Income Tax Appellate Tribunal - Ahmedabad
Deputy Commissioner Of Income-Tax vs Farmson Pharmaceuticals Gujarat Ltd. on 7 May, 1999
Equivalent citations: (1999)65TTJ(AHD)617
ORDER
T. J. Joice, A.M. This appeal by the Revenue is directed against the order of the Commissioner (Appeals), dated 15th Sept., 1992, for assessment year 1989-90. The grounds of appeal are as under :
1. On the facts and in the circumstances of the case and in law the Commissioner (Appeals) erred in :
(i) deleting the addition of Rs. 20,77,946 made by the assessing officer to the book profit on account additional depreciation debited in the accounts for the earlier years because of change in the method for providing depreciation retrospectively.
(ii) directing not to charge interest under section 234B and 234C of the Act since the total income was determined under section 115J of the Act.
2. For the assessment year 1989-90 the assessing officer computed the total income of the assesseecompany under section 143(3) of the Income Tax Act, 1961, by an order dated 24-2-1992. The total income thus computed under section 143(3) comes to Rs. 2,92,880 after adjusting brought forward losses and unabsorbed depreciation for assessment year 1988-89. In the same order the assessing officer has separately computed the taxable profit of the company under section 115J of the Act. According to this the chargeable profit under section 115J comes to Rs. 11,11,550. In the discussion relating to the computation of chargeable profit under section 115J the assessing officer has negatived the assessee's claim for additional provision of depreciation to the extent of Rs. 20,77,946. According to the assessee it changed the method of providing depreciation from straight line method (SLM) to written down value (WDV) method. In the present case there was a shortfall in the depreciation provided as per the old method as compared to the new method and the shortfall was charged to the P&L a/c for the current assessment year 1989-90. The assessing officer disallowed the claim of the assessee on the ground that s. 205 of the Companies Act, 1956 r/w s. 350 of the Companies-Act does not entitle the assessee to claim depreciation for the earlier years. He also relied on the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO (1985) 47 CTR (SC) 126 : (1984) 154 ITR 148 (SQ; as the change in method of depreciation was done by the assessee with a view to avoid tax by resorting to a colourable device.
3. Aggrieved by the above said order of the assessing officer the assessee approached the Commissioner (Appeals), who in the impugned order upheld the contention of the assessee and directed the assessing officer to recompute the book profit without disallowing the additional claim for depreciation. In reaching his conclusion the Commissioner (Appeals) considered the provisions of s. 205 of the Companies Act, the provisions of s. 115J and also the decision of the Supreme Court in Challapali Sugar Ltd. v. CIT 1974 CTR (SQ) 309 : (1975) 98 ITR 167 (SQ) and also the guidelines issued by the Institute of Chartered Accountants of India with regard to charging of depreciation under section 205 of the Companies Act, 1956. The Commissioner (Appeals) found that the change in method adopted by the assessee was one which was permitted by the Accounting Standards prescribed and was not barred by the provisions of Companies Act or by the provisions of s. 115J of the Income Tax Act.
4. In the present appeal before us, the learned departmental Representative, heavily relied on the order of the assessing officer and pointed out that the assessee cannot claim depreciation which was not provided for in the books of accounts of the assessee for the earlier years. On the other hand, the learned counsel for the assessee explained the reasons for the change in method for this year by reiterating the submissions made before the lower authorities. The assessee found that the book value of the assets shown were substantially higher than its true value. The assessee was a pharmaceutical company and was dealing with various materials which were corrosive and affected the plant and machinery to a great extent. It was felt that if the method of charging depreciation was charged to the WDV method of depreciation, the value of the assets as reflected in the books of account would correctly state the value of the assets. It was, therefore decided to change the method of charging depreciation from SLM to WDV method. The company therefore, had to charge to its profit and loss statement an amount of Rs. 20,77,946 being the deficiency in the provision for depreciation. The learned counsel for the assessee pointed out that the change in method is an accepted method of accounting and is consistent with the accounting standard issued by the Institute of Chartered Accountants of India. The learned counsel relied on the decision of the Hon'ble Tribunal, Ahmedabad Bench 'B' in the case of Dy. CIT (Asst.) v. Rubamin (P) Ltd. in ITA No. 15441AM11993, dated 12th Aug., 1998, wherein an identical issue was decided in favour of the assessee. Reliance is further placed on the decision in the case of Apollo Tyres Ltd. v. Dy. CIT (1992) 44 M (Coch) 534 (1992) 43 ITD 464 (Coch) and Sterling Steels & Wires Ltd. v. Dy. CIT (1995) 80 Taxman 343 (Asr) (Mag) wherein similar issue has been decided in favour of the assessees.
5. We have considered the rival submissions and the evidence on record. As indicated above, the assessing officer disallowed the assessee's claim of provision for depreciation relating to earlier years on the ground that there is no provision for providing depreciation for earlier years on a change of method either in the Companies Act or under the Income Tax Act. The assessing officer also took the view that the assessee was adopting a colourable device for avoiding taxes. However, this finding of the assessing officer has been competently dealt with by the Commissioner (Appeals) in his well reasoned order. For the sake of brevity it is not necessary for us to reproduce the elaborate reasons given in his order by the Commissioner (Appeals) with which we fully agree.
6. However, we would like to especially emphasise the fact that the assessee's change in method of accounting from SLM to WDV method is perfectly in accordance with the Accounting Standard-6 issued by the Indian Institute of Chartered Accountants (vide para 21 thereof) which reads as under :
'21. The depreciation method selected should be applied consistently from period to period: A change from one method of providing depreciation to another should be made only if the adoption of the new method is required by statute or for compliance with an accounting standard of it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise. When a change in the method of depreciation is made, depreciation should be recalculated in accordance with the new method from the date of the asset coming into use. The deficiency or surplus arising from retrospective recomputation of depreciation in accordance with the new method would be adjusted in the accounts in the year in which the method of depreciation is changed. In case the change in the method results in deficiency in depreciation in respect of past years, the deficiency should be charged to the statement of profit and loss. In case the change in the method results in surplus, the surplus should be credited to the statement of profit and loss. Such a change should be treated as a change in accounting policy and its effects should be quantified and disclosed."
7. Moreover, we find that the disallowance made by the assessing officer is not warranted by any of the provisions of the Companies Act or by the provisions of s. 115J of the Income Tax Act, as there is no bar for a change in method of accounting relating to depreciation, especially when such a change is authorised by the accounting standards recognised for the purpose of Companies Act. Reliance in this connection is also placed on the following reported cases :
(1) Beta Naphthol (P) Ltd. v. Dy. CIT (1994) 50 TTJ (Ind) 375;
'(2) Apollo Tyres Ltd. v. Dy. CIT (1992) 44 7TJ (supra); and (3) 47 lTD (Bom) (sic).
In the circumstances, we are of the view that the Commissioner (Appeals)'s order does not call for any interference. Hence, we uphold the impugned order in this respect.
8. The next ground of appeal is in respect of charging of interest under ss. 234B and 234C. The Commissioner (Appeals) directed the assessing officer not to charge interests under ss. 234B and 234C in case the assessee's income is determined under section 115J. For this, he has relied on the decision of the Tribunal, Delhi Bench in the case of Steel Authority of India Ltd. v. Dy. CIT (1991) 40 7TJ (Del) 559. We also find that a similar issue has been decided by the Tribunal, Ahmedabad Bench 'B' in Dy. CIT (Asst.), v. Rubamm (P) Ltd. in ITA No. 1544/Ahd/1993, dated 12-8-1998. There is also a similar decision in favour of the assessee Dy. CIT (Asst.) v. Samir Diamond Mfg. (P) L td. (199 7) 59 TTJ (Ah d) 1.
In view of this, the Commissioner (Appeals)'s order does not suffer from any infirmity and hence the same is upheld.
9. In the result, the appeal is dismissed.