Madras H.C : the Tribunal was right in law in deleting the addition of Rs. 14.30 crores excess depreciation claimed from the book profits under section 115JB of the Act even though it was claimed by virtue of the board resolution passed beyond the end of the accounting year

High Court Of Madras

CIT vs. Tidel Park Ltd.

Assessment Year : 2002-03

Section : 115JB

F.M. Ibrahim Kalifulla And B. Rajendran, JJ.

T.C. (A) No. 531 Of 2009

July  13, 2009

JUDGMENT

F.M. Ibrahim Kalifulla, J. – The Revenue has come forward with this appeal raising the following substantial questions of law :

“1. Whether on the facts and circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 14.30 crores excess depreciation claimed from the book profits under section 115JB of the Act even though it was claimed by virtue of the board resolution passed beyond the end of the accounting year ?

2. Whether on the facts and circumstances of the case, Explanation (iia) to section 115JB has retrospective effect being clarificatory in nature ?”

2. The short facts are the assessee-company changed the rates of depreciation charge in that accounting year and in the notes of annual report, it was mentioned that due to change in depreciation rate charged on the assets in the books, there was a reduction in the book profits to the extent of Rs. 14.30 crores. On being questioned, the assessee-company submitted that it had a right to claim higher rate of depreciation based on the life of the assets. There was also a resolution passed by the board of directors on July 4, 2003, for changing the existing rates of depreciation for the purpose of books depreciation. According to the Assessing Officer, inasmuch as such a resolution came to be passed on July 4, 2003, it was an afterthought, as the same was after the closure of the books of account. The Commissioner of Income-tax (Appeals) also confirmed the view of the Assessing Officer, while the Tribunal noted that the change in the method of computing depreciation from straight line method to written down value method, thereby, the amount debited was reflected in the profit and loss account, which was audited, certified and filed with the registering authority. The Tribunal, therefore, applied the ratio laid down by the honourable Supreme Court in the decision reported in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/ 122 Taxman 562 and held that the Assessing Officer, as well as the Commissioner of Income-tax (Appeals) has to accept the authenticity of the accounts submitted in accordance with the provisions of the Companies Act, which obligates the company to maintain its accounts in a manner provided by the Act, which was scrutinised and certified by the statutory auditors and approved by the company in its general body meeting and thereafter filed before the Registrar of Companies.

3. Having heard Mrs. Pushya Sitaraman, learned standing counsel for the Department/appellant and having perused section 115JB of the Income-tax Act, in particular sub-section (2), we are of the view that the reasoning of the Tribunal was well justified. Going back to sub-section (2) of section 115JB of the Income-tax Act, it can be safely held that so long as the accounts of the company are audited by the statutory auditors in accordance with the provisions of the Companies Act, in the same line of reasoning, it will have to be held that the passing of the resolution by the board of directors on July 4, 2003, was also in consonance with the provisions of the Companies Act empowering the board of directors for changing the rate of depreciation, which is beneficial to the company while working out its account which was also filed before the Registrar of Companies, in compliance with the provisions of the Companies Act. So long as the said compliance in regard to the submission of the accounts has not suffered any statutory defect, the application of the ratio laid down by the honourable Supreme Court in Apollo Tyres Ltd.’s case (supra) by the Tribunal is well justified. In so far as the issue raised based on the Explanation (iia) to section 115JB is concerned, the same will have no application inasmuch as the insertion of the said provision itself was by way of an amendment, which was introduced by the Finance Act, 2006 with effect from April 1, 2007, while we are concerned with the previous year corresponding to the assessment year 2002-03, with reference to which the said amended provision will have no application. Therefore looked at from any angle, we do not find any scope to entertain this appeal on the substantial questions raised by the Revenue.

4. The tax appeal therefore fails and is dismissed. No costs.

[Citation 334 ITR 126]

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