VERSATILE CARD TECHNOLOGY PRIVATE LIMITED ,SIDCO,CHROMEPET,CHENNAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, CHENNAI-3, INCOME TAX OFFICE, MAIN BUILDING - IV FLOOR, NUNGAMBAKKAM, CHENNAI

7. The appellant prays for leave to add, alter, amend or modify any or all the grounds at any time before or at the time of hearing.”

4. Subsequently, the PCIT noticed that the assessee credited an amount of Rs.5,22,15,905/- to the ‘Reserves and Surplus’ account in the balance sheet on the ground that it represented ‘excess depreciation’ provided in the earlier years but reversed during this year. The PCIT was of the opinion that while computing the book profits under section 115JB, the reversal of such excess depreciation provided in the earlier years should have been added and therefore issued show cause notice dated 25.03.2024 under section 263 requiring the assessee to file reply on or before 28.03.2024. The assessee submitted reply dated 28.03.2024 stating that this issue was examined by the Assessing Officer and the assessee had filed reply dated 21.02.2022, in which it was pointed out that from AY 2005-06 to 2015-16, the assessee was liable to pay tax under section 115JB only for AYs 2005-06 and 2013-14 and for the other AYs the tax was paid under the normal provisions of the Income- tax Act. The assessee filed chart from AY 2005-06 to :-4-: ITA. No: 1392/Chny/2024 2015-16 and pointed out that only Rs.2,24,868/- relating to AY 2005-06 and Rs.30,07,848/- relating to AY 2013-14 totalling to Rs.32,32,716/- was the excess depreciation provided, reversed in this year and the same could be added for determining the book profits under section 115JB as per the decision of the Honourable Mumbai ITAT in the case of M/s.Rational Handloom Pvt. Ltd. and submitted a copy of the decision. However, the PCIT passed an impugned order on 30.03.2024 directing the assessing officer to add Rs.5,22,15,905/- under section 115JB and enhance the assessment and the same is contested in this appeal.

5. The Ld.AR of the assessee stated that the amount of Rs.5,22,15,905/- is reversed during the year due to amendment in Companies Act 2013 w.e.f. relevant AY in respect of computation of depreciation and hence assessee had changed the method of depreciation from straight line model to Life of the asset model as provided in the Companies Act 2013.

:-5-: ITA. No: 1392/Chny/2024 1. The reason for crediting Reserves & Surplus: a. It's not a transaction surplus and indeed it is profit and loss appropriation item only for the purpose of Companies Act. b. It is a book adjustment item to Fixed Assets / Property, Plant & Equipment as prescribed in companies Act 2013 as per section 123(1)(a) and section 123(2) read with schedule II. c. Explanation (iii) to Section 115JB(2C)- Transition amount does not include - adjustments relating to items of Property, Plant & Equipment recorded at Fair value d. In our instant case, the book values are aligned to market/fair value based on the revised useful life of the assets.

3. Provision vs. Reserve Adapted/ Reference: ACIT vs. Srinivas Synthetics P Ltd (ITAT Agra) ITA286 (2005) With reference to the return for each of the eleven preceding years (from AY 2005-06 to AY 2015-16), shown that the tax for those years stood computed under the regular provisions for nine out of eleven years, even as the MAT provision (Section 115JB) was applicable for the said nine out of eleven years, implying that there has been no claim of tax reduction qua the amount of book profit represented by the excess depreciation relating to those years, i.e., as now written back. The amount written back as excess depreciation provided in earlier years is from accumulated provision for depreciation. In this regard, we would firstly state that as distinct from a reserve, which represents only an appropriation of profits, so that it stands necessarily included in the :-7-: ITA. No: 1392/Chny/2024 book profit of the relevant year, i.e., in which it is created. A provision is, by definition, an amount set aside out of the profits/surplus to provide for any liability, the amount of which cannot be ascertained with accuracy, or toward depreciation in the value of the assets, i.e., in respect of diminution in the value of the assets on account of wear and tear, obsolescence, etc. A provision, thus, leads to a reduction in the profits for the relevant year.

4. Two out of 11 years under 115JB The only meaningful way to harmonize this apparent anomaly discussed above is to increase the book profit of the relevant year(s); the provision of s. 115JB being applicable, by the amount of write back. To the extent the same does not lead to invocation of section 115JB, the amount written back can be validly reduced from the current year's profit, the balance not, as it would, if added to the book profit for that year, result in book profit tax, which stands not paid.

:-8-: ITA. No: 1392/Chny/2024 For this reason, the assessee vide letter dated 28/03/2024 had attached workings for past eleven years verifying the applicability of Section 115JB. The workings clearly represents that only two years (AY 2005-06 and AY 2013-14) book profit is greater than taxable income for which the assessee had already offered in the above said letter.

:-9-: ITA. No: 1392/Chny/2024 Assessment Written back Tax Effect year Depreciation 2005-06 224,868 17,633 2013-14 3007,848 601,803 Total 619,436 The detailed workings are submitted to AO and further submitted to PCIT along with written submissions dated 28/03/2024. The assessee is recognising the above tax effect in the books of accounts during the year ended 31/03/2024.

7. Per contra, the ld.DR stated that the assessee had credited the excess depreciation of the earlier years to the “reserves and surplus” in the balance sheet instead of routing through the P & L Account and hence the PCIT is rightly invoked the provisions of section 263 and prayed for dismissing the appeal of the assessee.

:-11-: ITA. No: 1392/Chny/2024 (i) the order of the Assessing Officer should be erroneous and (ii) it should be prejudicial to the interest of the revenue, These conditions are conjunctive. In the instant case, there was nothing erroneous and prejudicial. An order of assessment passed by the Assessing Officer should not be interfered with only because another view is possible as held in the case of Malabar Industrial Company Ltd Vs.CIT (243 ITR 83) (SC) and CIT Vs. Green World Corporation (314 ITR 81)(SC).

From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of 'substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous……………… . There must be some prima facie decision is held to be erroneous material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statue on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed...

“2. The records related to the assessment dated 15.03.2022 were perused. It is seen from the Schedule No.2, Schedules forming part of Balance sheet, under the Head Reserves and surplus, assessee had added Rs.5,22,15,905/- to the statement of P&L Account of Reserves and surplus, stating excess depreciation provided in earlier years now reversed. As depreciation claimed in the books is allowed as deduction while computing the book profits u/s 115JB, reversal of such provision already claimed and allowed by the assessee has to be offered to tax. As the assessee has been taxed u/s 115JB, the reversal of excess depreciation should have been Credited to P&L Account and brought to tax, :-13-: ITA. No: 1392/Chny/2024 One of the main purpose reopening is to address this issue of direct credit to the Reserves and Surplus and without routing through the profit and loss account. You have filed reply dateaz2.02.2022 in the re-assessment proceedings stating that prior to AY 2016-1 7 the assessee claimed depreciation under straight line method; however, as per the companies Act, 2013, it was changed to life of the asset model. Hence, as per AS6of ICAI, the deficiency or surplus arising from retrospective computation of depreciation as per SLM and useful life of the assets has been adjusted in the retained earnings of earlier years.

3. However, as per the Accounting standards issued by the Institute of Chartered Accountants of India and GN(A)35 - Guidance note on accounting for depreciation In companies in the context of Schedule II to the Companies Act, 2013, recognizing and presenting the tax effect of an income in a manner which is different from the manner in which income itself has been recognized and presented is contrary to the generally accepted accounting principles.

:-14-: ITA. No: 1392/Chny/2024 14. The auditor ought to have added this amount in Form 29B while computing the book profit u/s 115JB of the Income-tax Act 1961 which he had failed to do and the Assessing Officer also failed to take this in to account.

15. It is seen after the show cause notice, the assessee has accepted the accounting position but stated that since only two years in which the assessee has paid taxes u/s 115JB of the Income-tax Act, 1961, the same may be disallowed.

4. Upon assessee's appeal learned CIT(A) noted the assessee's submission as under :-

1. 1. Even if the Appellant had charged depreciation on straight line method as provided in Companies Act, 1956 and as charged for the Asst Year 2011-12, The Appellant was not required to pay MAT under section 115 JB for any previous assessment years from 2001-02 to 2011-12.

2. This change in depreciation method was as per Accounting Standard - 6 (AS-6) issued by The Institute of Chartered Accountants of India.

3. The annual accounts were prepared as per accounting standards issued by the ICAI having statutory recognition under sec 211 of the of the Companies Act, 1956.

4. The learned assessing officer has not raised any doubts genuineness of change in method of charging depreciation from written down value under Income Tax Act to straight line method under Companies Act.

5. The change in accounting policies regarding depreciation was duly reported in Annual Accounts as per note no 2 of Schedule 13, forming part of the Balance Sheet and Profit & Loss Account.

:-18-: ITA. No: 1392/Chny/2024 6. The Annual Accounts were duly approved by Board of Directors on 05/09/2011 and subsequently duly adopted by share holders in Annual General Meeting.

8. The Appellant has written back the excess depreciation as per the provisions of The Companies Act, 1956 which is generally accepted practice of providing depreciation for Companies.

9. The Honourable IT AT Agra Bench in the matter of ACIT v/s Srinivas Synthetics Packers P Limited held that: 'Coming to the facts of the present case, the learned Authorised Representative has, with reference to the return for each of the four preceding years, shown that the tax for those years stood computed under the regular provisions, even as the MAT provision (s. 115JB) was applicable for the said years, implying that there has been no claim of tax reduction qua the amount of book profit represented by the excess depreciation relating to those years, i.e., as now written back. In this regard, we would firstly state that as distinct from a reserve, which represents only an appropriation of profits, so that it stands necessarily included in the book profit of the relevant year, i.e., in which it is created, a provision is, by definition, an amount set aside out of the profits/surplus to provide for any liability, the amount of which cannot be ascertained with accuracy, or toward depreciation in the value of the assets, i.e., in respect of diminution in the value of the assets on account of wear and tear, obsolescence, etc. A provision, thus, leads to a reduction in the profits for the relevant year. The basic condition of the statute, i.e., as cast per proviso to cl. (i) of Expln. 1, is not satisfied so as to entitle the assessee the benefit of reduction of the respective provision to the extent written back. Why, in that case, the entire amount provided for could be written back in a subsequent year, claiming it as a reduction, even as the profit for the earlier year stood also reduced by the amount of the provision. So, however, and which is important there is no such charge of the write back being a subterfuge or not representing the excess provision, having been, as stated, worked out with reference to changed method of accounting with respect to depreciation and, therefore, though non-suiting the assessee's claim, i.e., at the threshold, however, would not operate to circumvent the satisfaction of the basic qualifying condition for the application of the provision. We are, at the same time, also conscious of the fact that the legislature has :-19-: ITA. No: 1392/Chny/2024 specifically provided for the reduction of the amount of withdrawal made out of the provision(s) (which, as aforesaid, by definition, only go to reduce the profits for the relevant year), so that they cannot go to increase the same, as in the case of, or in contradistinction to, the reserves, i.e., treated the two at par. The only meaningful way to harmonize this apparent anomaly is to increase the book profit of the relevant year(s); the provision of s. 115JB (or even s. 115JA) being applicable, by the amount of write back. To the extent the same does not lead to invocation of s. 115JB (s. 115JA), the amount written back can be validly reduced from the current year's profit, the balance not, as it would, if added to the book profit for that year, result in book profit tax, which stands not paid. For example, Rs. 3,68,008 written back for asst. yr. 1997-98, on its add back, results in the book profit for that year to increase to Rs. 15.39 lacs, the tax (including surcharge @ 13 per cent) on which works to Rs. 1,30,449, as against the tax liability for the year, which stands assessed at Rs. 4,32,146 (paper book pp. 16-19), so that s. 115JB does not get invoked. As such, the entire amount written back in that year (Rs. 3.68 lacs) could rightly be claimed as a reduction under the proviso to cl. (i) of Expln. 1, and so forth for the other years.' It is respectfully submitted that the facts of this case are exactly similar to the Srinivas Synthetics Packers P Limited case and as such depreciation write back of Rs 53761180.00 be reduced from the book profit as provided in cl. (i) of Expln. 1 of the Income Tax Act." The learned CIT(A)'s concurred with the above submission. He concluded as under :- "The appellant has contested the action of the Assessing Officer on the ground that the appellant has rightly taken the books profit at Rs. 5,33,28,194/- as per the Form No. 29B, u/s. 155JB of the I.T. Act, 1961. The figures of depreciation written back of the earliest years for the A.Y. 2001-02 to 2010-11 for Rs. 5,37,61,180/- are not liable to be considered for the purpose of book profit or deductible as per the clause (i) of the explanations to the provision of section 115JB. The appellant has written back the excess depreciation as per the provisions of The Companies Act, 1956 which is generally accepted practice of providing depreciation for Companies and when there was change in the depreciation method as per Accounting Standard-6 (AS-6) issued by the Institute of Chartered Accountants of India, the appellant as such reduced the provisions of depreciation of the earlier years and credited the same to the appropriation part of the profit and :-20-: ITA. No: 1392/Chny/2024 loss account i.e. credited to the profit and loss as appropriation account and the said treatment has been given as per the Guidance Note issued by the Institute of Chartered Accountants of India. The ld. AR has further submitted that the issue in the present case is fully covered by the decision in the case of the Hon'ble IT AT, Agra in the case of ACIT v/s Srinivas Synthetic Packers (P) Limited (supra) and accordingly the same is deductible from the book profit as per the clause (i) of the explanations to the provisions of the section 115JB. In this case, the Hon'ble Tribunal held as under: "Held that Explanation 1 to section 115JB is very clear. Unless it is shown that the provision written back, reduction in respect of which, in the computation of book profit, is being sought under Explanation 1 to section 115JB, having been credited to the profit and loss account for the year, had, in fact, gone to increase the 'book profit' for the relevant year, the said reduction would not be allowed. The assessee had, with reference to the return for each of the four preceding years, shown that the tax for those years stood computed under the regular provisions, even as the MAT provision (section 115JB) was applicable for the said years, implying that there had been no claim of tax reduction qua the amount of book profit represented by the excess depreciation relating to those years, i.e., as now written back. To the extent the same does not lead to invocation of section 115JA the amount written back can be validly reduced from the current year's profit, the balance not, as it would, if added to the book profit for that year, result in book profit tax, which stands not paid. The write back of the provision in the instant case was genuine. In the present case, no reservation was expressed by the revenue in this regard, and the assessee had explained it as in pursuance to the change in the method of accounting for depreciation with effect from the current year, consequent to the corresponding Accounting Standard (AS-6) (revised), the Accounting Standards issued by the ICAI having statutory recognition (section 211 of the Companies Act, 1956). Accordingly, the Commissioner (Appeals) was justified in deleting the addition." After considering the facts of the case and the stand of the AO as well as submission of the Appellant and also considering the decision in the case of ACIT v/s Srinivas Synthetic Packers (P) Limited, (supra), it is found that even the depreciation as per the changed method i.e. Straight Line Method, as prescribed under the Companies Act, 1956, which could had been charged to all :-21-: ITA. No: 1392/Chny/2024 the respective earlier assessment years, the appellant would not have been liable or required to pay the Minimum Alternate Tax [MAT] as per the provisions of the section 115JB time to time, for any assessment years of 2001-02 to 2010-11. Accordingly in view of the decision of the above referred judgment of the Hon'ble Tribunal in the case Srinivas Synthetic Packers (P) Ltd. (supra), the sum of Rs.5,37,61,180/- added to the book profit for the purpose of determination of the book profit u/s 115JB, by the AO cannot be held to be justified and therefore, the same is directed to be deleted for the purpose of book profit. Accordingly, the A.O. is directed to verify from the record with regard to the revised computation of total income for the AYs. 2001-02 to 2010-11 with the revised figure of depreciation and modify the figures accordingly. With the above observations and directions, the grounds of appeal

are to be treated as Allowed."

5. Against the above order, Revenue is in appeal before us.

6. We have heard both the counsel and perused the records. Learned Departmental Representative relied upon the order of the Assessing Officer.

7. Per contra, learned Counsel of the assessee reiterated the submissions made before learned CIT(A). He further relied upon the decision of Agra Bench of the ITAT in the case of ACIT Vs. Srinivas Synthetics Packers (P) Ltd. (122 TTJ 832).

8. Upon careful consideration, we find that identical issue has been considered by the Agra Bench of the ITAT as above. The ITAT after careful analyzing found that the entire amount written back can be claimed as a reduction under the proviso to clause (i) of Explanation (1). No contrary decision has been shown. Hence we affirm the order of learned CIT(A).”

13. Therefore, the view taken by the AO, after considering the entire details furnished by the assessee sought, obtained and duly considered during the reassessment proceedings, cannot be termed as erroneous to invoke the powers u/s.263 of the Act.

:-22-: ITA. No: 1392/Chny/2024