ITA No. 19 of 2001 [1] IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 19 of 2001 Date of decision: February 19,2020 M/s Sharman Udyog Pvt. Ltd. Appellant v. Commissioner of Income Tax, Ludhiana 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. assessee is in appeal under Section 260A of Income Tax Act, 1961 (for short, 'the 1961 Act') against order dated 22.6.2000 passed by Income Tax Appellate Tribunal, Chandigarh Bench (for short, 'the Tribunal') partly allowing appeal of revenue. Following substantial questions of law have been claimed in appeal: (a) Whether in facts and circumstances of case, orders Annexures P-1 and P-3 are legally sustainable? (b) Whether in facts and circumstances of case, assessee is entitled to charge arrears of depreciation due MANOJ KUMAR 2020.02.20 11:07 I attest to accuracy and to change in method of providing depreciation for authenticity of this document High Court,Chandigarh ITA No. 19 of 2001 [2] earlier years to profit and loss account of current year for purpose of computing book profit U/s 115-J of Act? (c) Whether in facts and circumstances of case, Book Profit for purposes of Section 115-J of I.T. Act has to be calculated for arriving at said figure had to be worked out as per schedule VI of Companies Act and not as per Income Tax Act and Income Tax Rules? (d) Whether in facts and circumstances of case on correct interpretation of Section 115-J of I.T. Act for determining Book Profit , appellant had option to adopt depreciation rates prescribed in Income Tax Rules, 1962 in preference to rates prescribed in Schedule XIV of Companies Act, 1956. (e) Whether in facts and circumstances of case, meaning of Book Profit appearing in Section 115-J of I.T. Act, I.T.A.T. is legally correct in view of booklet on Taxation of Companies issued by Directorate of Income Tax, R. S. P and Public Relations, New Delhi? (f) Whether Set-Off of business loss or unabsorbed depreciation whichever is less under Clause iv of explanation to sub section (IA) of Section 115-J can only be in respect of depreciation already provided for in relevant assessment year as per companies act or can MANOJ KUMAR 2020.02.20 11:07 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 19 of 2001 [3] assessee choose revised method for claiming unabsorbed depreciation of earlier years? However, while arguing matter, arguments have been addressed with regard to questions (b) and (c) which would cover entire controversy in present appeal. relevant facts are that appellant-company was engaged in manufacture of woven labels. return for assessment year 1989-90 was filed showing 'nil' income. case was taken up in scrutiny. Assessing Officer vide order dated 28.10.1991 disallowed depreciation claimed by appellant as per provisions of 1961 Act and Income Tax Rules, 1962 (for short, 'the Rules'). Appellate Authority partly allowed appeal and directed Assessing Officer to compute profit under Section 115J of 1961 Act by allowing depreciation as provided under 1961 Act and Rules. It was further held that deduction on account of unabsorbed depreciation be also allowed. Feeling aggrieved, revenue preferred appeal. Tribunal vide order dated 22.6.2000 partly allowed appeal of revenue and held that depreciation as provided under Companies Act, 1956 (for short, 'the 1956 Act') is to be allowed and assessee is not entitled to charge arrears of depreciation to profit and loss account, hence present appeal. As regards question (c), similar question has been answered by us in ITA No. 134 of 2000 M/s Gita Forging (P) Ltd. v. Commissioner of Income Tax Patiala and another, decided on 5.2.2020 in favour of assessee. With regard to question (b), learned counsel for appellant argued that matter is covered by decision of Supreme Court in MANOJ KUMAR 2020.02.20 11:07 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 19 of 2001 [4] Apollo Tyres Ltd. v. Commissioner of Income-tax, Kochi, 2002 (255) ITR 273. Learned counsel for revenue was not in position to dispute that Supreme Court in Apollo Tyres Ltd.'s case (supra) dealt with issue involved while dealing with question (i) framed in that case. Question (i) before Supreme Court, brief facts as noted for said question and conclusion are reproduced below: Question (i) (i) Can Assessing Officer while assessing company for income tax under Section 115J of Income Tax Act question correctness of profit and loss account 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 Schedule VI to Companies Act? Brief facts: assessee company while determining its net profit for relevant accounting year has provided for arrears of depreciation in its profit and loss account which according to Revenue is not in accordance with Part II and III of Schedule VI to Companies Act, 1956 (the 'Companies Act'). Hence, assessing officer while considering case of assessee company under Section 115-J of IT Act recomputed said profit and loss account of company so as to exclude provisions made for arrears of MANOJ KUMAR depreciation. said action of assessing officer in 2020.02.20 11:07 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 19 of 2001 [5] questioning correctness of accounts maintained by company was challenged by company before Income Tax Appellate Tribunal ('the tribunal') which among other things held that assessing officer has no authority to reopen accounts of company which is certified by auditors of company as having been maintained in accordance with provisions of Companies Act and which account has been accepted in General Meeting of Company as well as by Registrar of Companies. This view of tribunal was not accepted by High Court which held that assessing officer has authority to examine whether accounts of company have been maintained in accordance with requirement of Sub-section (1A) of Section 115-J and in that process if he finds that accounts of company are not in accordance with provisions of Companies Act, he could make necessary changes before proceeding to assess company for tax under Explanation to Section 115-J of IT Act. Conclusion: Therefore, we are of opinion, assessing officer while computing income under Section 115-J has only power of examining whether books of account are certifies by authorities under Companies Act as having been properly maintained in accordance with Companies Act. assessing officer thereafter has MANOJ KUMAR 2020.02.20 11:07 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 19 of 2001 [6] limited power of making increases and reductions as provided for in Explanation to said section. To put it differently, assessing officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to Section 115-J. In view of above, question (b) 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 5.4.2020. appeal is disposed of accordingly. (AVNEESH JHINGAN) (AJAY TEWARI) JUDGE JUDGE February 19, 2020 mk Whether speaking/reasoned: Yes/No Whether reportable: Yes/No MANOJ KUMAR 2020.02.20 11:07 I attest to accuracy and authenticity of this document High Court,Chandigarh Sharman Udyog Pvt. Ltd. v. Commissioner of Income-tax, Ludhiana And Another