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Showing contexts for: revaluation of assets in The Commissioner Of Income Tax And Anr. vs M/S Rampur Distillery & Chemical Co. ... on 8 November, 2012Matching Fragments
Hon. Aditya Nath Mittal, J.
1. This income tax appeal preferred by the Commissioner of Income Tax, Bareilly under Section 260-A of the Income Tax Act, 1961 arises out of judgment and order dated 28.9.1999 passed by the Income Tax Appellate Tribunal in ITA No.4126/Del/93 relating to the assessment year 1990-91.
2. The appeal was admitted on 11.1.2007 on the questions of law as follows:-
"1. Whether on the facts and circumstances of the case, the Tribunal was justified in law in upholding the order of CIT (A) who observed that the effect of higher claim of depreciation on the revalued assets to the extent of Rs.17,26,809/- get set off against a like amount of Rs.17,26,809/- transferred from the revaluation reserve and credited to the profit & loss account, while it is not so, and depreciation on revalued asset is not permissible for computation of income under Section 115J of Income Tax Act, 1961?
5. On computation of book profit under Section 115J of the Act the assessee was asked to justify the claim of depreciation on revalued assets. The assessee filed written submissions and stated that "the depreciation of assets of revalued figures are to be allowed because in Section 115J there is nothing to disallow the depreciation on revalued figure so as to arrive at the figure of book profit".
6. The A.O. observed that in computation of book profit under Section 115-J two options are available namely whether claim of depreciation be accepted on revalued assets; and whether the loss can be taken inclusive of depreciation for the purposes of deduction under Section 205 (1) (b) of the Companies Act, 1956. So far as claim of depreciation of revalued assets, the A.O. held that under sub-section (2) of Section 205 of the Companies Act two methods are provided for depreciation namely; (1) written down value method and (ii) straight line method. Under Section 350 of the Companies Act for maintainable remuneration depreciation is calculated with reference to written down value of the assets as shown by the books of the company at the end of the financial year at the commencement of the Act, or immediately thereafter at the end of each subsequent financial year. The provisions of Section 205 (1) (b) of the Companies Act permits the company to provide depreciation either on written down value method or straight line method. Section 115J does not provide for any adjustment/ interference in the profit and loss account except under Clause (a) to (f) and clause (i) to (iii), however, the profit and loss accounts has to be made as per the provisions of Part (ii) and (iii) of the Sixth Schedule of the Companies Act, 1956 (vide Circular No.10 (1) (CL) vi /61 dated 27.9.1961), which prohibits the companies from taking the revalued figure for the purposes of calculation of depreciation. As per the circular, only written down value method and not revalued figure has to be taken in the case of revaluation of assets shown after 1956. The A.O. held that depreciation on revalued figure is not allowable for the purposes of computation of book profit under Section 115J of the Act.
"15.2 I have carefully considered the submissions of learned A.R. and I have also perused the computation of book profits made by the AO u/s 115J. As per the provisions of section 115J the computation of book profits has to be made with reference to the book profits as per the books of account as further adjusted by the additions and deductions enumerated under the Explanation to sec.115J. From a perusal of the profit and loss account for the relevant asstt. year under appeal it is seen that the appellant has debited depreciation in the books to the extent of Rs.1,32,20,584/- which also includes depreciation on revalued assets to the extent of Rs.17,26,809/-. However, it is also noticed that out of the revaluation reserve a sum of Rs.17,26,809/- has been transferred to the profit and loss account and credited to the said account. Thus the effect of higher claim of depreciation on the revalued assets to the extent of Rs.17,26,809/- gets sets off against a like amount of Rs.17,26,809/- transferred from the revaluation reserve and credited to the profit and loss account. I am of the considered view that the computation of book profits was liable to be made by the AO with reference to the book profits of Rs.2,70,88,675/- as rightly pointed out by the AO. Starting from that stage the AO should have made further adjustments, inter alia, within the meaning of clause (1) read with proviso thereto of the Explanation to Sec.115J. In terms of the said clause the book profits have to be reduced by the amount withdrawn from reserves, if any, such amount is credited to the profit and loss account. The proviso to the said clause further provides that the amount withdrawn from reserves created in any previous year relevant to asstt. year 1988-89 onwards shall not be reduced from the book profits unless the book profits of that year have been increased by those reserves. Against the aforesaid provisions, it is seen that in the case of the appellant the profit and loss account is credited by a sum of Rs.17,26,809/-. Accordingly, in my considered opinion, the appellant shall be entitled to a deduction of Rs.17,26,809/- within the meaning of clause (1) read with proviso thereto of the Explanation to Sec.115J. The AO is, therefore, directed to allow a reduction of Rs.17,26,809/- from the book profits computed by him u/s 115J."
22. Before us the learned DR had nothing to say except referring to the ground taken by the department. The learned counsel for the assessee pointed out that the treatment given by the AO in effect amounted to double addition. He relied on the order of the ld. CIT (A).
23. On a careful consideration of the facts and circumstances of the case in its entirely, we are unable to record a finding on the issue different from the one recorded by the ld. CIT (A). The object fails."
9. Shri Dhananjay Awasthi appearing for the revenue submits that the Tribunal was not justified in observing that the effect of the higher claim of depreciation on the revalued assets would get set off against the like amount transferred from the revaluation reserve and credited to the profit and loss accounts. He submits that depreciation on revalued asset is not permissible for computation of income under Section 115J of the Act. He has relied upon CIT v. SRF Ltd., (2012) 342 ITR 106 (Delhi) in which it was held after referring to the scheme of Chapter XII-B by which minimum alternate tax (in short MAT) was introduced to get over the situation whereby the companies, which were otherwise earning large profits and distributing huge amounts in the form of dividend to its shareholders were paying no tax or negligent amount of tax by virtue of deduction and exemptions made available to them under various provisions of the Income Tax Act. Relying on Indo Rama Synthetics (I) Pvt. Ltd. v. CIT, (2011) 330 ITR 363 (SC) the Delhi High Court observed that the legislature in the scheme introduced for MAT companies devised methodology whereby atleast 30% of the book profits was made taxable. In reply to the submissions as to whether depreciation can be allowed to revaluation reserve, the Delhi High Court held that where credit is made to the profit and loss accounts in the first instance at the time of creation of the reserve, the book profit would stand increased and consequently any withdrawal from the revaluation reserve would stand squared of by reducing the amount from the book profit. Since that situation did not arise in the case considered by the Delhi High Court it was held that the assessee cannot be allowed reduction in the amount and relied upon the Explanation (i) appended to Clause 115J dealing with situation, where some delinquent companies were taking advantage by reducing their net profit by the amount withdrawn from the reserve created or provision made in the same year itself, though reserve, when created was not added to the book profit. Explanation (i) was to apply to amount withdrawn from the reserves or provision only if reserves were created before April 1st, 1988. The Court did not accept the contention that it is only when the Proviso is attracted that the assessee would be disabled from seeking reduction in terms of Clause (i) to the Explanation appended to Section 115J even though reserve, when created or provision made did not get reflected in the profit and loss accounts.