Income Tax Appellate Tribunal - Ahmedabad
Dy. Commissioner Of Income Tax vs Himson Textile Engg. Ind. Ltd. on 21 August, 1998
Equivalent citations: (1999)64TTJ(AHD)526
ORDER
M. Barathwaja Sanker, A.M..:
This is an appeal filed by the Revenue relating to the assessment year 1989-90 and a couple of grounds raised read as follows :
1. Whether, on the facts and in the circumstances of the cases and in law, the Commissioner (Appeals) was correct in directing the assessing officer to allow excess depreciation as claimed in books for the purpose of computing book profit under s. 115J, though the Companies Act does not require to debit such excess depreciation and though charging of excess depreciation results in avoidance of tax on book profit.
2. On the facts and circumstances of the case whether Commissioner (Appeals) was correct in directing the AC, not to allow depreciation of Rs. 45,63,546 only on the ground that it was a not claimed by the assessee, though in law it was allowable. "
2. Briefly stated the facts of the case are that the assessee M/s Himson Textile Engg. Ind. Ltd. is a private limited company to which the provisions of s. 115J of the Income Tax Act are applicable for the assessment year 1989-90. On a scrutiny of the audited accounts and report of the statutory auditor, it was found by the assessing officer that the assessee had debited depreciation in its books at a rate higher than that prescribed in Sch. XIV of the Companies Act, 1956. A note in para 1 of Annexure 'B' of audit report indicated the excess charge for depreciation in an amount of Rs. 2,06,89,676. However, the AC, quantified the amount of excess depreciation in a sum of Rs. 1,54,79,979 for the purpose of disallowance in arriving at the book profits of the company under the provisions of s. 115J of the Income Tax Act. The Commissioner (Appeals) held that the rates given in Sch. XIV of the Companies Act are not mandatory in nature but represented only the minimum rates to be ad ' opted in the computation of profits for the purpose of dividend declaration and computation of managerial remuneration and that there was no bar for a company to adopt higher rates of depreciation. It was also found that the company has been adopting the rates of depreciation as prescribed under the IT Rules, 1962, ever since it incorporation in 1980 and such a rate was more than supported by the certificate from qualified engineer (produced before the assessing officer). In view of the nature of assessee's manufacturing activities involving risks of and market adaptation. 1Atimately it was held that the computation of book profits under s. 115J by providing depreciation in the books at the rate stipulated in the IT Rules, 1962 (which are higher than the rates mentioned in Sch. XIV of the Companies Act), is valid and proper and the assessing officer was directed to compute the book profits after allowing depreciation at the rate prescribed in IT Rules, 1962.
3. The Revenue is in appeal. Accordingly to the learned departmental Representative Sri Rameschander the rates of depreciation mentioned in Sch. XIV of the Companies Act are mandatory in nature and are to be adopted in providing for depreciation in the accounts of the companies. Otherwise there was no purpose in incorporating the rates of depreciation in the Schedule to the Companies Act itself. The learned G.A. Shri R.N. Vepari relies on the order of the Commissioner (Appeals) and the decision of the Ahmedabad Bench of the Tribunal in Dy. CIT v. Samir Diamond Mfg. Co. (1997) 59 M (Ahd) 1.
4. Having regard to the rival submissions, we uphold that order of the Commissioner (Appeals) on this issue as it is squarely governed by the decision of Ahmedabad Bench of the Tribunal in Dy. CIT (Asst) v. Samir Diamond Mfg. Co. cited supra.
5. In that case also, the company was adopting the rates of depreciation prescribed in IT Rules since its incorporation and even after Sch. XIV of the Companies Act, 1956, came into force with effect from 2nd April, 1987. There was also technical evaluation justifying higher rates than those mentioned in Sch. XIV supra. The Tribunal held that the rates prescribed in Sch. XIV are only the minimum rates prescribed for purpose of dividend declaration and for the computation of managerial remuneration, respectively, under ss. 205 and 350 of the Companies Act and that there was no bar for the company to adopt a higher rate of depreciation on the basis of technical evaluation provided the fact is disclosed in the notes forming part of the accounts.
6. The facts of the case before us being identical with those in the case cited supra except for variation in figures, we follow our order in the case cited supra and dismiss the department's this ground of appeal.
7. Let us now turn to the second ground of appeal relating to allowability of depreciation of Rs. 45,63,546. The assessing officer found that the assessee has charged its P&L a/c with the impugned amount of depreciation in respect of some of its units but did not stake its claim for it in computing the total income under the normal provisions of the Income Tax Act. It was his view that as the figures were available, it was his duty to grant depreciation as per the provisions of the Act. The choice to claim depreciation or not is not with the assessee mote so after the deletion of r. 5AA of the IT Rules. Grant of depreciation will fall for prima facie adjustments envisaged in s. 143(1)(a) of the Income Tax Act. For these reasons, he increased the amount of depreciation by the impugned amount in arriving at the total income under the normal provisions of the Income Tax Act in the course of proceedings under s. 115J of the Income Tax Act.
8. The assessee appealed. The Commissioner (Appeals), after referring to the judgments in Beco Engg. Co. Ltd. v. CIT (1984) 41 CTR (PM) 249: (1984) 148 ITR 478 (PM), CIT v. Friends Corporation (1989) 79 CTR (PM) 181 : (1989) 180 1TR 334 (PM), CIT v. Sri Someshwar Sahakan Sakhar Karkhana Ltd. (1989) 75 CTR (Bom) 135 (1989) 177 1TR 443 (Bom) and CIT v. Arun Textile "C" (1991) 98 CTR (Gul) 117 (1991) 192 1TR 700 (Guj), held that for depreciation to be allowed, firstly there must be claim by the assessee and secondly, the assessee should furnish the prescribed particulars in respect of its claim and though the furnishing of the prescribed particulars has been dispensed with on account of deletion or r. 5AA of the IT Rules, nevertheless the first requirement regarding the making of claim for depreciation still continued to exist. In the absence of claim for depreciation, there cannot be any question of it being allowed and for this proposition he relied on the passage appeared in the judgment of Jurisdictional High Court at pp. 705 and 706 of 192 ITR (supra). Thus he directed the assessing officer to delete the grant of depreciation of Rs. 45,63,546 as it was not claimed by the assessee.
9. The Revenue is in appeal. Having regard to the rival submissions and in view of the decision of jurisdictional High Court cited supra, we uphold the order of the Commissioner (Appeals) on this issue. Revenue's second ground of appeal fails.
10. In the result, the appeal filed by the Revenue is dismissed.