Commissioner of Income Tax vs Shree Synthetics Ltd.

A.R. Tiwari, J.—At the instance of the Department (CIT, Bhopal), the Tribunal has stated the case and referred the under noted question, labelled as of law, on application presented u/s 256(1) of the Income Tax Act, 1961 (for short, "the Act"), and registered as RA. No. 57/ Ind of 1994 for the assessment year 1989-90 arising out of the order dated November 11, 1993, passed by the Tribunal in ITA No. 581/Ind of 1991 :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the book profits of the assessee for purposes of Section 115J of the Income Tax Act, 1961, have to be computed by considering the unabsorbed depreciation of earlier years and thus restoring the matter to the Assessing Officer to compute the book profits in accordance with the Special Bench decision of the Commissioner of Income Tax and another Vs. Mansaram Sukhdev Gunj, ?"

The facts lie in a narrow compass.

The assessee-company filed a return of income for the assessment year 1989-90 declaring total income at Rs. 62,26,200 u/s 115J of the Act. It claimed carry forward of losses at Rs. 4,22,31,703. The Assessing Officer computed the profit u/s 115J of the Act at Rs. 1,50,35,100. It was so computed because the assessee''s income was nil for purposes of regular assessment u/s 143(3) of the Act (annexure "A"). Aggrieved by the computation of book profits as arrived at by the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). It was contended that the set off be allowed in respect of unabsorbed depreciation of the assessment year 1988-89. The Commissioner of Income Tax (Appeals) rejected the contention and confirmed the order of the Assessing Officer (annexure "B"). The assessee then filed an appeal before the Tribunal. The Tribunal set aside the order and remanded the matter to the Assessing Officer to compute the book profits in accordance with the Special Bench decision passed by the Tribunal in the case of Commissioner of Income Tax and another Vs. Mansaram Sukhdev Gunj, (annexure "C"). Dissatisfied, the Department filed an application u/s 256(1) of the Act. On this application, the Tribunal has stated the case and referred the aforesaid question for our opinion.

We have heard Shri Anand Mohan Mathur, learned senior counsel with Shri Vivek Sharan for the applicant, and Shri Goyal, learned counsel for the non-applicant.

It is brought to our notice that a similar question was considered by this court in ITR No. 8 of 1995 Commissioner of Income Tax Vs. Adoon Electronics P. Ltd., ) and was answered against the Department by order dated July 12, 1996.

We notice that the Tribunal passed the order on consideration of its decision in Commissioner of Income Tax and another Vs. Mansaram Sukhdev Gunj, where the Tribunal held as under :

"7. We have heard the rival submissions and also perused the orders of the tax authorities. The decisions cited at the Bar have also been considered. In our opinion, the assessee deserves to succeed, in the light of the Special Bench decision of the Commissioner of Income Tax and another Vs. Mansaram Sukhdev Gunj, ), and which happened to consider more or less identical arguments as have been advanced before us. The aforesaid Special Bench decision was, in fact, considered by the Bangalore Bench of the Tribunal, in the decision relied upon by the learned D. R. A combined reading of the aforesaid decisions according to us would lead to the conclusion that the assessee''s book profit for the purposes of Section 115J would have to be recomputed by considering the unabsorbed depreciation of the earlier years as well. According to the Special Bench decision, the expression ''loss'' in Explanation (iv) to Section 115J would mean ''net loss after deduction of depreciation''."

The apex court noted in M/s. Garden Silk Weaving Factory, Surat Vs. The Commissioner of Income Tax, Gujarat, Ahmedabad, , that there was a strong cleavage of opinion among the various High Courts in regard to the point in question and after consideration held as under (page 534) :

"For the reasons discussed above, we are of the opinion that the assessee-appellant firm is entitled to a carry forward of the unabsorbed depreciation computed for the assessment year 1967-68 and have it set off in its assessment for the assessment year 1968-69."

In view of the aforesaid factual matrix and legal position, it becomes luculent that the Tribunal committed no error of law in rendering the order. In our view, the Tribunal was thus justified in making the direction to the Assessing Officer in terms indicated above and incorporated in the question.

Consequently, we answer the question in the affirmative, i.e., in favour of the assessee and against the Department.

This reference thus stands disposed of in terms indicated above, but without any order as to costs. Counsel fee, however, is fixed at Rs. 750, for either side, if certified.

A copy of this order shall be transmitted to the Tribunal in accordance with law.