M/S MEDI DRIPS CARRIES PVT. LTD.,KOLKATA vs. ITO, WD-12(4), KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM आयकर अपील सं./ITA No.471/Kol/2014 (�नधा�रण वष� /Assessment Year:2008-2009) M/s Medi Drips Carries Pvt. Ltd Vs. ITO, Ward-12(4), 8th Floor, R.No.818, P-7, Chowringhee Square, 4, Synagogue Street, Aayakar Bhawan, Kolkata-700001 Kolkata-700069 �थायी लेखा सं./जीआइआर सं./PAN/GIR No.: AABCM 8139 Q .. (अपीलाथ� /Appellant) (��यथ� / Respondent) Assessee by : Shri Ashish Rustogi, ACA Revenue by : Shri Saurav Kumar, JCIT सुनवाई क� तार�ख / Date of Hearing : 01/03/2017 घोषणा क� तार�ख/Date of Pronouncement 08/03/2017 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Assessee pertaining to Assessment Year 2008-09, is directed against the order passed by ld. CIT(A)-XII, Kolkata, in Appeal No.490/XII/12(4)/10-11, dated 11.11.2013, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 28.12.2010. 2. The said captioned appeal filed by the Assessee is time barred by four days. The Assessee filed the petition for condonation of delay and expressed the reasons of delay. After verification of petition we found that there was a reasonable cause for four days delay in filing the appeal. Even ld DR did not object to condone the delay. Therefore, we condone the delay and admit the appeal for hearing. 3. Brief facts of the case qua the assessee are that the assessee company filed its return of income on 30.09.2008. Subsequently the

2 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. assessee company filed its revised return of income on 9-12-2008

showing total loss at Rs.3,19,09,797/-. The assessee’s case was selected

for scrutiny u/s.143(3) of the Act and the AO has completed the

assessment by making various additions including addition u/s.115JB of

the Act, 1961 for purpose of computation of book profit. While computing

book profit u/s.115JB, the assessee claimed negative adjustment of

Rs.5,54,25,156/- under the head profit ‘due to change in method for

providing depreciation’ and computed its book profit at Rs.(-)

3,27,69,574/- as follows:

Particulars Amount in Rs. Net profit shown by assessee 2,26,55,582 Less: Profit due to change in method of Depreciation from 5,54,25,156 WDV to SLM Book profit (Net loss computed by the assessee) U/s 115 JB (-)3,27,69,574 of the Act.

The main plea of the Assessing Officer was that the negative adjustment

done by the assessee in the net profit of Rs. 2,26,55,582/- which is

computed by the assessee as per provisions of Companies Act, 1956

(Now Companies Act 2013) applying Accounting Policies, Accounting

Standards, the method and rates adopted for calculating depreciation

shall be the same as have been adopted for the purpose of preparing

such accounts including profit and loss and which is approved by the

Shareholders in Annual General Meeting. That is, the net profit approved

by the shareholders in AGM can not be changed except by the

adjustments given in section 115JB of the Act. The adjustment done by

the assessee “profit due to change in method of providing

depreciation” , is not mentioned in section 115JB of the Act. That is, the

3 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. profit generated due to change in the method of providing depreciation,

from WDV to SLM of Rs.5,54,25,156/-, is not an item of adjustment U/s

115JB of the Act to compute the book profit. Therefore, the Assessing

Officer held in his assessment order that the assessee has claimed the

negative adjustment to the net profit of the company to arrive at book

profit, without any sanction of law and hence the assessee`s claim for

negative adjustment amounting to Rs.5,54,25,156/- is disallowed and

added to the income of the assessee while computing book profit for

calculation of tax U/s 115JB of the I.T. Act,1961. This way, the Assessing

Officer disallowed Rs. 5,54,25,156/- for computation of book profit and for

calculation of tax U/s 115JB of the Act.

The AO noted that Section 115JB of the Act enacted as a special

provision that payment of tax by certain companies, and the adjustment to

book profit by a company is strictly governed by adjustment provided

therein. That is, once the net profit or loss of the company, which is

computed as per provisions of the Companies Act and approved in the

AGM by shareholders, then only adjustments permitted by section

115JB may be made to arrive at book profit. The profit due to change in

method of providing depreciation is not an item for adjustments for the

purpose of section 115JB. As there is no provision for adjustment in

Section 115JB, on account of profit due to change in method of

providing depreciation, therefore, the assessee is not entitled to adjust

the amount of Rs.5,54,25,156/-.

4 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. Therefore, by following the provisions given in Section 115JB of the Act,

the AO computed the book profit as follows :-

Book profit as computed by the assessee (-) Rs.3,31,35,749/- Add: Adjustment on account of change of Depreciation method Rs.5,54,25,156/-

Assessed book profit as per section 115JB Rs.2,22,89,407/-

an appeal before the ld. Commissioner of Income Tax (Appeals), who has

confirmed the order passed by the AO observing the followings :-

Now, regarding computation under sec. 115JB, book profit is to be determined adopting the net profit as per profit and loss account after the positive and negative adjustments. Depreciation debited to profit and loss account shall be added back. However, depreciation (not being depreciation which arises because of revaluation of assets) shall be deducted. The cumulative impact of the addition and deduction is that book profit will be increased by depreciation (pertaining to revaluation of assets). Some relief is available if there is a withdrawal from the revaluation reserve account and it appears on the credit side of the profit and loss account. However, in the following two cases, the Assessing Officer can re-write the profit and loss account - (i) If profit and loss account is not prepared according to the Companies Act - If it is discovered that the profit and loss account is not drawn up in accordance with the provisions of Parts II and III of the Sixth schedule to the Companies Act, the Assessing Officer can recalculate the net profit. In a case where there is no allegation of fraud or misrepresentation but only a difference of opinion as to the question whether a particular amount should be properly shown in the profit and loss account or in the balance sheet, the provisions of section 115JB do not empower the Assessing Officer to disturb the profit as shown by the assessee. (ll) If accounting policies, accounting standards or rates or method of depreciation are different - According to the first proviso to section' 115J8(2) the accounting policies, the accounting standards adopted for preparing such accounts, the method and rates of depreciation which have been adopted for preparation of the profit and loss account laid before the annual general meeting, should be followed while preparing profit and loss account for the purpose of computing book profit under section 115JB.

5 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. It may be noted that some companies follow an accounting year under the Companies Act which is different from financial year (i.e., previous year ending March 31) under the Income-tax Act. These companies generally prepare two sets of accounts - one for the Companies Act and another for the Income Tax Act. Different accounting policies/standards, and method or rate of depreciation are adopted in two sets of account so that higher profits is reported to shareholders and lower profit is disclosed to lax authorities. It is in order to curb the aforesaid practice, it has been provided that accounting policies, accounting standards, depreciation method and rates of depreciation for two sets of account shall be the same. In case it is not so, the Assessing Officer can recalculate net profit after adopting the same accounting policies, accounting standards and depreciation method and rates which have been adopted for reporting profit to shareholders.

In the case of Srinivas Synthetic Packers P Ltd (Agra Bench) 122 TT J page 832 referred to by the appellant, clearly, the only issue arising for adjudication in the present appeal by the Revenue is whether the deletion of the addition in the sum of Rs. 15,03,991, being the amount of provision for depreciation for earlier years written back in its accounts for the year by the assessee on the basis of it having been charged to the revenue in excess (for those years), to the amount of "book profit", in computing its tax liability under s. 115JB of the IT Act, 1961 ('the Act' hereinafter), is correct in law or not. The Hon'ble Tribunal decided the question in favour of assessee. However, I am of the view that the facts of the present case are distinguishable from the facts of the said case. In the case in the case Gilt Pack Ld (M P High Court) reported in of 209 CTR 405, the Hon'ble High Court had concluded that "Upon change of method of depreciation, depreciation under new method can be claimed prospectively only from the date the change has been effected and the arrears of depreciation cannot be deducted for the purpose of computation of book profit under s. 115J."

In CIT v. Steriplate (P) Ltd.(2011) 338 ITR 547(P&H), it has been held that by virtue of c1.(i) of Explanation 1 to sub s. (2) of s. 115JB,as inserted by Finance (No.2) Act, 2009 retrospectively from 1 st April, 2001, any amount set aside as provision for dimunition in the value of any asset would not reduce the book profit of an assessee for assessment year 2002-03. In the case of Indo Rama Synthelics(J) Ltd. vs. ClT (2010) 320 ITR 340(Del), it has been held that in view of proviso to cl. (i) of Explanation to s.115JB, the amount withdrawn from the revaluation reserve and credited to P&L Account is to be included while computing book profit in case the amount of such reserve was not added back by the assessee in the year when it increases the revaluation reserve. In the same case in (2011) 330 ITR 363(SC), the Hon'ble Supreme Court held that where the assessee had revalued its fixed assets in the earlier year and in the relevant year and amount representing differential depreciation was transferred out of the said revaluation reserve and

6 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. credited to the P&L Account, the amount transferred from the revaluation reserve to the P&L Account could not be reduced for computation of book profit as the amount of such revaluation reserve had not gone to increase the book profits in the earlier year when it was created. Considering the facts of' the case, and the merging legal position from the cases cited above, I am of the view that the claim of the appellant company for the negative adjustment to the net profit of the company to arrive at book profit amounting to Rs.5,54,25,265/- has been rightly disallowed and added to the income of the appellant while computing book profit for calculation of tax u/s 115JB of the I.T. Act, 1961. Therefore, the action of the Assessing Officer in this regard is confirmed.

7 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. 7. For that on the facts and circumstances of the case the order of the CIT(A) be modified and the assessee be given the relief prayed for. 8. For that the assessee craves leave to add, alter or amend any ground before or at the time of hearing.

grounds of appeal but at the time of hearing the solitary grievance of

the assessee has been confined to the issue that the AO and ld.

CIT(A) did not allow the assessee to reduce the surplus of

Rs.5,54,25,156/- arising out of change in method of providing

depreciation from Written Down Value (WDV) to Straight Line Method

(SLM). Ground No.2 is not pressed by assessee.

6.1 Ld. AR for the assessee submitted before us that ld CIT(A) did not

allow the assessee to make the adjustment on account of surplus of

Rs.5,54,25,156/- which arose due to change in method of providing

depreciation from WDV to SLM. The Ld.AR for the assessee has pointed

out that the change in the method of providing depreciation is

retrospective in nature and in the case of the assessee under

consideration, the depreciation includes a surplus of a number of years

which has been reflected in one particular year in the books of account,

and thus cannot be subject to tax in one particular year. The entire profit

of Rs.5,54,25,156/-, because of change in method of providing

depreciation has not accrued in one particular year and it has financial

effect for number of years. If the assessee followed the same method,

then the assessee company would not have earned surplus of

Rs.5,54,25,156/-, there was no impact of payment of MAT. Such addition

8 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. was not offered for taxation under MAT under section 115JB of the

Income Tax Act, 1961 by the assessee, as the addition was due to

retrospective adjustment and did not reflect book profit for the particular

year.

In addition to this, the ld. AR for the assessee has relied on the following

judgments :-

i)Gilt Pack Ltd., 163 Taxman 331 ( MP-HC)

“It was observed that the provisions of s. 205(1), cl. (b) of the first proviso to the Companies Act stand statutorily incorporated in the IT Act and, therefore, in order to work out the book profit, the loss and depreciation has to be worked out in terms of the Companies Act and thereafter, set off has to be made of whichever is less. In this connection, we may usefully refer to the decision of apex Court in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC). In the said case, the Supreme Court has observed that the AO while computing the book profit of a company under s. 115J of the IT Act, 1961, has only the power of examining whether the books of accounts are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act and thereafter, the AO has the limited power of making increases and reductions as provided for in the Explanation to s. 115J of the IT Act. It has specifically been laid down that the AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s. 115J.” 8. In the controversy raised before us, learned senior counsel appearing for appellant has raised a solitary question as to whether the change in the method of depreciation will disentitle the assessee to claim the amount worked out in accordance with such change. Learned senior counsel submits that since the deduction was claimed on the ground that the depreciation was worked out in accordance with the WDV in departure from earlier method of straightline, the Tribunal was bound to allow the said amount as depreciation. Learned senior counsel has further submitted that insofar as applicability of the case of Krishna Oil Extraction Ltd. (supra) is concerned, since the said case relates to the maintenance of accounts of a company in accordance with the Companies Act, the said decision has no relevance. 9. Insofar as the question No. 1 is concerned, we have already referred to the decision in Krishna Oil Extraction Ltd. (supra) and

9 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. the Apollo Tyres (supra). We are of the view that since the controversy has been narrowed down, as stated hereinabove, the first question relating to the applicability or otherwise of the decision of Krishna Oil Extraction Ltd. (supra) to the facts of this case, is not relevant and, therefore, the same is answered in favour of the appellant/assessee. 10. Coming to the second question as to whether the Tribunal was justified in disallowing the claim of the assessee pertaining to the depreciation of Rs. 9,70,663, learned senior counsel has placed heavy reliance on the decision of Bombay High Court in Kinetic Motors Co. Ltd. vs. Dy. CIT (2004) 186 CTR (Bom) 534. The question before the Bombay High Court was whether it was open to the AO to make adjustment to the book profit beyond what is authorised by the definition given in Explanation to s. 115J of the IT Act. It was observed that if the accounts are prepared and certified in accordance with Part II and Part III of Sch. VI to the Companies Act, 1956, the AO thereafter has limited powers of making increases and reductions as provided for in the Explanation to s. 115J. The Bombay High Court in the said decision was considering the following two questions : "(1) Whether in view of specific definition of the expression 'book profit’ given in Explanation to s. 115J (1) of the IT Act, it is permissible for the AO to make adjustments to the book profit beyond those authorised by the definition and to recast the P&L a/c ?

(2) Whether, on the facts and in the circumstances of the case, the Departmental authorities and the Tribunal were justified in rejecting the amount of depreciation actually debited to the P&L a/c admittedly prepared in accordance with Parts II and III of Sch. VI to the Companies Act, 1956, and in holding that the assessee ought to have provided depreciation on the same basis as adopted in the earlier years ?" 11. After answering the question No. 1, though the High Court of Bombay observed that question No. 2 had become academic, it observed that under the Companies Act, 1956, both straightline method and WDV method were recognised. The observations contained in para 11 of the judgment read as under :

"11. In view of our answer to question No. 1, question No. 2 becomes academic. It is not in dispute that under the Companies Act, 1956, both straightline method and WDV method are recognised. Therefore, once the amount of depreciation actually debited to the P&L a/c is certified by the auditors, then, as per the decision of the apex Court in the case of Apollo Tyres Ltd. (supra), question No. 2 has to be answered in the negative and in favour of the assessee."

10 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. 12. We may, at this stage, refer to the decision of the Supreme Court in the case of Karnataka Small Scale Industries Development Corpn. Ltd. vs. CIT (2003) 179 CTR (SC) 1 : AIR 2002 SCW 4926. It has been observed that had s. 115J not been introduced, the assessee would have been entitled under the provisions of ss. 32(2), 32A(3), 72(1)(iii), 73, 74, 74A(3) and 80J to carry forward only unabsorbed depreciation allowance under s. 32. It was observed that once the depreciation was allowed in the previous year, it was not open to the assessee to claim reduction with regard thereto for determining whether the total income should be quantified under s. 115J(1). 13. In view of the above decision of the Supreme Court, with great respect, we differ from the decision of Bombay High Court in Kinetic Motors Co. Ltd. (supra) insofar as it holds that the straightline method can be bypassed to switch over to the method of WDV with retrospective effect. We are of the considered view that though under the Companies Act, the assessee has the option of adopting straightline method and WDV method for claiming depreciation, the change from one method to another has to be prospective. Under these circumstances, our answer to the question No. 2 is that the depreciation, upon change of method, can be claimed prospectively only from the date the change has been effected. 14. In view of the foregoing discussion, this appeal is disposed of with no orders as to costs.

ii) Srinivas Synthetics Packers (P) Ltd. (2009) 122 TTJ 832 ( ITAT Agra Bench)

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 the changed method of accounting with respect to depreciation and, therefore, though not non-suiting the assessee's claim, i.e., at the threshold, however, would not operate to circumvent the

11 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. 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 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. 6.4. However, we may also clarify that the aforesaid interpretation, for which we have considered the provision, its intent, and its clarification by the CBDT, so as to accord it a purposive interpretation, would be subject to a qualification, i.e., the write back of the provision is genuine. In the present case, no reservation stands expressed by the Revenue in this regard, and the assessee has 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 (s. 211 of the Companies Act, 1956). iii) Reference is also drawn to the case of CIT vs. Krishna Oil Extraction Ltd. (1998) 150 CTR (MP) 131 : (1998) 232 ITR 928 (MP).

In this case, the Madhya Pradesh High Court has clearly held that Prior period depreciation and expenditure are not allowable deduction while computing book profit under s. 115J of the IT Act, 1961, rlw s. 205(1), proviso (b) of the Companies Act, 1956. Same ratio was laid down in the Gilt Pack case discussed in detail above.

iv) CIT vs Harprasad & Co. Pvt Ltd 1975 CTR (SC) 65

"From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains'

12 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. represent 'plus income' whereas losses represent' minus income'[CIT vs. Karamchand Premchand Ltd. 1960) 40 ITR 106 (SC) ,CIT vs. Elphinstone Spg. & Wvg. Mills Co.Ltd. (1960) 40 ITR 142 (SC)]. In other words, loss is negative profit, both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of taxable income of the assessee."

6.2 On the other hand, Ld. DR for the Revenue has primarily

reiterated the stand taken by the Assessing Officer, which we have

already noted in our earlier para and is not being repeated for the sake of

brevity. In addition to this, the ld DR for the Revenue has pointed out that

where the annual accounts of the company including profit and loss

account has been prepared as per Companies Act and approved by the

shareholders in AMG, then the assessee, for the purpose of computing

book profit U/s 115JB, can do only those adjustments, which is expressly

provided by section 115JB. Since the “ the notional profit credited by the

assessee in profit and loss account Rs.5,54,25,256/-“, is neither fall in

ADD ITEMS nor in LESS ITEMS of explanation 1 of sub-section 2 of

section 115JB, therefore no any adjustment can be done for the purpose

of computing Book Profit of the assessee.

6.3. Having heard the rival submissions, perused the material on record,

we are of the view that there is merit in the submissions of the Ld DR for

the Revenue. As Ld. DR for the Revenue has clearly pointed out that first

of all the ‘profit due to change in method of depreciation from WDV to

SLM’ is not subject matter of adjustments u/s.115JB of the I.T.Act. Let us

take an example to understand the entire gamut of issue under

consideration. Say, a Company purchased fixed assets Rs.1000/- on April

13 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. 1 2005 and decided to follow WDV@10%. The Company has changed

the method of providing depreciation from WDA to SLM on March

31,2010.

Table A: Depreciation From April 1, 2005 to March 31, 2010, by following WDV @ 10%.

Year Opining WDV Depreciation Closing WDV 2005 1000 100 900 2006 900 90 810 2007 810 81 729 2008 729 73 656 2009 656 66 590 2010 590 59 531 Total depreciation 469

Table B: Had the Company followed SLM for providing depreciation then

total depreciation from April 1, 2005 to March 31, 2010, would have been

( @10%) as follows:

Year Opining WDV Depreciation Closing WDV 2005 1000 100 900 2006 900 100 800 2007 800 100 700 2008 700 100 600 2009 600 100 500 2010 500 100 400 Total depreciation 600

(i) If the Company changes the method for providing depreciation from WDV to SLM, then there would be gain of (Rs. 600 – Rs. 469) Rs.131 (ii) If the Company changes the method for providing depreciation from SLM to WDV, then there would be loss of (Rs. 469 – Rs. 600) Rs.(-)131

Scenario 1

If the Company changes the method for providing depreciation from WDV

to SLM, in that case there will be gain of Rs.131/-. This gain, the company

credits in the profit and loss account. It is to be noted that because of this

14 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. notional gain, which is not accrued to the company, the net profit of the

company would be increased by Rs.131/-. But this is not an item for

adjustment under explanation 1 of sub-section 2 of section 115JB of

the Act.

Scenario 2

If the Company changes the method for providing depreciation from SLM

to WDV, in that case there will be loss of Rs.131/-. This loss, the company

debits in the profit and loss account. It is to be noted that because of this

notional loss, which is not an obligation for the company to pay outsiders,

the loss of the company would be increased by Rs.131/-, that is, the net

profit of the company to the extent of Rs.131 would decrease. But this is

not an item for adjustment under explanation 1 of sub-section 2 of

section 115JB of the Act.

Both these adjustments ( increase in profit by Rs. 131 and decrease of

profit by Rs. 131) due to change in method for providing depreciation are

not the subject matter of Explanation 1 of sub-section 2 of section 115JB

of the Act.

At this juncture it is appropriate to refer Section 115 JB of the I.T. Act

which reads as under: “SECTION 115JB:Special provision for payment of tax by certain companies. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income- tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012 is less than eighteen and one-half per cent of its book profit,such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on

15 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,— (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company:] Provided that while preparing the annual accounts including profit and loss account,— (i) the accounting policies; (ii) the accounting standards followed for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956)……………….. Explanation —For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by— (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC ]; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which section 10 other than the provisions contained in clause (38) thereof or section 11 or section 12 apply; or] (fa) the amount or amounts of expenditure relatable to, income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86; (fb) the amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,— (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (fc) the amount representing notional loss on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47; or]

16 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. (fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or";] (g) the amount of depreciation,] (h) the amount of deferred tax and the provision therefor, (i) the amount or amounts set aside as provision for diminution in the value of any asset, [(j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, or if any amount referred to in clause (j) is not credited to the profit and loss account and as reduced by,—] (k) the amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred, to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be;] (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below second proviso to section 115JA, as the case may be; or] (ii) the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof)]] or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or (iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or (iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or] (iic) the amount of income, being the share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86, if any such amount is credited to the profit and loss account; or (iid) the amount of income accruing or arising to an assessee, being a foreign company, from,— (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if such income is credited to the profit and loss account and the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (iie) the amount representing,— (A) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or

17 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. (B) notional gain resulting from any change in carrying amount of said units; or (C) gain on transfer of units referred to in clause (xvii) of section 47, if any, credited to the profit and loss account; or *(iif) the amount of loss on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time o exchange where such shares are carried at a value other than the cost through profit or loss account, as the case"may be; or"]may be;] (iig) the amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF;";] (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.”

On analysis of Explanation 1 of sub-section (2) of Section 115JB, we find

that “Profit due to change in method of providing depreciation” is not an

item of to be added and deducted to compute the book profit. This is also

indicative of the fact that the legislative intention is not to grant all

the reliefs which the assessee-company would have been entitled to

in the computation of its total income under the normal provisions of

the Act, while computing the income under s. 115JB of the Act. That

is, the assessee cannot claim other normal relief under section 115JB.

The assessee may claim the relief for “Profit due to change in method of

providing depreciation” in normal tax computation, but not under section

115JB, because section 115 JB is a separate code to compute the book

profit. Section 115JB is a special provision relating to companies and it

starts with a non obstante clause and it says that notwithstanding

anything contained in any other provision of this Act………Therefore,

Section 115JB contains the procedure to compute book profit and

other provisions of I.T.Act do not apply to compute the book profit.

The scheme of section 115JB says that a company prepares the

annual accounts including profit and loss account in accordance with

18 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. provisions of Part II of Schedule VI to the Companies Act 1956 ( Now

Companies Act 2013), and said profit and loss account is approved by

the shareholders in AGM. The profit and loss account so approved by

the shareholders in AGM, then the net profit of the said profit and loss

account, is to be increased and reduced by the items which is given in

explanation 1 to sub-section 2 of Section 115JB. Further the

explanation 1 to sub-section 2 of Section 115JB is exhaustive in

nature, which reads as: “For the purpose of this section, ‘Book

Profit’ means……. Therefore, what is given in explanation 1 is to be

taken into account.

Therefore, based on the analysis of section 115JB of the Act, it

appears to us that “Profit due to change in Method for providing

depreciation Rs.5,54,25,156/-“ is not eligible for adjustment

under section 115JB of the Act, because this adjustment is nowhere

mentioned in Explanation 1 to Sub –section (2) of Section 115JB of

the Act.

The ld AR for the assessee has relied on judgment of Hon`ble M.P. High

Court in Gilt Pack Ltd, 209 CTR 405 ( MP-HC) which is against the

assessee and in favour of Revenue. The Judgment clearly says that

change from one method of providing depreciation to another method has

to be prospective, therefore the assessee can not do this adjustment to

compute book profit.

19 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. The ld AR for the assessee has also relied on judgment of Agra ITAT in

Shrinivas Synthetics Packers (P) Ltd, 122 TTJ 832. The facts of the said

case is different from the facts of the assessee`s under consideration.

The facts of the case in Shrinivas Synthetics Packers (P) Ltd (supra) was

that 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. Para 6.3 of the said

judgment clearly says that 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. Therefore, this case law does not assist

the assessee`s case under consideration because facts of this case is

totally different from assessee`s case.

Therefore, in the assessee`s case under consideration, we rely of the

Supreme Court Judgment in Appollo Tyres ,255 ITR 273 (SC), Gilt Pach

Ltd.209 CTR 405 (MP) and Krishna Oil Extraction Ltd. (MP) 232 ITR 928

(MP). All these judgments clearly say that an assessee cannot make an

20 ITA No.471/Kol/2014 M/s Medi Drips Carries Pvt. Ltd. adjustment on account of “Change in method of providing depreciation”

for the purpose of Explanation 1 of Sub-section (2) of Section 115JB of

the I.T. Act.

Therefore considering the factual position and precedents cited above, we

are of the view that assessee under consideration cannot make an

adjustment for “Profit due to change in method of providing depreciation”

for the purpose of explanation 1 of sub section (2) of Section 115JB of the

I.T. Act. Therefore, we confirm the order passed by ld.CIT(A). 6.4 In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on this 08/03/2017.

Sd/- Sd/- (N.V.VASUDEVAN) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 08/03/2017 �काश �म�ा/Prakash Mishra,Sr.PS. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant-M/s Medi Drips Carries Pvt. Ltd. 2. ��यथ� / The Respondent.- ITO, Ward-12(4), Kolkata 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT आदेशानुसार/ �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. BY ORDER, 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, कोलकाता / ITAT, Kolkata