M/S GITA FORGING PVT. LTD. vs. COMMISSIONER OF INCOEM TAX

ITA/134/2000HC Punjab & HaryanaPHHC01036309200005 February 2020Author: MR. JUSTICE AJAY TEWARI,MR. JUSTICE AVNEESH JHINGAN6 pages
AI SummaryRemanded

What were the facts?

The assessee, M/s Gita Forging (P) Ltd., filed a return for assessment year 1990-91 showing nil income. The Assessing Officer (AO) framed an assessment under Section 115J of the Income Tax Act, 1961, at an income of ₹1,80,450, allowing depreciation only as per the Companies Act, 1956. The Appellate Authority remanded the matter for re-computation, allowing depreciation on the written down value method and for earlier years. The revenue appealed to the Tribunal, which set aside the Appellate Authority's order, holding that depreciation should be provided as per the Companies Act, 1956. This led to the present appeal before the High Court.

What did the High Court hold?

The High Court held that the question is answered in favour of the assessee. The Court relied on the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, which held that the AO, while assessing income under Section 115J, has limited power to scrutinize the profit and loss account prepared in accordance with the Companies Act. The AO cannot re-scrutinize the accounts to satisfy himself that they have been maintained in accordance with the Companies Act, nor can he embark on a fresh inquiry into the entries. The Supreme Court clarified that Section 115J mandates the company to maintain accounts as per the Companies Act, and this is lifted for the limited purpose of computing income. The AO does not have the jurisdiction to go behind the net profit shown in the P&L account, except to the extent provided in the Explanation to Section 115J. The Court distinguished the revenue's cited case, stating that the issue in the present case is whether depreciation can be claimed as per the Rules or has to be restricted as per Schedule VI to the Companies Act. The matter was remanded back to the Assessing Officer to compute the income under Section 115J in accordance with law.

What were the issues?

1. Whether the orders Annexure P-1 and P-3 are legally sustainable? 2. Whether, for determining book profit under Section 115J of the Income Tax Act, the appellant had the option to adopt depreciation rates prescribed in the Income Tax Rules, 1961, in preference to the rates prescribed in Schedule XIV of the Companies Act, 1956? 3. Whether, for the purposes of Section 115J of the Income Tax Act, depreciation had to be worked out as per Schedule VI of the Companies Act or as per the Income Tax Rules and Income Tax Act? Assessee's contention: The matter is covered in favour of the assessee by the High Court's decision in CIT v. Sona Woollen Mills (P) Ltd., which followed the Supreme Court's decision in Apollo Tyres Ltd. v. CIT. This implies that depreciation could be calculated as per the Income Tax Rules. Revenue's contention: The revenue relied on a High Court decision in CIT I, Ludhiana v. M/s Oswal Sugar Limited, arguing that the AO is entitled to adjust profit where it is not determined as per Schedule VI to the Companies Act, 1956.

Which sections of the Income-tax Act were involved?

Section 115J

AI-generated summary — verify with the full judgment below

ITA No.134 of 2000 [1]

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 134 of 2000 Date of decision: February 05, 2020 M/s Gita Forging (P) Ltd. .. Appellant v. Commissioner of Income Tax, Patiala and another .. Respondents CORAM: HON'BLE MR. JUSTICE AJAY TEWARI HON'BLE MR. JUSTICE AVNEESH JHINGAN Present: Mr. Alok Mittal, Advocate for the appellant. Mr. Rajesh Katoch, Senior Standing Counsel and Ms. Pridhi Jaswinder Sandhu, Junior Standing Counsel for the revenue.

... AVNEESH JHINGAN, J. By this common order, four appeals bearing ITA Nos. 120 and 134 of 2000, 8 of 2001 and 19 of 2002 are being disposed of as similar issue is involved. For the sake of convenience, facts from ITA No. 134 of 2000 have been taken. Following substantial questions of law have been claimed: “(i) Whether in the facts and circumstances of the case, the orders Annexure P-1 and P-3 are legally sustainable? (ii) Whether in the facts and circumstances of the case, on correct interpretation of Section 115J of the Income Tax Act for determing the book profit, the appellant had the

The order continues below.

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