COMMISSIONER OF INCOME TAX Vs. APPOLLO TYRES LIMITED

JUDGEMENT

(1.) BOTH these cases arise from a common order of the Income-tax Appellate Tribunal, Cochin Bench, in I. T. A. No. 301/Coch. of 1991. The assessment year concerned is 1988-89. The relevant accounting period ended on October 31, 1987. The Revenue sought reference of as many as 12 questions under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion of this court. The Income-tax Appellate Tribunal forwarded a statement of case dated November 30, 1993, and referred the following questions for opinion of this, court :

(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that--

(3.) THE matter arises this way. THE assessee is a public limited company. It is engaged in the business of manufacture and sale of tyres and tubes. For the assessment year 1988-89, the assessee filed its return of income on June 29, 1988. THE assessee computed the book profits for the purpose of Section 115J of the Act at Rs. 69,94,983 and 30 per cent. of the above was shown at Rs. 20,98,495. For arriving at the said figure, the assessee had shown net profit as per the profit and loss account at Rs. 69,91,306 to which it added provision for income-tax Rs. 16,00,000 and deducted two sums of Rs. 15,44,122 and Rs. 52,201 representing the amount transferred from capital reserve adjusted against depreciation and interest on post office savings bank account exempt under Section 10(15)(i) and Chapter III, respectively. THE assessing authority noted that the assessee, in arriving at the net profit of Rs. 69,91,306, made a deduction of Rs. 13,66,39,051 by way of arrears of depreciation. THE deduction of Rs. 13,66,39,051 representing the arrears of depreciation, according to the assessing authority, was not in accordance with the provisions of Part II and Part III of the Sixth Schedule to the Companies Act, 1956. According to the assessing authority, this deduction is not permissible either under Part II or under Part III of the Sixth Schedule to the Companies Act or under Section 115J of the Act. THE assessing authority has also noted that the assessee itself did not consider that the arrears of depreciation is deductible in the profit and loss account for arriving at the net profit, as is seen from the figures contained in the directors' report to the shareholders. He noted that in the said report arrears of depreciation amounting to Rs. 13,66,39,051 was shown only by way of an adjustment below the line of net profit. THE assessing authority accordingly concluded that the net profit as per accounts should be taken at Rs. 14,36,30,357. THE assessing authority made further adjustments to the same as contemplated in the Explanation to Section 115J of the Act, Thus, he added a sum of Rs. 16,00,000 being provision for income-tax and deducted Rs. 15,44,122 and Rs. 52,201 as mentioned earlier and arrived at the "book profit" at Rs. 14,36,34,034 and 30 per cent. of the above was fixed at Rs. 4,30,90,210.