitled to adjust profit 2020.02.06 11:06 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No.134 of 2000 [6] where he finds that profit is not determined as per Schedule VI to 1956 Act. reliance on aforesaid judgment is of no help to revenue. judgment of Supreme Court in Apollo Tyres Ltd.,'s case (supra) was found to be not applicable in facts of that case. issue related to profit and loss not being determined in accordance with Part II and Part III of Schedule VI to 1956 Act was bone of contention whereas in present case, controversy is as to whether depreciation can be claimed as per Rules or has to be restricted as per Schedule VI to 1956 Act. In view of decision of this Court in Sona Woollen Mills (P) Ltd.'s case (supra), question is answered in favour of assessee. matter is remanded back to Assessing Officer to compute income under Section 115J of 1961 Act in accordance with law. parties through their counsel are directed to appear before Assessing Officer on 15.4.2020. appeals are disposed of accordingly. (AVNEESH JHINGAN) (AJAY TEWARI) JUDGE JUDGE February 05, 2020 mk Whether speaking/reasoned: Yes/No Whether reportable: Yes/No MANOJ KUMAR 2020.02.06 11:06 I attest to accuracy and authenticity of this document High Court,Chandigarh Gita Forging (P) Ltd. v. Commissioner of Income-tax, Patiala and another