Commissioner of Income Tax vs Thiru Arooran Sugars Ltd.

P.D. Dinakaran, J.

Heard. The appeal is preferred against the order of the Income Tax Appellate Tribunal, Madras Bench C dated 25-7-2003 in I.T.A. 19/95. The

following substantial questions of law are raised for consideration:

Whether on the facts and in the circumstances of the case, the Incometax Tribunal is right in holding that the excess claim of depreciation

amounting Rs. 26,37,05,933 was allowable for the whole year eventhough the machinery was put to use and worked for 9 days only ?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that full depreciation is allowable without considering

the Note 4 under Schedule XIV of the Companies Act, whereby it has been clearly stated that depreciation allowable from the date of installation

and usage only ?

Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing full depreciation for whole year while

computing income and profits which would not disclose true and fair picture for the accounting period as contemplated u/s 211 of the Companies

Act ?

Precisely, the assessee-company M/s. Thiru Arooran Sugars Limited, filed its return of income for the assessment year 1990-91 on 31-12-

1990 declaring a loss of Rs. 1,67,42,610. Assessment u/s 43(3) was completed on 26-2-1993 determining the loss at Rs. 68,72,683. It was

noticed that the assessee had claimed depreciation in respect of additions to fixed assets during the year which was installed and put to use on 23-

3-1990 only for the whole year.

As per the provisions of Schedule XIV of the Companies Act, it was evident that the company was entitled to proportionate depreciation as the

machinery worked only for 9 days. Thus, there was excess claim of depreciation to an extent of Rs. 5,71,80,466 while arriving at the book profits.

Therefore, the Commissioner initiated proceedings by exercising the power u/s 263 of the Act, which enables him to call for and examine the

record of any proceedings under the Act, if he considers that the order passed by the assessing officer is erroneous, insofar as it is prejudicial to

the interest of the revenue. Accordingly, the Commissioner, exercising the power u/s 263 of the Act, by proceedings dated 31-10-1994, held that

proportionate depreciation should only be allowed in arriving at Book profits and hence, set aside the assessment completed on 26-2-1995, with a

direction to the assessing officer to recompute the total income by correctly applying the provisions of law after giving adequate opportunity to the

assessee.

3.1 Aggrieved by the order dated 31-10-1994, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Madras. But, the

Tribunal by an order dated 25-7-2003, allowed the appeal and set aside the order passed by the Commissioner (Appeals) dated 31-10-1994.

Hence, the present appeal by the revenue, raising three substantial questions of law, referred supra

All the three substantial questions of law boil out as to whether the assessee is entitled to depreciation only for a period of usage, after installing

the additions to fixed assets or for the whole year during which the additions to fixed assets were installed.

4.1 section 211 of the Companies Act contemplates that every company shall file a balance sheet giving true and fair view of the state of affairs of

the company as at the end of the financial year and the same shall be in the form set out in Form I of Schedule VI.

4.2 It is true that the depreciation of the assets of the Company shall be calculated only on pro rata basis from the date of such addition, as per

Note 4 of Schedule XIV which reads as follows:

Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or

destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the

date on which such asset has been sold, discarded, demolished or destroyed.

4.3 When an identical question came up for consideration of the Apex Court in Apollo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi, ,

whether the assessee company, while determining its net profit for the relevant accounting year as provided for arrears of depreciation in its profit

and loss account, which according to the revenue is not in accordance with Parts H and III of Schedule IV of the Companies Act, it is held as

follows (Para 8):

... The assessing officer, while computing the income u/s 115J has only the power of examining whether the books of account are certified by the

authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer, thereafter

has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing

officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account...."" (p. 280) (Emphasis supplied)

4.4 In the light of the ratio laid down in Apollo Tyres Ltd.s case (supra) we have no hesitation to hold that once the balance sheet is certified by the

authorities under the Companies Act, the assessing officer has no jurisdiction to go into the net profit shown in the profit and loss account as

reflexed in the balance sheet.

4.5 The core contention of the appellant that the assessee is entitled for depreciation only from the date of installation of usage in respect of

additions to fixed assets, but not for the whole year, therefore, is liable to be rejected and accordingly, the substantial questions of law raised for

consideration are answered against the revenue. Accordingly, the appeal is dismissed.